As filed with the Securities and Exchange Commission on April 21, 2020
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the fiscal year ended
OR
OR
Commission File Number:
(Exact name of Registrant as specified in its charter)
Not applicable (Translation of Registrant’s name into English) | (Jurisdiction of incorporation or organization) |
(Address of principal executive offices)
Contact person:
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered, respectively :
* Listed, not for trading or quotation purposes, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Ordinary Shares, nominal value €4.00 per share:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
No ☐ |
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company.
See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange Act. ☐
*The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ | Item 18 ☐ |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | No ☒ |
Presentation of information
The consolidated financial statements contained in this annual report of Orange on Form 20-F for the year ended December 31, 2019 (the “Annual Report on Form 20-F”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as of December 31, 2019.
This Form 20-F contains certain financial information presented on a “comparable basis”. The basis for the presentation of this financial information is set out in Item 5 Operating and Financial Review and Prospects. The unaudited financial information presented on a comparable basis is not intended to be a substitute for, and should be read in conjunction with, the consolidated financial statements included in Item 18 Financial statements, including the Notes thereto.
In this Form 20-F, references to the “EU” are to the European Union, references to the “euro” or “€” are to the euro currency of the EU, references to the “United States” or “U.S.” are to the United States of America and references to “U.S. dollars” or “$” are to United States dollars.
References to the “2019 Registration Document” are references only to those pages and sections of Orange’s Universal Registration Document for the year ended December 31, 2019, attached in Exhibit 15.1 to this Form 20-F and forming a part hereof. The 2019 Registration Document was furnished to the SEC in a report on Form 6-K on April 20, 2020. Other than as expressly provided herein, the 2019 Universal Registration Document is not incorporated herein by reference.
The references to websites contained in this Form 20-F are provided for reference only; the information contained on the referenced websites is not incorporated by reference in this Form 20-F.
As used in this Form 20-F, the terms “Orange”, “Orange group” and “the Group”, unless the context otherwise requires, refer to Orange together with its consolidated subsidiaries, and “Orange SA”, as well as “the Company”, refer only to the parent company, a French société anonyme (corporation), without its subsidiaries.
References to “the Shares” are references to Orange’s Ordinary Shares, nominal value €4.00 per share, and references to “the ADSs” are to Orange’s American Depositary Shares (each representing one Ordinary Share), which are evidenced by American Depositary Receipts (“ADRs”).
Cautionary statement regarding forward-looking statements
This Annual Report on Form 20-F contains forward-looking statements - within the meaning of Section 27A of the U.S. Securities Act of 1933 (“the Securities Act”) or Section 21E of the U.S. Securities Exchange Act of 1934 (“the Exchange Act”), including, without limitation, certain statements made in Item 4.B Business overview as well as in Item 5 Operating and Financial Review and Prospects. Forward-looking statements can be identified by the use of forward-looking terminology such as “should”, “could”, "would", “will”, “expect”, “consider”, “believe”, “anticipate”, “pursue”, “foresee”, “plan”, “predict”, "intend", "be aimed at", “strategy”, “objective”, “prospects”, "outlook", "trends", “aim”, “change”, “intention”, “ambition”, “risk”, “potential”, “commitment” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by the forward-looking nature of discussions of strategy, plans or intentions.
Although Orange believes these statements are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties, including matters not yet known to Orange or not currently considered material by Orange, and there can be no assurance that anticipated events will occur or that the objectives set out will actually be achieved.
Important factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements include the following ones:
− | A significant portion of Orange’s revenues is generated in highly competitive markets where pricing pressure is strong and regulatory decisions are a determining factor. |
− | High concentration among Orange’s critical suppliers creates a risk for the Group’s business. |
− | Orange’s large geographic footprint and the scope of its activities expose it to geopolitical, macroeconomic and regulatory risks. In particular, the impact that the Covid-19 pandemic may have on Orange’s business and results of operations is uncertain; it could itself have an impact on the Group’s business and results of operations and may exacerbate the risks described below and elsewhere in this Annual Report on Form 20-F. |
− | Orange operates in highly regulated markets and its business activities and results could be materially affected by legislative or regulatory changes, including those with extraterritorial scope, or by changes in government policy. |
− | In particular in the event of a cyber-attack, Orange is exposed to risks of disclosure or inappropriate modification of personal data, in particular customer data and of stakeholder data. These risks have increased due to the Group’s diversification into mobile financial services. |
− | Orange is faced with increasing demand for connectivity and must therefore accelerate the deployment of networks while improving the quality of service, but such investments are constrained by the availability of resources. |
− | The development of mobile financial services exposes Orange to risks inherent to this sector. |
− | Orange is exposed to the risk of an interruption of its services. |
− | Orange's strategy for developing its new sources of growth may not give the expected results. |
− | The shift of Orange’s ecosystem towards a more open and fragmented model enables global players to have a greater stake in the value chain of services and networks. |
− | The Group’s brand policy, combined with a strategy of geographic expansion and diversification into new businesses, represents an image risk for the Orange brand. |
− | Orange is continually involved in litigation, the outcome of which could have a material adverse effect on its profits, financial position or reputation. |
− | Orange’s results and outlook could be affected if the terms of access to the capital markets become difficult. |
− | Changes affecting the economic, political or regulatory environment may result in asset impairment, particularly of goodwill. |
− | A change in the outlook for Orange’s credit rating could increase its borrowing costs and, in certain circumstances, Orange’s access to the capital it needs could be limited. |
− | Orange is exposed to risks of corruption, behavior by individuals or groups that does not comply with its business ethics, or fraudulent behavior. |
− | Orange faces a variety of internal and external risks relating to human health and safety. |
− | The scope of Orange’s business activities, its numerous locations around the world, and its business dealings with a variety of partners may expose the Group to a risk of breaching human rights and fundamental freedoms. |
− | Orange and some of its stakeholders are exposed to physical and transitional risks related to climate change. |
− | In the future, Orange may find it difficult to obtain and retain the skills needed for its business due to numerous employee departures and ever faster changes in its activities. |
− | The scope of Orange’s business and the interconnection of the networks mean that Orange is exposed to a variety of acts of technical fraud, specific to the telecommunications and mobile financial services sectors. |
− | Orange’s technical infrastructure is vulnerable to damage caused by intentional or accidental damage, or natural disasters whose increasing frequency is caused by climate change. |
− | Exposure to electromagnetic fields of telecommunications equipment, as well as the excessive or inappropriate use of telecommunication services and equipment may be potentially harmful to people’s health. |
− | The rapid development of new uses and technologies may jeopardize the commitments made by Orange with regard to reducing its effect on the environment. |
Forward-looking statements speak only as of the date they are made. Other than as required by law, Orange does not undertake any obligation to update them in light of new information or future developments.
The most significant risks are described in Item 3 Key Information – 3.D Risk factors.
2019 Form 20-F / ORANGE – 4
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Disclosure Pursuant to Section 13 (r) of the United States Exchange Act of 1934 | 31 | ||
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2019 Form 20-F / ORANGE – 5
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 33 | ||
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Management’s annual report on internal control over financial reporting | 34 | ||
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PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 36 | ||
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F-1 |
2019 Form 20-F / ORANGE – 6
PART I
Item 1 | Identity of directors, senior management and advisers |
Not applicable.
Item 2 | Offer statistics and expected timetable |
Not applicable.
Item 3 | Key information |
3.A | SELECTED FINANCIAL DATA |
The following table sets forth selected consolidated financial and other operating data of Orange. The selected financial data set forth below should be read in conjunction with the consolidated financial statements and Item 5 Operating and Financial Review and Prospects appearing elsewhere in this Form 20-F. Orange’s consolidated financial statements were prepared in accordance with IFRS as published by the IASB for the years ended December 31, 2015, 2016, 2017, 2018 and 2019.
The selected financial information presented below as of and for the twelve month periods ended December 31, 2015, 2016, 2017, 2018 and 2019 is extracted or derived from the consolidated financial statements. Selected financial information for the periods ended as of December 31, 2017, 2018 and 2019 is derived from audited consolidated financial statements included in Item 18. Selected financial information for the periods ended December 31, 2015 and 2016 is derived from audited consolidated financial statements which are not included or incorporated by reference herein. Selected financial information for the periods ended as of December 31, 2016, 2017, 2018 and 2019 has been prepared or restated in accordance with IFRS 15. Selected financial information for the period ended December 31, 2015 has not been restated with respect to IFRS 15. Also, IFRS 16 has been applied from January 1, 2019 using the modified retrospective approach; information with respect to 2018 and prior periods has not been restated with respect to this change.
CONSOLIDATED INCOME STATEMENT
Amounts in accordance with IFRS |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
(in millions of euros, except for earnings per share data) | ||||||||||
Revenues, net |
| 42,238 |
| 41,381 |
| 40,859 |
| 40,708 |
| 40,236 |
Operating income |
| 5,927 |
| 4,829 |
| 4,778 |
| 3,917 |
| 4,742 |
Finance costs, net |
| (1,254) |
| (1,362) |
| (1,715) |
| (2,097) |
| (1,583) |
Net income of continuing operations |
| 3,226 |
| 2,158 |
| 2,011 |
| 869 |
| 2,510 |
Net income of discontinued operations |
| — |
| — |
| 29 |
| 2,253 |
| 448 |
Net income (attributable to owners of the parent company) |
| 3,006 |
| 1,954 |
| 1,843 |
| 2,813 |
| 2,652 |
Earnings per share attributable to owners of the parent company |
|
|
|
|
|
|
|
|
|
|
Net income of continuing operations |
|
|
|
|
|
|
|
|
|
|
- basic |
| 1.03 |
| 0.63 |
| 0.58 |
| 0.10 |
| 0.72 |
- diluted |
| 1.02 |
| 0.62 |
| 0.58 |
| 0.10 |
| 0.72 |
Net income of discontinued operations |
|
|
|
|
|
|
|
|
|
|
- basic |
| — |
| — |
| 0.01 |
| 0.85 |
| 0.17 |
- diluted |
| — |
| — |
| 0.01 |
| 0.85 |
| 0.17 |
Net income |
|
|
|
|
|
|
|
|
|
|
- basic |
| 1.03 |
| 0.63 |
| 0.59 |
| 0.95 |
| 0.89 |
- diluted |
| 1.02 |
| 0.62 |
| 0.59 |
| 0.95 |
| 0.88 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Amounts in accordance with IFRS |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
(in millions of euros) | ||||||||||
Intangible assets (1) |
| 42,381 |
| 41,247 |
| 41,250 |
| 41,581 |
| 41,398 |
Property, plant and equipment |
| 28,423 |
| 27,693 |
| 26,665 |
| 25,912 |
| 25,123 |
Total assets |
| 106,303 |
| 96,592 |
| 95,349 |
| 95,411 |
| 91,430 |
Net assets |
| 34,416 |
| 33,249 |
| 33,512 |
| 33,845 |
| 33,267 |
Share capital |
| 10,640 |
| 10,640 |
| 10,640 |
| 10,640 |
| 10,596 |
Number of shares |
| 2,660 |
| 2,660 |
| 2,660 |
| 2,660 |
| 2,649 |
Equity attributable to the owners of the parent |
| 31,727 |
| 30,669 |
| 30,975 |
| 31,241 |
| 30,907 |
(1) | Includes goodwill and the other intangible assets. |
2019 Form 20-F / ORANGE – 7
CONSOLIDATED STATEMENT OF CASH FLOWS
Amounts in accordance with IFRS |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
(in millions of euros) | ||||||||||
Net cash provided by operating activities |
| 10,159 |
| 9,506 |
| 10,174 |
| 8,750 |
| 9,527 |
Net cash used in investing activities |
| (9,370) |
| (8,552) |
| (7,941) |
| (4,879) |
| (9,406) |
Purchase of property, plant and equipment and intangible assets |
| (8,422) |
| (7,642) |
| (7,527) |
| (8,492) |
| (7,771) |
Net cash used in financing activities |
| 55 |
| (1,131) |
| (2,738) |
| (1,883) |
| (3,924) |
Cash and cash equivalents - closing balance |
| 6,481 |
| 5,634 |
| 5,810 |
| 6,355 |
| 4,469 |
DIVIDEND
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |
Dividend per share for the year (euros) |
| 0.70(3) | 0.70 |
| 0.65 |
| 0.60 |
| 0.60 | |
Dividend per share for the year (dollars) (4) |
| 0.77 |
| 0.77 |
| 0.72 |
| 0.66 |
| 0.66 |
(3) | Subject to approval by the Ordinary Shareholders' Meeting of May 19, 2020. |
(4) | The U.S. dollar amounts presented in the table have been translated solely for the convenience of the reader using the Noon Buying Rate on March 31, 2020 of €0.9078 to $1.00. |
OPERATIONAL DATA
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |
Number of fixed telephone lines (in millions)(5) |
| 37.8 |
| 40.2 |
| 41.7 |
| 42.7 |
| 43.5 |
Number of mobile customers (in millions)(5) (6) |
| 207.2 |
| 203.6 |
| 202.3 |
| 190.6 |
| 201.2 |
Number of broadband (mainly ADSL) customers (in millions)(5) |
| 20.7 |
| 20.1 |
| 19.4 |
| 18.5 |
| 18.1 |
Number of employees (workforce end of period) |
| 146,768 |
| 150,711 |
| 151,556 |
| 155,202 |
| 156,191 |
(5) | Since January 1, 2018, the customer bases correspond solely to customers of the fully consolidated entities. The customers of associates and joint ventures (Tunisia, Mauritius, Iraq and Equatorial Guinea), previously recognized in proportion to the Group’s interest in these entities, are no longer taken into account. As a consequence, data for the years 2017 and 2016 have been adjusted. Data for the year 2015 have not been adjusted. |
(6) | Excluding customers of Mobile Virtual Network Operators (“MVNOs”). |
Since January 1, 2018, the recognition of the customer bases for mobile services in all countries has been aligned with the Group’s definitions (and no longer with local definitions). As a consequence, data for years 2017 and 2016 have been adjusted. This adjustment affects Morocco, Ivory Coast, Jordan and Cameroon. Data for the year 2015 have not been adjusted.
3.B | CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
3.C | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not applicable.
3.D | RISK FACTORS |
In addition to the information contained in this Annual Report on Form 20-F, investors should also carefully consider the risks outlined below before deciding whether to invest in Orange’s securities. Orange’s view as of the date of this Annual Report on Form 20-F is that these risks could have a material negative effect (i) on its business, financial position, profits, reputation or outlook or (ii) on its stakeholders. In addition, other risks and uncertainties, as yet unidentified or, as of the date of this Annual Report on Form 20-F, not currently considered to be material by Orange, could have similar negative effects. Investors could lose all or part of their investment if these risks materialize.
The risks are presented in this section under five categories, which are not presented in order of importance. However, within each category, risk factors are presented in descending order of importance, as determined by Orange at the date of filing this Annual Report on Form 20-F. Orange may change its view of their relative importance at any time, particularly if new external or internal facts come to light.
Several other sections of this document also discuss risks in some detail:
− | for risks relating to regulations and regulatory pressure, see Section 1.7 Regulation of activities on pages 35 et seq. of the 2019 Registration Document filed as Exhibit 15.1 of this document and Note 17 Litigation to the consolidated financial statements included in Item 18; |
− | for risks relating to litigation involving the Group, see also Note 10 Taxes and Note 17 Litigation to the consolidated financial statements, as well as Section 3.2.1 Recent events on page 131 of the 2019 Registration Document filed as Exhibit 15.1 of this document, where applicable; |
− | for financial risks, see: |
- | note 7 to the consolidated annual statements for the key assumptions used to determine the recoverable amount of the main activities and specific risk factors that might affect this amount, |
- | notes 8 and 11 to the consolidated financial statements for asset impairments, |
- | note 12.8 to the consolidated financial statements for derivatives, |
- | note 13 for the management of interest rate risk, currency risk, liquidity risk, covenants, credit risk and counterparty risk, and equity market risk. The policies for managing interest rate, foreign exchange and liquidity risks are set by the Treasury and Financing Committee. See Section 5.2.2.3 Executive Committee and Group Governance Committees on pages 360 et seq. of the 2019 Registration Document filed as Exhibit 15.1 of this document; |
2019 Form 20-F / ORANGE – 8
In addition, the risks related to the Covid-19 pandemic, as assessed at the date of publication of this document, are mentioned in section 3.2.1 Recent events on page 131 of the 2019 Registration Document filed as Exhibit 15.1 of this document. The ultimate impact of the outbreak is uncertain; it could have an impact on the Group’s business and results of operations and may exacerbate the risks described below and elsewhere in this Annual Report on Form 20-F.
Operational risks
Operational risks mainly include risks related to the telecommunications sector, and risks related to Orange’s strategy and business. Additional risks may exist that could have potentially substantial employee, environmental and social consequences.
A significant portion of Orange’s revenues is generated in highly competitive markets where pricing pressure is strong and regulatory decisions are a determining factor.
In France and Spain particularly, Orange is still experiencing extremely strong competition which mainly affects prices. In parallel, the operation of markets is subject to the decisions of industry regulators and competition authorities. In this context, Orange is continuing to implement a policy of moving towards a multi-services operator model by offering convergent offers (very high-speed fixed and mobile broadband) with a more generous data allowance while improving the quality of its services. Should Orange fail to implement its strategy it may lose a portion of its market share and see its margins reduced.
For further information about competition, see section 1.4 Operating activities on pages 19 et seq. of the 2019 Registration Document filed as Exhibit 15.1 of this document.
High concentration among Orange’s critical suppliers creates a risk for the Group’s business.
Orange’s critical suppliers, in particular in the network infrastructure, IT systems and mobile handset sectors, operate in highly concentrated markets. Despite secure supply policies implemented by Orange, this concentration poses a risk to the Group’s current or future business (for example the supply of hardware for 5G networks) in the event that one of these suppliers defaults or decides to change its business practices, regardless of the causes, including the introduction of international economic sanctions against these critical suppliers or their country of origin. In addition, any significant change in critical suppliers may affect the terms of their partnership with Orange. If any of these situations were to arise, they could have a lasting effect on Orange’s business, profits and corporate image.
Orange’s large geographic footprint and the scope of its activities exposes it to geopolitical, macroeconomic and regulatory risks.
In emerging countries where the Group is present, its contribution to the local economy is often significant while its corporate image is sometimes connected to that of the French state. In this context, political instability or changes in the economic, regulatory, fiscal or social situation in these regions exposes Orange to the decisions of governmental or legal authorities that are contrary to its interests, such as new taxes or fines which, if contested, may lead the authorities to decide to suspend services. International economic sanctions imposed on certain countries could also affect the value or permanence of the investments made in those countries. Such situations could call into question profit forecasts made at the time of investment decisions and affect the Group’s financial position and earnings.
Orange is faced with increasing demand for connectivity and must therefore accelerate the deployment of networks while improving the quality of service, but such investments are constrained by the availability of resources.
Orange must accelerate the deployment of its fixed and mobile broadband and very high-speed broadband networks in the regions and improve their quality of service, to meet the needs for increased connectivity and anticipating the arrival of 5G. Orange has also made service-level and geographical coverage commitments to public and local authorities in France. However, Orange’s investment capacity is constrained by its human, industrial and financial resources, as well as those of its subcontractors. Failing to meet these expectations in a balanced way could have an effect on Orange’s earnings and reputation.
The development of mobile financial services exposes Orange to risks inherent to this sector.
Mobile financial services, including banking services expose Orange to risks inherent to this sector, such as money laundering, the financing of terrorism and non-compliance with economic sanction programs, as well as particularly sensitive and common risks in the financial services sectors such as fraud, cyber-attacks or service interruptions. If these risks materialized, they could have a material effect on the Group’s financial position, the success of its strategy and its reputation.
Orange is exposed to risks of disclosure or inappropriate modification of stakeholder data in its possession, in particular as a result of cyber-attacks.
Orange’s activities expose it to risks of losses, disclosure, unauthorized communication to third parties or inappropriate modification of data stored on its infrastructure or carried by its networks, belonging to business customers or government authorities, suppliers or partners, or any other stakeholders other than individuals).
These risks may materialize (i) from the implementation of new services or applications, (ii) from the development of new activities in the field of connected devices, (iii) from malicious acts (such as cyber-attacks) particularly aimed at data in Orange’s possession, or (iv) possible negligence or errors within Orange or the Group’s outsourcing partners.
The Group could be held liable if these risks were to materialize. Moreover, while the Group’s stakeholders have high expectations in terms of security, given Orange’s position as a trusted operator, its reputation may be strongly affected, which would materially affect its future earnings.
Orange is exposed to the risk of an interruption of its services.
Telecommunications network operators are particularly exposed to deliberate, sometimes criminal acts, owing to the essential nature of telecommunications. Services supplied to customers could thus be interrupted as a result of cyber-attacks, malicious activities (such as sabotage of critical software) or requests issued by governments or legal authorities.
Interruptions may also be involuntary. They may occur as a result of extreme climate events, human error such as outages during work on shared infrastructure by sub-contractors, failure of a critical supplier, or insufficient network capacity to meet the growing usage needs, or during the commissioning of new applications or software.
Despite business continuity and crisis management measures taken by Orange to protect its networks, the high frequency of cyber-attacks, the streamlining of the network through the use of all-IP technologies, the increasing size of service platforms and the relocation of equipment into fewer buildings mean that, in the future, service interruptions may affect a greater number of customers and more than one country simultaneously. Such
2019 Form 20-F / ORANGE – 9
events could seriously damage Orange’s reputation, trigger its liability and result in a reduction of traffic and its revenue, affecting its earnings and outlook. If they were to occur on a nationwide or multinational scale, they might also create a crisis potentially affecting the security of the countries concerned.
Orange’s strategy for developing its new sources of growth may not give the expected results.
Orange’s strategy is to accelerate its business in growth areas with a particular focus on mobile financial services (including Mobile Banking), B2B IT services and cyber security. Although building on the Group’s strengths (digital expertise, distribution strength, capacity for innovation, brand image and a strong presence in the MEA Region), the development of these new businesses requires substantial resources, without any guarantee that the corresponding services will gain sufficient traction to generate a return on these investments. Should Orange fail to implement its strategy it may lose a portion of its market share and see its margins reduced.
The shift of Orange’s ecosystem towards a more open and fragmented model enables global players to have a greater stake in the value chain of services and networks.
Competition with Over-The-Top (OTT) service providers and Internet giants in the provision of value-added services using the networks is spreading to individual access services made possible by technological changes and the growing number of connected objects. This development could accelerate with the launch of 5G and the position of operators such as Orange, for which the direct relationship with customers adds value, may be weakened.
Moreover, the opening up and fragmentation of the network ecosystems enables existing players (infrastructure managers, non-telecoms networked businesses such as railways, local authorities or Cloud service providers) to offer network services and new players (SD-WAN etc.) to position themselves as aggregators of such services, a role traditionally filled by integrated operators such as Orange.
These two developments could affect Orange’s revenues and outlook.
The Group’s brand policy, combined with a strategy of geographic expansion and diversification into new businesses, represents an image risk for the Orange brand.
The strategy implemented by Orange to accelerate its activities in growth areas implies operational implementation risks inherent to the new business lines (particularly mobile banking and cyber defense) and the countries into which the Group is expanding. Although the Group pays close attention to preserving the value of the Orange brand, which constitutes a major asset, if these risks were to materialize, they could adversely affect the company’s reputation, in particular in the mature mobile telephony sector. In the event of material damage to the Orange brand, the Group’s profits and outlook may be affected.
The scope of Orange’s business and the interconnection of the networks mean that Orange is exposed to a variety of acts of technical fraud, specific to the telecommunications and mobile financial services sectors.
Orange faces risks of different types of fraud relating to its telecommunications or mobile financial services, which may affect it directly, or affect its customers. In a context of increasingly complex technologies, network virtualization and faster implementation of new services or applications, types of fraud that are more difficult to detect or control may also appear, encouraged by the development of mass data processing, which increases the scope for possible attacks, particularly cyber-attacks. Should a serious case of fraud occur, Orange’s revenues, margins, quality of service and reputation could be affected.
Orange’s technical infrastructure is vulnerable to damage caused by intentional or accidental damage, or natural disasters whose increasing frequency is caused by global warming.
A natural disaster, intentional damage in the course of wars, terrorist acts, social unrest, or other accidental events such as fires or civil engineering on infrastructure, may cause significant damage to Orange’s installations, potentially giving rise to service interruptions and generating high repair costs. The frequency and intensity of weather events related to climate change (floods, storms, heat waves) are increasing, which could aggravate accidents and increase related damage. In the medium term, rising sea levels could affect sites and facilities near the coast more often. Whilst insurance cover for claims could fall further, damage caused by major disasters may result in significant costs to Orange and could thus seriously affect its financial position and outlook.
Legal risks
Orange operates in highly regulated markets and its business activities and results could be materially affected by legislative or regulatory changes, including those with extraterritorial scope, or by changes in government policy.
In most countries in which it operates, Orange has little flexibility to manage its business activities as it must comply with various increasingly restrictive regulatory obligations governing the provision of its products and services, primarily relating to obtaining and renewing licenses to operate its activities. Orange must also comply with regulatory obligations and the oversight by authorities seeking to maintain effective market competition, as well as, in some countries, additional constraints owing to its historically dominant position in the fixed telecommunications market.
Orange’s business activities and profits may be materially adversely affected by legislative or regulatory changes, sometimes of an extraterritorial nature, or by changes to government policy, and in particular by decisions taken by regulatory or competition authorities in connection with:
− | the amendment or renewal under unfavorable conditions, or even withdrawal, of fixed-line or mobile operator licenses; |
− | conditions governing network access (primarily those in connection with roaming or infrastructure sharing); |
− | service rates; |
− | the introduction of new taxes or increases in existing taxes on telecommunications companies, including the introduction of taxes aimed at facilitating the achievement of countries’ carbon neutrality targets (such as taxes on use or handset purchases); |
− | regulation of banking and financial activities and any similar regulations requiring compliance such as laws and rules on economic sanctions; |
− | regulations governing data security; |
− | merger policy; |
− | regulations affecting operators of competing sectors, such as cable; |
2019 Form 20-F / ORANGE – 10
− | consumerism legislation. |
Such decisions could materially affect the Group’s revenue and results.
For further information on risks related to regulations, see section 1.7 Regulation of activities on pages 35 et seq. of the 2019 Registration Document filed as Exhibit 15.1 of this document.
Orange is continually involved in litigation, the outcome of which could have a material adverse effect on its profits, financial position or reputation.
Orange believes that, on a general basis and in all countries in which it is present, it complies with all the specific regulations in force, as well as the conditions governing its operator licenses. However, the company is not able to predict the decisions of oversight and legal authorities who are regularly asked to rule on such issues. Should Orange be ordered by the relevant authorities in a country in which it operates, to pay damages or a fine or suspend some of its activities due to non-compliance with an applicable regulation, the Group’s financial position and results could be adversely affected.
In addition, Orange – particularly in France and Poland – is frequently involved in legal proceedings with its competitors and with the regulatory authorities due to its dominant position in certain markets, and the claims made against Orange may be substantial. In the past, the Group has been fined several tens of millions of euros and even several hundreds of millions of euros for concerted practices or for abuse of a dominant position. The Group is also involved in substantial litigations with potentially very significant penalties. The outcome of lawsuits is inherently unpredictable.
In the case of proceedings involving European Competition Authorities, the maximum fine provided for by law is 10% of the consolidated revenue of the company at fault (or the Group to which it belongs, as the case may be).
Finally, owing in particular to its use of a large number of sub-contractors, and the presence of rare minerals in the products it distributes, Orange is exposed to a growing risk of legal action by various civil society stakeholders who may accuse it of various environmental, employee-related or social breaches. Such actions could cause significant harm to Orange’s reputation.
The main proceedings involving Orange are detailed in Note 10 Taxes and Note 17 Litigation to the consolidated financial statements included in Item 18. Developments in or the results of some or all of the ongoing proceedings could have a material adverse effect on Orange’s results or financial position.
Financial risks
Liquidity risk
Orange’s results and outlook could be affected if the terms of access to the capital markets become difficult.
Orange finances itself mainly through the bond markets. An unfavorable development in the macroeconomic context could restrict or make significantly more expensive Orange’s access to its usual sources of financing through an increase in market rates and/or the margins applied to its borrowings.
Any inability to access the financial markets for a lasting period and / or obtain financing on reasonable terms might have a material adverse effect on Orange. The Group could, in particular, be required to allocate a significant portion of its available cash to service or pay off debt, to the detriment of investment or shareholders’ remuneration. In all cases, Orange’s results, cash flows and, more generally, financial position and flexibility may be adversely affected.
See Note 13.3 Liquidity risk management to the consolidated financial statements included in Item 18, which sets out different financing sources available to Orange, the maturity of its debt and changes to its credit rating, as well as Note 13.4 Financial ratios, which contains information on the limited commitments of the Orange Group in relation to financial ratios and in the event of default or material adverse change.
Risk of asset impairment
Changes affecting the economic, political or regulatory environment may result in asset impairment, particularly of goodwill.
At December 31, 2019, the gross value of goodwill recognized by Orange following completed acquisitions and disposals was €33.6 billion, not including the goodwill of associates and joint ventures.
The book values of long-term assets, including goodwill and fixed assets, are sensitive to any change in the business environment that is different from the assumptions used. Orange recognizes assets as impaired if events or circumstances occur that involve material adverse changes of a permanent nature affecting the economic environment or the assumptions and targets used at the time of the acquisition.
Over the past five years, Orange recognized significant impairment losses in respect of its interests in Poland, Congo (DRC), Cameroon, Egypt and Jordan. At December 31, 2019, the cumulative amount of goodwill impairment was €5.9 billion, not including the goodwill impairment of associates and joint ventures.
New events or adverse circumstances could conduct Orange to review the present value of its assets and to recognize further substantial impairment that could have an adverse effect on its results.
In addition, in the case of disposals or listings on a stock exchange, the value of certain subsidiaries could be affected by changes in the stock and debt markets.
For further information on goodwill and recoverable amounts (particularly key assumptions and sensitivity), see Item 5.A as well as Note 7 Impairment losses and goodwill and Note 8.2 Impairment of fixed assets to the consolidated financial statements included in Item 18.
Credit-rating risk
A change in the outlook for Orange’s credit rating could increase its borrowing costs and, in certain circumstances, Orange’s access to the capital it needs could be limited.
Orange’s credit rating from rating agencies is partly based on factors over which it has no control, namely conditions affecting the telecommunications industry in general or conditions affecting certain countries or regions in which it operates. It may be changed at any time by the rating agencies, in
2019 Form 20-F / ORANGE – 11
particular as a result of changing economic conditions, a downturn in the Group’s results or performance or changes to its investor base. A prolonged multi-notch downgrade in Orange’s rating would have a material adverse effect on its financing terms.
Interest rate risk
Orange’s business activities could be affected by interest rate fluctuations.
In the normal course of its business, Orange obtains most of its funding from capital markets (particularly the bond market) and a small part from bank loans.
Since most of its current debt is at a fixed rate, Orange has limited exposure to increases in market interest rates. The Group remains exposed to a sustained ongoing increase in interest rates for future financing.
To limit exposure to interest rate fluctuations, Orange from time to time makes use of financial instruments (derivatives) but cannot guarantee that these transactions will completely limit its exposure or that suitable financial instruments will be available at reasonable prices. In the event that Orange cannot use financial instruments or if its financial instrument strategy proves ineffective, cash flows and earnings may be adversely affected.
In addition, the costs of hedging against interest rate fluctuations could, generally, increase in line with market liquidity, banks’ positions, and, more broadly, the macroeconomic situation (or how it is perceived by investors).
The management of interest rate risk and an analysis of the sensitivity of the Group’s position to changes in interest rates are set out in Note 13.1 Interest rate risk management to the consolidated financial statements included in Item 18.
