Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
April 15, 2005
Commission File No. 1-14716K1K"L@B-O!.)74ZNY6(JR*?$_4+U>C#2MM/>'D?EKENZY1Y1V*_7
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FRANCE TELECOM
(Translation of registrants name into English)
6, place dAlleray, 75505 Paris Cedex 15, France
(Address of principal executive offices)
Indicate by check mark whether the Registrant files or will file
annual reports under cover of Form 20-F or Form 40-F
Form 20-F X Form
40-F
Indicate by check mark whether the Registrant is submitting the
Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
Yes No X
Indicate by check mark whether the Registrant is submitting the
Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes No X
Indicate by check mark whether the Registrant, by furnishing the
information contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes No X
(If Yes is marked, indicate below the file number assigned to the
Registrant in connection with Rule 12g3-2(b): 82- )
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M^M.N^S-U]ATlosure: |
France Telecoms presentation dated April 14, 2005 re FY 2004 IFRS. |
France Telecom
FY 2004 IFRS
April, 14th 2005
Cautionary
Statement
This presentation contains forward-looking statements, in particular relating to France Telecoms outlook
for 2005 as restated under International Financial Reporting Standards (IFRS).
Such statements are not historical facts and
include expressions about managements confidence and strategies and managements expectations about new and existing programs, opportunities, technology and market conditions. Although France Telecom believes its expectations are based on
reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties. These statements should not be regarded as a representation that anticipated events will occur or that expected objectives will be achieved.
Important factors that could cause actual results or performance to differ materially from the results anticipated in the forward-looking statements include, among other things, the success of the FT 2005 plan, including the TOP LINE and TOP
programs, France Telecoms other strategic initiatives (based on the integrated operator model and including the FT Ambition 2008 program) as well as other financial and operating initiatives, changes in the competitive environment and the
telecom market regulatory environment, and risks and uncertainties attendant upon exchange rate fluctuations, technological trends, business activity and international operations. In addition, these forward-looking statements and the other
information relating to France Telecoms 2004 results as presented in accordance with IFRS are subject to additional specific risks and uncertainties relating to the possibility of changes in IFRS standards prior to December 31, 2005. More
detailed information on the potential risks that could affect France Telecoms financial results is found in the Document de Référence filed with the AMF on March 2, 2005 and in filings made with the U.S. Securities and Exchange
Commission.
2
Agenda
Key figures French GAAP IFRS and IFRS guidance Income Statement Balance sheet 2005 new business segments Appendix
3
Key messages
Organic Cash flow Generation potential maintained
Positive impact on Net result Group Share ( + 233 million euros) and EPS (+8%)
Net Debt (+ 6 bn euros) and Equity (+ 2bn euros) impacts consistent with December 2004 communication
No change in guidance
New business segments fitted to company organization
Strategic priorities unchanged
4
2004 Key
figures French GAAP IFRS
French
Euros, in millions IFRS
GAAP
Revenues 47,157 46,158
Gross Operating
18,261 17,923
margin*
Gross Operating 38.7% 38.8%
Margin rate
Net Result Group Share 2,784 3,017
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MEE]I4,^-K5&1!K:9&GIY:
Equity (year end) 15,681 17,683
Final figures consistent with Dec, 2004 communication
*: EBITDA proxy
5
2004 Key
figures French GAAP IFRS
EPS (in euros)
1.14
French GAAP
1.23
IFRS
Organic Free Cash Flow* (in billion of euros)
7.8
French GAAP
7.65
IFRS
No impact on organic cash generation potential
* Cash Flow excluding Equant CVR payment and excluding Disposals and Minorities buy out (Kulczyck put not included)
6
2005 Guidance
French GAAP IFRS
Pro forma +3% to 5% +3% to 5%
Revenues growth
REAA Gross Over 19 bn euros
Operating Margin Over 18.5 bn euros
Upper range Upper range
CAPEX to sales
of 10% to 12% of 10% to 12%
Net debt to REAA
Net debt to Below 2 end Below 2.5 end
Gross Operating of 2005 of 2005
Margin
Guidance unchanged, priority remains to debt reduction
7
Agenda
Key figures French GAAP IFRS and IFRS guidance Income Statement Balance sheet 2005 new business segments Appendix
8
2004 IFRS
Income Statement
French GAAP IFRS
Euros, in millions 12/31/04 12/31/04 Delta
A Revenues 47,157 46,158 - 999
Non labour costs - 20,022 - 19,385 + 637
Ow External purchases - 18,617 - 17,870 + 747
Labour costs (excl.
