something to smile about? - Euromoney Institutional Investor PLC

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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
TREASURER’SVIEWGetting to grips withtechnology puzzlesAs a corporate treasurer how do you manage to stay abreast ofdevelopments in the world of payments and messagingstandardization? With so many different organisations enteringthe market Robert Pink decided to take stock.Hands up those who knowwhat TWIST, SWIFT, FIX,Identrus, Eleanor andRosettaNet are about.There aren’t many of you,are there? Well, let CF explain. They areall organisations pushing for standardizedmessaging in the corporate andbanking spheres.Of the six groups, only TWIST andRosettaNet are directly open to corporatemembership, but all of them caninfluence the daily working life of youthe corporate treasurer.Applying new message standardsaround the commercial paymentsprocess based on XML can bring thefollowing additional benefits to corporates:»increased process transparencythrough tracking of payments based onstatus information provided by thebanks;»improved STP in reconciling accountsreceivable to payments receivedthrough automatically delivered remittancedetails that are uniquely linked topayment transactions;»improved opportunities for cash positioningand working capital financing,based on the effective use of informationavailable on future payments.“Corporate treasurers spend 90% oftheir time involved in the internalprovision of liquidity and gathering liquidity,so for a treasurer his neck is onthe line for 90% of the time,” says TomBuschman, development manager atShell Finance Services. If this is the case,then the liquidity improvements theorganisations promise by way ofimproving business processes for theglobal trade lifecycle, will be an importantweapon for the treasurer.Buschman is one of the drivingforces behind TWIST, a relative newcomerin the world of paymentsorganisations. TWIST – or the treasuryworkstation integration standardsteam – was founded in 2001 and boastsSWIFT – Society forWorldwide InterbankFinancialTelecommunication.What is it?: Its primeobjective is tocontribute to thecommercial success ofits members throughgreater automation ofthe end-to-end financialtransaction process. Itaims to be the globalfinancial community’sforemost messaginginfrastructure of lowestrisk and highestresilience.FIX – FinancialInformation ExchangeProtocol.What is it ?: A messagestandard for real-timeelectronic exchange ofsecurities transactions.IdentrusWhat is it?: An identitymanagement, policyand standard definitionsetting organisationestablishing rules andprocesses fortechnology, riskmanagement, legalcontracts and businesspractice in the course ofbusiness-to-businesse-commerce. It aims toassist organisations,including corporates, toapply identityauthentication.70 members including treasury industrybodies and investment banks. Itsavowed goal is to create a not-for-profitindustry group driving towards openand universal standards to allowcorporate treasurers to communicatewith their banks, brokers and electronictrading platforms for FX andother financial instruments.TWIST is one among many vying forthe ultimate prize – a universal, openand non-proprietary standard. But whatexactly do the other organisations do? cfEleanorWhat is it?: An Identrusinitiative to introducesecure, direct businessto-businesspaymentson the internet.RosettaNetWhat is it?: Anelectronic messagingstandard and anindustry group settingmessaging standardsand business processesfor its members; its coremembers existprimarily in the Asianmarket.It aims to create andimplement industrywide, open ebusinessprocess standards.corporatefinancemag.com March 2004 cf 21
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