Foreign exchange risk
Orange’s results and cash position are exposed to exchange rate fluctuations.
Although they showed limited volatility in 2019, currency markets could become again highly volatile due to the economic and geopolitical context.
The main currencies in which Orange is exposed to a major foreign exchange risk are the Polish zloty, the Egyptian pound, the Moroccan dirham, the US dollar. Intra-period variations in the average exchange rate of a particular currency could significantly affect the revenue and expenses denominated in that currency, which would significantly affect Orange’s results, as happened, for example, with the near 50% devaluation of the Egyptian pound in November 2016. In addition, Orange operates in other monetary zones, in particular in Africa & Middle East. Depreciation of the currencies in this region would have an adverse effect on the Group’s consolidated revenue and earnings.
When preparing the Group’s consolidated financial statements, the assets and liabilities of foreign subsidiaries are translated into euros at the fiscal year closing rate. This translation could have a negative impact on the consolidated balance sheet, assets and liabilities and equity, for potentially significant amounts, as well as on net income in the event of disposal of these subsidiaries.
The management of foreign exchange risk and an analysis of the sensitivity of the Group’s position to changes in foreign exchange rates are set out in Note 13.2 Foreign exchange risk management to the consolidated financial statements.
Orange manages the foreign exchange risk on commercial transactions (stemming from operations) and financial transactions (stemming from financial debt) in the manner set out in Note 13.2 Foreign exchange risk management to the consolidated financial statements.
Notably, Orange makes use of derivatives to hedge its exposure to foreign exchange risk but cannot guarantee that suitable hedging instruments will be available at reasonable prices.
To the extent that Orange has not used hedging instruments to hedge part of this risk, its cash flows and results could be affected.
See Note 12.8 Derivative instruments to the consolidated financial statements included in Item 18.
Credit risk and/or counterparty risk on financial transactions
The insolvency or deterioration in the financial position of a bank or other institution with which Orange has a financial agreement may have a material adverse effect on Orange’s financial position.
The investment of its available cash exposes Orange to counterparty risk if the financial institutions where it has invested should go bankrupt.
In addition, in the normal course of its business, Orange uses derivatives to manage exchange rate and interest rate risks, with financial institutions as counterparties. Cash collateral is paid or received on a daily basis to or from all bank counterparties with which the derivatives are contracted. Nevertheless, a residual credit risk may remain if one or more of these counterparties default on their commitments.
See Note 13.5 Credit risk and counterparty risk management to the consolidated financial statements included in Item 18.
Moreover, Orange may in future have difficulties using its 6 billion euro undrawn syndicated credit facility, whose maturity date is 2023, if several of the banks with which the Company has agreements were to face liquidity problems or could no longer meet their obligations.
The international banking system is such that financial institutions are interdependent. As a result, the collapse of a single institution (or even rumors regarding the financial position of one of them) may increase the risk for the other institutions, which would increase exposure to counterparty risk for Orange.
For customer-related credit and counterparty risk, see Notes 4.3 Trade receivables and 13.5 Credit risk and counterparty risk management to the consolidated financial statements.
Non-financial risks
In particular in the event of a cyber-attack, Orange is exposed to risks of disclosure or inappropriate modification of personal data, in particular customer data. These risks have increased due to the Group’s diversification into mobile financial services.
With regard to the risk of breaching human rights and fundamental freedoms, Orange’s business activities expose it to risks of loss, disclosure, unauthorized communication to third parties or inappropriate modification of the personal data of its customers, employees or the general public which
2019 Form 20-F / ORANGE – 12
are stored on its infrastructures or carried by its networks. This includes their bank details in particular, which are, moreover, the basis of Orange’s mobile financial services business.
These risks may notably materialize from (i) the implementation of new services or applications, (ii) the development of new activities in the field of connected devices or mobile services, (iii) malicious acts (such as cyber-attacks) particularly targeting personal data (iv) possible negligence or errors within Orange or the Group’s outsourcing partners or (v) government requests without any respect for legal or regulatory formalities (see below for more information on this last point).
Orange may be held liable in various countries under laws that are being increasingly tightened (such as the General Data Protection Regulation (EU) 2016/679 of April 27, 2016, or GDPR) and that strengthen individual rights and obligations on data processors such as operators and providers of financial services.
Should these risks materialize, owners of the disclosed or modified data may incur considerable losses, the Group’s liability may be invoked and its reputation and image substantially affected.
Orange is exposed to risks of corruption, behavior by individuals or groups that does not comply with its business ethics, or fraudulent behavior.
Through its activities, as well as those of its suppliers, subcontractors and partners, throughout the world, and despite its efforts to reinforce its anti-corruption policy in compliance with current laws, Orange may be exposed to or implicated in matters relating to corrupt practices, or may fall victim to behavior that is fraudulent or does not comply with international conventions, its Code of Ethics, or its Supplier Code of Conduct, by persons or businesses with which direct or indirect ties may be established. These behaviors may target Orange directly, its customers, its business relations or its employees.
In any event, the Group’s liability may be invoked, and Orange’s revenues, margins, quality of service and reputation could be affected.
Orange faces a variety of internal and external human risks relating to health and safety.
Owing to the specific nature of its operator business and its geographical location, and in a context where tensions and social unrest is increasing, employees of Orange and its subcontractors are exposed to risks to their safety. In addition, the strategic plan, Engage 2025, aims to establish the conditions for a lasting, responsible transformation to ensure the social and human coherence of the Group’s projects worldwide. Nevertheless, this could cause psychosocial risks which may be a source of physical or psychological incapacity for individuals. These risks could also slow the roll-out of the Group’s strategy and have a material impact on the Group’s image and operations.
The scope of Orange’s business activities, its numerous locations around the world, and its business dealings with a variety of partners may expose the Group to a risk of breaching human rights and fundamental freedoms.
Through its activities, as well as those of its suppliers and subcontractors throughout the world, Orange may be exposed to breaches of human rights and fundamental freedoms (such as forced labor, infringement of the rights of children, indecent, discriminatory or dangerous working conditions, obstruction of freedoms of association or expression, or invasion of privacy), involving third parties with whom a direct or indirect link may be established. This is the case in certain regions where minerals are mined, processed and traded in conflict zones or areas where human rights are not respected.
Should these risks materialize, they may have a significant effect on the image and reputation of Orange or the suppliers and subcontractors in question, and may result in their liability being invoked.
Moreover, Orange may be required, in the countries where it operates, to comply with injunctions from local authorities that do not comply with formal legal or regulatory requirements. These injunctions, the frequency of which is increasing with the growing role played by digital technologies in society, may involve a suspension (in full, in part, or in a given region) of certain networks for which Orange is responsible, or the interception of communications, or the disclosure of personal data to third parties. Complying with such injunctions may therefore undermine freedom of expression or fundamental freedoms.
Should Orange fail to ensure compliance with applicable legislation or regulations, these injunctions may significantly impact the image or reputation of Orange or of the countries concerned. For civil society or the targets of these requests, they may also involve breaching freedom of expression and respect for privacy.
Orange and some of its stakeholders are exposed to physical and transitional risks related to climate change.
Other than the effects on Orange infrastructure referred to above, , climate change may have negative effects on its activities and those of its suppliers or subcontractors. It is also creating expectations among Orange customers, particularly in respect of its capacity to set up emergency services in the case of an extreme climate event. Climate change could also result in an increase in inequalities and health crises among populations and in significant displacement of populations within the MEA Region on which the Group’s prospects for growth in part depend. Should such events materialize, Orange may experience greater difficulties in fulfilling its purpose.
In the future, Orange may find it difficult to obtain and retain the skills needed for its business due to numerous employee departures and ever faster changes in its activities.
The high number of retirements and employees working part-time at the end of their careers in France as well as the new skills required in relation to the development of new technologies and the Group’s development priorities in high-demand segments of the employment market, may affect Orange’s capacity to continue its business activities efficiently and successfully implement its strategy. Should Orange’s efforts to attract staff or its ambitious training policy prove insufficient, its profits and outlook may be affected and some of the human risks described below may increase. Moreover, the success of Orange’s digital support for some of its stakeholders may be compromised.
Exposure to electromagnetic fields of telecommunications equipment, as well as the excessive or inappropriate use of telecommunication services and equipment may be potentially harmful to people’s health.
Following concerns raised in many countries regarding the possible health risks linked to exposure to electromagnetic fields from telecommunications equipment, public authorities have in general approved binding regulations and health authorities have issued various usage precautions.
The perception by the public of a risk for human health or biodiversity could lead to a decrease in the number of customers and in their usage, an increase in lawsuits, particularly against the installation of mobile antennas, difficulties in opening new sites, thus jeopardizing among others the deployment of 5G networks, and the tightening of regulations, with, as a consequence, a reduction in coverage, deterioration of service quality and an increase in network roll-out costs.
2019 Form 20-F / ORANGE – 13
Consensus exists among health experts and health authorities, including the World Health Organization (WHO), that, so far, no health risks from exposure to electromagnetic fields below the limits recommended by the specialist international commission (ICNIRP) have been identified. Nevertheless, further scientific studies must be conducted on certain frequencies used for 5G (millimeter waves). Orange cannot predict the findings of future scientific research or future studies by international organization and scientific committees called upon to examine these issues. If an adverse health effect should one day be scientifically established, this would have a significant effect on Orange’s business, its brand image and the income and financial position of the Group. Beyond potential effects on Orange, this could significantly curb the development of the digital society.
Similarly, the widespread availability of connected digital devices may give rise to excessive use, which could have negative physical and psychological consequences for users, particularly young adults and children. It also increases the risk of exposure to inappropriate content, cyber bullying and misinformation, as well as the risk of information overload.
Should this widespread availability be perceived as a risk for the most vulnerable populations, it may also result for Orange in a decrease in the use of its services and damage to its reputation. Socially, the perception of this risk may result in mistrust of digital tools and may curb innovation.
In any event, the Group’s liability may be invoked, and Orange’s revenues, margins, quality of service and reputation could be affected.
The rapid development of new uses and technologies may jeopardize the commitments made by Orange with regard to reducing its effect on the environment.
Due to the nature of its services and its social reach, Orange must offer new solutions to reduce the environmental impact of its customers, while limiting its own sources of environmental pollution. Orange has committed to being Net Zero carbon by 2040 and has set the interim target of a 30% reduction in its CO2 emissions by 2025 compared with 2015. Under its strategic plan, Engage 2025, Orange plans to improve the management of its energy consumption, implementation of the principles of the circular economy, use of renewable energy and investments in carbon sinks. Should its environmental action plans prove insufficient or depend on resources that are unavailable, particularly during the technological transition period for the fixed network and the introduction of mobile 5G, Orange may not be in a position to uphold its commitments, which would materially adversely affect its image.
Risks related to Orange’s U.S. listing
The price of Orange’s ADSs and the U.S. dollar value of any dividend will be affected by fluctuations in the U.S. dollar/euro exchange rate.
The ADSs are quoted in U.S. dollars. Fluctuations in the exchange rate between the euro and the U.S. dollar are likely to affect the market price of the ADSs. For example, because Orange’s financial statements are reported in euro, a decline in the value of the euro against the U.S. dollar would reduce Orange’s earnings as reported in U.S. dollars. This could adversely affect the price at which the ADSs trade on the U.S. securities markets. Any dividend that Orange might pay in the future would be denominated in euro. A decline in the value of the euro against the U.S. dollar would reduce the U.S. dollar equivalent of any such dividend.
Holders of ADSs may face disadvantages compared to holders of Orange’s shares when attempting to exercise certain rights as shareholders.
Holders of ADSs may face more difficulties in exercising their rights as shareholders than they would if they held Shares directly. For example, to exercise their voting rights, holders of ADSs must instruct the depositary how to vote their Shares. Because of this extra procedural step involving the depositary, the process for exercising voting rights will take longer for holders of ADSs than for holders of Shares. ADSs for which the depositary does not receive timely voting instructions will not be voted at any meeting.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiffs in any such action.
The deposit agreement governing the ADSs representing Shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against Orange or the depositary arising out of or relating to the Shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. Consequently, if Orange or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with applicable law and ADS holders may not be entitled to a jury trial. If the waiver of jury trial is enforced, a lawsuit brought against either or both of Orange and the depositary under the deposit agreement would be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including results that could be less favorable to the plaintiffs in any such action.
U.S. investors may have difficulty enforcing civil liabilities against Orange and its directors and senior management.
The members of the board of directors and senior management at Orange are non-residents of the United States, and all or a substantial portion of assets of Orange and the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or Orange in the United States or to enforce judgments obtained in U.S. courts against them or Orange based on civil liability provisions of the securities laws of the United States. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. In particular, there is some doubt as to whether French courts would recognize and enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in France. The United States and France do not currently have a treaty providing for recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters.
Preemptive rights may be unavailable to holders of Orange’s ADSs.
Holders of Orange’s ADSs or U.S. resident shareholders may be unable to exercise preemptive rights granted to Orange’s shareholders, in which case holders of Orange’s ADSs could be substantially diluted. Under French law, whenever Orange issues new shares for payment in cash or in kind, Orange is usually required to grant preemptive rights to its shareholders. However, holders of Orange’s ADSs or U.S. resident shareholders may not be able to exercise these preemptive rights to acquire Shares unless both the rights and the Shares are registered under the Securities Act or an exemption from registration is available.
If the depositary (or a U.S. resident shareholder) is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, the rights will lapse or be allowed to lapse, in which case no value will be given for these rights, and the ADS holder (or U.S. resident shareholder) will lose value.
2019 Form 20-F / ORANGE – 14
Item 4 | Information on Orange |
4.A | HISTORY AND DEVELOPMENT OF ORANGE |
The information required by this section is set forth as follows in the 2019 Registration Document filed as Exhibit 15.1 of this document:
− | the introduction to section 1.1 Overview on page 4, |
− | section 1.1.1 Company identification on page 4, |
− | section 1.1.4 History on page 6, |
− | subsection Investment in networks of section 1.3 Significant events on pages 16 and 17 and section 3.1.2.5 Group capital expenditures on pages 89 et seq., |
and is incorporated in this section by reference.
See also Note 3 Gains and losses on disposal and main changes in scope of consolidation to the consolidated financial statements included in Item 18.
Agent in the United States: Orange Participations U.S. Inc., 13775 McLearen Road, Oak Hill, Virginia 20171.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).
Orange also maintains a website at www.orange.com. For the avoidance of doubt, the information available on our website is not incorporated by reference in this Form 20-F.
4.B | BUSINESS OVERVIEW |
The information required by this section is set forth as follows in the 2019 Registration Document filed as Exhibit 15.1 of this document:
− | section 1.4 Operating activities on pages 19 et seq., |
− | section 1.6.2 Intellectual Property and Licensing on page 34 |
− | section 1.7 Regulation of activities on pages 35 et seq., |
− | section 7.2.2 Glossary of technical terms on pages 407 and 408, |
and is incorporated in this section by reference.
Seasonality
In general, Orange’s business operations are not affected by any major seasonal variations. However, the telephone traffic generated from fixed line telephony over the Northern Hemisphere summer months in the third quarter (ended September 30) is generally lower than in the other quarters.
Furthermore, in the retail markets, the number of new mobile customers for telecommunications services is generally higher in the second half of the calendar year than in the first half, primarily because of the increase in sales during the Christmas season. Consequently, revenues generated from the sale of equipment and packages, as well as the costs incurred in ordering equipment for customers and sales commissions, are generally higher in the second half of the calendar year than in the first half.
4.C | ORGANIZATIONAL STRUCTURE |
The information required by this section is set forth as follows in the 2019 Registration Document filed as Exhibit 15.1 of this document: section 1.1 Overview on page 4 and the introduction of section 3.1.3 Analysis by operating segment on page 91, and is incorporated in this section by reference.
See also Note 19 Main consolidated entities to the consolidated financial statements included in Item 18.
4.D | PROPERTY, PLANTS AND EQUIPMENT |
The information required by this section is set forth as follows in the 2019 Registration Document filed as Exhibit 15.1 of this document: section 1.5 Orange’s networks, on pages 30 et seq., and subsection Investment in networks of section 1.3 Significant events, on pages 16 and 17, and is incorporated in this section by reference.
See also Note 8.5 Property, plant and equipment to the consolidated financial statements included in Item 18.
2019 Form 20-F / ORANGE – 15
Item 4A | Unresolved staff comments |
None.
Item 5 | Operating and financial review and prospects |
There are no differences between IFRS as adopted in the European Union and IFRS as issued by the IASB, as applied by Orange.
References in this Item to the Notes to the consolidated financial statements are references to the consolidated financial statements presented in Item 18 Financial Statements of this document.
5.A | OPERATING RESULTS |
This section sets forth:
− | an overview of the operating results of the Group, set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document, found in (i) the introduction to section 3.1 Analysis of the Group’s financial position and earnings and section 3.1.1 Overview, on pages 79 et seq., and (ii) section 1.3 Significant events on pages 16 et seq. and incorporated in this section by reference; |
− | a presentation of critical accounting policies set forth below; |
− | a comparative analysis of the Group income statement and capital expenditures (and related financial information) and a comparative analysis by business segment for 2019, 2018 and 2017 set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in sections 3.1.2.1 Group revenue, 3.1.2.3 Group net income, 3.1.2.4 Group comprehensive income, 3.1.2.5 Group capital expenditures and 3.1.3 Analysis by operating segment, respectively on pages 81 et seq. and 88 et seq.; |
− | a comparative analysis of the Group operating income set forth below. |
In this Annual Report on Form 20-F, including in the foregoing sections that are included in Exhibit 15.1 and incorporated by reference in this section, Orange sets forth certain financial aggregates that are not defined under IFRS, in addition to the financial aggregates that are presented in accordance with IFRS. Accordingly, the information set forth in section 3.1.5 Financial indicators not defined by IFRS on pages 120 et seq. of the 2019 Registration Document is incorporated in this section by reference. The financial aggregates not defined under IFRS are provided as additional information and should not be substituted for or confused with the financial aggregates that are defined under IFRS.
In addition, the information set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in section 7.2.1 Financial glossary, on pages 405 to 407, is incorporated by reference in this section.
See also Note 2 Description of business and basis of preparation of the consolidated financial statements to the consolidated financial statements included in Item 18.
Critical accounting policies
Critical accounting policies and estimates
The consolidated financial statements for the 2019 fiscal year were prepared in compliance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as of December 31, 2019. Comparative figures are presented for the 2018 and 2017 fiscal years which were prepared on the same basis except for the impact of the first time application of IFRS 16 in 2019 under the modified retrospective transition.
For the reported periods, the accounting standards and interpretations endorsed by the European Union are similar to the compulsory standards and interpretations published by the IASB with the exception of the texts currently being endorsed, which have no effect on the Group accounts. Consequently, the Group financial statements are prepared in accordance with the IFRS standards and interpretations, as published by the IASB.
Basis of preparation
Although IFRS as issued by the IASB constitute a full set of accounting principles, it should nevertheless be noted that reported performance and comparability among companies reporting under IFRS can be affected by the following items:
− | exemptions under IFRS 1 to the retrospective application of IFRS when transitioning from previous local GAAPs to IFRS, such as electing not to restate business combinations prior to the transition date, recognition in equity of actuarial gains and losses on employee benefits measured at the transition date, transfer of all cumulative translation differences to other comprehensive income at the transition date; |
− | alternatives allowed by various IFRS standards, such as: for each business combination since 2010, the measurement of the non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets (goodwill only attributable to the controlling interest acquired); |
− | IFRS do not have a specific standard or interpretation for the accounting of commitments to purchase non-controlling interests, mainly with respect to the accounting for the subsequent remeasurement of the carrying amount of the related financial liability. In such circumstances, the Group - like other preparers - has to define its own accounting policy in accordance with paragraphs 10 to 12 of IAS 8 until the issuance of new standards and interpretations by the IASB or the IFRS IC; |
− | IFRS does not provide for detailed guidance as to the form and content of the consolidated income statement but does include a standard on financial statements presentation. |
2019 Form 20-F / ORANGE – 16
The Group’s reported financial condition and results of operations are thus sensitive to the selection and application of the accounting policies and the judgment and other uncertainties affecting the application of those policies.
Note 2.2 Basis of preparation of the 2019 consolidated financial statements and the accounting policies integrated in each Note to the consolidated financial statements describe in more detail the basis of preparation of the consolidated financial statements.
Use of estimates and judgment
The Group’s reported financial condition and results of operations are also sensitive to judgment and assumptions underlying the estimates made. These estimates may be revised if the underlying circumstances evolve or in light of new information or experience. Consequently, estimates made as of December 31, 2019 may be changed subsequently.
Note 2.5 Accounting policies, use of judgment and estimates of the consolidated financial statements describes in more detail the items that are the most affected by judgment and assumptions and refers to the notes which detail these judgment and assumptions and which provide some disclosures (if any) about the sensitivity underlying these estimates.
Analysis of Group operating income
| 2019 |
| 2018 |
| 2017 | |
(as of December 31, in millions of euros) | data on a historical basis | |||||
Operating Income |
| 5,927 |
| 4,829 |
| 4,778 |
Telecom activities |
| 6,112 |
| 4,997 |
| 4,870 |
Orange Bank activities |
| (186) |
| (169) |
| (93) |
This section presents the transition from revenue to operating income by type of expenses, after presentation adjustments as presented in Notes 1.2 and 1.3 to the consolidated financial statements for fiscal years 2019, 2018 and 2017.
| 2019 |
| 2018 |
| % change |
| 2017 | |
(as of December 31, in millions of euros) |
| data on a historical basis | ||||||
Revenue |
| 42,238 |
| 41,381 |
| 2.1 | % | 40,859 |
External purchases(2) |
| (17,897) |
| (18,563) |
| na |
| (18,381) |
Other operating income and expenses(2) (3) |
| 193 |
| 84 |
| 131.1 | % | 165 |
Labor expenses(2) (3) |
| (8,470) |
| (8,268) |
| 2.4 | % | (8,200) |
Operating taxes and levies(2) (3) |
| (1,827) |
| (1,809) |
| 1.0 | % | (1,851) |
Gains (losses) on disposal of fixed assets, investments and activities(3) (4) |
| — |
| 180 |
| na |
| 88 |
Depreciation and amortization of financed assets(5) |
| (14) |
| na |
| na |
| na |
Depreciation and amortization of right-of-use assets(5) |
| (1,239) |
| na |
| na |
| na |
Impairment of financed assets(5) |
| — |
| na |
| na |
| na |
Impairment of right-of-use assets(5) |
| — |
| na |
| na |
| na |
Adjusted EBITDA (until December 31, 2018)(4) |
| na |
| 13,005 |
| na |
| 12,680 |
Significant litigations |
| (49) |
| (33) |
| 48.4 | % | (271) |
Specific labor expenses |
| (23) |
| (812) |
| (97.2) | % | (374) |
Fixed assets, investments and businesses portfolio review(4) |
| 277 |
| 17 |
| na |
| (5) |
Restructuring programs costs |
| (165) |
| (189) |
| (12.7) | % | (164) |
Acquisition and integration costs |
| (24) |
| (11) |
| 119.2 | % | (3) |
Depreciation and amortization of fixed assets |
| (7,110) |
| (7,047) |
| 0.9 | % | (6,846) |
Remeasurement to fair value of previously held equity interests |
| — |
| — |
| — |
| (27) |
Reclassification of cumulative translation adjustment from liquidated entities |
| 12 |
| 1 |
| na |
| (8) |
Impairment of goodwill |
| (54) |
| (56) |
| (3.6) | % | (20) |
Impairment of fixed assets |
| 73 |
| (49) |
| na |
| (190) |
Share of profits (losses) of associates and joint ventures |
| 8 |
| 3 |
| 141.0 | % | 6 |
Operating Income |
| 5,927 |
| 4,829 |
| 22.7 | % | 4,778 |
(1) | See section 3.1.5.1 Data on a comparable basis of the 2019 Registration Document filed as Exhibit 15.1 of this document. |
(2) | See section 7.2.1 Financial glossary of the 2019 Registration Document filed as Exhibit 15.1 of this document. |
(3) | Adjusted data (see section 3.1.5 Financial indicators not defined by IFRS of the 2019 Registration Document filed as Exhibit 15.1 of this document and Note 1 to the consolidated financial statements). |
(4) | Gains (losses) from the disposal of fixed assets are presented in Gains (losses) from disposal of fixed assets, investments and activities (see Notes 3.1 and 8.1 to the consolidated financial statements). In 2018 on a historical basis, and in 2017, on a historical basis and on a comparable basis, this item was included in the calculation of adjusted EBITDA. In 2019 and 2018, on a comparable basis, it was presented in the Fixed assets, investments and businesses portfolio review (see Changes in operating performance indicators used in 2019 heading of section 3.1.5 Financial indicators not defined by IFRS). |
(5) | Depreciation, amortization and impairment on right-of-use assets and financed assets were not applied in 2018 and 2017 on a historical basis, due to the application of IFRS 16 as from January 1, 2019 using the simplified retrospective method without restatement of historical comparative periods (see Note 2.3 to the consolidated financial statements). |
g 2019 vs. 2018
In 2019, Orange Group operating income amounted to 5,927 million euros (breaking down into 6,112 million euros for the telecoms activities and a loss of 186 million euros for the Orange Bank activities), compared with 4,829 million euros in 2018 on a historical basis.
On a historical basis, the 22.7% (1,098 million euros) rise in Group operating income between 2018 and 2019 reflected:
− | the 2.1% (857 million euros) increase in revenue, despite the negative effects, between the two periods, of promotions on e-readers; |
− | the 789 million euro decrease in specific labor expenses, principally as a result of recognition of the following a 25 million euro expense in 2019 for the French part-time for seniors plans (TPS) with proceeds of 6 million euros (see Notes 1.8 and 6 to the consolidated financial statements) and 31 million euros in related premiums, compared to a 812 million euro expense in 2018 and 39 million euros in related premiums. The expense recorded in 2018 mainly relates to the effect of extending the 2015 French part-time for seniors plans (TPS) for three additional years; |
− | the change in external purchases (down 666 million euros), as a result of the application of IFRS 16 as of January 1, 2019 according to the simplified retrospective method without restatement of the comparative historical periods (see Note 2.3 to the consolidated financial statements), |
2019 Form 20-F / ORANGE – 17
partly offset (i) by the unfavorable effect of changes in scope and other changes, which stood at 239 million euros, and includes mainly the effects of the takeover of Business & Decision on June 5, 2018 and of the acquisitions of Baseform on August 14, 2018, of SecureData on January 31, 2019 and of SecureLink on July 8, 2019, (ii) by the negative effect of foreign exchange changes, accounting for 90 million euros, and (iii) by the organic change in the business, accounting for an increase of 188 million euros in external purchases. |
This 188 million euros increase in external purchases (an increase of 1.1%) is due mainly to the following:
- | a 14.1% (338 million euros) growth in other external purchases (see section 7.2.1 Financial glossary), mainly in connection with purchases for resale relating to the operation of public initiative networks in France (see section 3.1.1.3 Significant events) and, to a lesser extent, in Poland (in connection with the development of integration services and information technologies, and the rise in energy sales), |
- | a 3.0% (96 million euros) increase in other IT and network charges (see section 7.2.1 Financial glossary), mainly for Enterprise services, due to the increase in integration and IT service business, and to a lesser degree in France and countries in Africa and Middle-East (extension of 4G network coverage and transformation projects). |
These positive items were partially offset by:
- | the 3.9% (185 million euros) decrease in service fees and inter-operator costs (see section 7.2.1 Financial glossary), resulting from (i) the decrease in interconnection costs for international carrier services, and secondarily, in interconnection costs in Africa & Middle East and Europe, reflecting the decline in carrier services in those countries, and (ii) to a lesser extent, the decrease in network charges in Spain (due to the roll-out of fiber optics), |
- | and the 0.8% (62 million euros) drop in commercial expenses, cost of equipment and content (see section 7.2.1 Financial glossary), due to (i) lower commercial expenses and cost of equipment, mainly in France (as a result of the important slowdown in equipment sales), (ii) partially offset by increased content cost, essentially in Spain and primarily due to the higher cost of soccer rights (see section 3.1.1.3 Significant events); |
− | an improvement of 122 million euros in impairment losses on goodwill and fixed assets (see Notes 7 and 8.3 to the consolidated financial statements), relating to the recognition of: |
- | a favorable reassessment of 73 million euros in 2019, essentially reflecting an 89 million euros provision reversal on fixed assets in Egypt reflecting the country's improved economic situation, |
- | a 49 million euro impairment in 2018, primarily for Niger for 43 million euros. In Niger, the telecoms market sustained a loss of value in a difficult business environment. The Company's economic and financial position led it, as a precaution, to recognize a fixed-asset impairment to cover Orange’s exposure according to the best current estimate; |
− | the 131.1% (109 million euros) rise in other adjusted operating income and expenses (see section 7.2.1 Financial glossary), due to (i) the increase in other adjusted operating income (reinvoicing as a result of network sharing, recovery costs, effects of various litigations, insurance indemnities for damage), essentially in Spain and Europe, (ii) partly offset by the increase in other adjusted operating expenses, mostly as a result of depreciation and losses on customer receivables; |
− | and the 80 million euro increase in gains (losses) on disposal of fixed assets, investments and activities (see Note 3.1 to the consolidated financial statements), essentially due to higher proceeds from fixed-asset disposals (see Note 8.1 to the consolidated financial statements), in connection with real-estate asset optimization programs pertaining to shared services and to a lesser degree to Spain and Poland. |
These positive items were partially offset by:
− | the recognition in 2019 of an expense of 1,239 million euros for the depreciation and amortization of rights of use, owing to the application of IFRS 16 as of January 1, 2019 according to the simplified retrospective method without restatement of the comparative historical periods (see Note 2.3 of the consolidated financial statements); |
− | the 2.4% increase (202 million euros) in adjusted labor expenses (see section 7.2.1 Financial glossary), due mainly to the unfavorable impact of changes in scope and other changes, which stood at 172 million euros and includes mainly the effects of the takeover of Business & Decision and the acquisitions of Basefarm, SecureData and SecureLink. Between the two periods, the impact of the 1.7% decrease in the average employee headcount (full-time equivalent, see section 7.2.1 Financial glossary), representing a decrease of 2,279 full-time equivalent employees (mainly in France and Poland), offsets the impact of wage policies in France and abroad; |
− | and the 63 million euro increase in depreciation and amortization (see Note 8.2 to the consolidated financial statements), principally due to (i) increased investments in recent years, notably regarding the roll-out of very high-speed broadband networks (fiber optic and 4G) in European countries, particularly in France, and (ii) the roll-out of mobile networks and the amortization of new 4G licenses in Africa & Middle-East countries. |
g 2018 vs. 2017
The discussion of the Group’s operating and financial review and prospects for the years ended December 31, 2018 and December 31, 2017 are included in Part I, Item 5 of the Annual Report on Form 20-F filed on April 16, 2019, (which refers to sections 3.1.2 Analysis of the Group’s results and capital expenditures and 3.1.3 Analysis by operating segment, respectively on pages 77 et seq. and 87 et seq. of the 2018 Registration Document that is filed as an exhibit to and forms part of such Form 20-F).
5.B | LIQUIDITY AND CAPITAL RESOURCES |
This section presents, for the Orange group:
i) a comparative analysis of liquidity and cash flows, with a presentation of the net cash provided by operating activities, of the net cash used in investing activities and of the net cash used in financing activities,
ii) a presentation of the Group’s shareholders’ equity, and
iii) a discussion on the Group’s financial debt and financial resources,
2019 Form 20-F / ORANGE – 18
which are set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document and incorporated in this section by reference as follows:
− | section 3.1.4 Cash flow, equity and financial debt, on pages 114 et seq., |
− | section 3.1.2.5.1 Capital expenditure, on pages 89 and 90, |
− | section 3.2 Recent events, on page 131, |
as well as in Notes 12 Financial assets, liabilities and financial results (excluding Orange Bank) and 13 Information on market risks and fair value of financial assets and liabilities (excluding Orange Bank) to the consolidated financial statements.