share-based payment, + 24
- 8,874 - 8,850
employee profit sharing & discount on share offers)
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MY#/;>RM5!\B-B=94E+E.Y7V[1;>BIMO_`.YW"PT,5XJF.KIWEBD(.??:R?G'
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M60;<;W*2*AIL./DQ'1K$E([3_P9I/VA4+'$Q;^
MTUW'L?-^T/OL>O==LLK8,(F(C:T@\$N07&I7`#`55EU$9IE3<^^5A+S#R-OD
M7+DOA[-O%_>%#*H,L=[="Y"`A"%>.K(30JU%84J0%%L_Y-[8VOU\:+(?'[;6
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M)FABZK&TDD:X^"Lp:0px;margin-bottom:0px">B Gross Operating
Margin 18,261 17,923 - 338
Share-based payment-Employee profit
- 416 - 416
sharing
Discount on share offers to employees -263 - 263
Amortization - 7,437 - 7,990 - 553
C Impairment of goodwill - 534 - 534
Impairment of assets - 179 - 179
Disposal of assets + 922 + 922
Restructuring costs - 181 - 181
Associates + 30 + 30
Operating Income 10,824 9,312 - 1,512
Gross Operating Margin remains the key operational performance indicator
9
ARevenues
Revenue share arrangements
reviewed to determine if FT
Euros, in millions FY 2004 acts as an agent
(net revenue
presentation) or a principal in
the transaction (gross revenue
Revenues under French GAAP 47,157
presentation)
Already netted for content
distribution
Recog Revenue share arrangements - 352 Mainly for fixed-line
in
France (special numbers)
Equipment sales through third party - 345
Revenues based on end
Revenue
Connection fees - 80 customers payment
Mainly Orange UK
Revenue Recog
Others - 5 Differed over the average
expected customer
relationship period
Mainly Fixed Line in France
Scope of consolidation - 217
Revenues under IFRS 46,158 Sonatel (Senegal)
consolidated on a
proportional basis
Mainly netting impacts and scope of consolidation
10
IFRS Revenues
recognition impacts
Euros, in millions
Non labour Gross Op.
Revenues
OPEX Margin
Revenues share arrangements - 352 + 352 neutral
Equipment sales
- 345 + 345 neutral
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M%.VM290O/N]W-PVX7ht:0pt;margin-top:0px;margin-bottom:0px">through third party
Connection fees - 80 0 - 80
Others - 5 +44 +39
Total - 782 +741 - 41
Revenue recognition impact neutral on Gross Operating Margin
11
BFrom
REAA to Gross Operating Margin
Margin
FY 2004
Euros, in millions rate
REAA (French GAAP ) 18,261 38.7%
Revenue reconciliation impact - 41
Capitalization of development costs + 86
Change in scope of consolidation - 141
Non Operating Income now included in
Gross Operating Margin, and others -
242
Gross operating Margin (IFRS) 17,923 38.8%
Gross Operating Margin slightly improved (+0.1 point)
12
CFrom
Gross Operating Margin to Operating Income
French GAAP IFRS
Euros, in millions FY 2004 FY 2004
Gross operating Margin 18,261 17,923
Share-based payment-Employee profit sharing - 416
Discount on share offers to employees -263
Amortization - 7,437 - 7,990
Impairment of goodwill - 534
Impairment of assets - 179
Disposal of assets 922
Restructuring cost -181
Associates 30
Operating income 10,824 9,312
€ 553m IFRS reconciliation impact Ow € 582 from client base
amortization
Equant :
€ 519m exceptional GW in 1H04 & €15m recurring GW amortization in H104
Ow
€ 184m for Equant impairment
Ow €199m Pages Jaunes IPO, €249m STM, €73m Radianz,€57m
Pramindo Ikat, €38m Orange Denmark disposals
Increased volatility of Operating Income
13
CShare-based payment, employee profit sharing and discount on share offers to employees
Euros,
in millions
FY 2004
Employee Profit Sharing - 280
Stock option plans (IFRS 2) - 136
Total - 416
