Squeezing the Orange

5 March 2003

If minority investors aren’t going to get a sniff of the extra cash flow via a dividend, Orange should buy their shares back. The mobile group’s dash for cash is serving France Telecom’s shareholders more than its own.

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Orange has beaten by some distance market expectations for its earnings and margins. Announcing 2002 results, the mobile operator said it has made its first full year net profit and had turned net cash flow positive in the final quarter of the year. Its ebitda grew 51% to E5.1bn, E0.5bn ahead of earlier guidance. Net debt fell, suggesting that the group had reached its peak funding requirement early and at a lower level than expected.

For the future, Orange said it planned to realise free cash flow between 2003 and 2005 that was E5bnE7bn in excess of existing expectations, which stood at about E2.5bn.This would allow it to be debtfree by 2005. This cash drive would involve staff reductions, extracting synergies between its businesses, limiting itself to its existing footprint, and delaying the introduction of 3G.

Orange is 87% owned by highlyindebted France Telecom.

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