Orange expects that its existing working capital and foreseeable cash from operations will be sufficient to finance its foreseeable working capital requirements. As at December 31, 2019, the liquidity position of Orange’s telecom activities exceeded the repayment obligations of its gross financial debt in 2020.
Orange Cash and cash equivalents are held mainly in France and other countries of the European Union that are not subject to restrictions on convertibility or exchange control. A portion of the cash and cash equivalents held by certain subsidiaries in Africa and the Middle East could be subject to transfer restrictions; however, such restrictions have not had and are not expected to have a significant impact on the Group’s ability to meet its cash obligations.
5.C | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in section 1.6 Research and development on pages 33 et seq., which is incorporated in this section by reference.
5.D | TREND INFORMATION |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document as follows:
− | section 3.2.1 Recent Events, on page 131, |
− | sections 1.2.1 The global digital services market and 1.2.2 The Orange group strategy, on pages 8 et seq., |
and is incorporated in this section by reference.
For a discussion on uncertainties that could have a material effect on the Group’s financial situation, see also Item 3.D Risk factors.
5.E | OFF-BALANCE SHEET ARRANGEMENTS |
See Notes 15 Unrecognized contractual commitments (excluding Orange Bank) and 16.3 Orange Bank’s unrecognized contractual commitments to the consolidated financial statements.
2019 Form 20-F / ORANGE – 19
5.F | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
At December 31, 2019 |
| Note to the |
| Contractual |
| Total |
| Less than 1 |
| 1- 3 years |
| 3- 5 years |
| More than |
(in millions of euros) | consolidated | obligations | payments | year | 5 years | |||||||||
financial | reflected in the | due | ||||||||||||
statements | balance sheet | |||||||||||||
Gross financial debt after derivatives of telecom activities (incl. derivatives assets) (1) |
| 13.3 |
| 36,936 |
| 36,405 |
| 4,191 |
| 6,217 |
| 4,775 |
| 21,222 |
Financial liabilities of Orange Bank (2) |
| 16.2.1 |
| 4,279 |
| 4,279 |
| 4,119 |
| 158 |
| — |
| 2 |
Trade payables of telecom activities |
| 13.3 |
| 10,246 |
| 10,246 |
| 9,429 |
| 176 |
| 188 |
| 453 |
Trade payables of Orange Bank |
| 5.6 |
| 102 |
| 102 |
| 102 |
| — |
| — |
| — |
Future interests on financial liabilities |
| 13.3 |
| 12,055 |
| 2,097 |
| 1,967 |
| 2,001 |
| 5,990 | ||
Total Financial liabilities |
| 51,563(3) |
| 63,087 |
| 19,938 |
| 8,518 |
| 6,964 |
| 27,667 | ||
Lease liabilities |
| 9.1 |
| 6,492 |
| 7,142 |
| 1,280 |
| 2,094 |
| 1,570 |
| 2,197 |
Employee benefits |
| 6.2 |
| 4,814 |
| 6,769 |
| 2,404 |
| 826 |
| 495 |
| 3,045 |
Provisions for dismantling |
| 8.7 |
| 825 |
| 977 |
| 16 |
| 32 |
| 13 |
| 916 |
Restructuring provisions |
| 5.3 |
| 216 |
| 216 |
| 120 |
| 96 |
| — |
| — |
Other liabilities |
| 5.7 |
| 2,448 |
| 2,448 |
| 2,095 |
| 353 |
| — |
| — |
Operating taxes and levies payables |
| 10.1.2 |
| 1,287 |
| 1,287 |
| 1,287 |
| — |
| — |
| — |
Current tax payables |
| 10.2.3 |
| 748 |
| 748 |
| 748 |
| — |
| — |
| — |
Total other liabilities (4) |
| 16,830 |
| 19,588 |
| 7,950 |
| 3,400 |
| 2,078 |
| 6,158 | ||
Lease commitments |
| 752 |
| 123 |
| 200 |
| 129 |
| 301 | ||||
Other operational and purchase obligations |
| 12,149 |
| 4,143 |
| 2,927 |
| 1,201 |
| 3,878 | ||||
Unrecognized operational contractual commitments |
| 15.1 & 16.3 |
| 12,901 |
| 4,266 |
| 3,126 |
| 1,330 |
| 4,179 | ||
TOTAL |
| 95,576 |
| 32,154 |
| 15,045 |
| 10,373 |
| 38,003 |
(1) | excluding equity components related to unmatured hedging instruments and loan from Orange Bank to Orange Group. |
(2) | excluding unmatured derivatives liabilities and loan from Orange group to Orange Bank. |
(3) | of which long-term debt obligations amounting to 32 788 millions of euros (including TDIRA, bonds and bank and lending institutions). |
(4) | excluding deferred tax liabilities and deferred income. |
5.G | SAFE HARBOR |
Not applicable.
Item 6 | Directors, senior management and employees |
6.A | DIRECTORS AND SENIOR MANAGEMENT |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in section 5.1 Composition of the management and supervisory bodies on pages 338 et seq. and is incorporated in this section by reference.
6.B | COMPENSATION |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in section 5.4 Remuneration and benefits paid to Directors, Officers and Senior Management on pages 362 et seq. and incorporated in this section by reference.
6.C | BOARD PRACTICES |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document as indicated below:
− | section 5.1.1 Board of Directors, on pages 338 et seq., |
− | section 5.1.3 Executive Committee, on pages 342 and 345, |
− | sections 5.2 Operation of the management and supervisory bodies and 5.3 Reference to a Code of Corporate Governance, on page 350 et seq., |
− | subsection Other benefits granted to corporate officers (Table 11 of the Afep-Medef Code) of section 5.4.1.2 Amount of compensation paid or allocated to corporate officers for 2019, on page 363, |
and i incorporated in this section by reference.
2019 Form 20-F / ORANGE – 20
6.D | EMPLOYEES |
Employment
1. | General changes in the number of Group employees |
At the end of 2019, the Group had 146,768 active employees, of whom 143,526 were on permanent contracts and 3,242 on temporary contracts. Permanent contracts were down 3.0% (i.e. -4,406) on a comparable basis, and temporary contracts were down by 8.3% (i.e. -293). These trends vary depending on the geographic and business area.
In France, the Group’s scope did not change in 2019. At the end of December, the Group had 87,242 employees, 85,867 on permanent contracts and 1,375 on temporary contracts, a fall of 4,637 active employees (i.e. down 5.0%), -4,347 permanent contracts and -290 temporary contracts. This decrease was led by Orange SA (-4,775 permanent contracts, i.e. -6.0%), with permanent contracts in French subsidiaries increasing by 4.2% (+428). The fall in temporary contracts was recorded by the parent company (-181, i.e. -15.9%) and the subsidiaries (-109, i.e. -20.8%).
Internationally, 19 new subsidiaries joined the Orange Group in 2019, with in particular the integration of:
− | the Secure Data groups (three companies and 217 permanent contracts in the United Kingdom and South Africa) and Secure Link (729 permanent employees working in 10 companies, mainly located in Western Europe and Scandinavia) adding to the cybersecurity services within the Orange Business Services division; |
− | the two companies in the Upsize SA Group (204 permanent contracts), a connectivity supplier in Belgium within the Europe division; |
− | two companies (24 permanent contracts) offering mobile transfer and payment in the Middle East & Africa division in Jordan and Morocco. |
During the year, three companies also left the Group, notably Orange Niger (-382 permanent contracts and -54 temporary contracts) in the Middle East & Africa division.
At the end of 2019, 57,659 permanent employees were working internationally, an increase of 1.3% (i.e. +750 permanent contracts) on an actual basis and a globally stable evolution on a comparable basis (-59 permanent contracts, i.e. -0.1%). This stability masks some real differences:
− | the Middle East & Africa division shows some stability in the number of permanent employees between 2018 and 2019 (up 10, i.e. +0.1% on a comparable basis); |
− | Spain also showed a stability in permanent contracts (up 23, i.e. +0.3% on a comparable basis); |
− | by contrast, the Europe division showed a decrease (-1,085 permanent contracts, i.e. -5.2% on a comparable basis) due to the reduction in staff at Orange Polska (-1,170 permanent contracts, i.e. -8.9% on a comparable basis) and more moderately at Orange Belgium (-21 permanent contracts, i.e. -1.0% on a comparable basis), partially offset by growth in the Eastern Europe sector (led by Moldova and Romania); |
− | finally, the increase in permanent OBS International staff continues (+952 permanent contracts, i.e. +7.0%), mainly in emerging countries (Egypt, India, Mauritius and Morocco) in the company Equant. |
In terms of average full-time equivalent employees (the monthly average over the year), or “FTE”, the Group’s internal workforce was 135,619 FTE at December 31, 2019. It therefore showed a decrease of about 2,300 FTE (-1.7%) on a comparable basis, a trend led 75% by France.
Number of employees – active employees at end of period |
| 2019 |
| 2018 |
| 2018 |
| 2017 |
(pro forma) | ||||||||
Orange SA |
| 76,301 |
| 81,257 |
| 81,257 |
| 84,246 |
French subsidiaries (2) |
| 10,941 |
| 10,622 |
| 10,622 |
| 8,513 |
Total France (1) |
| 87,242 |
| 91,879 |
| 91,879 |
| 92,759 |
International subsidiaries (1) (2) |
| 59,526 |
| 58,832 |
| 59,588 |
| 58,797 |
Group total |
| 146,768 |
| 150,711 |
| 151,467 |
| 151,556 |
(1) | Scope of financial consolidation: a company is assigned to the scope over which its revenues are consolidated. |
(2) | The distribution of the France subsidiaries/International subsidiaries has been corrected: a company with six permanent contracts has therefore been counted internationally rather than for France. |
Employees by contract type |
| 2019 |
| 2018 |
| 2018 |
| 2017 |
(pro forma) | ||||||||
Permanent contracts |
| 143,526 |
| 147,123 |
| 147,932 |
| 148,122 |
Temporary contracts |
| 3,242 |
| 3,588 |
| 3,535 |
| 3,434 |
Group total |
| 146,768 |
| 150,711 |
| 151,467 |
| 151,556 |
A new business line standard was implemented in France in 2019 and will be introduced internationally in 2020. In order to present the information in a consistent manner, the figures presented below therefore reflect the equivalence between the old and the new standard for the years 2018 and, for the international scope, 2019. This new standard has a business line category named “Support”. This includes the management, project management and process management business lines. The “Innovation and Technology” category includes, among others, business lines relating to the rollout and operation of the networks.
Employees by business line |
| 2019 |
| 2018 |
| 2017 |
Support |
| 19.6 | % | 19.5 | % | — |
Customer |
| 33.0 | % | 32.8 | % | — |
Support functions |
| 12.1 | % | 12.6 | % | — |
Innovation and Technology |
| 32.3 | % | 32.3 | % | — |
Other |
| 3.0 | % | 2.8 | % | — |
Group total (1) |
| 100 | % | 100 | % | — |
(1) | The Group reporting scope comprises all entities consolidated in the Group’s financial statements. |
2019 Form 20-F / ORANGE – 21
Employees by gender |
| 2019 |
| 2018 |
| 2017 |
|
Women |
| 36.0 | % | 36.1 | % | 36.1 | % |
Men |
| 64.0 | % | 63.9 | % | 63.9 | % |
Group total (1) |
| 100 | % | 100 | % | 100 | % |
(1) | The Group reporting scope comprises all entities consolidated in the Group’s financial statements. |
Employees by age |
| 2019 |
| 2018 |
| 2017 |
|
Under 30 |
| 13.3 | % | 13.2 | % | 12.4 | % |
Between 30 and 50 |
| 55.0 | % | 53.7 | % | 52.5 | % |
Over 50 |
| 31.7 | % | 33.1 | % | 35.1 | % |
Group total (1) |
| 100 | % | 100 | % | 100 | % |
(1) | The Group reporting scope comprises all entities consolidated in the Group’s financial statements. |
The average age of a permanent employee is 44.2 for all Group permanent contracts (-0.2 year compared to 2018), with a difference between France (47.6 years, down 0.3 year compared to 2018) and internationally (39.1 compared to 38.8 in 2018).
Employees by geographical area (1) |
| 2019 |
| 2018 |
| 2017 |
|
France |
| 59.4 | % | 61.0 | % | 62.1 | % |
Spain |
| 4.0 | % | 3.8 | % | 3.6 | % |
Poland |
| 8.5 | % | 9.0 | % | 9.9 | % |
other European countries |
| 15.5 | % | 8.3 | % | 7.3 | % |
Africa |
| 9.7 | % | 11.6 | % | 11.2 | % |
Asia-Pacific |
| 1.3 | % | 3.9 | % | 3.7 | % |
North and South America |
| 1.6 | % | 2.4 | % | 2.2 | % |
Group total (2) |
| 100.0 | % | 100.0 | % | 100.0 | % |
(1) | The presentation was revised so as to be exclusively geographical (previously it included organizational units in certain combinations). |
(2) | The Group reporting scope comprises all entities consolidated in the Group’s financial statements. |
At December 31, 2019 the Group had 3,242 employees on temporary contracts, nearly 60% international. Between 2018 and 2019, this population decreased by 8.3% on a comparable basis (-293), a trend led exclusively by France, both in the parent company (-181, i.e. -15.9%) and the subsidiaries (-109, i.e. -20.8%).
This extra workforce, which represents 2.2% of personnel at the end of 2019 (compared to 2.3% in 2018 on a comparable basis), is still marginal. It is mainly used (over 50%) in Customer activities (essentially sales and residential customer services), with innovation and technology (information systems and networks) as its second sector of activity (around 17%).
Recruitments and departures
Number of permanent external hires |
| 2019 |
| 2018 |
| 2017 |
Orange SA |
| 1,419 |
| 1,701 |
| 1,542 |
French subsidiaries |
| 1,554 |
| 1,503 |
| 1,197 |
Total France (1) |
| 2,973 |
| 3,204 |
| 2,739 |
International subsidiaries (1) |
| 8,081 |
| 7,948 |
| 7,176 |
Group total |
| 11,054 |
| 11,152 |
| 9,915 |
(1) | Scope of financial consolidation: a company is assigned to the scope over which its revenues are consolidated. |
The number of outside hires by the Group on permanent contracts in 2019 was 11,054, down by 0.9% from 2018.
Nearly 3,000 people were hired in France (down by 7.8% from 2018). Anticipating the impact of retirements, they were hired to meet the future skills needs of the business and will help further its transformation. 80% of these were in the Innovation and Technology and Customer business lines. The profile of these new recruitments is developing towards increased expertise, particularly in software production design activities, data analysis, consultancy and integration of information systems or cybersecurity.
Internationally, there were 8,081 hires in 2019 versus 7,948 in 2018 (up by 134 or +1.7%), 75% were in the Innovation and Technology and Customer business lines, a measured increase that reflects the different situations of the divisions:
− | the Europe division shows a moderate decrease in the volume of its recruitments (-67, i.e. -3.6%), with over 20% of new recruitments being international (particularly in Romania with around 700 recruitments); |
− | the fall is more marked in the Spain division (-475, i.e. -23.2%) which nevertheless still accounted for nearly one recruitment in five in 2019; |
− | by contrast, the MEA divisions (+252, i.e. +25%) and particularly OBS (+503, i.e. +21.3%), with recruitments mostly in India, Egypt, Mauritius and Morocco, in the company Equant, show an increase in their recruitments compared to 2018. They accounted for 15% and 35% respectively of 2019 recruitments internationally. |
Number of permanent employee resignations |
| 2019 |
| 2018 |
| 2017 |
Orange SA |
| 189 |
| 178 |
| 137 |
French subsidiaries |
| 722 |
| 571 |
| 375 |
Total France (1) |
| 911 |
| 749 |
| 512 |
International subsidiaries (1) |
| 5,204 |
| 4,847 |
| 4,107 |
Group total |
| 6,115 |
| 5,596 |
| 4,619 |
(1) | Scope of financial consolidation: a company is assigned to the scope over which its revenues are consolidated. |
2019 Form 20-F / ORANGE – 22
Number of permanent employee dismissals |
| 2019 |
| 2018 |
| 2017 |
Orange SA |
| 49 |
| 43 |
| 39 |
French subsidiaries |
| 66 |
| 39 |
| 51 |
Total France (1) |
| 115 |
| 82 |
| 90 |
International subsidiaries (1) |
| 1,916 |
| 2,005 |
| 1,908 |
Group total |
| 2,031 |
| 2,087 |
| 1,998 |
(1) | Scope of financial consolidation: a company is assigned to the scope over which its revenues are consolidated. |
There were 15,416 final departures of permanent employees of the Group in 2019 (compared with 15,065 in 2018), a 2.3% increase. This development was more marked in France than internationally.
In France, the 7,401 departures in 2019 represent 277 more than in 2018 (7,124 in 2018, i.e. +3.9%): the increase was notably led by a rise in resignations with 160 additional departures (909 compared to 749 in 2018, i.e. +21.4%), mostly led by the OBS division in business lines with a marked technological aspect (software design, data experts, etc.), the subject of significant competition between companies in the sector. In addition, many retirements (77% of departures in 2019), due to the demographic structure of eligible populations, also led to an increase in the number of departures in France in 2019 (5,705 retirements in 2019 compared to 5,602 in 2018, an increase of 1.8%).
For its part, the international scope was relatively stable (74 more departures, up 0.9%) compared to 2018 (8,015 departures in 2019 compared to 7,941 in 2018), which reflects an increase in resignations (+7.4%), mainly in the international scope of OBS, partially offset by a reduction in other types of departure.
Professional integration of young people
Professional integration – Group in France (1) |
| 2019 (4) |
| 2018 |
| 2017 |
Number of new intern students received during the year (2) |
| 2,614 |
| 2,617 |
| 2,691 |
Number of work-based learning contracts signed during the year (3) |
| 3,510 |
| 3,535 |
| 3,516 |
(1) | Orange SA and its subsidiaries with workforces in France. |
(2) | Applies to students who have signed their internship agreement during the year. |
(3) | Apprenticeship and professional-track contracts. |
(4) | Numbers given for 2019 are provisional. |
2019 was the first year of a new intergenerational agreement lasting until 2021, signed on December 12, 2018 with the social partners. As in previous years, the number of interns and work placement students welcomed to the Group in France was higher than the minimum commitments, respectively 2,150 and 2,400. In addition, there were 4,796 students on work/study contracts in France as of December 31, representing 5.6% of permanent contracts on the same date. The vocational integration rate in France is therefore above the commitments made by Orange to trade union organizations and its legal obligations (5%).
Keen to capitalize on their initial vocational experience and the skills acquired, the Group also gives preference to these young interns or work placement students when it comes to external permanent recruitment for the business lines necessary to the Group’s future in France. 825 of them therefore (28% of permanent hires in France over the year) benefited from this in 2019, corresponding to over 40% of Orange’s commitment to recruit a minimum of 2,000 people over three years.
External workforce
Interim employees – Group France (1) |
| 2019 (3) |
| 2018 |
| 2017 |
Amount of payments made to external companies for employee placement (in millions of euros) |
| 36.7 |
| 40.7 |
| 35.6 |
Monthly average number of temporary workers (2) |
| 775 |
| 855 |
| 756 |
(1) | Scope of financial consolidation: excludes companies with employees in France but whose revenues are consolidated under the “international” business consolidation scope. |
(2) | Calculation of interim employee expenses recorded in France Group’s results. |
(3) | Numbers given for 2019 are provisional. |
Temporary work is used during temporary increases in activity, particularly the launch of new products and services, as well as sales campaigns and promotional offers.
Presented in full-time equivalents (FTE) and as a monthly average over the year. In 2019, it is used mainly in commercial areas, particularly for retail customers and, to a lesser extent, for sales and services to business customers. Less important on network activities, it accounted for only a small volume on information systems. It shows a decrease of 9.3% compared to 2018, led by residential customer relations activities.
The Group recommends using interim employees rather than workers on temporary contracts for assignments shorter than two months. This external labor represented 0.7% of the Group’s total workforce in France in 2019.
Outsourcing
Outsourcing – Group France (1) |
| 2019 (3) |
| 2018 |
| 2017 |
Amount for subcontractors (in millions of euros) |
| 2,745.3 |
| 2,529.9 |
| 2,227.5 |
Full-time equivalent workforce (monthly average) (2) |
| 34,049 |
| 31,100 |
| 29,196 |
(1) | Scope of financial consolidation: excludes companies with employees in France whose revenues are consolidated under the “international” business consolidation scope. |
(2) | Calculation of outsourcing expenses posted in the statutory financial statements of companies in the Group France consolidation scope. |
(3) | Numbers given for 2019 are provisional. |
The use of employees belonging to external companies takes the form of service contracts.
In France, it is used mainly in the networks in relation to technical work (on networks and on customers’ premises), studies, engineering, architecture as well as in customer relations and customer services (Residential and Enterprise). It is also present in the information systems area, regarding design, development and integration.
The use of outsourcing represented 34,049 full-time equivalent employees (as a monthly average over the year) at the end of December 2019, compared with 31,100 FTE in 2018, an increase of 9.5%. This external labor accounted for 30.4% of the total Group France workforce (Orange SA
2019 Form 20-F / ORANGE – 23
and Group subsidiaries active in France). This upward trend is largely due to the efforts deployed by the Group to continue the development of fiber (very high-speed network production and, to a lesser extent, customer connections).
Social dialogue
Organization of social dialogue
Worldwide
In accordance with the incorporation agreement of 2010, the Global Works Council, created to share a common basis for social dialogue at Group level, was renewed in 2019. It comprises 33 members representing 25 countries across the world, each with more than 400 employees. It met once in 2019. It examines economic, financial and social matters globally and transnationally, such as the Group’s general business and its probable developments, its financial situation, its industrial and commercial strategy, and innovation.
The employee representatives are either trade union representatives appointed by their trade union to sit on the committee, or representatives appointed by elected forums of employees, or employee representatives appointed by a democratic process according to locally defined rules.
In Europe
The European Works Council comprises 28 employee representatives from 19 countries and met three times in 2019, to discuss structural topics such as the economic and financial situation per sector of activity, the probable development of business and the Group structure, the industrial strategy and innovation, plus the major directions in terms of investment, development and job forecasts.
In France
In 2019, the Central Committee of the Orange Works Council (CCUES) met 10 times over 20 days (compared to 13 times in 2018 over 23 days). During the year, this employee representative body addressed 51 subjects (including 16 for information-consultation), in addition to examining the resolutions adopted in respect of the management of Social and Cultural Activities (SCA). Of these 16 items, 13 related to annual reports and assessments provided by agreement or under the French Labor Code and 3 related to proposed organizational or process changes.
The French Works Council, a contractual body covering all the Group subsidiaries in France, was renewed in February 2019. It met three times during fiscal year 2019, dealing with 13 topics relating to the business, the financial situation, job development and Group structure.
Collective agreements in France
During 2019, 11 agreements or amendments were negotiated and signed: ten agreements or amendments at national level and one agreement at global level:
− | two agreements or amendments dealing with compensation agreements: |
– | amendment No. 1 to the 2018-2020 incentive agreement of June 28, 2019, |
– | the pay agreement 2019 of April, 24 2019, |
– | an agreement relating to the management of social and cultural catering activity in UES Orange of May 31, 2019, |
– | an agreement relating to employer contribution and management of Social and Cultural Activities at UES Orange of November 12, 2019, |
– | an agreement relating to social dialogue within UES Orange of May 13, 2019, |
– | an amendment revising the agreement of June 28, 2017 on the employment and integration of disabled people and the fight against discrimination 2017-2019 of June 17, 2019, |
– | amendment No. 1 to the agreement on social dialogue within UES Orange of October 21, 2019, |
– | an agreement relating to the mandatory negotiations within the Orange Group of November 18, 2019, |
– | a pre-electoral memorandum of agreement (PAP) relating to the 2019 professional elections of June 6, 2019, |
– | an amendment No. 1 to the pre-electoral memorandum of agreement of September 17, 2019, |
– | a global agreement on professional gender equality within the Orange Group of July 17, 2019. |
6.E | SHARE OWNERSHIP |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in:
− | section 5.1.4.2 Information on Company shares held by directors and officers, on page 349, |
− | section 5.1.4.4 Shares and stock options held by members of the Executive Committee, on page 350, |
− | subsections Stock-options granted during the fiscal year to each Corporate Officer (Table No 4 of the Afep-Medef Code) to History of performance share grants (Table No 9 of the Afep-Medef Code) of section 5.4.1.2 Amount of compensation paid or allocated to corporate officers for 2019, on pages 367 and 368, |
− | section 5.4.3 Compensation of members of the Executive Committee, on page 373, |
and incorporated this section by reference.
With respect to employees, the Orange Board of Directors decided on October 25, 2017 to launch Orange Vision 2020, a free share award plan with performance conditions intended to recognize the contribution of employees to the success of the Essentials2020 strategic plan and aimed at increasing the Group’s employee shareholding.
2019 Form 20-F / ORANGE – 24
A total of 9.1 million shares were awarded to 141,000 employees in 49 countries as well as the monetary equivalent of 1.7 million shares to 3,000 employees in 38 countries. Final vesting of the shares, or monetary equivalent depending on the case, was subject to the employee being present in the workforce from September 1, 2017 to December 31, 2019 and on the fulfillment of two financial indicators, 50% linked to organic cash flow and 50% linked to adjusted EBITDA.
With regard to meeting the performance conditions, measured in relation to the budgets for fiscal years 2017, 2018, 2019, the Orange Vision 2020 plan shares were definitively awarded, subject to the beneficiary employees meeting the other conditions, at 5/6th of the amount of shares or the monetary equivalent initially allocated.
In addition, on July 26, 2017, the Board of Directors approved a Long Term Incentive Plan (LTIP) for approximately 1,200 senior employees involving 1.6 million free shares. See note 6.3 Share-based payment to the consolidated financial statements.
Item 7 | Major shareholders and related party transactions |
7.A | MAJOR SHAREHOLDERS |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in section 6.2 Major shareholders, on pages 377 and 378 and incorporated this section by reference.
Securities held and number of record holders in the United States
As of March 31, 2020, there were 47,590,840 ADSs of Orange outstanding and 232 holders of record were registered with Bank of New York Mellon, depositary for the ADS program.
As of March 31, 2020, 658 United States residents were owners of Orange’s shares in fully registered form (au nominatif pur). Those U.S. residents held 87,468 Orange shares.
Based on a Euroclear Identifiable-Bearer Securities (Titres au porteur identifiable) service report conducted by a specialized information provider, Orange estimates that corporate and institutional investors in the U.S. held a total of approximately 14.20% of its share capital as at December 31, 2019.
7.B | RELATED PARTY TRANSACTIONS |
Orange SA has entered into agreements with some of its subsidiaries, including framework agreements, support and brand licensing agreements, as well as service-related agreements. In addition, cash management agreements exist between Orange SA and most of its subsidiaries. These agreements were entered into on an arm’s-length basis.
On June 26, 2019, Orange SA’s Board of Directors authorized the execution of:
− | an agreement with the Ministry of Europe and Foreign Affairs, on behalf of the French State, in connection with the organization of the G7 summit meeting held in Biarritz (France) on August 24-26, 2019 whereby Orange SA undertook to provide technical services in the form of infrastructure investments and expenses (mobile coverage, network, etc. ) and the provisions of services (voice and data, WiFi, LAN, etc. ) and “Program Management Office” services for an amount totaling approximately 10 million euros; and |
− | an agreement with COFREX (Compagnie Française des Expositions), the French exhibition company wholly-owned by the French State charged with preparing and organizing France’s participation in Dubai 2020 World Expo, whereby Orange SA undertook, notably, to provide a fleet of mobile phones, to produce the equipment to ensure network coverage and the connectivity of the entire French Pavilion, and to provide other services such as installing dedicated equipment and their cabling and connections for an estimated amount totaling approximately 1.8 million euros. |
Regarding agreements made in previous years, the two amendments to the ongoing agreements with Novalis executed on January 11, 2010, remained in force during 2019. These amendments extended to Corporate Officers the benefit of Orange group’s policies covering (i) healthcare costs and (ii) death, incapacity and invalidity. With respect to 2019, these related party transactions concern the following Corporate Officers of Orange SA: Stéphane Richard, Chairman and CEO and Ramon Fernandez and Gervais Pellissier, Delegate CEOs.
In addition, except for potential agreements concluded in the normal course of business and on an arm’s-length basis, no agreement was made in 2019, directly or indirectly, between a Director or Officer or a shareholder holding more that 10% of Orange SA’s voting rights, and a company in which Orange SA owns, directly or indirectly, more than 50% of the capital.
See also the following Notes to the consolidated financial statements included in Item 18: Note 4.7 Related party transactions, Note 5.8 Related party transactions and Note 6.4 Executive compensation.
7.C | INTERESTS OF EXPERTS AND COUNSELS |
Not applicable.
2019 Form 20-F / ORANGE – 25
Item 8 | Financial information |
8.A | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
See Item 18 Financial Statements.
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in sections 3.2.1 Recent events and 6.3 Dividend distribution policy, respectively on pages 131 and 378 and incorporated this section by reference.
8.B | SIGNIFICANT CHANGES |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in section 3.2.1 Recent events, on page 131, and is incorporated in this section by reference.
See also Note 18 Subsequent Events to the consolidated financial statements included in Item 18.
Item 9 | The offer and listing |
9.A | OFFER AND LISTING DETAILS |
For information regarding risks related to Orange’s shares and ADSs, see Item 3.D Risk factors: “The price of Orange’s ADSs and the U.S. dollar value of any dividend will be affected by fluctuations in the U.S. dollar / euro exchange rate”; “Holders of ADSs may face disadvantages compared to holders of Orange’s shares when attempting to exercise certain rights as shareholders”; “Preemptive rights may be unavailable to holders of Orange’s ADSs”.
Orange’s share is traded on compartment A (large capitalizations) of Euronext Paris (ticker: ORA and International Security Identification Number: FR0000133308) and in the form of ADS on the NYSE (ticker: ORAN and CUSIP: 684060106).
9.B | PLAN OF DISTRIBUTION |
Not applicable
9.C | MARKETS |
The principal trading market for the Shares is Euronext Paris, where the Shares have been traded since October 20, 1997. Prior to that date, there was no public trading market for the Shares. The Shares are included in the “CAC 40 Index” (a main benchmark index of 40 major stocks listed on Euronext Paris). The Shares in the form of American Depositary Shares (“ADSs”) are also listed on the NYSE. BNP Paribas Securities Services holds the share registry for Orange and Bank of New York Mellon acts as depositary for the ADSs.
9.D | SELLING SHAREHOLDERS |
Not applicable.
9.E | DILUTION |
Not applicable.
9.F | EXPENSES OF THE ISSUE |
Not applicable.
2019 Form 20-F / ORANGE – 26
Item 10 | Additional information |
10.A | SHARE CAPITAL |
Not applicable.
10.B | MEMORANDUM OF ASSOCIATION AND BYLAWS |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document under:
− | subsection Corporate scope of section 1.1.1 Company identification on page 4, |
− | subsection Restrictions regarding the disposal of shares by Directors and Officers of section 5.1.4.2 Information on company shares held by Directors and Officers, on page 349, |
− | section 5.2.1.5 Chairman of the Board of Directors, on page 353, |
− | section 6.4.1 Rights, preferences and restriction attached to shares, on page 379, |
− | section 6.4.2 Actions necessary to modify shareholder’s rights, on page 379, |
− | section 6.4.3 Rules to participate in and call Shareholders’ Meeting, on pages 379 and 380, |
− | section 6.4.4 Declaration of threshold crossing, on page 380, |
− | section 5.2.1.1 Legal and statutory rules relating to the composition of the Board of Directors on page 350 and section 6.2 Major shareholders on pages 377 and 378, |
and incorporated this section by reference.