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MY?WG;=NV!F@M6LKNDiscount on share offers to
- 263
employees (IFRS 2)
Previously below Operating Income
Mainly related to Orange
Linked to French State Placement and Page Jaunes IPO
14
2004 IFRS
financial charges analysis
Euros, in millions
Total financial Charges, net French GAAP - 3,365
TDIRA (additional
interests charges on debt component) - 63
Impact of amortized costs - 20
Carry back interest charge - 77
Change in Fair Value of Derivatives - 32
Interests capitalized on tangible assets - 32
Foreign exchange gain (loss) impact related to Net Debt only - 36
Total financial Charges, net IFRS - 3,625
No impact on interests paid
15
2004 IFRS
Income Statement
French GAAP
12/31/04
Euros, in millions
Operating Income 10,824
Total financial Charges, net - 3,365
Current income from integrated companies 7,459
Other non-operating income/(expense), net 113
Income taxes -1,998
Employee profit-sharing -269
Net income/(loss) from integrated companies 5,305
Equity in net income/(loss) of affiliates 4
Goodwill amortization -1,788
Exceptional goodwill amortization -519
Net result 3,002
Minority Interests -218
Net result Group Share 2,784
IFRS 12/31/04
9,312
- 3,625
- 2,477
Delta mainly due to discounting of Deferred taxes
3,210
- 193
3,017
233
million euros positive impact on Net Result Group share
16
Agenda
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MUC&*MX<\,-"]O,E1+IB;0)5TH5A)0ET_/N;//K''HXG6OS2WGU9M_H'`8WJS
M96](/CWV'5]A;2@W/VMWQL_9=;F:_>6)WE-G-[=0]9[MP/7_`&KO;&SXQ:;$
MY;/12MC::*GC,=1'3QQ^X3Y[]I)^;M\?=+;>(XX)X1'*LJ,S1Z5T*]NR%=)T
MDZE>JU+D$>(X.1WMC[Z6?(?+(V.ZV&26ZAG\2*2%HU$@9@[1W7B!B5U`4:*C
M%0BL&$:4`7K3MG=776:Z*SD&%VK7R]!?&2N^.FVZ&:MS@IMQ193BFA[E)89&D],77OC#)O_)&^0\OFFS[Q?WFAG%9([VY6X\,D<'C.M=7P
MD:#2NKH2-L_*3<.TMAIMZ#H?H7<_9-7\7JCXK93O3<>?[=I=T)LF?H]?C_29
MW%[$Q.=.P5WY@^OJ:EHJ;+R0CRT=(L,U*99)*DI-P]K^9GM;?9=JYH@AY8^H
M@N9(#$Q.3+J;G`07-K
M!.DR"-+65)HH`8S2DT,4HB+"JLJEL.2>BWN078B]BS$7^MB21?\`QM[G-CJ8
MM3B>L:%!"J#QIT+NR>V<=M#86YMA[@Z>V)W)ALQOS87:&'Q.^=W]C;(HL#O[
MKO;O9&TL%F'R?6N1H,OEL3/MSM;,4M9C9OVJ@2HZ202QI(`#SEREN._7FP;U
ML>ZI:;]MKR^$TBZXRDZ!)0R@$ZM(&ALA36JMU*?MYSSM'+-AS1R_S-L\E[RS
MNT40F2)@DH>WITL$#-:Y"'*/M
M)-RW>;1>S[X)GMTOT8!"-2WND@@DX>-E[JX((H:]#_GKWZM^;=MWS;+7EQH(
MKH[8R%I`=#;>SU#`8T2*P"4RI!KCI4TOR8W`F/K9=R](]$=J;GH.WN]>W>LL
MAV'6=BQ8?J^O[V[%KNSHPNW6M6IU3^"LGA
M9FU]K.8-@VNUMN4N:(K7G;SW
MLY5YGWCKey figures French GAAP IFRS and IFRS guidance Income Statement Balance sheet 2005 new business segments Appendix
17
Reconciliation
of Equity
Euros, in millions 01/01/04* 12/31/04
Equity under French GAAP 11,444 15,681
Reclassification of minority Interests + 5,447 + 4,052
Goodwill
amortization + 1,743
TDIRA +1,267 +1,236
Minority interests commitment - 983 - 547
Customers relationship
amortization -2,469 -3,100
Revenue recognition impact -1,052 -1,105
Others + 341 - 277
Equity under IFRS 13,995 17,683
*: Include post-employment benefits & Tele-Invest consolidation
(Kulzyck put) + impact of Sonatel proportionate integration
Closing balance sheet consistent with Dec, 2004 communication
18
Reconciliation
of Net Debt
Euros, in millions 01/01/04 * 12/31/04
Net debt under French GAAP 47,744 43,938
TDIRA + 4,031 + 3,994
Carry back + 1,431 + 1,508
Equant CVR + 2,049
Derivatives and associated
- 892 - 1068
cash collateral
Accrued interests + 1,308 + 1,172
Minority interests commitments + 984 + 547
Other + 38 - 168
Net debt under IFRS 56,693 49,923
Net debt to Gross Operating Margin : < 2.5 at the end of 2005
* Including securitization and Tele-Invests consolidation (Kulczyk put ).
