something to smile about? - Euromoney Institutional Investor PLC

CFOPROFILE“The rating in itself is not acommitment of themanagement team. Ourobjective is a netdebt/EBITDA ratio ofbetween 1.5 and two by theend of 2005.“requirements. Additional free cashflow would be generated from fixedlineactivities in France (40% to 45%) andby Orange (35% to 45%). Wanadoo willaccount for less than three per cent ofthe total.The company also aimed to achievegreater strategic and financialflexibility with the aim of a net debt/EBITDA ratio of between 1.5 and two bythe end of 2005.It was an ambitious plan, admitsCombes, but the market believed in itand, as a consequence, reopened to thecompany in December 2002.France Telecom wasted no time inacting upon the new initiative andaddressing its liquidity crisis. On 11December 2002, it issued a €2.5 billion,seven year eurobond. This was followedup in January 2003 with a €5.5 billionbond which covered the refinancing ofdebt maturing in 2003. In February, thecompany secured the signing of a newthree-year syndicated credit facility for€5 billion. It was a turning point for thecompany.“The liquidity crisis that was facingus at the end of 2002 was over by February2003.” In late February, FT’sshareholders approved plans for equityissuance of up to €30 billion and onMarch 24, the company launched itslong-awaited €15bn ($15.9bn) rightsissue, representing the third tranche ofits €45bn rescue plan. Some €9bn of theissue was taken up by Erap, a publicbody that holds the industrial stakes ofthe French state, which owns 54.5% ofFrance Telecom.In its Q1 2003 results, released inApril 2003, FT achieved an EBITDA marginof 36.2% (32% 2002) and EBITDA netof capital expenditure reached 27% ofsales compared to 15% in 2002. Almostimmediately, S&P raised its long andOrange &Wanadoobuy-outsFrance Telecom is one ofthe few telecomoperators with apresence in wireless(Orange), the internet(Wanadoo), fixed-lineservices and corporatesolutions. It hasmanaged this throughan aggressiveacquisition policy whichsurfaced late in 2003,when it bought outOrange shareholdersand in February when itput forward a proposalto do the same forWanadoo shareholders.In September 2003,FT agreed to pay €7.1billion in stock to buyoutminorityshareholders in Orange– just 30 months after itshort-term corporate credit rating on FTto BBB from BBB- and A-2 to A-3 ( S&P hasjust raised its long-term outlook toBBB+). Fitch swiftly followed. For a companythat saw its credit rating go fromthe top to the bottom of the investmentgrade scale between 1996 and 2002, thiswas a tremendous achievement.“The rating in itself is not a commitmentof the management team,” saysCombe, who reemphasizes that the.company’s objective and commitmentvis a vis the financial markets is toreach a net debt/EBITDA ratio ofbetween 1.5 and two by the end of 2005.“This level of leverage will mean wehave the same leverage as a single Arated company. The rating therefore isonly a result of our commitment. Thespreads we got on our bond issue thisJanuary reflects the good assessment ofFT credit quality by the market.“It signals that the company is operatingas a normal company again andthat the market believes in FT andspun its mobilesubsidiary off.This move reflectedthe rapid return tohealth of FT and themove to reverse thedecentralised make-upof the company which,CEO Thierry Bretonclaims, did not let thegroup take maximumadvantage of thepotential synergiesacross different businesslines.“Orange is core toFT’s strategy and that iswhy we decided tobuyout Orange minorityshareholders and takeover full ownership ofthe company,” saysCombes.In February, FTlaunched a $4.9 billionoffer of cash and stockfor the remaining 29.4%of Wanadoo – itcurrently owns 71% ofthe company.Wanadoo has seen itsshares rise over 60% inthe last year andreported net income of€159 million in 2003, upfrom €30 million in2002 and it has longbeen expected that FTwould make moves tosqueeze out theminority shareholders.The deal, to befollowed by a listing ofWanadoo’s Yellow Pagesdirectory business, willenable the French Stateto reduce its stake in FTto 50% from 54.5%. ( Alaw was passed inDecember 2003allowing the FrenchGovernment to decreaseits stake in FranceTelecom. It has yet todeclare its intention todo so).The offer put forwardby the company valuesWanadoo at €13.25billion ($16.56 billion).believes in our future in telecoms. I amproud to be working for one of themain European players again.” cfCOMBES’S CAREER PATH»Michel Combes, 40, began his career atFrance Telecom in 1986 working onexternal networks and industrial andinternational affairs. In January 2003, hewas appointed CFO.»In February 2004, Combes steppeddown as non-executive director ofEurotunnel citing an increased workload atFrance Telecom.»In 1991 he was appointed technicaladvisor to the Minister of Post,Telecommunications and Space, then to theMinister of Public Works, Transport andTourism. He returned to France Telecom inJune 1995.»Combes was executive vice president ofthe Nouvelles Frontières Group fromDecember 1999 to the end of 2001.20 cf March 2004 corporatefinancemag.com