Ownership of shares by non-French persons
Under the French Commercial Code, there are no limitations of general application to the right of non-residents or non-French shareholders to own or, where applicable, to exercise the voting rights attached to securities of a French company.
Under the French Monetary and Financial Code, a person is not required to obtain a prior authorization before acquiring a controlling interest (within the meaning of French law) or, for certain persons, a 33 1/3% interest in a French company. As an exception, a prior authorization may be required in case of investments by certain persons in certain sensitive economic areas, such as defense and public health, and, since May 2014, in activities touching upon public order and public security contained in an expanded list of such sensitive areas, and which includes the integrity, security and continuity of operations of electronic communications networks and services. This list has been amended and extended by the Decree dated December 31, 2019. Non-residents of France (and certain French residents, depending on their ownership), must also file an administrative notice (déclaration administrative) with French authorities in connection with the acquisition of 33 1/3% or more of the capital or voting rights of a French company, or a lower percentage in certain circumstances.
The foregoing is a general description of certain regulations only, and are in addition to the various French legal and regulatory requirements (as well as provisions under our bylaws – see above reference to section 6.4.1 Rights, preferences and restriction attached to shares, on page 379) regarding disclosure of shareholdings and other matters which are applicable to all shareholders.
Provisions having the effect of delaying, deferring or preventing a change of control of the Company
None.
10.C | MATERIAL CONTRACTS |
See Note 3.2 Main changes in the scope of consolidation and Note 13.3 Liquidity risk management to the consolidated financial statements included in Item 18.
10.D | EXCHANGE CONTROLS |
Under current French exchange control regulations, there are no limitations on the amount of payments that may be remitted by Orange to non-residents of France. Laws and regulations concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a non-resident, such as dividends payments, be handled by an authorized intermediary. In France, all registered banks and substantially all credit establishments are accredited intermediaries.
2019 Form 20-F / ORANGE – 27
10.E | TAXATION |
The discussions set forth in this section are based on French tax law and U.S. federal income tax law, including applicable treaties and conventions, as in effect on the date of this Annual Report on Form 20-F. These tax laws, and related interpretations, are subject to change, possibly with retroactive effect. This section is further based in part on representations of the depositary and assumes that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
10.E.1 French Taxation
The following is a general summary of the material French tax consequences of owning and disposing of the Shares or ADSs of Orange. This summary may only be relevant to you if you are not a resident of France (as defined in Article 4 B of the French General Tax Code), no double tax treaty between France and your country contains a provision under which dividends or capital gains are expressly liable to French tax (see Article 4 bis of the French General Tax Code) and you do not hold your Shares or ADSs in connection with a permanent establishment or a fixed base in France through which you carry on a business or perform personal services.
This discussion is intended only as a descriptive summary. It does not address all aspects of French tax laws that may be relevant to you in light of your particular circumstances.
If you are considering buying Shares or ADSs of Orange, you should consult your own tax advisor about the potential tax effects of owning or disposing of Shares or ADSs in your particular situation.
A comprehensive set of tax rules is specifically applicable to French assets (such as the Shares/ADSs) that are held by or in foreign trusts. These rules provide notably for the inclusion of trust real estate assets in the settlor's net assets for purpose of applying the French real estate wealth tax or trust assets in general for the application of French gift and death duties to French assets held in trust, for a specific tax on capital on the French assets of foreign trusts not already subject to the French real estate wealth tax and for a number of French tax reporting and disclosure obligations. The following discussion does not address the French tax consequences applicable to Shares and ADSs held in trusts. If the Shares or ADSs are held in trust, the grantor, trustee and beneficiary are urged to consult their own tax adviser regarding the specific tax consequences of acquiring, owning and disposing of the Shares or ADSs.
Taxation on sale or disposal of Shares and ADSs
Generally, you will not be subject to any French income tax or capital gains tax when you sell or dispose of Shares or ADSs of Orange if all of the following apply to you:
− | you are not a French resident for French tax purposes; and |
− | you have not held more than 25% of Orange’s dividend rights, known as “droits aux bénéfices sociaux”, at any time during the preceding five years, either directly or indirectly, and, as relates to individuals, alone or with relatives; and |
− | you have not transferred the Shares/ADSs as part of a redemption by Orange, in which case the proceeds may under certain circumstances be partially or fully characterized as dividends under French domestic law and, as a result, be subject to French dividend withholding tax, |
unless you are established or domiciled in a jurisdiction listed as a non-cooperative state or territory (Etat ou territoire non coopératif) within the meaning of Article 238-0 A of the French General Tax Code (a “Non-Cooperative State”), in which case you will be subject to a 75% tax on capital gain. The list of Non-Cooperative States is published by ministerial executive order and is updated from time to time.
If an applicable double tax treaty between France and your country contains more favorable provisions, you may not be subject to any French income tax or capital gains tax when you sell or dispose of any Shares or ADSs of Orange even if one or more of the above statements do not apply to you.
If you are a resident of the United States who is eligible for the benefits of the income tax treaty between the United States of America and France dated August 31, 1994 (as further amended) (the “U.S. France Treaty”) and either you hold the Shares or the ADSs directly or hold them through a partnership which is fiscally transparent under U.S. law and is formed or organized in France, or the United States of America or a state that has concluded with France an agreement containing a provision for the exchange of information with a view to the prevention of tax evasion, to the extent that the gain is treated for purposes of U.S. taxation as your income, you will not be subject to French tax on any capital gain if you sell or exchange your Shares or ADSs unless you have a permanent establishment or fixed base in France and the Shares or ADSs sold or exchanged were part of the business property of that permanent establishment or fixed base.
Special rules apply to individuals who are residents of more than one country.
Subject to specific conditions, foreign states, international organizations and a number of foreign public bodies are not considered French residents for these purposes.
Pursuant to Article 235 ter ZD of the French General Tax Code, purchases of certain securities are subject to a 0.3% French tax on financial transactions provided that the market capitalization of the issuer exceeds 1 billion euros as of December 1 of the year preceding the taxation year. A list of companies whose market capitalization exceeds 1 billion euros as at December 1, 2019, has been published in the official guidelines of the French tax authorities on December 18, 2019 (BOI-ANNX-000467-20191218), and Orange has been included on such list as a company whose market capitalization exceeded 1 billion euros as at December 1, 2019. Therefore, purchases of Orange’s Shares or ADSs are subject to such French tax on financial transactions. Please note that such list may be amended in the future.
Taxation of dividends
Under French domestic law, French companies must generally deduct a 28% French withholding tax from dividends (including distributions from share capital premium, insofar as the company has distributable reserves, or the relevant portion of certain repurchases or redemption by Orange of its own shares) paid to non-residents (12.8% for distributions made to individuals and 15% for distributions made to not-for-profit organizations with a head office in a Member State of the European Economic Area which would be subject to the tax regime set forth under Article 206-5 of the French General Tax Code if its head office were located in France and which meet the criteria set forth in the administrative guidelines BOI-RPPM-RCM-30-30-10-70-2019122, n°130). Under most tax treaties between France and other countries, the rate of this withholding tax may be reduced in specific circumstances. Generally, a holder who is a non-French resident is subsequently entitled to a tax credit in his or her country of residence for the amount of tax actually withheld at the appropriate treaty rate.
2019 Form 20-F / ORANGE – 28
However, dividends paid or deemed to be paid by a French corporation, such as Orange, towards a Non-Cooperative State, will generally be subject to French withholding tax at a rate of 75%, irrespective of the tax residence of the beneficiary of the dividends if the dividends are received or deemed to be received in such States or territories (subject to the more favorable provisions of an applicable double tax treaty).
Under some tax treaties, a shareholder who fulfills specific conditions may generally apply to the French tax authorities for a lower rate of withholding tax, generally 15%. Under some tax treaties, the withholding tax is eliminated altogether.
If the arrangements provided for by any of such treaties apply to a shareholder, Orange or the authorized intermediary will withhold tax from the dividend at the lower rate, provided that the shareholder complies, before the date of payment of the dividend, with the applicable filing formalities. Otherwise, Orange or the authorized intermediary must withhold tax at the full rate of 15%, 12.8%, 28% or 75% as applicable, and the shareholder may subsequently claim the refund of excess tax paid.
If you are a resident of the United States who is eligible for the benefits of the U.S. France Treaty (in particular, entitled to Treaty benefits under the ‘‘Limitation on Benefits’’ provision) and either you hold the Shares or the ADSs directly or hold them through a partnership which is fiscally transparent under U.S. law and is formed or organized in France, or the United States of America or a state that has concluded with France an agreement containing a provision for the exchange of information with a view to the prevention of tax evasion, to the extent that the dividend is treated for purposes of the U.S. taxation as your income, French dividend withholding tax is reduced to 15% provided your ownership of the Shares or ADSs is not effectively connected with a permanent establishment or a fixed base that you have in France. A U.S. partnership generally can claim benefits under the U.S. France Treaty only to the extent its income is taxable in the United States as the income of a resident, either in the hands of such partnership or in the hands of its partners. The French tax authorities have, however, conceded that the benefits of the U.S. France Treaty may still be claimed if one or several members of the U.S. partnership are themselves U.S. partnerships (and up to six tiers of interposed partnerships) to the extent of the income taxable in the United States as the income of a resident in the hands of the ultimate partner or partners. Certain other requirements must be satisfied. In particular, you will have to comply with the formalities set out in Item 10.E.3 “Procedure for Reduced Withholding Rate”. If you fail to comply with such formalities before the date of payment of the dividend, Orange or the authorized intermediary shall deduct French withholding tax at the rate of 15%, 12.8%, 28% or 75% as applicable. In that case, you may claim a refund from the French tax authorities of the excess withholding tax.
Certain tax exempt U.S. entities (such as tax-exempt U.S. pension funds, which include the exempt pension funds established and managed in order to pay retirement benefits subject to the provisions of Section 401(a) of the Internal Revenue Code (qualified retirement plans), Section 401(b) of the Internal Revenue Code (retroactive changes in plan), Section 403(b) of the Internal Revenue Code (tax deferred annuity contracts) or Section 457 of the Internal Revenue Code (deferred compensation plans), and various other tax-exempt entities, including certain state-owned institutions, not-for-profit organizations and individuals with respect to dividends which they beneficially own and which are derived from an investment retirement account) may be eligible for the reduced withholding tax rate of 15% on dividends. Specific rules apply to them as further described below in Item 10.E.3 “Procedure for Reduced Withholding Rate”.
Estate and Gift Tax
France imposes estate and gift tax where an individual or entity acquires shares of a French company from a non-resident of France by way of inheritance or gift. France has entered into estate and gift tax treaties with a number of countries. Under these treaties, the transfer by residents of those countries of shares of a French company by way of inheritance or gift may be exempt from French inheritance or gift tax or give rise to a tax credit in such countries, assuming specific conditions are met.
Under the “Convention Between the United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24, 1978” (as further amended), French estate and gift tax generally will not apply to the individual or entity acquiring your Shares or ADSs if that individual or entity as well as you are residents of the United States and if you transfer your Shares or ADSs by gift, or they are transferred by reason of your death, unless you are domiciled in France at the time of making the gift of the Shares or ADSs or at the time of your death, or you used the Shares or ADSs in conducting a business through a permanent establishment or fixed base in France, or you held the Shares or ADSs for that use.
You should consult your own tax advisor about whether French estate and gift tax will apply and whether an exemption or tax credit can be claimed.
Real Estate Wealth Tax
The French real estate wealth tax known as impôt sur la fortune immobilière replaced the French wealth tax, known as impôt de solidarité sur la fortune, with effect from January 1, 2018.
You will not be subject to French real estate wealth tax, on your Shares or ADSs of Orange if both of the following apply to you:
− | you are not a French resident for the purpose of French taxation; and |
− | you own, either directly or indirectly, less than 10% of Orange capital stock, provided your Shares or ADSs do not enable you to exercise influence on Orange. |
If a double tax treaty between France and your country contains more favorable provisions, you may not be subject to French real estate wealth tax even if one or both of the above statements do not apply to you.
The French real estate wealth tax generally does not apply to Shares or ADSs if you are a resident of the United States for purposes of the U.S. France Treaty provided that you do not own directly or indirectly Shares or ADSs exceeding 25% of the financial rights of Orange.
10.E.2 U.S. Taxation of U.S. Holders
The following discussion is a general summary of certain U.S. federal income tax considerations relevant to the ownership and disposition of Orange Shares and ADSs. The discussion is not a complete description of all tax considerations that may be relevant to you, and it does not consider your particular circumstances. It applies to you only if you are a U.S. Holder, you hold the Shares or ADSs as capital assets, you use the U.S. dollar as your functional currency and you are eligible for the benefits of the U.S. France Treaty. It does not address the tax treatment of investors subject to special rules, such as banks, tax-exempt entities, insurance companies, dealers, traders in securities that elect to mark to market, U.S. expatriates or persons who directly, indirectly or constructively own 10% or more of the Shares or ADSs, have a permanent establishment in France, acquire ADSs in a “pre-release” transaction or hold Shares or ADSs as part of a straddle, hedging, conversion or other integrated transaction. For certain additional information regarding U.S. partnerships, see also the discussion presented under the caption “Taxation of Dividends” in Item 10.E.1 (French Taxation).
2019 Form 20-F / ORANGE – 29
As used here, a “U.S. Holder” means a beneficial owner of the Shares or ADSs, that is, for U.S. federal income tax purposes (i) an individual citizen or resident of the United States, (ii) a corporation or other business entity taxed as a corporation that is created or organized under the laws of the United States or its political subdivisions, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust subject to the primary supervision of a U.S. court and the control of one or more U.S. persons or that has elected to be treated as a domestic trust.
The U.S. federal income tax treatment of a partner in a partnership that holds Shares or ADSs will depend on the status of the partner and the activities of the partnership. Partnerships should consult their tax advisors concerning the U.S. federal income tax consequences of the acquisition, ownership and disposition of the Shares or ADSs.
U.S. Holders of ADSs generally will be treated for U.S. federal income tax purposes as owners of the shares underlying the ADSs.
Orange believes, and this discussion assumes, that Orange is not and will not become a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.
Dividends
Distributions on Orange Shares and ADSs, including French tax withheld and the gross amount of any payment on account of a French tax credit, will be includable in income as dividends from foreign sources when actually or constructively received. The dividends will not be eligible for the dividends received deduction generally allowed to U.S. corporations. The dividends received by non-corporate U.S. Holders, however, will be taxed as qualified dividends, currently at the same preferential rate allowed for long-term capital gains, because the ADSs are readily tradable on the NYSE.
The U.S. dollar amount of a euro dividend received on the Shares or ADSs will be based on the exchange rate for the euros received on the date you recognize the dividend for U.S. federal income tax purposes, whether or not you convert the euros into U.S. dollars. You will have a basis in the euros received equal to the U.S. dollar amount of the dividend you realized. Any gain or loss on a subsequent conversion or other disposition of the euros generally will be ordinary income or loss from U.S. sources.
Subject to generally applicable limitations, you may claim a deduction or a foreign tax credit for tax withheld at the applicable withholding rate. In computing foreign tax credit limitations, non-corporate U.S. Holders eligible for the preferential tax rate applicable to qualified dividend income may take into account only the portion of the dividend effectively taxed at the highest applicable marginal rate. You should consult your own tax adviser about your eligibility for benefits under the U.S. France Treaty including a reduced rate of French withholding tax and for applicable limitations on claiming a deduction or foreign tax credit for any French tax withheld.
Dispositions
You will recognize gain or loss on a disposition of Orange Shares or ADSs in an amount equal to the difference between the amount you realize and your adjusted tax basis in the Shares or ADSs. Your adjusted tax basis in a share or ADS will generally be the amount you paid for it measured in U.S. dollars. The U.S-dollar cost of a share or ADS purchased with foreign currency will generally be the U.S-dollar value of the purchase price. The gain or loss generally will be from sources within the United States. The gain or loss will be long-term capital gain or loss if you held the shares or ADSs for at least one year. Long term capital gains realized by non-corporate U.S. Holders currently qualify for preferential tax rates. Deductions for capital losses are subject to limitations.
If you receive a currency other than U.S. dollars upon disposition of the Shares or ADSs, you will realize an amount equal to the U.S. dollar value of the currency received on the date of disposition (or, if you are a cash-basis or an accrual basis taxpayer that files an election with the IRS, the settlement date). You will have a tax basis in the currency received equal to the U.S. dollar amount you realized. Any gain or loss on a subsequent conversion or disposition of the currency received generally will be U.S. source ordinary income or loss.
Deposits or withdrawals of shares in exchange for ADSs will not be taxable transactions subject to U.S. federal income tax.
U.S. Information Reporting and Backup Withholding for U.S. Holders
Your dividends on the Shares or ADSs and proceeds from the sale or other disposition of the Shares or ADSs may be reported to the U.S. Internal Revenue Service unless you are a corporation or you otherwise establish a basis for exemption. Backup withholding tax may apply to amounts subject to reporting if you fail to provide an accurate taxpayer identification number or otherwise establish a basis for exemption. You can claim a credit against your U.S. federal income tax liability for amounts withheld under the backup withholding rules and a refund for any excess.
Certain U.S. Holders will be required to report information with respect to Shares and ADSs that are held through foreign accounts. U.S. Holders who fail to report information required under these rules could become subject to substantial penalties. You are urged to consult your U.S. tax advisor regarding these and other reporting requirements that may apply with respect to your Shares or ADSs.
10.E.3 Procedure for reduced withholding rate
If you are eligible for benefits under the U.S. France Treaty, you will be entitled to reduce the rate of French withholding tax on dividends by filing the applicable form(s) with the depositary or other financial institution managing your securities account in the United States, or failing that, the French paying agent, if the financial institution managing your securities account or the French paying agent receives the form(s) before the date of payment of the dividend. If you fail to submit the applicable form(s) in time to avoid withholding, you may claim a refund for the amount withheld in excess of the U.S. France Treaty rate.
In order to have taxes on dividends withheld at the reduced amount, you generally must provide the depositary, or other financial institution managing your securities account in the United States, with a certificate of residence before the dividend is paid. If this certificate is not stamped by the U.S. Internal Revenue Service, the depositary or other financial institution managing your securities account in the U.S. must provide the French paying agent with a document listing certain information about the U.S. Holder and its shares or ADSs and a certificate whereby the financial institution managing your securities account in the United States takes full responsibility for the accuracy of the information provided in the document.
Tax exempt U.S. pension funds, charities or other tax exempt organizations must also provide a certificate from the U.S. Internal Revenue Service setting out that they have been created and operate in compliance with the Internal Revenue Code of 1986, as amended. Tax exempt organizations may obtain this certification by filing a U.S. Internal Revenue Service Form 8802. Similar requirements apply to REITs, RICs and REMICs.
2019 Form 20-F / ORANGE – 30
Collective trusts of pension funds may apply for the withholding tax reduction on behalf of their members if they provide a complete list of their members, the required certificate from the IRS for each member which is a tax exempt U.S. pension fund and a certificate setting out the dividend to which each tax exempt U.S. pension fund which is a member is entitled.
The relevant French forms will be provided by the depositary to all U.S. Holders of ADSs registered with the depositary and all U.S. Internal Revenue Service Forms are also available from the U.S. Internal Revenue Service. The depositary will arrange for the filing with the French paying agent and the French tax authorities of all forms completed by U.S. Holders of ADSs that are returned to the depositary in sufficient time.
You should consult your own independent tax advisors about the availability and applicability of the reduced rate of French withholding tax.
10.F | DIVIDENDS AND PAYING AGENTS |
Not applicable.
10.G | STATEMENT BY EXPERTS |
Not applicable.
10.H | DOCUMENTS ON DISPLAY |
Orange is subject to the reporting requirements of the Exchange Act applicable to foreign private issuers. In connection with the Exchange Act, Orange files reports, including this Form 20-F, and other information with the Securities and Exchange Commission. Such reports and other information are available on the SEC’s website at www.sec.gov, and may also be inspected and copied at prescribed rates at the public reference facilities maintained by the SEC at its Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549.
All documents provided to shareholders as required by law may be consulted at Orange's registered offices at 78 rue Olivier de Serres, 75015 Paris, France.
In addition, the bylaws of Orange are available on Orange’s website at www.orange.com.
10.I | SUBSIDIARY INFORMATION |
Orange SA scope of consolidation and equity securities at December 31, 2019 are available on Orange’s website at www.orange.com under Investors/Regulated information.
10.J | DISCLOSURE PURSUANT TO SECTION 13 (r) OF THE UNITED STATES EXCHANGE ACT OF 1934 |
Orange conducts limited business in Iran, all of which relates to telecommunications. The total revenue from these activities constitutes much less than 1% of the Group's consolidated revenue in 2019. Section 13 (r) of the United States Exchange Securities Act of 1934 requires an issuer to disclose in its annual or quarterly reports, as applicable, certain activities, including certain transactions or dealings relating to the “Government of Iran” as defined under § 560.304 of the Iranian Transactions and Sanctions Regulations (31 C.F.R. Part 560). Disclosure may be required even where the activities, transactions or dealings are conducted outside the United States by non-U.S. affiliates in compliance with applicable law and regardless of whether the activities are sanctionable under U.S. law.
In compliance with the Section 13(r), Orange is disclosing that Orange’s Enterprise operating segment provided (through indirect, wholly-owned subsidiaries of Orange SA) telecommunication services to certain international public organizations and multinationals in Iran. These telecommunication services represented in 2019 gross revenues of approximately 3.3 million euros and a net profit of approximately 0.3 million euros. Orange intends to continue carrying out these activities.
Item 11 | Quantitative and qualitative disclosures about market risk |
See Note 13 Information on market risk and fair value of financial assets and liabilities (excluding Orange Bank) to the consolidated financial statements included in Item 18.
2019 Form 20-F / ORANGE – 31
Item 12 | Description of securities other than equity securities |
12.A | DEBT SECURITIES |
Not applicable.
12.B | WARRANTS AND RIGHTS |
Not applicable.
12.C | OTHER SECURITIES |
Not applicable.
12.D | AMERICAN DEPOSITARY SHARES |
Orange's ADR facility is maintained by Bank of New York Mellon ("the Depositary"). A copy of our form of Amended and Restated Deposit Agreement ("the Deposit Agreement") among the Depositary, owners and holders of ADSs evidenced by ADRs issued under the Deposit Agreement and Orange was filed with the SEC as an exhibit to the Form F-6 filed on July 27, 2017. Société Générale ("the Custodian") acts as agent of the Depositary for the purposes of this Deposit Agreement. For more complete information, including on holders’ rights and obligations, holders should read the entire deposit agreement, as amended, and the ADR itself.
Fees and charges payable by a holder of ADSs
Under the Deposit Agreement, the Depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees.
The fees payable to the Depositary by investors are as follows:
Depositary actions: |
| Fee: |
− Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | |
− Cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agreement terminates | $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | |
− Any cash distribution to ADS registered holders | $0.05 (or less) per ADS | |
− Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders | A fee equivalent to the fee that would be payable if securities distributed to holders of deposited securities had been shares and the shares had been deposited for issuance of ADSs | |
− Transfer and registration of shares on the Depositary’s share register to or from the name of the Depositary or its agent when depositing or withdrawing shares | Registration or transfer fees |
In addition, investors must, as necessary, reimburse the Depositary for:
Fees and payments made by the Depositary to the Issuer
The Depositary has agreed to reimburse the Company for expenses the Company incurs that are related to establishment and maintenance expenses of the ADR facility. The Depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees. The Depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. The Depositary has agreed to provide additional payments to the Company based on activity indicators relating to the outstanding ADRs.
2019 Form 20-F / ORANGE – 32
During the financial year ended December 31, 2019, payments of 4.7 million U.S. dollars were made to Orange in relation thereto.
Voting the Shares at shareholders’ meetings
Pursuant to a deposit agreement signed with the Company, the Company shall timely notify the Depositary in writing prior to any meeting of holders of Shares or other Deposited Securities of such meeting. Upon receipt of such notice, and upon consultation with the Company, the Depositary shall, in a timely manner, mail to owners of ADSs (the Owners):
− | a notice of impending meetings, |
− | a statement that the Owners will be entitled, subject to any applicable provision of French law and the bylaws of the Company, to instruct the Depositary as to the exercise of the voting rights pertaining to the Shares represented by the ADSs, |
− | copy or summary of any material provided by the Company, |
− | a voting instruction card, |
− | and a statement as to the manner in which such instructions may be given, including an express indication that if no instruction is received, such instructions may be given or deemed given, to the Depositary to give the Custodian instructions to vote or cause to vote the Deposited Securities underlying the ADSs for which voting instructions are specifically given or deemed given, in accordance with the recommendations of the Board of Directors of the Company. |
The Depositary will not charge any fee in connection with enabling the Owners to exercise their voting rights.
The Depositary and the Company may amend the voting procedures from time to time as they determine appropriate to comply with French or United States law or the bylaws of the Company.
Reports, Notices and Other Communications
On or before the first date on which the Company gives notice of any meeting of holders of Shares or of the taking of any action in respect of any cash or other distribution or the offering of any rights, the Company shall transmit to the Depositary a copy of the notice thereof. The Company will also arrange for the prompt transmittal to the Depositary of any other report and communication which is made generally available by the Company to holders of its Shares. The Company may arrange for the Depositary to mail copies of such notices, reports and communications to all Owners.
PART II
Item 13 | Defaults, dividend arrearages and delinquencies |
As of the date of this Form 20-F and to Orange’s knowledge, there has been no material default in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within 30 days relating to indebtedness of Orange or any of its fully consolidated subsidiaries.
Item 14 | Material modifications to the rights of security holders and use of proceeds |
None.
Item 15 | Controls and procedures |
Despite the situation caused by the COVID-19 pandemic, Orange was able to maintain its financial reporting systems, internal control over financial reporting, and disclosure controls and procedures.
15.A | DISCLOSURE CONTROLS AND PROCEDURES |
In 2003, Orange created a Disclosure Committee whose mission is to ensure the accuracy, the compliance with applicable laws, regulations and recognized practices, the consistency and the quality of the financial information disclosed by Orange. The Disclosure Committee, operating under the authority of the Delegate Chief Executive Officer Finance, Performance and Europe, reviews all financial information distributed by the Group, as well as related documents such as press releases announcing financial results, presentations to financial analysts and management reports. The Disclosure Committee is chaired, by delegation, by the Group Accounting Director and brings together the heads of the Legal, Internal Audit, Controlling, Investor Relations and Communication Departments.
Orange’s Chief Executive Officer and Delegate Chief Executive Officer Finance, Performance and Europe (in his capacity as Chief Financial Officer), after evaluating the effectiveness of the Group’s disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2019, have concluded that, as of such date, Orange’s disclosure controls and procedures were effective. Orange’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the specified time periods, and that such information is made known
2019 Form 20-F / ORANGE – 33
to the Chief Executive Officer and Delegate Chief Executive Officer Finance, Performance and Europe (in his capacity as Chief Financial Officer), as appropriate to allow timely decisions regarding required disclosure.
15.B | MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |
Orange’s management is responsible for establishing and maintaining adequate internal control over financial reporting of Orange (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Orange’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Group’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Group; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Group are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Group’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Group management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework presented in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). The Group has excluded from the scope of its assessment of internal control over financial reporting the operations and related assets of the following entities acquired in 2019: in Spain, the companies Republica de Comunicaciones Moviles S.L.U. and Suma Operador de Telecomunicaciones S.L.U., in Belgium, the companies Upsize and BKM, in Poland, the companies BlueSoft and Essembli, and the groups Secure Data and Secure Link. These entities which are consolidated in the 2019 consolidated financial statements of the Group represented 0.6% of the Group’s 2019 consolidated revenue and 0.4% of the Group’s total assets as of December 31, 2019.
Based on this evaluation, management concluded that the Group’s internal control over financial reporting was effective as of December 31, 2019. The effectiveness of the Group’s internal control over financial reporting as of December 31, 2019 has been audited by KPMG S.A. and Ernst & Young Audit, independent registered public accounting firms, as stated in their report which is included herein.
15.C | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS |
To the Shareholders and Board of Directors of Orange S.A.,
Opinion on Internal Control over Financial Reporting
We have audited Orange S.A. and its subsidiaries’ (the “Group”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (“the COSO criteria”). In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal control over financial reporting of the following entities acquired in 2019: in Spain, the companies Republica de Comunicaciones Moviles S.L.U. and Suma Operador de Telecomunicaciones S.L.U., in Belgium, the companies Upsize and BKM, in Poland, the companies BlueSoft and Essembli, and the groups Secure Data and Secure Link. These entities which are consolidated in the 2019 consolidated financial statements of the Group represented 0.6% of the Group’s 2019 consolidated revenue and 0.4% of the Group’s total assets as of December 31, 2019.
Our audit of internal control over financial reporting of the Group also did not include an evaluation of the internal control over financial reporting of the following entities acquired in 2019: in Spain, the companies Republica de Comunicaciones Moviles S.L.U. and Suma Operador de Telecomunicaciones S.L.U., in Belgium, the companies Upsize and BKM, in Poland, the companies BlueSoft and Essembli, and the groups Secure Data and Secure Link.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of financial position of the Group as of December 31, 2019, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”), and our report dated February 13, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are public accounting firms registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
2019 Form 20-F / ORANGE – 34
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Audit, a division of KPMG S.A. | /s/ ERNST & YOUNG Audit |
Paris-La Défense, France
February 13, 2020
15.D | CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING |
None.
Item 16 | [Reserved] |
Item 16A | Audit committee financial expert |
Jean-Michel Severino is the Audit Committee's financial expert as defined in Item 16A(b) of Form 20-F. Jean-Michel Severino is “independent” as defined by Rule 10A-3(b)(1)(ii) of the Exchange Act, as amended (see Item 6 Directors, Senior Management and Employees).
Item 16B | Code of ethics |
Orange’s Board of Directors has adopted a Code of Ethics that applies to all Orange employees, including the Chief Executive Officer, the Delegate Chief Executive Officer Finance, Performance and Europe (in his capacity as Chief Financial Officer), the principal accounting officer and the persons performing similar functions. A copy of Orange’s Code of Ethics is available on Orange’s website at www.orange.com. In 2016, following the entry into force of the European Market Abuse Regulation (“MAR”), the Audit Committee approved a new Code of Market Ethics endorsed by the Group's Ethics Committee.
Item 16C | Principal accountant fees and services |
See Note 20 Auditor’s fees to the consolidated financial statements included in Item 18 Financial Statements.
All services provided by the statutory auditors prior to the entry into force of the European Union (“EU”) Audit Reform legislation (applicable throughout the EU since June 17, 2016), were approved in accordance with the approval rules adopted by the Audit Committee in 2003 and updated in October 2013. All services provided by the statutory auditors following the entry into force of the EU Audit Reform legislation have been approved in accordance with the approval rules adopted by the Audit Committee in 2003 and updated in October 2016. Both rules include procedures for preapproval of services as required.
Item 16D | Exemptions from listing standards for audit committees |
Orange’s Audit Committee consists of five directors including three directors who meet the independence requirements under Rule 10A-3 of the Exchange Act, as amended, and two who are exempt from such requirements pursuant to Rule 10A-3(b)(1)(iv) of the Exchange Act. The Audit Committee members exempt from the independence requirements are Ms. Hélène Dantoine who meets the exemption requirements under Rule 10A-3(b)(1)(iv)(E) of the Exchange Act relating to foreign government representatives, and Mr. Sébastien Crozier who meets the exemption requirements under Rule 10A-3(b)(1)(iv)(C) of the Exchange Act relating to non-executive employees. Orange’s reliance on such exemptions does not materially adversely affect the ability of the Audit Committee to act independently.