19
Agenda
Key figures French GAAP IFRS and IFRS guidance Income Statement Balance sheet 2005 new business segments Appendix
20
New business
segments
Home
Personal
Enterprise
Directories
France
Poland
ROW
France
V.I$
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MYHZ6.HJ)967[A[3W=R7V2TWF./D>2]^K:W,9,RSLVMRD@(#)6IC5_@)&H2!0
M.B?;/?+;K2*/F"]Y=GF]QH;#Z%+D3*+=[9$*1"2,U99%4A9"@_4&JC1F1CTG
M*KO;=-;F^\<[6[/Z\R+]\?+;;ORCW+@99%&EW29I<`_@F19
M`58=NL$D$4'2*X]\$N-_]PM[;EN-UW[;(+^!WA.I"=1C8"
MM:GI6[Q^1S[_`-O;;ZMR?7>/Z\^.W4^/[]WYUWU/M'M?O#L^MKNX]Z=4Y';/
M6%%39+M/8]IW.
MQ:_9*+%#"T$=ROB*Q^JC4Z#ZE="1"
COLOR="#FFFFFF">UK
Poland
ROW
New segmentation reflects FT new organization
21
New business
segments 2004 IFRS key figures
Euros, in millions
Home Personal Enterprise Directories
Eliminations Total
Revenues 22,440 20,564 8,235 978 -6,059 46,158
Gross Op
7,401 8,076 2,039 407 17,923
Margin
Margin rate 33.0% 39.3% 24.8% 41.6% 38.8%
CAPEX 2,051 2,702 388 8 - 8 5,141
22
Conclusion
No change in guidance
No impact on cash generation potential
No impact on return to shareholders potential
Priority remains deleveraging
Next steps for communication : 1Q05 figures on April 28, 2005
Investor Day in June
23
Agenda
Key figures French GAAP IFRS and IFRS guidance Income Statement Balance sheet 2005 new business segments Appendix
24
Reconciliation
of FY 2004 net result
Euros, in millions Total
Net result under French GAAP 3,002
Customer relationship amortization - 582
Reversal of Goodwill amortization +1,773
Equant tangible and intangible impairment, excl. goodwill + 299
Share-Based remuneration - 342
Derivative financial instruments - 72
and amortized cost method
Deferred taxes net impact - 493
Other - 375
Net result under IFRS 3,210
Ow :
€
- 331m Orange UK
€ 149m TP SA
Difference
between
+ €483m of
French GAAP
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M_OO?F3FK:.JKJKJ[L[:Z*
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MP]F;M;=?8.-HUV?M6EW1GNL6QV&^N-F
M@M(KJ:X4(JQ6\M.]D=E?4I)7PQW,5)4$=#>+[N.^);0Q;GS+MUKO\][+9P6S
M.[--L_6_2?4R[4[%R^\>U]LY3M7!?!3NCY6X+H
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M2[1QFW\!C*W(YW/1"L61*6OI_$7V'O6K;GS;>WEH7Y5M[>WEMF30'_653&LF
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MNS*LM`4'Z@"LVZ?@WD=@;HHZ?LKL:KZSZ_R7Q\[-^2%%NK?O3_8NW-_1;,ZB
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MN\QR0(;6.2&5C]2VB-DEB=XG&LA74-K1C1E'0<;[N?,4>[00W&[0P\ORI<%;
MN6.>%0;9#)*KQ311RIV*SHQ3PY%%4S*R*CWEOO'C*;'VENS=VW^JW/$M[,7@*6QFT::Z9#XA!?N$6HA1J`(Z0+['+<;=M
M%SMW/&W7&X[HDYV^W59Q)=^`9->D-$/#4B,Z'ET*7(0D$]<1\5L+5=,]B]P8
MOMZKR6*ZAZ_Q79O8^8INB.XUZHHML5.0VG0[AIMC=V5V#HME]E[KV8-X0FJH
M*!8Z:KJ:.LI:.LJ)H5$E[[W8LMKW.:SW/8+JWLA5J:*0:S.8W)'
MZJHRJ"&:E&`#'>."&L1@3L/O#=I+:/S5'
M/"@EW$,R+`T#I:9T882K,AH@Dmargin-bottom:0px">asset impairment
And€ 184m
IFRS asset
impairment
Ow € 206 discount
offer on shares to
employee*,
€ - 136m for Stock
option
*: €57m already accounted for in French GAAP
25
2004 Financing
IFRS vs French GAAP
Euros in millions French IFRS
GAAP
A - Net
Cash provided by operating activities 12,818 12,697
B - Net cash provided by investing activities -5,564 -5,591
C ow Disposals of financial investments - 2,716 - 2,716
D - Impact of investment in short term marketable securities1,6011,601
Free Cash Flow excl. disposals (A+B-C+D) 2,937 2,789
E - Orange & Wanadoo minorities buy out 2,842 2,842
Cash Flow excl.