2019 Form 20-F / ORANGE – 35
Item 16E | Purchase of equity securities by the issuer and affiliated purchasers |
The information required by this section is set forth in the 2019 Registration Document filed as Exhibit 15.1 of this document in section 6.1.4 Treasury shares – Share buyback program, on pages 376 and 377 of the 2019 Registration Document is incorporated this section by reference.
The table below presents additional information on the purchases of treasury shares in 2019:
Settlement month |
| Total number of |
| Weighted average |
| Total number of |
| Maximum number of |
January 2019 |
| 1,022,000 |
| 13.8229 |
| 1,022,000 |
| 235,768,140 |
February 2019 |
| 648,000 |
| 13.4140 |
| 648,000 |
| 235,120,140 |
March 2019 |
| 1,321,948 |
| 13.9029 |
| 1,321,948 |
| 233,798,192 |
April 2019 |
| 1,660,954 |
| 14.5770 |
| 1,660,954 |
| 232,137,238 |
May 2019 |
| 1,421,000 |
| 13.8587 |
| 1,421,000 |
| 264,584,660 |
June 2019 |
| 2,133,999 |
| 13.8383 |
| 2,133,999 |
| 262,450,661 |
July 2019 |
| 2,925,730 |
| 13.6051 |
| 2,925,730 |
| 259,524,931 |
August 2019 |
| 2,436,000 |
| 13.3375 |
| 2,436,000 |
| 257,088,931 |
September 2019 |
| 1,639,446 |
| 13.7984 |
| 1,639,446 |
| 255,449,485 |
October 2019 |
| 3,035,409 |
| 14.5834 |
| 3,035,409 |
| 252,414,076 |
November 2019 |
| 1,659,445 |
| 14.3927 |
| 1,659,445 |
| 250,754,631 |
December 2019 |
| 3,252,713 |
| 13.7658 |
| 3,252,713 |
| 247,501,918 |
Total |
| 23,156,644 |
| 23,156,644 |
|
|
|
|
(1) | Until May 21, 2019, under the 2018 Share buyback program approved by the Annual Shareholders' Meeting of May 4, 2018 for up to 10% of the share capital; from May 22, 2019, under the 2019 Share buyback program approved by the Annual Shareholders' Meeting of May 21, 2019 for up to 10% of the share capital for a period of 18 months. |
(2) | At month end. |
Item 16F | Change in Registrant’s Certifying Accountant |
Not applicable.
Item 16G | Corporate governance |
Orange has endeavored to take into account the NYSE corporate governance standards as codified in section 303A of the NYSE Listed Company Manual. However, because Orange SA is not a U.S. company, most of those standards do not apply to Orange, which may choose to follow rules applicable in France.
2019 Form 20-F / ORANGE – 36
The table below discloses the significant ways in which Orange’s corporate governance practices differ from those required for U.S. companies listed on the NYSE.
NYSE Standards | Corporate Governance Practices of Orange |
Board Independence | Orange’s Board of Directors has chosen to check the independence of its members against the criteria set out in France in the Afep-Medef Report (defined in Item 16G as “the Report”), which provides that one-third of board members should be independent. According to the criteria the Report sets out, seven members (out of the total of 15 current board members) are independent. Orange has not tested the independence of its board members under the NYSE standards; a majority of the board may not be independent under those criteria. The criteria against which the directors’ independence must be tested, as provided in the Report, are set forth in section 5.2.1.2 Independent Directors on pages 350 and 351 of the 2019 Registration Document, filed as Exhibit 15.1 of this document and is incorporated this section by reference. |
Executive Sessions/ Communications with the Presiding Director or Non-Management Directors | French law does not require (and Orange does not provide for) non-management directors to meet regularly without management and nothing requires non-management directors to meet alone in an executive session at least once a year. However, if the directors decide to meet in such session, they may do so. French law does not mandate (and Orange does not provide for) a method for interested parties to communicate with the presiding director or non-management directors. |
Compensation/Nominating/ Corporate Governance Committee | Orange has a combined Governance and Corporate Environmental and Social Responsibility Committee. The Committee consists of four directors, including two independent directors (according to the criteria set out in the Report). The NYSE standards provide for the implementation of two separate committees (a Nominating Committee and a Compensation Committee) composed exclusively of independent directors. In terms of internal mechanics, while the Committee has a written charter, it does not comply with all the requirements of the NYSE. |
Audit Committee | Orange’s Audit Committee consists of five directors including three independent directors (according to the criteria set out in the Report) and two non-independent directors. Of those, one is a representative of the French Government and one is an employee who is not an executive officer of the Issuer. While not meeting the definition of independence set forth in Rules 10A-3 (b) (1) of the Exchange Act, as amended, they fall within the exceptions under Rule 10A-3(b)(1)(iv) (C) relating to non-executive employees and Rule 10A-3(b)(1)(iv) (E) relating to foreign government representatives. For its part, the Report recommends that two-thirds of an audit committee’s members should be independent. The Committee is responsible for organizing the procedure for selecting the statutory auditors. It makes a recommendation to the Board of Directors regarding their choice and terms of compensation. As required by French law, the actual appointment of the statutory auditors is made by the Shareholders’ Meeting. According to its charter, the Committee has the authority to engage advisors and determine appropriate funding for payment of compensation to an accounting firm for an audit or other service. |
Equity Compensation Plans | Under French law, Orange must obtain shareholder approval at a Shareholders’ Meeting in order to adopt an equity compensation plan. Generally, the shareholders then delegate to the Board of Directors the authority to decide on the specific terms and conditions of the granting of equity compensation, within the limits of the shareholders' authorization. |
Adoption and disclosure of corporate governance guidelines | Orange has adopted corporate governance guidelines (the “Internal Guidelines”, available on its website at www.orange.com under Group/Governance/Documentation) as required by French law. These corporate governance guidelines do not cover all items required by NYSE guidelines for U.S. companies. |
Code of Ethics | Orange has adopted a Code of Ethics to be observed by all its directors, officers and other employees that generally meets the requirements of the NYSE. |
Item 16H Mine Safety Disclosure
Not applicable.
2019 Form 20-F / ORANGE – 37
PART III
ITEM 17 | Financial statements |
Not applicable.
ITEM 18 | Financial statements |
The information required in this item is included in pages F-1 to F-113 attached hereto.
ITEM 19 | List of exhibits |
1.* | |
2.(a)** | |
2.(c)*** | Indenture dated March 14, 2001 between Orange (formerly France Telecom) and, inter alia, Citibank, NA as Trustee. |
8. | List of Orange’s subsidiaries: see Note 19 Main consolidated entities to the consolidated financial statements included in Item 18. |
12.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
12.2 | |
13.1 | |
13.2 | |
15.1 | |
15.2 | |
15.3 |
* | Incorporated by reference to Exhibit 1 to Orange’s Annual Report on Form 20-F for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on April 16, 2019 |
** | Incorporated by reference to Exhibit 1 to the Registration Statement on Form F-6 filed with the Securities and Exchange Commission on July 27, 2017. |
*** | Incorporated by reference to Orange’s Annual Report on Form 20-F for the year ended December 31, 2000, as filed with the Securities and Exchange Commission on May 29, 2001. |
2019 Form 20-F / ORANGE – 38
Signature
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
ORANGE
/s/ Ramon Fernandez
Name: Ramon Fernandez
Title: Delegate Chief Executive Officer, Finance, Performance and Europe
Paris, France
April 21, 2020
2019 Form 20-F / ORANGE – 39
Report of independent registered public accounting firm
To the Shareholders and the Board of Directors of Orange S.A.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Orange S.A. and its subsidiaries (the “Group”) as of December 31, 2019, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2019 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2019, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and in conformity with IFRS as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Group’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and our report dated February 13, 2020 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.
Change in Accounting Principles
As discussed in Note 2. 3 “New standards and interpretations applied from January 1, 2019” to the consolidated financial statements, the Group has changed its method of accounting for leases on January 1, 2019, due to the adoption of IFRS 16 “Leases”.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are public accounting firms registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the sufficiency of audit evidence over revenue from telecom activities and estimation of variable considerations for certain contracts with third-party operators
Description of the matter
As discussed in Note 4.1 and as disclosed in the consolidated income statement, the Group recognized € 42,238 million of revenue for the year ended December 31, 2019.
We identified the evaluation of the sufficiency of audit evidence over revenue from telecom activities and estimation of the variable considerations for certain contracts with third party operators as a critical audit matter. Evaluating the sufficiency of audit evidence required especially subjective auditor judgment because of the number of revenue streams and the number of information technology (IT) applications involved in the revenue recognition process. This matter also included determining the revenue streams over which procedures were performed, the nature and extent of audit evidence obtained over each revenue stream, and the need to involve IT professionals to assist with the performance of certain procedures. Moreover, certain contracts with third-party operators require the estimation of certain variable considerations and the application of revenue recognition accounting standards to these contracts can be complex and involve judgments and estimates.
How we addressed the matter in our audit
The primary procedures we performed to address this critical audit matter included the following. We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue, including the determination of the revenue streams over which those procedures were performed. We tested certain internal controls over the Group’s revenue recognition process. For each revenue stream where procedures were performed, we developed an independent expectation of revenues. These expectations were based on a combination of internal data and publicly available external data and the estimates were compared to the Group’s recorded amounts. In addition, we evaluated the relevance and reliability of the internal and external data used to develop those expectations. We involved IT professionals with specialized skills and knowledge who assisted in testing certain IT applications and controls used by the Group in its revenue recognition process. Those IT professionals also tested the interface of relevant data between different IT systems used in the revenue recognition process. We tested certain manual journal entries by comparing these entries with our own calculations and estimates. Regarding certain contracts with third-party operators, we tested the accounting treatment and assessed the main judgments and estimates made to estimate certain variable consideration by inspecting the contractual documentation and the analysis performed by the Group.
Evaluation of the goodwill, other intangible assets and property, plant and equipment impairment analyses
Description of the matter
As discussed in Notes 7 and 8 to the consolidated financial statements, the total goodwill, other intangible assets and property, plant and equipment balances in the statement of financial position were € 27,644 million, € 14,737 million and € 28,423 million respectively, as of December 31, 2019. The Group performs impairment analyses with respect to these assets at least annually and more frequently when there is an indication of impairment. These tests are performed at the level of each cash generating unit (CGU) or group of CGUs, which generally correspond to the operating segment, or to each country in Africa and the Middle East. An impairment loss is recognized if the recoverable amount is lower than the carrying value. The recoverable amount is determined mostly based upon retaining the value in use. The estimate of value in use is the present value of future expected cash flows. The impairment loss recognized for goodwill, other intangible assets, and property, plant, and equipment for the year ended December 31, 2019 amounted to € 54 million.
We identified the evaluation of the goodwill, other intangible assets and property, plant and equipment impairment analyses as a critical audit matter. Specifically, the assessment of the value in use required estimates and judgments. In particular, the assessment of 1) the competitive, economic and financial environment of certain countries in which the Group operates, 2) the ability to realize operating cash flows from strategic plans, 3) the level of investment to be made, and 4) the discount and perpetual growth rates used in calculating recoverable amounts required subjective auditor judgment due to the inherent uncertainties and forward-looking nature of such assumptions.
How we addressed the matter in our audit
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Group’s impairment assessment process, including controls related to the determination of the recoverable amount of the CGUs or groups of CGUs, and the development of the revenue growth rates and discount rate assumptions. To assess the Group’s ability to forecast, we compared the Group’s previous forecasts to actual results. We performed sensitivity analyses over forecasted cash flows and the discount and perpetual growth rates to assess their impact on the impairment analyses. We evaluated the Group’s forecasted revenue growth rates, by comparing the growth rate to the Group’s peer companies’ analyst reports and market research reports. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount and growth rates used in the valuations by comparing them against rate ranges that were independently developed using publicly available market data for comparable entities. We compared the data included in the models used by the Group in the determination of recoverable values to the plans submitted to the Board of Directors. In addition, we assessed the adequacy of the information disclosed in Notes 7 and 8 to the consolidated financial statements.
Evaluation of the realizability of deferred tax assets associated with tax loss carryforwards
Description of the matter
As discussed in Notes 10.2.1 and 10.2.3 to the consolidated financial statements, € 992 million of deferred tax assets were recognized in the consolidated statement of financial position as of December 31, 2019. The Group recognizes deferred tax assets only to the extent that it is probable that the tax entity will have sufficient future taxable profit to recover them. Unrecognized deferred tax assets amounted to € 3,661 million and mainly comprised tax losses that can be carried forward indefinitely.
We identified the evaluation of the realizability of deferred tax assets associated with tax loss carryforwards as a critical audit matter. Specifically, there was a high degree of auditor judgment required to assess the Group’s forecasted taxable income and feasibility and viability of the Group tax planning opportunities related to the realizability of deferred tax assets associated with tax loss carryforwards.
How we addressed the matter in our audit
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Group’s deferred tax asset valuation process, including controls related to the development of assumptions and application of the relevant tax regulations in determining the forecasted taxable income. To assess the Group’s ability to forecast, we compared the Group’s previous forecasts by tax jurisdiction to actual results. We evaluated the Group’s forecasted revenue growth rate, by comparing the growth rate to the Group’s peer companies’ analyst reports and market research reports. We assessed the Group’s application of the relevant tax regulations and evaluated the feasibility and viability of the Group’s tax-planning opportunities. We compared certain assumptions that were used to evaluate the realizability of deferred tax asset with those used for asset impairment testing.
Evaluation of provisions for competition and regulatory disputes
Description of the matter
As discussed in Notes 5.2, 5.7 and 17 to the consolidated financial statements, the Group is involved in a number of legal disputes in France and abroad, including matters relating to competition issues and national and European Commission regulations. Expenses arising from these proceedings are recorded when the Group has a present obligation towards a third party arising from a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, which can be quantified or estimated on a reasonable basis. A provision of € 643 million was recorded, a portion of which relates to competition and regulatory disputes involving the Group as of December 31, 2019.
We identified the evaluation of provisions for competition and regulatory disputes as a critical audit matter. Evaluating this matter required a higher degree of auditor judgment due to the nature of the estimates and assumptions, including judgments about future events and uncertainties.
How we addressed the matter in our audit
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Group’s provision for competition and regulatory disputes process, including controls related to the evaluation of information from internal and external legal counsel. We assessed the amounts recorded and/or disclosed by reading letters received directly from the Group’s internal and external legal counsel related to competition and regulatory disputes. We evaluated relevant publicly available information, including court proceedings related to competition and regulatory disputes regarding the Group and events subsequent to the date of the consolidated statement of financial position. To assess the Group’s ability to estimate provisions for competition and regulatory disputes, we compared historical provision estimates to actual settlements. In addition, we assessed the adequacy of the information disclosed in Notes 5.2, 5.7 and 17 to the consolidated financial statements.
Evaluation of the adoption of IFRS 16 Leases
Description of the matter
As discussed in Notes 2.3.1, 8.5 and 9 to the consolidated financial statements, the Company adopted IFRS 16 Leases on January 1, 2019 using the modified retrospective approach. As of December 31, 2019, the Group recognized right of use assets of € 6,263 million and total lease liabilities of € 6,492 million. The lease arrangements mainly related to land and buildings, and network infrastructures.
We identified the evaluation of the adoption of IFRS 16 effective January 1, 2019, as a critical audit matter due to the nature and complexity of certain of the Group’s lease arrangements, and the significance of the Group’s leases to the consolidated financial statements. In addition, a high degree of challenging auditor judgment was required to evaluate the Group’s determinations about the 1) applicability of the new standard to certain complex contracts, 2) lease terms, and 3) discount rates for the leases identified.
How we addressed the matter in our audit
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls related to the Group’s process to adopt IFRS 16, including controls related to identifying leases in certain complex contracts, and determining lease terms, and discount rates. We evaluated the criteria and the methodology used by the Group to identify leases, establish lease terms, including the consideration given by the Group to the November 2019 IFRS IC decision on lease terms, and determine discount rates. To assess the recognition and measurement of the Group’s right of use assets and lease liabilities, we analyzed the underlying lease population by comparison with the operating leases identified according to the accounting standard applied in previous years, and by carrying out an analysis of the residual rental expenses. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Group’s discount rates by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable entities. In addition, we assessed the adequacy of the information disclosed in Note 2.3.1 to the consolidated financial statements relating to the scope and identification of leases under the new standard, determining lease terms, and discount rate methodology.
KPMG Audit, Département de KPMG S.A. Represented by Marie GUILLEMOT We have served as the Group‘s auditor since 2015 | ERNST & YOUNG Audit We have served as the Group‘s auditor since 1991 |
Paris-La Défense, France
February 13, 2020
2019 Form 20-F / ORANGE – F - 3
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2019
Significant events 2019
IFRS | Changes in | BT shares | |||||
Application of IFRS 16 "Leases" | Acquisition of SecureData and SecureLink | Sale of BT Group Plc shares | |||||
IFRS 16 has been applied since January 1, 2019. Information on the first-time adoption of IFRS 16 "Leases" on January 1, 2019, is presented in Note 2.3 "New standards and interpretations applied from January 1, 2019".. | In January 2019, Orange took control of SecureData. In July 2019, Orange took control of SecureLink.. | In June 2019, the Group sold its remaining 2.49% equity interest in BT Group Plc for a net amount of 486 million pounds sterling (543 million euros).. | |||||
Note 2.3.1 | Note 3.2 | Note 12.7 |
2019 Form 20-F / ORANGE – F - 4
Table of contents
Financial statements | ||
F - 7 | ||
F - 8 | ||
F - 9 | ||
F - 10 | ||
Analysis of changes in shareholders’ equity related to components of the other comprehensive income | F - 11 | |
F - 12 | ||
F - 14 | ||
F - 14 | ||
F - 14 | ||
F - 16 | ||
Segment revenue to segment operating income in 2018 and 2017 | F - 18 | |
F - 20 | ||
F - 22 | ||
F - 24 | ||
Simplified statement of cash flows on telecommunication and Orange Bank activities | F - 26 | |
F - 29 | ||
Description of business and basis of preparation of the consolidated financial statements | F - 31 | |
F - 31 | ||
F - 31 | ||
New standards and interpretations applied from January 1, 2019 | F - 32 | |
F - 34 | ||
F - 35 | ||
Gains and losses on disposal and main changes in scope of consolidation | F - 37 | |
Gains (losses) on disposal of fixed assets, investments and activities | F - 37 | |
F - 37 | ||
F - 39 | ||
F - 39 | ||
F - 41 | ||
F - 41 | ||
F - 43 | ||
F - 45 | ||
F - 45 | ||
F - 46 | ||
F - 46 | ||
F - 46 | ||
F - 46 | ||
F - 47 | ||
F - 48 | ||
F - 49 | ||
F - 49 | ||
F - 49 | ||
F - 50 | ||
F - 50 | ||
F - 50 | ||
F - 50 | ||
F - 53 | ||
F - 56 | ||
F - 56 | ||
F - 56 | ||
F - 57 | ||
F - 57 | ||
F - 58 | ||
F - 60 | ||
F - 60 | ||
F - 60 | ||
F - 62 | ||
F - 62 | ||
F - 64 | ||
F - 66 | ||
F - 66 | ||
F - 66 | ||
F - 67 | ||
F - 68 | ||
F - 68 | ||
F - 68 | ||
F - 70 | ||
F - 74 | ||
Financial assets, liabilities and financial results (excluding Orange Bank) | F - 75 | |
F - 75 | ||
Profits and losses related to financial assets and liabilities | F - 75 | |
F - 76 | ||
F - 79 | ||
F - 79 | ||
Loans from development organizations and multilateral lending institutions | F - 81 | |
F - 82 | ||
F - 84 | ||
F - 87 | ||
F - 87 | ||
F - 87 | ||
F - 88 | ||
F - 90 | ||
F - 90 | ||
F - 91 | ||
F - 91 | ||
F - 91 | ||
F - 94 | ||
F - 94 | ||
F - 94 | ||
F - 94 | ||
F - 95 | ||
F - 97 | ||
F - 97 | ||
F - 99 | ||
Unrecognized contractual commitments (excluding Orange Bank) | F - 99 | |
F - 100 | ||
F - 102 | ||
F - 102 | ||
F - 103 | ||
F - 103 | ||
Information on market risk management with respect to Orange Bank activities | F - 107 | |
F - 109 | ||
F - 109 | ||
F - 111 | ||
F - 112 | ||
F - 113 | ||
The accompanying notes form an integral part of the consolidated financial statements.
The accounting principles are split within each note in gray areas.
2019 Form 20-F / ORANGE – F - 6 |
Consolidated income statement
(in millions of euros, except for per share data) |
| Note |
| 2019 (1) |
| 2018 |
| 2017 | |
Revenue |
| 4.1 |
| |
| |
| | |
External purchases |
| 5.1 |
| ( |
| ( |
| ( | |
Other operating income |
| 4.2 |
| |
| |
| | |
Other operating expenses |
| 5.2 |
| ( |
| ( |
| ( | |
Labor expenses |
| 6.1 |
| ( |
| ( |
| ( | |
Operating taxes and levies |
| 10.1.1 |
| ( |
| ( |
| ( | |
Gains (losses) on disposal of fixed assets, investments and activities |
| 3.1 |
| |
| |
| | |
Restructuring costs |
| 5.3 |
| ( |
| ( |
| ( | |
Depreciation and amortization of fixed assets | 8.2 | ( | ( | ( | |||||
Depreciation and amortization of financed assets | 8.5 | ( | — | — | |||||
Depreciation and amortization of right-of-use assets |
| 9.2 |
| ( |
| — |
| — | |
Effects resulting from business combinations |
|
| — |
| — |
| ( | ||
Reclassification of translation adjustment from liquidated entities |
|
| |
| |
| ( | ||
Impairment of goodwill |
| 7.1 |
| ( |
| ( |
| ( | |
Impairment of fixed assets |
| 8.3 |
| |
| ( |
| ( | |
Impairment of right-of-use assets | 9.2 | ( | — | — | |||||
Share of profits (losses) of associates and joint ventures |
| 11 |
| |
| |
| | |
Operating income |
|
|
| |
| |
| | |
Cost of gross financial debt excluding financed assets |
|
| ( |
| ( |
| ( | ||
Interests on debts related to financed assets | ( | — | — | ||||||
Gains (losses) on assets contributing to net financial debt |
|
| |
| |
| | ||
Foreign exchange gain (loss) |
|
| |
| ( |
| ( | ||
Interests on lease liabilities | ( | — | — | ||||||
Other net financial expenses |
|
| |
| |
| ( | ||
Effects resulting from BT stake |
| 12.7 |
| ( |
| ( |
| ( | |
Finance costs, net |
| 12.2 |
| ( |
| ( |
| ( | |
Income tax |
| 10.2.1 |
| ( |
| ( |
| ( | |
Consolidated net income of continuing operations |
|
|
| |
| |
| | |
Consolidated net income of discontinued operations (EE) |
|
| — |
| |
| | ||
Consolidated net income |
|
|
| | |
| | ||
Net income attributable to owners of the parent company |
|
| |
| |
| | ||
Non-controlling interests |
| 14.6 |
| |
| |
| | |
Earnings per share (in euros) attributable to parent company |
| 14.7 |
| ||||||
Net income of continuing operations |
|
| |||||||
– basic |
|
| | | | ||||
– diluted |
|
| | | | ||||
Net income of discontinued operations |
|
| |||||||
– basic |
|
| — | | | ||||
– diluted |
|
| — | | | ||||
Net income |
|
| |||||||
– basic |
|
| | | | ||||
– diluted |
|
| | | |
(1) | The effects of IFRS 16 application are described in Note 2.3.1. |
2019 Form 20-F / ORANGE – F - 7 |
Consolidated statement of comprehensive income
(in millions of euros) |
| Note |
| 2019 |
| 2018 |
| 2017 |
|
Consolidated net income |
|
| |
| |
| | ||
Remeasurements of the net defined benefit liability |
| 6.2 | ( |
| |
| | ||
Assets at fair value |
| 12.7-16.1 | ( |
| ( |
| — | ||
Income tax relating to items that will not be reclassified |
| 10.2.2 | |
| ( |
| ( | ||
Share of other comprehensive income in associates and joint ventures that will not be reclassified |
| 11 | — |
| — |
| ( | ||
Items that will not be reclassified to profit or loss (a) |
|
| ( |
| |
| ( | ||
Assets at fair value | 12.7-16.1 | | ( | — | |||||
Assets available for sale |
| 12.7-16.1 | — |
| — |
| | ||
Cash flow hedges |
| 12.8.2 | |
| ( |
| | ||
Translation adjustment gains and losses |
| 14.5 | |
| ( |
| ( | ||
Income tax relating to items that are or may be reclassified |
| 10.2.2 | ( |
| |
| | ||
Share of other comprehensive income in associates and joint ventures that are or may be reclassified | — | — | — | ||||||
Items that are or may be reclassified subsequently to profit or loss (b) |
| |
| ( |
| ( | |||
Other comprehensive income from continuing operations (a) + (b) |
| |
| ( |
| ( | |||
Items that will not be reclassified to profit or loss (c) |
| — |
| — |
| — | |||
Items that are or may be reclassified to profit or loss (d) |
| — |
| — |
| — | |||
Other comprehensive income of discontinued operations (c) + (d) |
| — |
| — |
| — | |||
Other consolidated comprehensive income (a) + (b) + (c) + (d) |
| |
| ( |
| ( | |||
Consolidated comprehensive income |
| |
| |
| | |||
Comprehensive income attributable to the owners of the parent company |
| |
| |
| | |||
Comprehensive income attributable to non-controlling interests |
| |
| |
| |
2019 Form 20-F / ORANGE – F - 8 |
Consolidated statement of financial position
(in millions of euros) | Note | December 31, | December 31, | December 31, | |||||
|
| 2019 (1) |
| 2018 |
| 2017 | |||
Assets |
|
|
|
|
|
|
|
| |
Goodwill |
| 7.2 |
| |
| |
| | |
Other intangible assets |
| 8.4 |
| |
| |
| | |
Property, plant and equipment |
| 8.5 |
| |
| |
| | |
Right-of-use assets | 9.2 | | — | — | |||||
Interests in associates and joint ventures |
| 11 |
| |
| |
| | |
Non-current financial assets related to Orange Bank activities |
| 16.1 |
| |
| |
| | |
Non-current financial assets |
| 12.1 |
| |
| |
| | |
Non-current derivatives assets |
| 12.1 |
| |
| |
| | |
Other non-current assets |
| 4.6 |
| |
| |
| | |
Deferred tax assets |
| 10.2.3 |
| |
| |
| | |
Total non-current assets |
|
| |
| |
| | ||
Inventories |
| 5.4 |
| |
| |
| | |
Trade receivables |
| 4.3 |
| |
| |
| | |
Other customer contract assets | 4.4 | | | | |||||
Current financial assets related to Orange Bank activities |
| 16.1 |
| |
| |
| | |
Current financial assets |
| 12.1 |
| |
| |
| | |
Current derivatives assets |
| 12.1 |
| |
| |
| | |
Other current assets |
| 4.6 |
| |
| |
| | |
Operating taxes and levies receivables |
| 10.1.2 |
| |
| |
| | |
Current tax assets |
| 10.2.3 |
| |
| |
| | |
Prepaid expenses |
| 5.5 |
| |
| |
| | |
Cash and cash equivalents |
| 12.1 |
| |
| |
| | |
Total current assets |
|
|
| |
| |
| | |
Assets held for sale |
|
|
| — |
| - |
| - | |
Total assets |
|
|
| |
| |
| | |
Equity and liabilities |
|
|
|
|
|
| |||
Share capital |
| |
| |
| | |||
Share premiums and statutory reserve |
| |
| |
| | |||
Subordinated notes |
| |
| |
| | |||
Retained earnings |
| ( |
| ( |
| ( | |||
Equity attributable to the owners of the parent company |
| |
| |
| | |||
Non-controlling interests |
| |
| |
| | |||
Total equity |
| 14 | |
| |
| | ||
Non-current financial liabilities |
| 12.1 | |
| |
| | ||
Non-current derivatives liabilities |
| 12.1 | |
| |
| | ||
Non-current lease liabilities | 9.1 | | — | — | |||||
Non-current fixed assets payables |
| 8.6 | |
| |
| | ||
Non-current financial liabilities related to Orange Bank activities |
| 16.1 | |
| — |
| — | ||
Non-current employee benefits |
| 6.2 | |
| |
| | ||
Non-current dismantling provision |
| 8.7 | |
| |
| | ||
Non-current restructuring provision |
| 5.3 | |
| |
| | ||
Other non-current liabilities |
| 5.7 | |
| |
| | ||
Deferred tax liabilities |
| 10.2.3 | |
| |
| | ||
Total non-current liabilities |
| |
| |
| | |||
Current financial liabilities |
| 12.1 | |
| |
| | ||
Current derivatives liabilities |
| 12.1 | |
| |
| | ||
Current lease liabilities | 9.1 | | — | — | |||||
Current fixed assets payables |
| 8.6 | |
| |
| | ||
Trade payables |
| 5.6 | |
| |
| | ||
Customer contract liabilities | 4.4 | | | | |||||
Current financial liabilities related to Orange Bank activities |
| 16.1 | |
| |
| | ||
Current employee benefits |
| 6.2 | |
| |
| | ||
Current dismantling provision |
| 8.7 | |
| |
| | ||
Current restructuring provision |
| 5.3 | |
| |
| | ||
Other current liabilities |
| 5.7 | |
| |
| | ||
Operating taxes and levies payables |
| 10.1.2 | |
| |
| | ||
Current tax payables |
| 10.2.3 | |
| |
| | ||
Deferred income |
| 4.5 | |
| |
| | ||
Total current liabilities |
|
| |
| |
| | ||
Liabilities related to assets held for sale |
| — |
| — |
| — | |||
Total equity and liabilities |
| |
| |
| |
(1) | The effects of IFRS 16 application are described in Note 2.3.1. |
2019 Form 20-F / ORANGE – F - 9 |
Consolidated statements of changes in shareholders’ equity
(in millions of euros) | Attributable to owners of the parent company | Attributable to non-controlling interests | Total | ||||||||||||||||||||||
Number of | Share | Share | Subor- | Reserves | Other | Total |
| Reserves | Other | Total | equity | ||||||||||||||
issued | capital | premiums | dinated | compre- | compre- | ||||||||||||||||||||
shares | and | notes | hensive | hensive | |||||||||||||||||||||
statutory | income | income | |||||||||||||||||||||||
|
|
|
| reserve |
|
|
|
|
|
|
|
| |||||||||||||
Balance as of January 1, 2017 | | | | | ( | ( | | | | | | ||||||||||||||
Consolidated comprehensive income | — | — | — | — | | ( | | | ( | | | ||||||||||||||
Capital increase | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||
Share-based compensation |
| 6.3 |
| — |
| — |
| — |
| — |
| |
| — |
| |
| ( |
| — |
| ( |
| | |
Purchase of treasury shares |
| 14.2 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| — |
| — |
| — |
| ( | |
Dividends |
| 14.3 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| — |
| ( |
| ( | |
Subordinated notes remuneration |
| 14.4 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| — |
| — |
| — |
| ( | |
Changes in ownership interests with no gain/loss of control | 3.2 | — | — | — | — | ( | — | ( | | — | | — | |||||||||||||
Other movements |
|
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| |
| — |
| |
| ( | ||
Balance as of December 31, 2017 |
|
| |
| |
| |
| |
| ( |
| ( |
| |
| |
| |
| |
| | ||
Effect of IFRS 9 application |
| — | — | — | — | | ( | ( | ( | — | ( | ( | |||||||||||||
Balance as of January 1, 2018 after effect of IFRS 9 application | | | | | ( | ( | | | | | | ||||||||||||||
Consolidated comprehensive income |
|
| — |
| — |
| — |
| — |
| |
| ( |
| |
| |
| |
| |
| | ||
Share-based compensation |
| 6.3 |
| — |
| — |
| — |
| — |
| |
| — |
| |
| |
| — |
| |
| | |
Purchase of treasury shares |
| 14.2 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| — |
| — |
| — |
| ( | |
Dividends |
| 14.3 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| — |
| ( |
| ( | |
Subordinated notes remuneration |
| 14.4 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| — |
| — |
| — |
| ( | |
Changes in ownership interests with no gain/loss of control |
| 3.2 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| — |
| ( |
| ( | |
Changes in ownership interests with gain/loss of control |
| 3.2 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| |
| | |
Other movements |
|
| — |
| — |
| — |
| — |
| |
| — |
| |
| |
| — |
| |
| | ||
Balance as of December 31, 2018 |
|
| |
| |
| |
| |
| ( |
| ( |
| |
| |
| |
| |
| | ||
Effect of IFRS 16 application (1) | — | — | — | — | | — | | — | — | — | | ||||||||||||||
Balance as of January 1, 2019 after effect of IFRS 16 application | | |
| |
| | ( |
| ( | | | | | | |||||||||||
Consolidated comprehensive income |
|
| — |
| — |
| — |
| — |
| |
| |
| |
| |
| |
| |
| | ||
Share-based compensation |
| 6.3 |
| — |
| — |
| — |
| — |
| |
| — |
| |
| |
| — |
| |
| | |
Purchase of treasury shares |
| 14.2 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| — |
| — |
| — |
| ( | |
Dividends |
| 14.3 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( |
| — |
| ( |
| ( | |
Subordinated notes remuneration (2) |
| 14.4 |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| — |
| — |
| — |
| ( | |
Changes in ownership interests with no gain/loss of control |
| 3.2 |
| — |
| — |
| — |
| — |
| |
| — |
| |
| |
| — |
| |
| | |
Changes in ownership interests with gain/loss of control |
| 3.2 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| |
| | |
Other movements (3) |
|
| — |
| — |
| — |
| — |
| |
| — |
| |
| |
| — |
| |
| | ||
Balance as of December 31, 2019 |
|
| |
| |
| |
| |
| ( |
| ( |
| |
| |
| |
| |
| |
(1) | The effects of IFRS 16 application are described in Note 2.3.1. |
(2) | The subordinated note remuneration includes ( |
(3) | Including the effect of the annulment of the promise to buy (put option), granted to Groupama on |
Analysis of changes in shareholders’ equity related to components of the other comprehensive income
(in millions of euros) | Attributable to owners of the parent company | Attributable to non-controlling interests | Total | ||||||||||||||||||||||||||||||
Assets | Assets at | Hedging | Translation | Actuarial | Deferred | Other | Total | Assets | Assets at | Hedging | Translation | Actuarial | Deferred | Total | other | ||||||||||||||||||
available | fair value | instruments | adjustment | gains | tax | compre- | available | fair value | instruments | adjustment | gains | tax | compre- | ||||||||||||||||||||
| for sale |
| and |
| hensive |
| for |
| and |
| hensive | ||||||||||||||||||||||
losses | income | sale |
| losses | income | ||||||||||||||||||||||||||||
|
|
|
|
|
| of associates |
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
| and joint |
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
| ventures (2) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| ||||||||||||||||||||||||||||||||
Balance as of January 1, 2017 | | — | ( | | ( | | ( | ( | ( | — | — | | ( | | | ( | |||||||||||||||||
Variation | | — | | ( | | ( | ( | ( | | — | ( | ( | — | | ( | ( | |||||||||||||||||
Balance as of December 31, 2017 | | — | ( | | ( | | ( | ( | ( | — | ( | | ( | | | ( | |||||||||||||||||
Effect of IFRS 9 application |
| ( |
| |
| — |
| — |
| — |
| — |
| — |
| ( |
| |
| ( |
| — |
| — |
| — |
| — |
| — |
| ( | |
Balance as of January 1, 2018 after effect of IFRS 9 application |
| — |
| |
| ( |
| |
| ( |
| |
| ( |
| ( |
| — |
| ( |
| ( |
| |
| ( |
| |
| |
| ( | |
Variation | — | ( | ( | ( | | | — | ( | — | ( | | | | ( | | ( | |||||||||||||||||
Balance as of December 31, 2018 | — | ( | ( | | ( | | ( | ( | — | ( | ( | | ( | | | ( | |||||||||||||||||
Effect of IFRS 16 application (1) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
Balance as of January 1, 2019 after effect of IFRS 16 application |
| — |
| ( |
| ( |
| |
| ( |
| |
| ( |
| ( |
| — |
| ( |
| ( |
| |
| ( |
| |
| |
| ( | |
Variation |
| — |
| ( |
| |
| |
| ( |
| ( |
| — |
| |
| — |
| |
| ( |
| |
| ( |
| ( |
| |
| | |
Balance as of December 31, 2019 |
| — |
| ( |
| ( |
| |
| ( |
| |
| ( |
| ( |
| — |
| ( |
| ( |
| |
| ( |
| |
| |
| ( |
(1) | The effects of IFRS 16 application are described in Note 2.3.1. |
(2) | Amounts excluding translation adjustment. |
2019 Form 20-F / ORANGE – F - 11 |
Consolidated statement of cash flows
(in millions of euros) |
| Note |
| 2019 (1) |
| 2018 |
| 2017 |
|
Operating activities |
|
|
|
|
|
|
|
| |
Consolidated net income |
|
| |
| |
| | ||
Non-monetary items and reclassified items for presentation |
|
|
|
|
| ||||
Operating taxes and levies | 10.1 | | | | |||||
Gains (losses) on disposal of fixed assets, investments and activities |
| 3.1 |
| ( |
| ( |
| ( | |
Other gains and losses | ( | — | — | ||||||
Depreciation and amortization of fixed assets |
| 8.2 | |
| |
| | ||
Depreciation and amortization of financed assets | 8.5 | | — | — | |||||
Depreciation and amortization of right-of-use assets | 9.2 | | — | — | |||||
Changes in provisions |
| 4-5-6-8 |
| ( |
| ( |
| ( | |
Remeasurement to fair value of previously held equity interests | 3.2 | — | — | | |||||
Reclassification of cumulative translation adjustment from liquidated entities |
| ( |
| ( |
| | |||
Impairment of goodwill |
| 7.1 |
| |
| |
| | |
Impairment of fixed assets |
| 8.3 |
| ( |
| |
| | |
Impairment of right-of-use assets | 9.2 | | — | — | |||||
Share of profits (losses) of associates and joint ventures |
| 11 |
| ( |
| ( |
| ( | |
Net income after tax of discontinued operations (EE) | 3.2 | — | ( | ( | |||||
Operational net foreign exchange and derivatives |
|
| |
| |
| | ||
Finance costs, net |
| 12.2 |
| |
| |
| | |
Income tax |
| 10.2 |
| |
| |
| | |
Share-based compensation |
| 6.3 |
| |
| |
| | |
Changes in working capital |
|
|
|
|
|
| |||
Decrease (increase) in inventories, gross |
|
| |
| ( |
| ( | ||
Decrease (increase) in trade receivables, gross |
|
| ( |
| ( |
| ( | ||
Increase (decrease) in trade payables |
|
| ( |
| |
| | ||
Changes in other customer contract assets and liabilities |
|
| ( |
| |
| | ||
Changes in other assets and liabilities (2) |
|
| ( |
| ( |
| | ||
Other net cash out |
|
|
|
|
|
|
| ||
Operating taxes and levies paid |
| 10.1 |
| ( |
| ( |
| ( | |
Dividends received |
|
| |
| |
| | ||
Interest paid and interest rates effects on derivatives, net (3) |
|
| ( |
| ( |
| ( | ||
Income tax paid |
| 10.2.3 |
| ( |
| ( |
| ( | |
Net cash provided by operating activities (a) |
|
| |
| |
| | ||
o/w discontinued operations (EE) |
|
| — |
| — |
| — | ||
Investing activities |
|
|
|
|
|
|
| ||
Purchases (sales) of property, plant and equipment and intangible assets |
|
|
|
|
|
|
| ||
Purchases of property, plant and equipment and intangible assets (4) |
| 8.4-8.5 |
| ( |
| ( |
| ( | |
Increase (decrease) in fixed assets payables |
|
| |
| ( |
| ( | ||
Investing donations received in advance | | | | ||||||
Sales of property, plant and equipment and intangible assets (5) | | | | ||||||
Cash paid for investment securities, net of cash acquired |
|
|
|
| |||||
SecureLink | 3.2 | ( | — | — | |||||
SecureData | 3.2 | ( | — | — | |||||
Basefarm | 3.2 | — | ( | — | |||||
Business & Decision |
| 3.2 |
| — |
| ( |
| — | |
Liberia |
|
| — |
| ( |
| — | ||
Burkina Faso |
|
| — |
| |
| ( | ||
Sierra Leone |
|
| — |
| |
| — | ||
Others |
|
| ( |
| ( |
| ( | ||
Investments in associates and joint ventures |
|
| ( |
| ( |
| — | ||
Other purchases of assets available for sale |
|
| — |
| — |
| ( | ||
Purchases of equity securities measured at fair value |
|
| ( |
| ( |
| ( | ||
Sales of EE | — | — | | ||||||
Sales of BT | 12.7 | | | | |||||
Sales of other investment securities, net of cash transferred |
|
| ( |
| |
| | ||
Decrease (increase) in securities and other financial assets |
|
| — | — | — | ||||
Investments at fair value, excluding cash equivalents |
|
| ( |
| |
| ( | ||
Other (6) |
|
| |
| ( |
| | ||
Net cash used in investing activities (b) |
|
| ( |
| ( |
| ( | ||
o/w discontinued operations (EE) |
|
| — |
| — |
| — |
(in millions of euros) |
| Note |
| 2019 (1) |
| 2018 |
| 2017 |
|
Financing activities | |||||||||
Medium and long-term debt issuances |
| 12.5-12.6 |
| |
| |
| | |
Medium and long-term debt redemptions and repayments(7) |
| 12.5-12.6 |
| ( |
| ( |
| ( | |
Repayments of lease liabilities | ( | — | — | ||||||
Increase (decrease) of bank overdrafts and short-term borrowings |
|
|
| ( |
| ( |
| | |
Decrease (increase) of cash collateral deposits |
|
|
| |
| |
| ( | |
Exchange rates effects on derivatives, net |
|
|
| |
| |
| ( | |
Coupon on subordinated notes |
| 14.4 |
| |
| — |
| — | |
Coupon and other fees on subordinated notes issuance |
| 14.4 |
| ( |
| ( |
| ( | |
Purchases of treasury shares - Orange Vision 2020 free share award plan |
| 14.2 |
| ( |
| ( |
| — | |
Other proceeds (purchases) from treasury shares |
| 14.2 |
| ( |
| |
| ( | |
Capital increase (decrease) - non-controlling interests | | | | ||||||
Changes in ownership interests with no gain / loss of control | ( | ( | | ||||||
Dividends paid to owners of the parent company |
| 14.3 |
| ( |
| ( |
| ( | |
Dividends paid to non-controlling interests |
| 14.6 |
| ( |
| ( |
| ( | |
Net cash used in financing activities (c) |
|
|
| |
| ( |
| ( | |
o/w discontinued operations (EE) | — | — | — | ||||||
Net change in cash and cash equivalents (a) + (b) + (c) |
|
| |
| ( |
| ( | ||
Net change in cash and cash equivalents |
|
|
|
|
|
| |||
Cash and cash equivalents in the opening balance | | | | ||||||
o/w continuing operations | | | | ||||||
o/w discontinued operations | — | — | — | ||||||
Cash change in cash and cash equivalents |
|
|
| |
| ( |
| ( | |
Non-cash change in cash and cash equivalents |
|
|
| |
| |
| ( | |
Effect of exchange rates changes on cash and cash equivalents and other non-monetary effects | | | ( | ||||||
Cash and cash equivalents in the closing balance |
|
|
| |
| |
| |
(1) | The effects of IFRS 16 application are described in Note 2.3.1. |
(2) | Including flows from operating activities related to Orange Bank and excluding operating tax receivables and payables. |
(3) | Including interests paid on lease liabilities for ( |
(4) | In 2019, acquisitions of financed assets for |
In 2018 and 2017, acquisitions of property, plant, equipment and intangible assets financed through finance leases in the amount of respectively
(5) | Including proceeds from sale and lease-back transactions for |
(6) | In 2019, mainly including net repayments of debt securities of Orange Bank for |
(7) | Including TDIRA buy-backs (see Note 12.4) |
2019 Form 20-F / ORANGE – F - 13 |
Note 1 Segment information
1.1 Segment revenue
(in millions of euros) |
| France |
| Spain |
| Europe |
December 31, 2019 | ||||||
Revenue(3) |
| |
| |
| |
Convergence services |
| |
| |
| |
Mobile services only |
| |
| |
| |
Fixed services only |
| |
| |
| |
IT & integration services |
| — |
| |
| |
Wholesale |
| |
| |
| |
Equipment sales | | | | |||
Other revenue | | | | |||
External |
| |
| |
| |
Inter-operating segments |
| |
| |
| |
December 31, 2018 |
|
|
| |||
Revenue(3) |
| |
| |
| |
Convergence services |
| |
| |
| |
Mobile services only |
| |
| |
| |
Fixed services only |
| 4,168 (4) |
| |
| |
IT & integration services |
| — |
| |
| |
Wholesale |
| |
| |
| |
Equipment sales | | | | |||
Other revenue | | — | | |||
External | | | | |||
Inter-operating segments | | | | |||
December 31, 2017 |
|
|
|
| ||
Revenue(3) |
| |
| |
| |
Convergence services |
| |
| |
| |
Mobile services only |
| |
| |
| |
Fixed services only |
| 4,344 (4) |
| |
| |
IT & integration services |
| — |
| — |
| |
Wholesale |
| |
| |
| |
Equipment sales |
| |
| |
| |
Other revenue |
| |
| — |
| |
External |
| |
| |
| |
Inter-operating segments |
| |
| |
| |
(1) | Including, in 2019, revenue of |
Including, in 2018, revenue of
Including, in 2017, revenue of
(2) | Including revenue of |
(3) | The description of different sources of revenue is presented in Note 4.1. |
(4) | Including, in 2019, fixed only broadband revenue of |
Including, in 2018, fixed only broadband revenue of
Including, in 2017, fixed only broadband revenue of
(5) | Including, in 2019, revenue of |
Including, in 2018, revenue of
Including, in 2017, revenue of
(in millions of euros) | Africa & | Enterprise (1) | International | Eliminations | Total telecom | Orange Bank | Eliminations | Orange | ||||||||
Middle-East | Carriers | activities | telecom | consolidated | ||||||||||||
& Shared | activities / | financial | ||||||||||||||
| Services (2) |
|
|
|
| bank | statements | |||||||||
December 31, 2019 | ||||||||||||||||
Revenue(3) |
| | | |
| ( |
| |
| — |
| ( | | |||
Convergence services |
| — | — | — |
| — |
| |
| — |
| — | | |||
Mobile services only |
| | | — |
| ( |
| |
| — |
| | | |||
Fixed services only |
| | 3,963 (5) | — |
| ( |
| |
| — |
| | | |||
IT & integration services |
| | | — |
| ( |
| |
| — |
| ( | | |||
Wholesale |
| | | |
| ( |
| |
| — |
| — | | |||
Equipment sales | | | — | ( | | — | | | ||||||||
Other revenue | | — | | ( | | — | ( | | ||||||||
External |
| | | |
| — |
| |
| — |
| — | | |||
Inter-operating segments |
| | | |
| ( |
| |
| — |
| ( | — | |||
December 31, 2018 |
|
|
|
|
|
|
| |||||||||
Revenue(3) |
| | | |
| ( |
| |
| — |
| ( | | |||
Convergence services |
| — | — | — |
| — |
| |
| — |
| — | | |||
Mobile services only |
| | | — |
| ( |
| |
| — |
| — | | |||
Fixed services only |
| | 3,997 (5) | — |
| ( |
| |
| — |
| — | | |||
IT & integration services |
| | | — |
| ( |
| |
| — |
| ( | | |||
Wholesale |
| | | |
| ( |
| |
| — |
| — | | |||
Equipment sales | | | - | ( | | — | — | | ||||||||
Other revenue | | — | | ( | | — | ( | | ||||||||
External | | | | — | | — | — | | ||||||||
Inter-operating segments | | | | ( | | — | ( | — | ||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
| ||||||
Revenue(3) |
| | | |
| ( |
| |
| — |
| ( | | |||
Convergence services |
| — | — | — |
| ( |
| |
| — |
| — | | |||
Mobile services only |
| | | — |
| ( |
| |
| — |
| — | | |||
Fixed services only |
| | 4,152 (5) | — |
| ( |
| |
| — |
| — | | |||
IT & integration services |
| | | — |
| ( |
| |
| — |
| ( | | |||
Wholesale |
| | | |
| ( |
| |
| — |
| — | | |||
Equipment sales |
| | | — |
| — |
| |
| — |
| — | | |||
Other revenue |
| | — | |
| ( |
| |
| — |
| ( | | |||
External |
| | | |
| — |
| |
| — |
| — | | |||
Inter-operating segments |
| | | |
| ( |
| |
| — |
| ( | — |
2019 Form 20-F / ORANGE – F - 15 |
1.2 Segment revenue to consolidated net income in 2019
(in millions of euros) | France | Spain | Europe | Africa & | ||||
|
|
|
| Middle-East | ||||
Revenue |
| |
| |
| |
| |
External purchases |
| ( |
| ( |
| ( |
| ( |
Other operating income |
| |
| |
| |
| |
Other operating expenses |
| ( |
| ( |
| ( |
| ( |
Labor expenses |
| ( |
| ( |
| ( |
| ( |
Operating taxes and levies |
| ( |
| ( |
| ( |
| ( |
Gains (losses) on disposal of fixed assets, investments and activities |
| — |
| — |
| — |
| — |
Restructuring costs |
| — |
| — |
| — |
| — |
Depreciation and amortization of financed assets | ( | — | — | — | ||||
Depreciation and amortization of right-of-use assets | ( | ( | ( | ( | ||||
Impairment of right-of-use assets | — | — | — | — | ||||
Interests on debts related to financed assets(3) | ( | — | — | — | ||||
Interests on lease liabilities(3) | ( | ( | ( | ( | ||||
EBITDAaL (1) |
| |
| |
| |
| |
Significant litigations (1) |
| — |
| — |
| — |
| — |
Specific labour expenses (1) |
| ( |
| — |
| |
| — |
Fixed assets, investments and businesses portfolio review (1) | | | | ( | ||||
Restructuring programs costs (1) | ( | ( | ( | ( | ||||
Acquisition and integration costs (1) | — | | ( | — | ||||
Depreciation and amortization of fixed assets | ( | ( | ( | ( | ||||
Reclassification of translation adjustment from liquidated entities | — | — | | | ||||
Impairment of goodwill | — | — | — | ( | ||||
Impairment of fixed assets | ( | — | ( | | ||||
Share of profits (losses) of associates and joint ventures | | — | | | ||||
Elimination of interests on debts related to financed assets(3) | | — | — | — | ||||
Elimination of interests on lease liabilities(3) | | | | | ||||
Operating Income |
| |
| |
| |
| |
Cost of gross financial debt except financed assets |
| — |
| — |
| — |
| — |
Interests on debts related to financed assets(3) |
| — |
| — |
| — |
| — |
Gains (losses) on assets contributing to net financial debt |
| — |
| — |
| — |
| — |
Foreign exchange gain (loss) |
| — |
| — |
| — |
| — |
Interests on lease liabilities(3) |
| — |
| — |
| — |
| — |
Other net financial expenses |
| — |
| — |
| — |
| — |
Effects resulting from BT sale |
| — |
| — |
| — |
| — |
Finance costs, net |
| — |
| — |
| — |
| — |
Income Tax |
| — |
| — |
| — |
| — |
Consolidated net income of continuing operations |
| — |
| — |
| — |
| — |
Consolidated net income of discontinued operations |
| — |
| — |
| — |
| — |
Consolidated net income |
| — |
| — |
| — |
| — |
(1) | See Note 1.8. for EBITDAaL adjustments. |
(2) | Orange Bank's net banking income is recognized in other operating income and amounts to |
(3) | Presentation adjustments allow the reallocation of the lines of specific items identified in the segment information to the operating revenue and expense lines presented in the consolidated income statement. Interests on debts related to financed assets and interests on lease liabilities are included in segment EBITDAaL. They are excluded from segment operating income and included in net finance costs presented in the consolided income statement. |
2019 Form 20-F / ORANGE – F - 16 |
(in millions of euros) | Enterprise | International | Elimination | Total | Orange | Eliminations | Total | Presentation | Orange | |||||||||
Carriers & | telecom | telecom | Bank (2) | telecom | adjust- | consoli- | ||||||||||||
Shared | activities | activities | activites / | ments(3) | dated financial | |||||||||||||
| Services |
| bank |
|
|
| statements | |||||||||||
Revenue |
| | | ( | | — |
| ( |
| |
| — |
| | ||||
External purchases |
| ( | ( | | ( | ( |
| |
| ( |
| — |
| ( | ||||
Other operating income |
| | | ( | | |
| ( |
| |
| — |
| | ||||
Other operating expenses |
| ( | ( | | ( | ( |
| |
| ( |
| ( |
| ( | ||||
Labor expenses |
| ( | ( | — | ( | ( |
| — |
| ( |
| ( |
| ( | ||||
Operating taxes and levies |
| ( | ( | — | ( | ( |
| — |
| ( |
| — |
| ( | ||||
Gains (losses) on disposal of fixed assets, investments and activities |
| — | — | — | — | — |
| — |
| — |
| |
| | ||||
Restructuring costs |
| — | — | — | — | — |
| — |
| — |
| ( |
| ( | ||||
Depreciation and amortization of financed assets | — | — | — | ( | — | — | ( | — | ( | |||||||||
Depreciation and amortization of right-of-use assets | ( | ( | — | ( | ( | — | ( | — | ( | |||||||||
Impairment of right-of-use assets | — | — | — | — | — | — | — | ( | ( | |||||||||
Interests on debts related to financed assets(3) | — | — | — | ( | — | — | ( | | — | |||||||||
Interests on lease liabilities(3) | ( | ( | — | ( | — | — | ( | | — | |||||||||
EBITDAaL (1) |
| | ( | | | ( |
| |
| |
| |
| — | ||||
Significant litigations (1) |
| — | ( | — | ( | — |
| — |
| ( |
| |
| — | ||||
Specific labour expenses (1) |
| | | — | ( | |
| — |
| ( |
| |
| — | ||||
Fixed assets, investments and businesses portfolio review (1) | | | — | | — | — | | ( | — | |||||||||
Restructuring programs costs (1) | ( | ( | — | ( | ( | — | ( | | — | |||||||||
Acquisition and integration costs (1) | ( | ( | — | ( | — | — | ( | | — | |||||||||
Depreciation and amortization of fixed assets | ( | ( | — | ( | ( | — | ( | — | ( | |||||||||
Reclassification of translation adjustment from liquidated entities | | | — | | — | — | | — | | |||||||||
Impairment of goodwill | — | — | — | ( | — | — | ( | — | ( | |||||||||
Impairment of fixed assets | | ( | — | | — | — | | — | | |||||||||
Share of profits (losses) of associates and joint ventures | | ( | — | | — | — | | — | | |||||||||
Elimination of interests on debts related to financed assets(3) | — | — | — | | — | — | | ( | — | |||||||||
Elimination of interests on lease liabilities(3) | | | — | | | — | | ( | — | |||||||||
Operating Income |
| | ( | | | ( |
| |
| |
| — |
| | ||||
Cost of gross financial debt except financed assets |
| — | — | — | — | — | — | — | — | ( | ||||||||
Interests on debts related to financed assets(3) |
| — | — | — | — | — |
| — |
| — |
| — |
| ( | ||||
Gains (losses) on assets contributing to net financial debt |
| — | — | — | — | — |
| — |
| — |
| — |
| | ||||
Foreign exchange gain (loss) |
| — | — | — | — | — |
| — |
| — |
| — |
| | ||||
Interests on lease liabilities(3) |
| — | — | — | — | — |
| — |
| — |
| — |
| ( | ||||
Other net financial expenses |
| — | — | — | — | — |
| — |
| — |
| — |
| | ||||
Effects resulting from BT sale |
| — | — | — | — | — |
| — |
| — |
| — |
| ( | ||||
Finance costs, net |
| — | — | — | — | — |
| — |
| — |
| — |
| ( | ||||
Income Tax |
| — | — | — | — | — |
| — |
| — |
| — |
| ( | ||||
Consolidated net income of continuing operations |
| — | — | — | — | — |
| — |
| — |
| — |
| | ||||
Consolidated net income of discontinued operations |
| — | — | — | — | — |
| — |
| — |
| — |
| — | ||||
Consolidated net income |
| — | — | — | — | — |
| — |
| — |
| — |
| |
2019 Form 20-F / ORANGE – F - 17 |
1.3 Segment revenue to segment operating income in 2018 and 2017
(in millions of euros) | France | Spain | Europe | Africa & | ||||
|
|
|
| Middle-East | ||||
December 31, 2018 | ||||||||
Revenue |
| |
| |
| |
| |
External purchases |
| ( |
| ( |
| ( |
| ( |
Other operating income |
| |
| |
| |
| |
Other operating expenses |
| ( |
| ( |
| ( |
| ( |
Labor expenses |
| ( |
| ( |
| ( |
| ( |
Operating taxes and levies |
| ( |
| ( |
| ( |
| ( |
Gains (losses) on disposal of fixed assets, investments and activities |
| — |
| |
| |
| |
Restructuring and integration costs |
| — |
| — |
| — |
| — |
Adjusted EBITDA(1) |
| |
| |
| |
| |
Significant litigations |
| — |
| ( |
| — |
| — |
Specific labour expenses |
| ( | — | — | — | |||
Investments and businesses portfolio review | — | — | — | — | ||||
Restructuring and integration costs |
| ( |
| ( |
| ( |
| ( |
Reported EBITDA(1) |
| |
| |
| |
| |
Depreciation and amortization |
| ( |
| ( |
| ( |
| ( |
Reclassification of cumulative translation adjustment from liquidated entities |
| — |
| — |
| — |
| — |
Impairment of goodwill |
| — |
| — |
| — |
| ( |
Impairment of fixed assets |
| ( |
| — |
| |
| ( |
Share of profits (losses) of associates and joint ventures |
| — |
| — |
| — |
| |
Operating income |
| |
| |
| |
| |
December 31, 2017 | ||||||||
Revenue |
| |
| |
| |
| |
External purchases |
| ( |
| ( |
| ( |
| ( |
Other operating income |
| |
| |
| |
| |
Other operating expenses |
| ( |
| ( |
| ( |
| ( |
Labor expenses |
| ( |
| ( |
| ( |
| ( |
Operating taxes and levies |
| ( |
| ( |
| ( |
| ( |
Gains (losses) on disposal of fixed assets, investments and activities |
| |
| — |
| |
| |
Restructuring and integration costs |
| — |
| — |
| — |
| — |
Adjusted EBITDA(1) |
| |
| |
| |
| |
Significant litigations |
| ( |
| — |
| — |
| — |
Specific labour expenses |
| ( | — | | — | |||
Investments and businesses portfolio review | — | — | ( | — | ||||
Restructuring and integration costs |
| ( |
| ( |
| ( |
| ( |
Other special items | — | — | — | — | ||||
Reported EBITDA(1) |
| |
| |
| |
| |
Depreciation and amortization |
| ( |
| ( |
| ( |
| ( |
Effects resulting from business combinations | — | — | — | — | ||||
Reclassification of cumulative translation adjustment from liquidated entities |
| — |
| — |
| — |
| — |
Impairment of goodwill |
| — |
| — |
| ( |
| ( |
Impairment of fixed assets |
| ( |
| — |
| ( |
| ( |
Share of profits (losses) of associates and joint ventures |
| — |
| — |
| — |
| |
Operating income |
| |
| |
| |
| |
(1) | See Note 1.8. for EBITDA adjustments. |
(2) | Orange Bank's net banking income is recognized in other operating income and amounts to |
Orange Bank's net banking income is recognized in other operating income and amounts to
(3) | Presentation adjustments allow the reallocation of the lines of specific items identified in the segment information to the operating revenue and expense lines presented in the consolidated income statement. |
(4) | In 2018, mainly related to the effect of the three-year extension of the 2015 French part-time for seniors plans (see Note 6.2). |
2019 Form 20-F / ORANGE – F - 18 |
(in millions of euros) | Enterprise | International | Elimination | Total | Orange | Eliminations | Total | Presentation | Orange | |||||||||
Carriers & | telecom | telecom | Bank(2) | telecom | adjustments(3) | consolidated | ||||||||||||
Shared | activities | activities | activities / | financial | ||||||||||||||
| Services |
|
| bank |
|
|
| statements | ||||||||||
December 31, 2018 | ||||||||||||||||||
Revenue |
| | | ( | |
| — |
| ( |
| |
| — |
| | |||
External purchases |
| ( | ( | | ( |
| ( |
| |
| ( |
| — |
| ( | |||
Other operating income |
| | | ( | | | ( | | — | | ||||||||
Other operating expenses |
| ( | ( | | ( |
| ( |
| |
| ( |
| ( |
| ( | |||
Labor expenses |
| ( | ( | — | ( |
| ( |
| — |
| ( |
| ( |
| ( | |||
Operating taxes and levies |
| ( | ( | — | ( |
| ( |
| — |
| ( |
| ( |
| ( | |||
Gains (losses) on disposal of fixed assets, investments and activities |
| — | | — | |
| — |
| — |
| |
| |
| | |||
Restructuring and integration costs |
| — | — | — | — |
| — |
| — |
| — |
| ( |
| ( | |||
Adjusted EBITDA(1) |
| | ( | — | |
| ( |
| |
| |
| ( |
| — | |||
Significant litigations |
| — | ( | — | ( |
| — |
| — |
| ( |
| |
| — | |||
Specific labour expenses |
| ( | ( | — | ( | ( | — | (812)(4) | | — | ||||||||
Investments and businesses portfolio review | — | | — | | — | — | | ( | — | |||||||||
Restructuring and integration costs |
| ( | ( | — | ( |
| — |
| — |
| ( |
| |
| — | |||
Reported EBITDA(1) |
| | ( | — | |
| ( |
| |
| |
| — |
| | |||
Depreciation and amortization |
| ( | ( | — | ( |
| ( |
| — |
| ( |
| — |
| ( | |||