disposals & minorities (A+B-C+D+E) 5,779 5,631
F Equant CVR payment 2,015 2,015
Organic Cash Flow (Cash Flow excluding Equant CVR payment and
7,794 7,646
excluding Disposals and Minorities buy out (Kulczyck put not included)
(A+B-C+D+E+F)
26
Revenue
presentation : personal
ORANGE
Orange France Orange UK
Rest of the World Eliminations
TP GROUP
Wireless telephony
OTHER INTERNATIONAL
OPERATIONS
PERSONAL
Personal France
Personal UK
Personal Poland
Personal Rest of World
Eliminations mobile
27
Revenue
presentation : home
FIXED LINE, DISTRIBUTION & NETWORKS
Consumer services
Subscription fees Calling services On line services & Internet access Other consumer services
Carriers
services
K^\-[=
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M&C!8J&%&34A(9=0*GI7]M_':@Z#VIWP,_-/NO.TWQ:Z!^0'5-9N39F_.L-Q;
M?PG;7S@ZL^.577[JZ]W1_#/Z;A22-P\;&JL"Y]8=<;A[<[#VIUKM5L;
M#G-W9=,925F:KDQF#Q-+'%-79?/Y_)R+(N.V_MS"TE17U]1I[V>P;5N&\[@Q%C;1L[D9-%\@,5).!4@5(J0,]0'RWL&XONP^OJ+`;AZ?ZJK^YLX^7VCN6@7<\NU<_U_0G)8C*11DU5(LKO3Q/"8FC)_
M>#;K3:I]PW;8+RTN?I?JH(9/#+7%L)%C:6-E8J"NH/H?2Q0AEJ#7J:![`;I=
M[[#M6R?1W,\?B:+6[,;R+%*&0,02AC+QAU634CZ64CISZ]^&C=T8
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M!`9KB.W+JC,X6K8`-:9]`//H\U9\&X\KO7I
MGM[I3;-7N7>V(WYG:+?6S-R=A[?I8M\=08K#=;9:OKLY%!224V,2"K-+XJA+
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MDS6S-H\0!&8H0U*HX#496%0>@QSO[:/RG8ONFW\PVFZ;=!>&SN9+?7I@NPGB
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M+45WV4!:7PQD/+ITJ02#['$K.D*
M>31"SJ&:E:`D`FGR'5BO1'QTMQ
MYRDK>QML[XFW?U+M/9.(RLN0WQO7+RXS'9RJS59%CL%C\:\L,$RRT\B28TV7
MNUSK.>6)#L33--NUY:-%%X5+@1!=*Q$L622$U\1V"1%22"U"5S$O?8GV\@'-
M<']8D@6'8;"^2>9Y`;5IVEUR3*$TO#.H'AQ`O,'4@Z=2ADQM3X%;PW/NWMO#
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MA:K#=D=Q;2P4^W>KLYV`:=9-MT.2IC55M-54\\Z4L4C-&U:^]FR;KN,-CL.S
M7=Y'X/B2,K0HZYHZ)%)(KSNAP5AUEOP:L5>N_NZ<-9N+IG.=^[:PZ
M=+=I5FQ:KKS!4FX
M[>\W+>S[[=[1=P2"VMM'CS%XD\,O2@$#NLTFG4/$\-&9`&)6@RBV;[OG->]<
MN6F\VEU$U_=-(+>!4F<2B,D$F>.)X(M>D^$99$20E0'J:`EVS:?`;ESNU:7)
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M]@=)YJKQW:M7NA,QO+L#-I-0D6J!XV4>(L;!E(JP92OR'[W^+NQ>M/[F;FW4^:[9^/DVQ,1O.GSF\\;-1[
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M:0E6:5=-$5C(&=`4[EU)?Y!=2#:?R3[FV)UYMJISG6?6NX^M-OX_NIX0TU34[TM/4(ACB"!0?^W/-M[S#LNY
MW&]SI'N$6Y7,*(VA'"1OV*ZJ:,ZU*%EPVG%34D(^Z_(FW_GS>U^BN[\MUB-Q;OS6#3+OL#KK`Y"JQ>$?/Y:>IJ*_*F
MH\5-*M//(H/Y2]W;R_VG8;2?9;G<^8GMI9KDVXC18H8Y9(UD<,RKJ94!*B@9
MB`N6"B0>>/8;;-MWGFC<;?F"UVCE2*YA@M!>W9MSJKJ^NVGN_=*9ROVGV7N3I0
MU.]M\;9I:K;/6N(W)W'LS+[=Q4]4:MZBIQ=54RQP4,1JB)/]=O;+R>1N7]DO
M=QVJ"U2XNKB)5"6\<@U#4LC*SR*M6:-1JH#0$@CH(?ZQ.\;=:H.:>8=OVK>[
MF\>UL[:9W+W4J$*2K1)(BQ-(51978)J(U%003&[SZ.H^O=A;<[ARM-)UUUGD
MOC[\?_[@O%AMP[ES_P`A?DMO7;F[,]OS96PHWJI<:@P=%AQ79[+SU%%MW;-)
M`%E8U$\5/(']E]VI)>9N8-A,$NY2/N2+9)`J!A:O"LC2,Y*J44D%68@A22S!