Reclassification of cumulative translation adjustment from liquidated entities |
| — | | — | |
| — |
| — |
| |
| — |
| | |||
Impairment of goodwill |
| — | — | — | ( |
| — |
| — |
| ( |
| — |
| ( | |||
Impairment of fixed assets |
| — | ( | — | ( |
| — |
| — |
| ( |
| — |
| ( | |||
Share of profits (losses) of associates and joint ventures |
| ( | ( | — | |
| — |
| — |
| |
| — |
| | |||
Operating income |
| | ( | — | |
| ( |
| |
| |
| — |
| | |||
December 31, 2017 | ||||||||||||||||||
Revenue |
| | | ( | |
| — |
| ( |
| |
| — |
| | |||
External purchases |
| ( | ( | | ( |
| ( |
| |
| ( |
| — |
| ( | |||
Other operating income |
| | | ( | | | ( | | | | ||||||||
Other operating expenses |
| ( | ( | | ( |
| ( |
| |
| ( |
| ( |
| ( | |||
Labor expenses |
| ( | ( | — | ( |
| ( |
| — |
| ( |
| ( |
| ( | |||
Operating taxes and levies |
| ( | ( | — | ( |
| ( |
| — |
| ( |
| |
| ( | |||
Gains (losses) on disposal of fixed assets, investments and activities |
| — | | — | |
| — |
| — |
| |
| ( |
| | |||
Restructuring and integration costs |
| — | — | — | — |
| — |
| — |
| — |
| ( |
| ( | |||
Adjusted EBITDA(1) |
| | ( | — | |
| ( |
| |
| |
| ( |
| — | |||
Significant litigations |
| — | ( | — | ( |
| — |
| — |
| ( |
| |
| — | |||
Specific labour expenses |
| ( | ( | — | ( | — | — | ( | | — | ||||||||
Investments and businesses portfolio review | — | ( | — | ( | — | — | ( | | — | |||||||||
Restructuring and integration costs |
| ( | ( | — | ( |
| — |
| — |
| ( |
| |
| — | |||
Other special items | — | — | — | — | — | — | — | — | ||||||||||
Reported EBITDA(1) |
| | ( | — | |
| ( |
| |
| |
| — |
| | |||
Depreciation and amortization |
| ( | ( | — | ( |
| ( |
| — |
| ( |
| — |
| ( | |||
Effects resulting from business combinations | — | — | — | — | ( | — | ( | — | ( | |||||||||
Reclassification of cumulative translation adjustment from liquidated entities |
| — | ( | — | ( |
| — |
| — |
| ( |
| — |
| ( | |||
Impairment of goodwill |
| — | — | — | ( |
| — |
| — |
| ( |
| — |
| ( | |||
Impairment of fixed assets |
| — | ( | — | ( |
| — |
| — |
| ( |
| — |
| ( | |||
Share of profits (losses) of associates and joint ventures |
| | ( | — | |
| — |
| — |
| |
| — |
| | |||
Operating income |
| | ( | — | |
| ( |
| |
| |
| — |
| |
2019 Form 20-F / ORANGE – F - 19 |
1.4 Segment investments
(in millions of euros) |
| France |
| Spain |
| Europe |
December 31, 2019 |
|
|
|
|
|
|
eCapex (1) |
| |
| |
| |
Elimination of proceeds from sales of property, plant and equipment and intangible assets |
| |
| |
| |
Telecommunications licenses |
| |
| |
| |
Financed assets |
| |
| — |
| — |
Total investments (5) |
| |
| |
| |
December 31, 2018 |
|
|
|
|
|
|
Capex (2) |
| |
| |
| |
Telecommunications licenses |
| ( |
| |
| |
Finance leases |
| |
| |
| |
Total investments (6) |
| |
| |
| |
December 31, 2017 |
|
|
|
|
|
|
Capex (2) |
| |
| |
| |
Telecommunications licenses |
| |
| |
| — |
Finance leases |
| |
| |
| |
Total investments (7) |
| |
| |
| |
(1) | See Note 1.8. for eCapex definition. |
(2) | See Note 1.8. for Capex definition. |
(3) | Including investments in tangible and intangible assets in France for |
(4) | Including investments in tangible and intangible assets in France for |
(5) | Including |
(6) | Including |
(7) | Including |
2019 Form 20-F / ORANGE – F - 20 |
(in millions of euros) | Africa & | Enterprise (3) | International | Eliminations | Total | Orange | Eliminations | Orange | ||||||||
Middle-East | Carriers | telecom | telecom | Bank | telecom | consolidated | ||||||||||
& Shared | activities | activities | activities / | financial | ||||||||||||
Services (4) | and | bank | statements | |||||||||||||
| unallocated |
|
|
| ||||||||||||
|
|
|
| items |
|
|
|
| ||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
eCapex (1) |
| | | | — | |
| |
| — |
| | ||||
Elimination of proceeds from sales of property, plant and equipment and intangible assets |
| | | | — | |
| — |
| — |
| | ||||
Telecommunications licenses |
| | — | — | — | |
| — |
| — |
| | ||||
Financed assets |
| — | — | — | — | |
| — |
| — |
| | ||||
Total investments (5) |
| | | | — | |
| |
| — |
| | ||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capex (2) |
| | | | — | |
| |
| — |
| | ||||
Telecommunications licenses |
| | — | — | — | |
| — |
| — |
| | ||||
Finance leases |
| | | — | — | |
| — |
| — |
| | ||||
Total investments (6) |
| | | | — | |
| |
| — |
| | ||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capex (2) |
| | | | — | |
| |
| — |
| | ||||
Telecommunications licenses |
| | — | — | — | |
| — |
| — |
| | ||||
Finance leases |
| | | | — | |
| — |
| — |
| | ||||
Total investments (7) |
| | | | — | |
| |
| — |
| |
2019 Form 20-F / ORANGE – F - 21 |
1.5 Segment assets
(in millions of euros) |
| France |
| Spain |
| Europe |
December 31, 2019 |
|
|
|
|
|
|
Goodwill |
| |
| |
| |
Other intangible assets |
| |
| |
| |
Property, plant and equipment |
| |
| |
| |
Right-of-use assets | | | | |||
Interests in associates and joint ventures |
| |
| — |
| |
Non-current assets included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total non-current assets |
| |
| |
| |
Inventories |
| |
| |
| |
Trade receivables |
| |
| |
| |
Other customer contract assets | | | | |||
Prepaid expenses |
| |
| |
| |
Current assets included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total current assets |
| |
| |
| |
Assets held for sale | — | — | — | |||
Total assets |
| |
| |
| |
December 31, 2018 |
|
|
|
|
|
|
Goodwill |
| |
| |
| |
Other intangible assets |
| |
| |
| |
Property, plant and equipment |
| |
| |
| |
Interests in associates and joint ventures |
| — |
| |
| |
Non-current assets included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total non-current assets |
| |
| |
| |
Inventories |
| |
| |
| |
Trade receivables |
| |
| |
| |
Other customer contract assets | | | | |||
Prepaid expenses |
| |
| |
| |
Current assets included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total current assets |
| |
| |
| |
Assets held for sale | — | — | — | |||
Total assets |
| |
| |
| |
December 31, 2017 |
|
|
|
|
|
|
Goodwill |
| |
| |
| |
Other intangible assets |
| |
| |
| |
Property, plant and equipment |
| |
| |
| |
Interests in associates and joint ventures |
| — |
| |
| |
Non-current assets included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total non-current assets |
| |
| |
| |
Inventories |
| |
| |
| |
Trade receivables |
| |
| |
| |
Other customer contract assets | | | | |||
Prepaid expenses |
| |
| |
| |
Current assets included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total current assets |
| |
| |
| |
Assets held for sale |
| — |
| — |
| — |
Total assets |
| |
| |
| |
(1) | Including tangible and intangible assets for |
(2) | Including tangible and intangible assets for |
2019 Form 20-F / ORANGE – F - 22 |
(in millions of euros) | Africa & | Enterprise (1) | International | Eliminations | Total | Orange | Eliminations | Orange | ||||||||
Middle-East | Carriers | telecom | telecom | Bank | telecom | consolidated | ||||||||||
& Shared | activities | activities | activities / | financial | ||||||||||||
Services (2) | and | bank | statements | |||||||||||||
unallocated | ||||||||||||||||
|
| items |
|
|
|
| ||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Goodwill |
| | | |
| — |
| |
| — |
| — | | |||
Other intangible assets |
| | | |
| — |
| |
| |
| — | | |||
Property, plant and equipment |
| | | |
| — |
| |
| |
| — | | |||
Right-of-use assets | | | | — | | | — | | ||||||||
Interests in associates and joint ventures |
| | | |
| — |
| |
| — |
| — | | |||
Non-current assets included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — |
| — | | |||
Other |
| | | |
| | |
| | (4) | ( | | ||||
Total non-current assets |
| | | |
| |
| |
| | ( | | ||||
Inventories |
| | | |
| — |
| |
| — | — | | ||||
Trade receivables |
| | | |
| ( |
| |
| | ( | | ||||
Other customer contract assets | | | — | — | | — | — | | ||||||||
Prepaid expenses |
| | | |
| ( |
| |
| | | | ||||
Current assets included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — | — | | ||||
Other |
| | | |
| |
| |
| | (5) | ( | | |||
Total current assets |
| | | |
| |
| |
| |
| ( | | |||
Assets held for sale | — | — | — | — | — | — | — | — | ||||||||
Total assets |
| | | |
| |
| |
| |
| ( | | |||
December 31, 2018 |
|
|
|
|
| |||||||||||
Goodwill |
| | | |
| — |
| |
| — |
| — | | |||
Other intangible assets |
| | | |
| |
| |
| |
| — | | |||
Property, plant and equipment |
| | | |
| — |
| |
| |
| — | | |||
Interests in associates and joint ventures |
| | — | |
| — |
| |
| — |
| — | | |||
Non-current assets included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — |
| — | | |||
Other |
| | | |
| | (3) | |
| | (4) | ( | | |||
Total non-current assets |
| | | |
| |
| |
| |
| ( | | |||
Inventories |
| | | |
| — |
| |
| — |
| — | | |||
Trade receivables |
| | | |
| ( |
| |
| — |
| ( | | |||
Other customer contract assets | | | — | — | | — | — | | ||||||||
Prepaid expenses |
| | | |
| ( |
| |
| |
| — | | |||
Current assets included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — |
| — | | |||
Other |
| | | |
| |
| |
| | (5) | — | | |||
Total current assets |
| | | |
| |
| |
| |
| ( | | |||
Assets held for sale | — | — | — | — | — | — | — | — | ||||||||
Total assets |
| | | |
| |
| |
| |
| ( | | |||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Goodwill |
| | | |
| — |
| |
| — |
| — | | |||
Other intangible assets |
| | | |
| |
| |
| |
| — | | |||
Property, plant and equipment |
| | | |
| — |
| |
| |
| — | | |||
Interests in associates and joint ventures |
| | | |
| — |
| |
| — |
| — | | |||
Non-current assets included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — |
| — | | |||
Other |
| | | |
| | (3) | |
| | (4) | ( | | |||
Total non-current assets |
| | | |
| |
| |
| |
| ( | | |||
Inventories |
| | | |
| — |
| |
| — |
| — | | |||
Trade receivables |
| | | |
| ( |
| |
| — |
| ( | | |||
Other customer contract assets | — | | — | — | | — | — | | ||||||||
Prepaid expenses |
| | | |
| ( |
| |
| |
| — | | |||
Current assets included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — |
| — | | |||
Other |
| | | |
| |
| |
| | (5) | ( | | |||
Total current assets |
| | | |
| |
| |
| |
| ( | | |||
Assets held for sale |
| — | — | — |
| — |
| — |
| — |
| — | — | |||
Total assets |
| | | |
| |
| |
| |
| ( | |
(3) | Including BT shares in the amount of |
(4) | Including |
(5) | Including |
2019 Form 20-F / ORANGE – F - 23 |
1.6 Segment equity and liabilities
(in millions of euros) |
| France |
| Spain |
| Europe |
December 31, 2019 | ||||||
Equity |
| — |
| — |
| — |
Non-current lease liabilities | | | | |||
Fixed assets payables |
| |
| |
| |
Non-current employee benefits |
| |
| |
| |
Non-current liabilities included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total non-current liabilities |
| |
| |
| |
Current lease liabilities | | | | |||
Fixed assets payables |
| |
| |
| |
Trade payables |
| |
| |
| |
Customer contracts liabilities | | | | |||
Current employee benefits |
| |
| |
| |
Deferred income |
| |
| — |
| |
Current liabilities included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total current liabilities |
| |
| |
| |
Liabilities related to assets held for sale | — | — | — | |||
Total equity and liabilities |
| |
| |
| |
December 31, 2018 |
|
|
| |||
Equity |
| — |
| — |
| — |
Fixed assets payables |
| |
| |
| |
Non-current employee benefits |
| |
| |
| |
Non-current liabilities included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total non-current liabilities |
| |
| |
| |
Fixed assets payables |
| |
| |
| |
Trade payables |
| |
| |
| |
Customer contracts liabilities | | | | |||
Current employee benefits |
| |
| |
| |
Deferred income |
| |
| — |
| |
Current liabilities included in the calculation of net financial debt |
| — |
| — |
| — |
Other |
| |
| |
| |
Total current liabilities |
| |
| |
| |
Liabilities related to assets held for sale | — | — | — | |||
Total equity and liabilities |
| |
| |
| |
December 31, 2017 |
|
|
|
|
|
|
Equity |
| — |
| — |
| — |
Fixed assets payables | | — | | |||
Non-current employee benefits |
| | | | ||
Non-current liabilities included in the calculation of net financial debt |
| — | — | — | ||
Other |
| | | | ||
Total non-current liabilities |
| | | | ||
Fixed assets payables |
| | | | ||
Trade payables |
| | | | ||
Customer contracts liabilities |
| | | | ||
Current employee benefits |
| | | | ||
Deferred income |
| | — | | ||
Current liabilities included in the calculation of net financial debt |
| — | — | — | ||
Other |
| | | | ||
Total current liabilities |
| | | | ||
Liabilities related to assets held for sale | — | — | — | |||
Total equity and liabilities |
| | | |
(1) | Including in 2019, |
(2) | Including in 2019, |
Including in 2018,
Including in 2017,
2019 Form 20-F / ORANGE – F - 24 |
(in millions of euros) | Africa & | Enterprise | International | Eliminations | Total | Orange | Eliminations | Orange | ||||||||
Middle-East | Carriers | telecom | telecom | Bank | telecom | consolidated | ||||||||||
& Shared | activities | activities | activities / | financial | ||||||||||||
Services | and | bank | statements | |||||||||||||
unallocated | ||||||||||||||||
|
| items |
|
|
|
| ||||||||||
December 31, 2019 | ||||||||||||||||
Equity |
| — | — | — |
| |
| |
| ( |
| — |
| | ||
Non-current lease liabilities | | | | — | | | — | | ||||||||
Fixed assets payables |
| | — | — |
| — |
| |
| — |
| — |
| | ||
Non-current employee benefits |
| | | |
| — |
| |
| |
| — |
| | ||
Non-current liabilities included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — |
| — |
| | ||
Other |
| | | |
| |
| |
| 109 (1) | ( |
| | |||
Total non-current liabilities |
| | | |
| |
| |
| | ( |
| | |||
Current lease liabilities | | | | — | | | — | | ||||||||
Fixed assets payables |
| | | |
| ( |
| |
| — | — |
| | |||
Trade payables |
| | | |
| ( |
| |
| | ( |
| | |||
Customer contracts liabilities | | | | ( | | — | — | | ||||||||
Current employee benefits |
| | | |
| — |
| |
| | — |
| | |||
Deferred income |
| | | |
| |
| |
| — | — |
| | |||
Current liabilities included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — | ( |
| | |||
Other |
| | | |
| |
| |
| | (2) | |
| | ||
Total current liabilities |
| | | |
| |
| |
| | ( |
| | |||
Liabilities related to assets held for sale | — | — | — | — | — | — | — | | ||||||||
Total equity and liabilities |
| | | |
| |
| |
| | ( |
| | |||
December 31, 2018 |
|
|
|
|
| |||||||||||
Equity |
| — | — | — |
| |
| |
| | — |
| | |||
Fixed assets payables |
| | — | — |
| — |
| |
| — | — |
| | |||
Non-current employee benefits |
| | | |
| — |
| |
| | — |
| | |||
Non-current liabilities included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — | — |
| | |||
Other |
| | | |
| |
| |
| | (1) | ( |
| | ||
Total non-current liabilities |
| | | |
| |
| |
| | ( |
| | |||
Fixed assets payables |
| | | |
| ( |
| |
| — | — |
| | |||
Trade payables |
| | | |
| ( |
| |
| | ( |
| | |||
Customer contracts liabilities | | | | ( | | — | — | | ||||||||
Current employee benefits |
| | | |
| — |
| |
| | — |
| | |||
Deferred income |
| | | |
| — |
| |
| — | — |
| | |||
Current liabilities included in the calculation of net financial debt |
| — | — | — |
| |
| |
| — | — |
| | |||
Other |
| | | |
| |
| |
| | (2) | — |
| | ||
Total current liabilities |
| | | |
| |
| |
| |
| ( |
| | ||
Liabilities related to assets held for sale | — | — | — | — | — | — | — | — | ||||||||
Total equity and liabilities |
| | | |
| |
| |
| |
| ( |
| | ||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Equity |
| — | — | — |
| |
| |
| |
| — |
| | ||
Fixed assets payables | | — | — | — | | — | — | | ||||||||
Non-current employee benefits |
| | | | — | | | — | | |||||||
Non-current liabilities included in the calculation of net financial debt |
| — | — | — |
| | | — | — | | ||||||
Other |
| | | |
| | | | (1) | ( | | |||||
Total non-current liabilities |
| | | |
| | | | ( | | ||||||
Fixed assets payables |
| | | |
| ( | | | - | | ||||||
Trade payables |
| | | |
| ( | | | ( | | ||||||
Customer contracts liabilities |
| | | |
| ( | | — | — | | ||||||
Current employee benefits |
| | | |
| — | | | — | | ||||||
Deferred income |
| | — | |
| ( | | — | — | | ||||||
Current liabilities included in the calculation of net financial debt |
| — | — | — |
| | | — | — | | ||||||
Other |
| | | |
| | | | (2) | ( | | |||||
Total current liabilities |
| | | |
| | | | ( | | ||||||
Liabilities related to assets held for sale | — | — | — | — | — | — | — | — | ||||||||
Total equity and liabilities |
| | | |
| | | | ( | |
2019 Form 20-F / ORANGE – F - 25 |
1.7 Simplified statement of cash flows on telecommunication and Orange Bank activities
(in millions of euros) | 2019 | ||||||||
| Telecom | Orange Bank |
| Eliminations |
| Orange |
| ||
activities | telecom | consoli- |
| ||||||
activities / | dated financial |
| |||||||
Orange Bank | statement |
| |||||||
Operating activities |
|
|
|
|
|
|
|
| |
Consolidated net income |
| |
| ( |
| — |
| | |
Non-monetary items and reclassified items for presentation |
| |
| |
| |
| | |
Changes in working capital |
|
|
|
| |||||
Decrease (increase) in inventories, gross |
| | — | — | | ||||
Decrease (increase) in trade receivables, gross |
| ( | ( | ( | ( | ||||
Increase (decrease) in trade payables |
| ( | ( | | ( | ||||
Changes in other customer contract assets and liabilities | ( | — | — | ( | |||||
Changes in other assets and liabilities |
| ( | ( | — | ( | ||||
Other net cash out |
|
|
|
| |||||
Operating taxes and levies paid |
| ( |
| |
| — |
| ( | |
Dividends received |
| |
| — |
| — |
| | |
Interest paid and interest rates effects on derivatives, net |
| ( | (1) | |
| ( |
| ( | |
Income tax paid |
| ( |
| |
| — |
| ( | |
Net cash provided by operating activities (a) |
| | (2) | ( |
| — |
| | |
Investing activities |
|
|
|
|
|
|
|
| |
Purchases (sales) of property, plant and equipment and intangible assets |
| ( | (3) | ( |
| — |
| ( | |
Cash paid for investment securities, net of cash acquired |
| ( |
| — |
| — |
| ( | |
Investments in associates and joint ventures |
| ( |
| — |
| — |
| ( | |
Purchases of equity securities measured at fair value |
| ( |
| ( |
| — |
| ( | |
Proceeds from sales of investment securities, net of cash transferred |
| |
| — |
| — |
| | |
Decrease (increase) in securities and other financial assets |
| ( |
| |
| |
| ( | |
Net cash used in investing activities (b) |
| ( |
| |
| |
| ( | |
Financing activities |
|
|
|
|
|
|
|
| |
Cash flows from financing activities |
|
|
|
|
|
|
| ||
Medium and long-term debt issuances |
| |
| — |
| — |
| | |
Medium and long-term debt redemptions and repayments |
| ( | (4) | — |
| — |
| ( | |
Lease liabilities repayment | ( | ( | — | ( | |||||
Increase (decrease) of bank overdrafts and short-term borrowings |
| ( | | ( | ( | ||||
Decrease (increase) of cash collateral deposits |
| | ( | — | | ||||
Exchange rates effects on derivatives, net | |
| — |
| — |
| | ||
Other cash flows |
|
|
|
|
|
| |||
Issuances (purchases) of subordinated notes | ( |
| — |
| — |
| ( | ||
Coupon on subordinated notes |
| | — | — | | ||||
Purchases of treasury shares - Orange Vision 2020 free share award plan |
| ( |
| — |
| — |
| ( | |
Capital increase (decrease) - owners of the parent company |
|
| — |
| — |
| — | ||
Other proceeds (purchases) from treasury shares | ( | — | — | ( | |||||
Capital increase (decrease) - non-controlling interests |
| ( | (5) | | (5) | — |
| | |
Changes in ownership interests with no gain / loss of control |
| ( |
| — |
| — |
| ( | |
Dividends paid to owners of the parent company |
| ( |
| — |
| — |
| ( | |
Dividends paid to non-controlling interests |
| ( |
| — |
| — |
| ( | |
Net cash used in financing activities (c) |
| ( |
| |
| ( |
| | |
Cash and cash equivalents in the opening balance |
| |
| |
| — |
| | |
Cash change in cash and cash equivalents (a) + (b) + (c) |
| |
| ( |
| — |
| | |
Effect of exchange rates changes on cash and cash equivalents and other non-monetary effects |
| |
| — |
| — |
| | |
Cash and cash equivalents in the closing balance |
| |
| |
| — |
| |
(1) | Including interests paid on lease liabilities for ( |
(2) | Including significant litigations paid and received for |
(3) | Including telecommunication licenses paid for ( |
(4) | Including repayments of debts relating to financed assets for ( |
(5) | Including |
2019 Form 20-F / ORANGE – F - 26 |
(in millions of euros) | 2018 |
| |||||||
Telecom | Orange Bank | Eliminations | Orange |
| |||||
activities | telecom | consoli- |
| ||||||
|
| activities / | dated financial |
| |||||
|
| Orange Bank |
| statement |
| ||||
Operating activities | |||||||||
Consolidated net income |
| | ( |
| — |
| | ||
Non-monetary items and reclassified items for presentation |
| | |
| — |
| | ||
Changes in working capital |
|
|
| ||||||
Decrease (increase) in inventories, gross | ( | — | — | ( | |||||
Decrease (increase) in trade receivables, gross | ( | — | | ( | |||||
Increase (decrease) in trade payables | | | ( | | |||||
Changes in other customer contract assets and liabilities | | — | — | | |||||
Changes in other assets and liabilities | ( | ( | — | ( | |||||
Other net cash out | |||||||||
Operating taxes and levies paid | ( | ( | — | ( | |||||
Dividends received | | — | — | | |||||
Interest paid and interest rates effects on derivatives, net |
| ( | — |
| — |
| ( | ||
Income tax paid |
| ( | — |
| — |
| ( | ||
Net cash provided by operating activities (a) |
| | (1) | ( |
| — |
| | |
Investing activities |
|
|
|
|
|
|
| ||
Purchases (sales) of property, plant and equipment and intangible assets |
| ( | (2) | ( |
| — |
| ( | |
Cash paid for investment securities, net of cash acquired |
| ( | — | — |
| ( | |||
Investments in associates and joint ventures | ( | — | — | ( | |||||
Others purchases of assets available for sale | — | — | — | — | |||||
Purchases of equity securities measured at fair value | ( | ( | — | ( | |||||
Sales of investment securities, net of cash transferred |
| | — |
| — |
| | ||
Decrease (increase) in securities and other financial assets |
| ( | |
| ( |
| ( | ||
Net cash used in investing activities (b) |
| ( | |
| ( |
| ( | ||
Financing activities |
|
|
|
|
|
|
| ||
Cash flows from financing activities | |||||||||
Medium and long-term debt issuances |
| | — |
| — |
| | ||
Medium and long-term debt redemptions and repayments |
| ( | (3) | — |
| — |
| ( | |
Increase (decrease) of bank overdrafts and short-term borrowings |
| ( | |
| |
| ( | ||
Decrease (increase) of cash collateral deposits |
| | |
| — |
| | ||
Exchange rates effects on derivatives, net | | — | — | | |||||
Other cash flows | |||||||||
Coupon on subordinated notes | ( | — | — | ( | |||||
Purchases of treasury shares - Orange Vision 2020 free share award plan | ( | — | — | ( | |||||
Other proceeds (purchases) from treasury shares | | — | — | | |||||
Capital increase (decrease) - non-controlling interests | ( | (4) | | (4) | — | | |||
Changes in ownership interests with no gain / loss of control |
| ( | — | — |
| ( | |||
Dividends paid to owners of the parent company |
| ( | — |
| — |
| ( | ||
Dividends paid to non-controlling interests |
| ( | — |
| — |
| ( | ||
Net cash used in financing activities (c) |
| ( | |
| |
| ( | ||
Cash and cash equivalents in the opening balance |
| | |
| — |
| | ||
Cash change in cash and cash equivalents (a) + (b) + (c) |
| ( | |
| — |
| ( | ||
Effect of exchange rates changes on cash and cash equivalents and other non-monetary effects |
| | — |
| — |
| | ||
Cash and cash equivalents in the closing balance |
| | |
| — |
| |
(1) | Including significant litigations paid and received for ( |
(2) | Including telecommunication licenses paid for ( |
(3) | Including finance leases liabilities repayments for ( |
(4) | Including |
2019 Form 20-F / ORANGE – F - 27 |
(in millions of euros) | 2017 | |||||||
| Telecom | Orange | Eliminations |
| Orange | |||
activities | Bank | telecom | consoli- | |||||
activities / | dated | |||||||
Orange | financial | |||||||
Bank | statement | |||||||
Operating activities |
|
|
|
| ||||
Consolidated net income | | ( | — | | ||||
Non-monetary items and reclassified items for presentation |
| |
| |
| — |
| |
Changes in working capital |
|
|
|
| ||||
Decrease (increase) in inventories, gross |
| ( |
| — |
| — |
| ( |
Decrease (increase) in trade receivables, gross |
| ( |
| — |
| |
| ( |
Increase (decrease) in trade payables |
| |
| |
| ( |
| |
Changes in other customer contract assets and liabilities |
| |
| — |
| — |
| |
Changes in other assets and liabilities |
| ( |
| |
| — |
| |
Other net cash out |
|
|
|
| ||||
Operating taxes and levies paid |
| ( |
| ( |
| — |
| ( |
Dividends received |
| |
| — |
| — |
| |
Interest paid and interest rates effects on derivatives, net |
| ( |
| — |
| — |
| |
Income tax paid |
| ( |
|
| — |
| ( | |
Net cash provided by operating activities (a) |
| | (1) | |
| — |
| |
Investing activities |
|
|
|
|
|
|
|
|
Purchases (sales) of property, plant and equipment and intangible assets |
| ( | ( |
| — |
| ( | |
Cash paid for investment securities, net of cash acquired |
| ( |
| — | — |
| ( | |
Others purchases of assets available for sale |
| ( |
| — |
| — |
| ( |
Purchases of equity securities measured at fair value |
| ( |
| — |
| — |
| ( |
Sales of investment securities, net of cash transferred |
| |
| — |
| — |
| |
Decrease (increase) in securities and other financial assets |
| ( |
| ( |
| |
| ( |
Net cash used in investing activities (b) |
| ( |
| ( |
| |
| ( |
Financing activities |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Medium and long-term debt issuances |
| |
| — |
| — |
| |
Medium and long-term debt redemptions and repayments |
| ( | (3) | — |
| — |
| ( |
Increase (decrease) of bank overdrafts and short-term borrowings |
| |
| |
| ( |
| |
Decrease (increase) of cash collateral deposits |
| ( |
| |
| — |
| ( |
Exchange rates effects on derivatives, net |
| ( |
| — |
| — |
| ( |
Other cash flows |
|
|
|
|
|
| ||
Coupon on subordinated notes |
| ( |
| — |
| — |
| ( |
Other proceeds (purchases) from treasury shares |
| ( |
| — |
| — |
| ( |
Capital increase (decrease) - non-controlling interests |
| ( | (4) | | (4) | — |
| |
Changes in ownership interests with no gain / loss of control |
| |
| — |
| — |
| |
Dividends paid to owners of the parent company |
| ( |
| — |
| — |
| ( |
Dividends paid to non-controlling interests |
| ( |
| — |
| — |
| ( |
Net cash used in financing activities (c) |
| ( |
| |
| ( |
| ( |
Cash and cash equivalents in the opening balance |
| |
| |
| — |
| |
Cash change in cash and cash equivalents (a) + (b) + (c) |
| ( |
| |
| — |
| ( |
Effect of exchange rates changes on cash and cash equivalents and other non-monetary effects |
| ( |
| — |
| — |
| ( |
Cash and cash equivalents in the closing balance |
| |
| |
| — |
| |
(1) | Including significant litigations paid and received for ( |
(2) | Including telecommunication licenses paid for ( |
(3) | Including finance leases liabilities repayments for ( |
(4) | Including |
The table below shows the reconciliation between net cash provided by operating activities (telecom activities), as shown in the simplified statement of cash flows, and organic cash flow from telecom activities.
| 2019 |
| 2018 |
| 2017 | |
Net cash provided by operating activities (telecom activities) |
| |
| |
| |
Purchases (sales) of property, plant and equipment and intangible assets |
| ( |
| ( |
| ( |
Lease liabilities repayments (1) |
| ( |
| — |
| — |
Finance lease liabilities repayments (1) |
| — |
| ( |
| ( |
Debts relating to financed assets repayments |
| ( |
| — |
| — |
Elimination of telecommunication licenses paid |
| |
| |
| |
Elimination of significant litigation paid (and received) |
| ( |
| |
| |
Organic cash flow from telecom activities |
| |
| |
| |
(1) | The effects of IFRS 16 application are described in Note 2.3.1. |
2019 Form 20-F / ORANGE – F - 28 |
1.8 Definition of operating segments and performance indicators
Accounting policies
Segment information
The decisions regarding the allocation of resources and the performance assessment of the component parts of Orange (hereinafter referred to as "the Group") are made by the Chairman and Chief Executive Officer (main operational decision-maker) at operating segment level, mainly consisting of the geographical establishments. The operating segments are:
– France (Enterprise excluded);
– Spain;
– Poland, Belgium and Luxembourg and each Central European countries. The Europe aggregate combines the operating segments of this area;
– Sonatel subgroup (gathering Sonatel entities in Senegal, Orange Mali, Orange Bissau, Orange in Guinea and Orange in Sierra Leone), the Côte d'Ivoire subgroup (including Orange Côte d'Ivoire entities, Orange in Burkina Faso and Orange in Liberia) and each of the other countries in Africa and Middle East. The Africa and Middle East aggregate combines the operating segments of this area;
– Enterprise;
– the activities of International Carriers & Shared Services (IC&SS), which contain certain resources, mainly in the areas of networks, information systems, research and development and other shared Group activities, as well as the Orange brand;
– Orange Bank.
The use of shared resources, mainly provided by IC&SS, is taken into account in segment results based either on the terms of contractual agreements between legal entities, external benchmarks or by allocating costs among all the segments. The supply of shared resources is included in other revenues of the service provider, and the use of the resources is included in expenses of the service user. The cost of shared resources may be affected by changes in contractual relationships or organization and may therefore impact the segment results disclosed from one year to another.
Changes in operating performance indicators used in 2019
The Group applies the new standard IFRS 16 "Leases" prospectively from January 1, 2019.
The standard evolution has led the Group to change the key operating performance indicators used in 2019. EBITDAaL (for "EBITDA after Leases") and eCapex (for "economic Capex") are the new indicators used by Group's management.
Adjusted EBITDA, reported EBITDA and CAPEX remain the performance indicators used before 2019.