M5)`MY@]B[:+E3ECF-+F+:HTVN9[][IY-'U<=P8HXE0!G#N`040$E@`JZF56%
M3/\`Q`V70[YQ>WM__('K?JS8_R,W)\8]MVK;8YK:W"$W#
M^)<3V=I<1B,,KRGQ?J"2E6,>E@-2+JZ1?37Q+VYVAO3JWK#[&Z\SV.P5'.9JC)S
M8QVD^T@DBG9;-[Q6$T%U?;!RUN&X[7;6*W4\T81%A5T,B(PD927TC4P6NE:M
MW`'HOMO8#<;>>UV_F?FW:]KWBZW%K.V@D=W:=TD$,KX,MC]^Z]U__T*9??5CKB3U[W[KW7O?NO="9U9V/
M3]:Y7=-7D=E8;L3!;SZW[!ZOW-L_.YS<&V:'+[<[$VU6;PM;2
MI4K-#44^LJ\=BC*2/85YSY:/-FPight:0pt;margin-top:0px;margin-bottom:0px">Domestic interconnection International Operators services Other carriers services
Other revenues
WANADOO
Access, portals and e-Merchant
TP GROUP
Fixed line services Internet & other revenues
OTHER INTERNATIONAL OPERATIONS
HOME
Home
France
Consumer services
Homes usages o/w :
Subscription fees
Calling services
On-line & Internet services
Other consumer services
Carriers services
Domestic carrier services
Other carrier services
Other Home revenues in France
Home Poland
Home Rest of the World
Eliminations
Fixed line
28
Revenue
presentation : entreprise, Directories
FIXED LINE, DISTRIBUTION & NETWORKS
Business services
Business Fixed line telephony Business networks Other Business services
EQUANT
WANADOO
Directories
ENTERPRISE
Business Fixed line Telephony in France
Business networks in France Other
Business services in France Global Services
Eliminations
DIRECTORIES
29
Opening balance
sheet options
No restatement of business combination accounting as
Business
compared to French GAAP (no pooling method accounting
combinations
was used in FT accounts)
Historical cost maintained except in very limited
Tangible assets
circumstances, for which fair value has been used
Implemented as of January 1, 2004 the full version of IAS
IAS 32/39
32/39 (no use of the carved out version likely to be
1N:+3?9K#ZFT$&30QP'"N2I8%:TJ",=3^SNT
MML]J8"OR&Y_CAT5EN^=T[,VILG>?R"W#-V#N"ODIMI[2VWU[CMS[S3$`R>T]S'NDEWMV[V<5E2D!2U>-HY/!"ZEGI&IUHZU<`C2NI&`7I;M_='2NQN
MF=F8S#[:SPZBW?V1OE:_(R9:D.;S/87QPS/QW>@,-)+_`)'B<70YE\HINT\D
MT:Q$A"3[WO7M(N]66QVDN^-&;38Y-N)"5#!T11*`3@AD!*FM5-`0<];Y=]^V
MY>ON9[N+EP2)N',,.Z`-(04\*=YC"2`-6H-I#"E"*D$8ZE=5]Q9OK+:_1NR)
M=K[1WEM+JC;GR*VENS";C&;6D[5VI\E^ONC^MM^;4S)Q60Q]9@,9#@.ETDI*
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M;_"TBU!>%P2'C)##M97#+7I!RG[_`" COLOR="#FFFFFF">adoption
promulgated in Europe)
Cumulative The cumulative translation differences for all foreign
translation operations are deemed to be zero as of January 1, 2004
differences (reclassification within equity, no impact on total equity)
All actuarial gains and losses have been reclassified in
Employee
retained earnings as of January 1, 2004 (as in French
benefits
GAAP)
30
Other issues
with no impact for France Telecom
Employee benefits
Pension schemes are not an issue in France and Poland due to the social security regime
Pension schemes of the group in other countries are defined contribution plans (such as Orange UK) with minor exception of defined
benefits plans (however properly funded or provided for).
Scope of consolidation
TP group is fully consolidated, as in French GAAP, since it is controlled
Sonatel, previously consolidated on global basis, is now consolidated on a proportion basis (42.33%)
31
Definition of
Net Debt
French GAAP
Net debt is defined in the financial statements as: Total gross borrowing (converted at hedging rate)
- Cash, cash equivalents and marketable securities
IAS/IFRS
Net debt will be defined as: Total gross borrowing (converted at closing rate)
- Asset derivatives
- Asset cash collateral
+ Liability derivatives
+ Liability cash collateral
- Cash, cash equivalents and marketable securities
+ Accrued interests
32
Net debt: TDIRA
(IAS 32)
French GAAP
Perpetual bonds redeemable for France Telecom shares are classified in a quasi-equity caption in the balance sheet Interest charge is based on the contractual arrangement
IAS/IFRS
Breakdown between an equity component and a debt component Interest charge is computed based on the effective interest rate
Impact on the 2004 IFRS balance sheet
Debt component cc. 3/4 of the nominal value I Equity component cc.1/4
of the nominal value (subject to deferred tax liability)
Impact on future IFRS financial statements
Increased interest charge when the effective interest rate is higher than the contractual interest rate (as it is the case at the moment)
Such additional interest charges are compensated by an increase of the debt amount
/&;
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M/+AT]^S7HCZ][]U[K__1IE]]6.N)/7O?NO=>]^Z]T/?QYZ2D[TW;GMO15FY2
M^W=G9/=Z;7Z]VQB=]=L[_FH[]Y5U5FTJ&@GS-!#38
MVEJZMY"L!1@;SWS&L&N"TR1!=8C4%ZT:20AA&F*:B"-14'C42'[9\
MAM[BQNV_C)L/9>,WMT#G>LLE@4[=VUO+=61P.^L)OOL#;AV_7QG"24N:
MRF-AW5C*),6'Q$V46M)@C^7W,WNZW/D5MNV6EG?7$T,T(DBD9W1%73^ZM_YCY&4_2V3^2?172FX,KV'\7]
MR=+X;NUNY-V5NUML9+X]9+[MP]?Y3(KXR[=O>BYACW>QCVF.VW$P3_3/]1'-^K$C,PFC1&>(A58QDJT4K``2:&$G1
MILOW>;22;8=RDWR2[VP3V[7<8M98:0S.B*8)I'6.8%G42!62:%&+-$9%,70&
M=#?#N'Y![`V3VEM;-]KTFQNZ^P=Q;(Z8S<_2F",-+BMMR86FK^T>_10]T9+"
M].=;2YC-K1T\>+R>\<^5IJB=\>(H2S.FACE="Times New Roman" SIZE="1" COLOR="#FFFFFF">33
Net debt: Carry
back (IAS 32 / IAS 18)
French GAAP
The carry back receivable sale is accounted for as a true sale with an usual guarantee (Note 28.2.2 of FT financial statements)
IAS/IFRS
Carry-back receivable sale with a guarantee is considered as a secured financing
Impact on the 2004 IFRS
balance sheet
Additional financial debt and carry-back receivable of €1.5 Bn (present value)
Impact on future IFRS financial statements
Notional interest charge (no cash out since interest were prepaid at the time the receivable was sold) Carry back receivable and financing mature in 2007 (net debt reduction), no cash impact
34
Net debt:
Equant CVR (IAS 39)
French GAAP
Equant CVR is accounted for as a provision for risk and contingencies
IAS/IFRS
Equant CVR is a derivative instrument As a derivative instrument: Any change in the value is
recorded through income statement It is included in the Net Debt
Impact on the 2004 IFRS balance sheet
Reclassification from provision for risk and contingencies to derivative included in Net Debt on January 1, 2004 As Equant CVR was repaid
in July 2004, no impact on Net Debt at December 31, 2004
Impact on future IFRS financial statements
Equant CVR have been paid in July 2004.
35
Net debt:
derivatives and associated cash collateral (IAS 39)
French GAAP
Hedging instruments are presented off balance sheet
except currency hedging instruments since French GAAP debt is converted at the hedging rate (debt at hedging rate = debt at closing rate + hedging instrument)
IAS/IFRS
Debt is converted at the closing rate Derivatives are accounted for at fair value in the balance sheet Changes in the fair value of derivatives are recorded through income statement (except for cash flow hedge accounting)
Impact on the 2004 IFRS balance sheet
IFRS Net debt (on 31/12/04) lower by €1.1 Bn
Closing rate conversion
instead of hedging rate -€1.9 Bn Currency and interest rates derivatives evidenced in the balance sheet +€1.8 Bn Prepayment of derivatives constituted by the cash collateral -€1.1 Bn Others +€0.1Bn
Impact on future IFRS financial statements
Increased volatility (income statement, shareholders equity)
Expected
to be limited since major interest rates derivatives follow the IFRS documentation requirements for hedge accounting qualification
36
Expected Impact
on net debt: minority interests commitments (IAS27/IAS32)
French GAAP
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M5B=R(UE+U4#5WY\(NP(=C=>[KSV^=U8
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MNG,T1J$\H>-?[I0\RV%A_6#8N;KBR1'MXIZE="1" COLOR="#FFFFFF">Minority interests commitments are off balance sheet commitments unless there is a risk of an outflow of resources with no symetrical
economic benefits
IAS/IFRS
When minority have a right to sell shares and the entity has obligation to buy these shares, the entity should record a financial liability (present value of the exercise price) and reduce equity for
the same amount (no corresponding asset)
Purchase offers made to minority shareholders enter in this category
Impact on the 2004 IFRS balance sheet
Total impact for conditional and unconditional put options €0.55 Bn:
Conditional put: Orange Slovensko, Orange Dominicana: €0.52 Bn I Purchase of minority interests commitments as of December 31st 2004: €0.03 Bn
Impact on future IFRS financial statements
Changes in the present value of
the put option is recorded through income statement
Limited impact for purchase of minority interests since they are paid
for during 2004
Potential impact for conditional puts
37
Revenues:
IAS 18 (1)Revenue recognition
sales equipment through dealers
French GAAP
The legal analysis of the commercial relationship between FT and its dealers prevails
over for the accounting treatment and revenue is recognised based on billing (handset sales in direct and indirect channels are accounted for differently)
IAS/IFRS
The substance of the commercial relationship prevails over its
legal form (handset sales in direct and indirect channels are accounted for the same way)
The remuneration of the service
rendered by the distributor is the net payment between FT and the dealer. This remuneration is disclosed in cost of sales
Revenue from equipment is estimated based on the customer selling price
2004 revenue impact:
<€345m> ; No impact on MBO and Net Result
38
Revenues: IAS
18 (2)Revenue share
arrangements
Arrangements between FT, a content provider or an other operator, and an end customer
French GAAP
The legal analysis of the commercial relationship prevails over for the accounting treatment
and revenue is recognised based on billing
IAS/IFRS
When it can be argued that the entity determines the main characteristics of the transaction, the amount of revenue is to be reported on a
gross basis. When the entity cannot argue that it determines the main characteristic of the transaction then revenues are to be reported net Characteristics are defined by the followings: who is the customer ?
Who sets the price ?
Who determines the specifications of the service ?
Who has the credit risk ?
2004 impact: <€352m> ; No impact on on MBO and Net Result
39
Revenues: IAS
18 (3)Connection fees
French GAAP
Under French GAAP, connection fees and costs related to connection are recognised in the P&L when the service (connecF@6.)T8S7$X;E_5?F/D>VW!Y4N9UN&FGC=!!:2S^&5C<(X9H:!L%=9.:`=*SJ;
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M>CV54;A7+]<=;=L[=W5MC(;5W#L3M7$93*;tion) has been rendered
IAS/IFRS
Connection fees are deferred over the average expected customer relationship period
Costs related to
connection that can not be capitalised (and therefore amortised) are expensed as incurred
2004 impact: <€80m>
40
Share-based
compensation (IFRS 2)
French GAAP
Stock options granted in certain subsidiaries (Orange, Wanadoo, Equant) INo impact on the accounts until the stock option is exercised INo compensation expense accounted for (labor OpEx)
IAS/IFRS
The
fair value of stock options is amortized over the vesting period as a compensation expense France Telecom position is to apply IFRS 2 to all stock options plans (vs. the option to apply IFRS to plan granted after November 7, 2002) Discount offer of
shares to employees should be also accounted for as compensation expenses
41
Amortization of
customer relationships (IAS 38)
French GAAP
Customer relationships accounted for in case of business combinations No amortization and no deferred tax
IAS/IFRS
Deferred tax liability
Customer relationships amortized over the expected contractual relationship (between 4 and 5 years in most cases)
Impact on the 2004 IFRS balance sheet
Retrospective amortization charge lead to a decrease in total equity of €3.1 Bn at December 31, 2004
Impact on future IFRS financial statements
Decrease in EBIT as long as customer relationships not fully
amortized
Negative impact of €0.6 Bn in 2004
Impact should reduce in 2005 and subsequent years
42
IFRS impact on
income statement: other impacts
SACs and SRCs
No difference with French Gaap accounting SACs and SRCs are expensed as incurred
R&D
Expensed as incurred under French GAAP
Under IFRS, development costs meeting certain criteria should be
capitalized
Goodwill amortization
Under French GAAP: amortization + impairment testing Under IFRS: impairment testing only
Interest capitalization
Under French GAAP, interest expenses are capitalised for assets in progress Under
IFRS, FT has chosen not to capitalise interests
43
France Telecom
FY 2004 IFRS
April, 14th 2005
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MM;?_`&?N?%[P[=[VHNOMT[A[JWCGJ+-#<^9K]"100%" ALIGN="CENTER">
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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FRANCE TELECOM |
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| Date: April 15, 2005 |
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By: |
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/S/ PIERRE HILAIRE
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Name: |
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Pierre Hilaire |
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Title: |
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Director of Financial Information |