The new operating performance indicators are used by the Group:
– to manage and assess its operating and segment results; and
– to implement its investment and resource allocation strategy.
The Group’s management believes that the presentation of these indicators is relevant as it provides readers with the same management indicators as those used internally.
EBITDAaL corresponds to operating income before depreciation and amortization of fixed assets, effects resulting from business combinations, reclassification of cumulative translation adjustment from liquidated entities, impairment of goodwill and fixed assets, share of profits (losses) of associates and joint ventures, and after interests on debts related to financed assets and on lease liabilities, adjusted for:
– significant litigation;
– specific labor expenses;
– fixed assets, investments, and businesses portfolio review;
– restructuring program costs;
– acquisition and integration costs;
– and, where appropriate, other specific elements.
The measurement indicator allows for the effects of certain specific factors to be isolated, irrespective of their recurrence and the type of income and expense, when they are linked to:
– significant litigation:
Significant litigation expenses correspond to risk reassessments regarding various litigations.
Associated procedures are based on third-party decisions (regulatory authority, court, etc.) and occurring over a different period to the activities at the source of the litigation. By their very nature, costs are difficult to predict in terms of their source, amount and period;
– specific labor expenses:
Regardless of the departure plans included under restructuring costs, certain changes in the working hours of employees may have a negative impact on the period during which they are agreed and implemented. This primarily relates to the change in assumptions and the aging effect for the various part-time for seniors plans (TPS) in France;
2019 Form 20-F / ORANGE – F - 29 |
– fixed assets, investments and businesses portfolio review:
The Group constantly reviews its fixed assets, investments and businesses portfolio: as part of this review, decisions to dispose of or to sell assets are implemented, which by their very nature have an impact on the period during which it takes place. Since January 1, 2019 the Group includes the gains and losses on disposal of fixed assets (see Note 8.1) under the “review of fixed assets, investments and businesses portfolio”;
– restructuring programs costs:
The adjustment of Group activities in line with changes in the business environment may also incur other types of transformation costs. They include restructuring costs (see Note 5.3) and depreciation of right-of-use assets (see Note 9.2). These actions may have a negative effect on the period during which they are announced and implemented. For illustrative purposes, and not limited to, this could include some of the transformation plans approved by the internal governance bodies;
– acquisition and integration costs:
The Group also incurs costs which are directly linked to the acquisition and integration of entities. These are primarily legal and advisory fees, registration fees and earn-outs;
– where applicable, other specific elements that are systematically specified in relation to income and/or expenses.
EBITDAaL is not a financial aggregate as defined by IFRS and is not comparable to similarly titled indicators used by other groups. It is provided as additional information only and should not be considered as a substitute for operating income or cash flow provided by operating activities.
eCapex relate to acquisitions of property, plant and equipment and intangible assets excluding telecommunications licenses and financed assets minus the price of disposal of fixed assets. They are used internally as an indicator to allocate resources. eCapex are not a financial aggregate defined by IFRS and may not be comparable to similarly-titled indicators used by other companies.
The Group uses organic cash flow from telecom activities as an operating performance measure for telecom activities as a whole. Organic cash flow from telecom activities corresponds to net cash provided by operating activities minus (i) lease liabilities repayments and debts related to financed assets repayments, (ii) purchases and sales of property, plant and equipment and intangible assets net of the change in fixed assets payables, (iii) excluding effect of telecommunications licenses paid and excluding effect of significant litigations paid (and received). Organic cash-flow from telecom activities is not a financial aggregate defined by IFRS and may not be comparable to similarly-titled indicators used by other companies.
Operating performance indicators used in 2018
Reported EBITDA corresponds to operating income before depreciation and amortization, effects resulting from business combinations, reclassification of cumulative translation adjustment from liquidated entities, impairment of goodwill and fixed assets and share of profits (losses) of associates and joint ventures.
Adjusted EBITDA corresponds to reported EBITDA, adjusted for significant litigation, specific labor expenses, review of the investments and business portfolio, restructuring and integration costs and, where appropriate, other specific elements.
This measurement indicator allows for the effects of certain specific factors to be isolated from reported EBITDA, irrespective of their recurrence and the type of income or expense, when they are linked to:
– significant litigation:
Significant litigation expenses correspond to risk reassessments regarding various litigations. Associated procedures are based on third- party decisions (regulatory authority, court, etc.) and occurring over a different period to the activities at the source of the litigation. By their very nature, costs are difficult to predict in terms of their source, amount and period;
– specific labor expenses:
Regardless of the departure plans included under restructuring costs, certain changes in the working hours of employees may have a negative impact on the period during which they are agreed and implemented. This primarily relates to the change in assumptions and the aging effect for the various part-time for seniors plans (TPS) in France;
– investments and businesses portfolio review:
The Group constantly reviews its investments and businesses portfolio: as part of this review, decisions to sell assets are implemented, which by their very nature have an impact on the period during which the sale takes place. The corresponding gains (losses) on disposal affect either reported EBITDA or the net income from discontinued operations;
– restructuring and integration costs:
The adjustment of Group activities in line with changes in the business environment may also incur other types of transformation costs. These actions may have a negative effect on the period during which they are announced and implemented. For illustrative purposes, and not limited to, this could include some of the transformation plans approved by the internal governance bodies;
– where applicable, other specific elements that are systematically specified in relation to income and/or expenses.
Adjusted EBITDA and reported EBITDA are not financial aggregates as defined by IFRS and are not comparable to similarly titled indicators used by other groups. They are provided as additional information only and should not be considered as a substitute for operating income or cash flow provided by operating activities.
CAPEX relate to the acquisition of tangible and intangible assets excluding telecommunications licenses and investments financed through finance leases and are used internally as an indicator to allocate resources. CAPEX are not a financial aggregate defined by IFRS and may not be comparable to similarly-titled indicators used by other companies.
Assets and Liabilities
Inter-segment assets and liabilities are reported in each operating segment.
2019 Form 20-F / ORANGE – F - 30 |
Non-allocated assets and liabilities for the telecommunications business, mainly include external financial debt, external cash and cash equivalents, current and deferred tax assets and liabilities, as well as equity. Financial debt and investments between these segments are presented as non-allocated elements.
For Orange Bank, the line “Other” includes the assets and liabilities listed above, as well as the loans and receivables and debts related to the Bank’s activity.
Note 2 Description of business and basis of preparation of the consolidated financial statements
2.1 Description of business
Orange provides consumers, businesses and other telecommunications operators with a wide range of services including fixed telephony and mobile telecommunications, data transmission and other value-added services, including mobile financial services, mainly in Europe, Africa and Middle East. In addition to its role as a supplier of connectivity, the Group provides services for businesses, primarily solutions in the fields of digital work, security and improving business line processes.
Telecommunications operator activities are regulated and dependent upon the granting of licenses, just as mobile financial service activities have their own regulations.
2.2 Basis of preparation of the financial statements
The consolidated financial statements were approved by the Board of Directors’ Meeting on February 12, 2020 and will be submitted for approval at the Shareholders’ Meeting on May 19, 2020.
The 2019 consolidated annual financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) as endorsed by the European Union. Comparative figures are presented for 2018 and 2017 using the same basis of preparation.
The data are presented in millions of euros, without a decimal. Rounding to the nearest million may in some cases lead to non material discrepancies in the totals and subtotals shown in the tables.
For the reported periods, the accounting standards and interpretations endorsed by the European Union are similar to the compulsory standards and interpretations published by the International Accounting Standards Board (IASB) with the exception of the texts currently being endorsed, that have no effect on the Group accounts. Consequently, the Group financial statements are prepared in accordance with the IFRS standards and interpretations, as published by the IASB.
The principles applied to prepare the 2019 financial data are based on:
– all the standards and interpretations endorsed by the European Union compulsory as of December 31, 2019;
– options taken relating to date and methods of first application (see 2.3 below);
– the recognition and measurement alternatives allowed by the IFRSs:
Standard | Alternative used | |
IAS 1 | Accretion expense on operating liabilities (employee benefits, environmental liabilities and licenses) | Classification as financial expenses |
IAS 2 | Inventories | Measurement of inventories determined by the weighted average unit cost method |
IAS 7 | Interest paid and received dividends | Classification as net operating cash flows |
IAS 16 | Property, plant and equipment | Measurement at amortized historical cost |
IAS 38 | Intangible assets | Measurement at amortized historical cost |
IFRS 3R | Non-controlling interests | At the acquisition date, measurement either at fair value or at the portion of the net identifiable asset of the acquired entity |
– accounting positions adopted by the Group in accordance with paragraphs 10 to 12 of IAS 8:
Topic |
| Note |
Presentation of consolidated financial statements |
| Financial statements and segment information |
Operating taxes and levies |
| 10.1 |
Income taxes |
| 10.2 |
Non-controlling interests | ||
- Change in ownership interest in a subsidiary |
| 3 and 14.6 |
- Transactions with owners |
In the absence of any accounting standard or interpretation, management uses its judgment to define and apply an accounting policy that will result in relevant and reliable information, such that the financial statements:
– fairly present the Group’s financial position, financial performance and cash flows;
– reflect the economic substance of transactions;
2019 Form 20-F / ORANGE – F - 31 |
– are neutral;
– are prepared on a prudent basis; and
– are complete in all material respects.
2.3 New standards and interpretations applied from January 1, 2019
2.3.1 Initial application of IFRS 16 "Leases":
The new standard, IFRS 16 "Leases”, is of mandatory application since January 1, 2019.
The main effects of implementation of IFRS 16, compared with previously applied principles, concern the accounting of leases by lessees. Indeed, IFRS 16, which defines a lease as a contract that conveys to the lessee the right to control the use of an identified asset, significantly changes the recognition of these contracts in the financial statements.
The standard introduces a single lessee model for the recognition of leases, comprising the recognition in assets of a right-of-use asset, and in liabilities of a lease liability equal to the present value of future lease payments. The distinction between finance leases and operating leases under the former standard, IAS 17, is removed and replaced with this new model from January 1, 2019.
In addition to the effect on the presentation of the consolidated statement of financial position, the consolidated income statement is also affected. The current operating expense is replaced by a depreciation expense as well as an interest expense. In the consolidated statement of cash flows, interests continue to be recorded in operating flows. Investment flows are not modified, while the repayment of the lease liability impacts financing flows.
Lease recognition rules for lessors are unchanged compared with IAS 17.
The Group has identified four major categories of lease contracts:
– Lands and buildings: these contracts mainly concern commercial or service activity leases, as well as leases of technical buildings (leases of space or entire buildings depending on the circumstances) for “fixed" activities.
– Networks and terminals: these contracts mainly concern the lease of land for mobile sites, some “TowerCos” contracts for mobile activities and local loop access contracts where Orange is the lessee or lessor depending on the country.
– IT equipment: these contracts primarily concern leases of routers and servers in datacenters.
– Other: these contracts mainly concern leases of vehicles and technical equipment.
The Group elected to adopt the simplified retroslpective method for first-time application and applies the following authorized practical expedients:
– Exclusion of leases with a residual term expiring within 12 months of the first application date. This practical expedient is applied for all contracts, including those with a tacit renewal clause at the transition date. In applying this practical expedient, the Group calls on its judgment and experience gained in the previous years to determine whether it is reasonably certain to exercise a renewal option, taking account of the relevant facts and circumstances.
– Exclusion of leases of assets with a replacement value of less than approximately 5,000 euros.
– Exclusion of initial direct costs from the measurement of the right-of-use asset at the date of first-time application.
– The identical classification of asset and liability balances for finance leases identified under IAS 17 in right-of-use assets and lease liabilities as provided for in the standard.
– The inclusion in the opening balance sheet of provisions for onerous contracts measured as of December 31, 2018 pursuant to IAS 37, as an alternative to impairment testing of right-of-use assets in the opening balance sheet. Rent expenses already provisioned are presented in impairment of right-of-use assets.
The weighted average incremental borrowing rate as of January 1, 2019 for all the lease liabilities amounted to
In 2019, a number of questions were submitted to the IFRS IC seeking to clarify certain questions of interpretations of the standard. In November 2019, the Committee of IFRS IC decided to finalize the tentative agenda decision released in June 2019 regarding the determination of the lease term and the useful life of non-removable leasehold improvements, not considering useful to amend IFRS 16 standard in order to clarify the notion of enforceable period.
With this decision, the Committee considers clarifying how to determine the lease term, by excluding the legal approach consisting of only taking into account the legal form of the contract between the lessor and the lessee in order to determine the enforceable period of the contract. The Committee rather considers that the contract is enforceable as long as the lessee or the lessor would have to bear more than insignificant penalty in case of termination of the contract. Therefore, even in the absence of option for the lessee to extend the lease at its discretion, the reasonably certain lease term shall be assessed in order to determine the corresponding lease liability and therefore, the amount of the right-of-use. According to the Committee, the notion of “penalty” shall be considered broadly and should not be limited to contractual or monetary penalties.
In respect of the determination of the useful life of non-removable leasehold improvements, the Committee considers the following :
– The lease term of the contract shall be taken into account in the determination of the useful life of leasehold improvements ; and
– The presence of leasehold improvements which are not fully depreciated and which should be abandoned and dismantled in case of termination of the lease is an example of penalty to be taken into account in the assessment of the enforceable period of the lease contract.
2019 Form 20-F / ORANGE – F - 32 |
In light of the final decision of the IFRS IC, the Group started the additional analysis of its leases in order to identify leases for which the treatment initially adopted during the implementation of IFRS 16 could be affected.At the date of approval of the consolidated financial statements by the Board of Directors, this analysis covering several thousands leases is still ongoing. Therefore, the accounting effect of the IFRS IC decision has not been recognized as of December 31, 2019 considering the non-finalized analysis of which the effect will lead to the recognition of an additional right-of-use and an additional lease liability.
At the date of preparation of these annual financial statements, the Group’s accounting positions and the terms implemented with regard to these issues were as follows:
– Regarding the assessment of the lease term, the Group adopted a legal approach in a number of cases. This is the case in quite a few countries where there are open-ended lease contracts with a notice period of less than 12 months for which the Group applied the short-term exemption, in particular for the lease of mobile sites.
– Regarding the useful life of leasehold improvements, the Group analyzed the leases for which non-removable leasehold improvements were undertaken on the leased assets and considered that there were no economic benefits leading to reassessment of the enforceable lease term initially determined.
– The Group analyses the subsurface occupancy rights (subsurface servitudes) in order to determine if these contracts include a substantive substitution right of the lessor. If such a right exists, subsurface occupancy rights are not considered as leases. The IFRS IC final decision has not changed the Group position on this matter.
– The Group decided not to apply the deferred tax exemption from initial recognition provided in IAS 12 (paragraphs 15 and 24) to deferred tax generated by the recognition of a right-of-use asset and a lease liability.
The Group has chosen to apply IFRS 16 using the simplified retrospective method and accordingly the 2017 and 2018 comparative periods have not been restated.
This option leads to the recognition of the cumulative impact of the restatements required by the standard in equity as of January 1, 2019 and is reflected by an increase in consolidated reserves of 2 million euros in equity attributable to owners of the parent company, and mainly relating to the deferred taxes as presented in the table hereafter:
Effects on the consolidated financial statements
– Effects on the consolidated statement of financial position:
(in millions of euros) | December 31, | Effects of | January 1, | |||
2018 historical | IFRS 16 | 2019 restated | ||||
data | application | data | ||||
Property, plant and equipment | | ( | | |||
o/w finance leases | | ( | — | |||
Right-of-use assets | — | | | |||
o/w gross value | — | | | |||
o/w accumulated depreciation and amortization | — | ( | ( | |||
o/w accumulated impairment (1) | — | ( | ( | |||
Deferred tax assets |
| |
| |
| |
Total non-current assets |
| |
| |
| |
Prepaid expenses | | ( | | |||
Total current assets | | ( | | |||
Total assets | | | | |||
Total equity (2) | | | | |||
Non-current financial liabilities | | ( | | |||
o/w finance lease liabilities | | ( | — | |||
Non-current lease liabilities | — | | | |||
Non-current restructuring provision (1) | | ( | | |||
Deferred tax liabilities | | | | |||
Total non-current liabilities | | | | |||
Current financial liabilities | | ( | | |||
o/w finance lease liabilities | | ( | — | |||
Current lease liabilities | — | | | |||
Trade payables | | ( | | |||
Current restructuring provision (1) | | ( | | |||
Other current liabilities | | ( | | |||
Total current liabilities |
| |
| |
| |
Total equity and liabilities |
| |
| |
| |
(1) | Impairment losses on right-of-use assets concern real estate leases qualified as onerous contracts in France. |
(2) | The effect on opening equity as of January 1, 2019 is the result of timing differences between deferred tax assets and liabilities in countries where tax rates are expected to change in the coming years. |
2019 Form 20-F / ORANGE – F - 33 |
Reconciliation of operating lease off-balance sheet commitments presented according to IAS 17 as of December 31, 2018 and lease liabilities recognized according to IFRS 16 as of January 1, 2019
Reconciling items mainly concern the application scope, the lease payment measurement method and other impacts presented below:
(in millions of euros) |
| January 1, 2019 |
Operating lease commitments as of December 31, 2018 (1) |
| |
Commitments presented in other operating activities commitments as of December 31, 2018 (2) |
| |
Commitments relating to leases covered by an exemption (3) |
| ( |
Commitments relating to leases where the underlying asset is available after January 1, 2019 (4) |
| ( |
Measurement differences due to the determination of the lease term (5) |
| |
Lease payment measurement differences (6) |
| ( |
Finance lease liabilities as of December 31, 2018 (7) |
| |
Other effects (8) |
| |
Lease liabilities as of January 1, 2019 - Before discounting |
| |
Discounting effect |
| ( |
Lease liabilities as of January 1, 2019 |
| |
(1) | Including Orange Bank off-balance sheet commitments in the amount of |
(2) | Including notably some site management contracts (“TowerCos”) signed in Africa and local loop access contracts in Spain presented in other goods and services purchase commitments. |
(3) | The Group has excluded from lease liabilities, leases with a residual term expiring within 12 months of the application date and leases of assets with a replacement value of less than approximately |
(4) | Including notably property lease contracts signed in 2018 of which date of effective occupancy is subsequent to January 1, 2019 |
(5) | Off-balance sheet commitments are based on the minimum term of contracts whereas according to IFRS 16, the determination of the duration takes into account extension options that the lessee is reasonably certain to exercise. |
(6) | These measurement differences are relating to lease payments that depend on an index or a rate. |
(7) | Lease liabilities as of January 1, 2019 include the finance lease liabilities recognized as of December 31, 2018 according to IAS 17. |
(8) | Including minimum lease payments under real estate leases classified as onerous contracts in France recognized in restructuring provisions as of December 31, 2018 and excluded from the off-balance sheet commitments. |
Disclosures regarding lease liabilities and right-of-use assets are presented in Note 9.
2.3.2 Application of IFRIC 23 "Uncertainty over Income Tax Treatments"
The interpretation IFRIC 23 “Uncertainty over Income Tax Treatments” is of mandatory application since January 1, 2019 and clarifies the identification, valuation and accounting treatment of uncertain tax positions in relation with the income tax.
This interpretation had no effect on the measurement of income tax liabilities, nor on their presentation in the consolidation financial statements of the Group.
2.3.3 Early adoption of amendments to IFRS 9, IFRS 7 and IAS 39 relating to interest rate benchmark reform
The interest rate benchmark reform that will replace EONIA and IBOR rates from January 1, 2022, will affect some of the Group's financial instruments and hedges. This first amendment published by the IASB aims, in particular, to enable hedging relationships to be maintained before the interest rate benchmark reform is actually implemented.
The Group has begun discussions with the counterparties to negotiate the replacement of the old indexes with new ones. At December 31, 2019 the Group's exposure to financial instruments indexed to variable rates and maturing later than January 1, 2022 (when the amendments take effect) came down to the following items:
– perpetual bonds redeemable for shares (French acronym TDIRA) with a nominal value of
– cross-currency swaps with a nominal value of
– interest rate swaps with a nominal value of
2.4 Main standards and interpretations compulsory after December 31, 2019 with no early application elected by the Group
2.4.1 Amendment to IFRS 3 "Definition of a business"
This amendment clarifies the definition of a business and aims to help those preparing financial statements to determine whether an acquisition must be recognized as a business combination or an asset acquisition. This amendment will apply to all acquisitions made from January 1, 2020. The Group chose not to adopt this amendment early. These arrangements will be taken into consideration for future acquisitions to determine whether the transaction must be recognized as a business combination or an asset acquisition.
2.4.2 Amendments to IAS 1 and IAS 8 "Materiality"
Amendments to IAS 1 and IAS 8 specify that material information is "obscured" if the way in which it is reported has the same effect as if the information had not been reported. This may be the case if the information is scattered in various notes to the financial statements or in the event of information being inappropriately aggregated. These amendments apply to consolidated financial statements for reporting periods beginning on or after January 1, 2020. The Group believes that these amendments will have no effect on the presentation of its consolidated financial statements.
2019 Form 20-F / ORANGE – F - 34 |
2.5 Accounting policies, use of judgment and estimates
The accounting policies are presented within each note to which they refer. In summary:
Note | Topic | Accounting policies | Judgments and |
1 | Segment information | X | |
3 | Changes in the scope of consolidation, takeovers (business combinations), internal transfer of consolidated shares, assets held for sale | X | X |
4.1 | Revenue | X | X |
4.3 | Trade receivables | X | |
4.4 | Customer contract net assets and liabilities, costs of obtaining a contract and costs to fulfill a contract, unfulfilled performance obligations | X | |
4.6 | Submarine cable consortiums, Orange Money | X | |
4.7 | Related party transactions | X | |
5.1 | Advertising, promotion, sponsoring, communication and brand marketing costs | X | |
5.2 | Litigation, integration costs | X | X |
5.3 | Restructuring costs | X | X |
5.4 | Broadcasting rights and equipment inventories | X | |
5.6 | Trade payables (goods and services) | X | X |
6.2 | Employee benefits | X | X |
6.3 | Employee share-based compensation | X | |
7 | Goodwill, impairment of goodwill | X | X |
8.2 | Depreciation and amortization | X | |
8.3 | Impairment of non-current assets | X | X |
8.4 | Other intangible assets | X | X |
8.5 | Property,plant and equipment financial liabilities | X | X |
8.6 | Fixed assets payables | X | X |
8.7 | Dismantling provision | X | X |
9 | Leases | X | X |
9.1 | Lease liabilities | X | X |
9.2 | Right-of-use assets | X | |
10.1 | Operating taxes and levies | X | |
10.2 | Income taxes | X | X |
11 | Interests in associates and joint ventures | X | X |
12.3 | Net financial debt | X | X |
12.3 | Cash and cash equivalents, bonds, bank loans and loans from multilateral lending institutions | X | |
12.4 | Perpetual bonds redeemable for shares (TDIRA) | X | X |
12.7 | Financial assets (excluding Orange Bank activities) | X | X |
12.8 | Derivatives (excluding Orange Bank activities) | X | |
13.8 | Fair value of financial assets and liabilities (excluding Orange Bank activities) | X | X |
14.2 | Treasury shares | X | |
14.4 | Subordinated notes, equity component of perpetual bonds redeemable for shares (TDIRA) | X | X |
14.5 | Translation adjustments | X | |
14.6 | Non-controlling interests | X | |
14.7 | Earnings per share | X | |
16.1 | Financial assets and liabilities of Orange Bank | X | |
16.1.1 | Financial assets related to Orange Bank activities | X | X |
16.2.2 | Fair value of financial assets and liabilities of Orange Bank | X | |
17 | Litigation | X |
(1) | See Notes 2.5.1 and 2.5.2 |
2019 Form 20-F / ORANGE – F - 35 |
2.5.1 Use of judgment
In addition to the alternatives or accounting positions mentioned above in 2.2, Management exercises judgment in order to define the accounting policies for certain transactions:
Topic | Nature of accounting judgment | |
Note 3 | Control | Requiring judgment in certain circumstances with respect to the existence or not of the control Continuous control assessment which can affect the scope of consolidation, as for instance when a shareholders’ agreement is revised or terminated, or when protective rights turn into substantive rights |
Note 4 | Revenue | Splitting transaction price between mobile and service Identification of distinct or non-distinct performance obligations |
Notes 5, 10 and 17 | Purchases and other expenses, tax and litigation | Litigation and tax: measurement of technical merits of the interpretations and legislative positions and qualification of the facts and circumstances Onerous supplier contracts: trigger event, nature of unavoidable costs |
Notes 5 and 12 | Purchases and other expenses, financial assets and liabilities, net finance costs | Reverse factoring: distinguishing operating debt and financial debt |
Note 8 | Fixed assets | Qualifying network, sites or equipment sharing among operators as joint operations |
Note 9 | Leases | Determination of the non cancellable lease term and assessment of the exercise or not of termination, extension and purchase option Separation of service and lease components of leases "TowerCos" arrangements: electing the unit of account (tower or used space) and analyzing the arrangements in order to determine whether they contain a lease |
Notes 12 and 14 | Financial assets and liabilities and net finance costs Equity | Distinguishing equity and debt: assessing specific contractual clauses |
2.5.2 Use of estimates
In preparing the Group’s consolidated annual financial statements, Orange’s management makes estimates, insofar as many elements included in the financial statements cannot be measured precisely. Management revises these estimates if the underlying circumstances evolve or in light of new information or more experience. Consequently, the estimates made at December 31, 2019 may subsequently be changed.
Topic | Key sources of estimates on future income and/or cash flows | |
Note 4 | Revenue | Deciding duration of legally binding rights and obligations |
Notes 5, 10 and 17 | Risk of resources outflow linked to claims and litigation and to tax legislation Onerous contracts | Underlying assumptions of the assessment of legal and fiscal positions Identifying and releasing of uncertain legal and tax positions Underlying assumptions of the assessment |
Notes 7.3, 7.4, 8.3, 8.4, 8.5 and 11 | Measurement of the recoverable values for the impairment tests (goodwill, tangible and intangible assets, investments accounted for under the equity method) | Sensitivity to discount rates, perpetual growth rate and business plans’ assumptions which affect the expected cash flows (revenues, EBITDAaL and investments) Assessing the competitive, economic and financial environment of the countries where the Group operates , taking into account the potential effects of Brexit on these assumptions |
Note 10.2 | Measurement of the recoverable value of deferred tax assets | Assessing the deferred tax assets’ recovery timeline when a tax entity reverts to profitability or when the tax legislation limits the use of tax loss carryforward |
Note 8 | Fixed assets | Assessing assets’ useful life according to the change in the technological, regulatory or economic environment (notably the migration from the copper local loop into fiber and other greater bandwidth technologies, radio technology migration) Provision for dismantling and restoring sites: dismantling timeframe, discount rate, expected cost |
Note 9 | Leases | Determination of the incremental borrowing rate of the lease when the implied interest rate is not identifiable in the lease |
Note 6.2 | Employee benefits | Sensitivity to discount rates Sensitivity to sign-up rate senior plans |
Notes 13 and 16 | Fair value of financial assets and liabilities | Models, selection of parameters, fair value hierarchy, evaluation of non-performance risks |
Furthermore, aside from the elements linked to the level of activity, income and future cash flows are sensitive to changes in financial market risks, notably interest rate and foreign exchange risks.
2019 Form 20-F / ORANGE – F - 36 |
Note 3 Gains and losses on disposal and main changes in scope of consolidation
3.1 Gains (losses) on disposal of fixed assets, investments and activities
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Gains (losses) on disposal of fixed assets |
| |
| |
| |
Gains (losses) on disposal of investments and activities |
| ( |
| |
| ( |
Gain (losses) on disposal of fixed assets, investments and activities |
| |
| |
| |
The loss on disposal associated with BT securities is presented under "Effects resulting from BT stake" in the consolidated income statement and detailed in Note 12.7.
3.2 Main changes in the scope of consolidation
Changes in the scope of consolidation during 2019
Acquisitions of SecureLink and SecureData
On January 31, 2019, Orange acquired a
On July 8, 2019, the Group acquired
At acquisition date |
| SecureLink |
| SecureData |
(in millions of euros) |
|
|
|
|
Acquisition cost |
| |
| |
Cash acquired net of transaction costs |
| ( |
| ( |
Cash paid for investment securities, net of cash acquired |
| |
| |
Goodwill was recognized in the amount of
At acquisition date |
| SecureLink |
| SecureData |
(in millions of euros) |
|
|
|
|
Acquisition cost (a) |
| |
| |
Net book value acquired |
| ( |
| ( |
Effects of fair value measurement: |
|
|
|
|
Customer relationship(1) |
| |
| |
Trademark |
| — |
| — |
Others intangibles |
| — |
| — |
Net deferred tax |
| ( |
| ( |
Net asset remeasured at fair value (b) |
| ( |
| |
Goodwill (a)-(b) |
| |
| |
(1) | Depreciation between |
Fair values were measured using the excess earnings method for the customer base. Goodwill primarily relates to the acquisition of future customers.
The SecureLink and SecureData acquisition effect on revenue, in 2019, amounts to
Business & Decision
Since December 31, 2018, Orange has acquired
Sale of Orange Niger
On November 22, 2019, Orange sold its
Changes in the scope of consolidation during 2018
Basefarm acquisition
On August 14, 2018, the Group acquired
(in millions of euros) |
| At acquisition date |
Acquisition cost |
| |
Cash acquired net of transaction costs |
| ( |
Cash paid for investment securities, net of cash acquired |
| |
2019 Form 20-F / ORANGE – F - 37 |
In accordance with IFRS 3R – Business Combinations, the fair value measurement of identifiable assets acquired and liabilities assumed was finalized during the first semester of 2019. The final allocation of the acquisition cost is as follow:
(in millions of euros) |
| At acquisition date |
Acquisition cost (a) |
| |
Net book value acquired |
| ( |
Effects of fair value measurement: | ||
Customer relationship(1) | | |
Trademark (2) | | |
Others intangibles(3) | | |
Net deferred tax | ( | |
Net asset remeasured at fair value (b) | | |
Goodwill (a)-(b) |
| |
(1) | Depreciation over |
(2) | Depreciation over |
(3) | Depreciation over |
Fair value has been measured using the relief from royalty method for the brand and the excess earnings method for the customer base.
Goodwill primarily relates to future technologies and acquisition of future customers.
This acquisition has no significant impact on revenue in 2018.
Acquisition of Business & Decision
Following the acquisition of Business & Decision on June 5, 2018 and the purchase of additional securities as part of the friendly tender offer finalized on July 19, 2018, the Group acquired a stake of
(in millions of euros) |
| At acquisition date |
Acquisition cost | | |
Cash acquired net of transaction costs |
| ( |
Cash paid for investment securities, net of cash acquired |
| |
Goodwill was recognized in the amount of
(in millions of euros) |
| At acquisition date |
Acquisition cost | | |
Fair value of non-controlling interests |
| |
Acquisition cost (a) |
| |
Net book value acquired |
| |
Effects of fair value measurement: |
| |
Customer relationship(1) |
| |
Trademark (2) |
| |
Others intangibles(3) |
| |
Net deferred tax |
| ( |
Net asset remeasured at fair value (b) |
| |
Goodwill (a)-(b) |
| |
(1) | Depreciation over |
(2) | Depreciation over |
(3) | Specific technology depreciated over |
The residual goodwill mainly relates to workforce skills that cannot be recognized separately.
The effect of the acquisition of Business & Decision on revenue in 2018 amounts to
On July 19, 2018, Orange acquired
Changes in the scope of consolidation during 2017
No significant change in consolidation scope occurred during 2017.
Accounting policies
Changes in the scope of consolidation
Entities are fully consolidated if the Group has the following:
– power over the investee; and
– exposure, or rights, to variable returns from its involvement with the investee; and
– the ability to use its power over the investee to affect the amount of the investor’s returns.
When assessing control, IFRS 10 requires judgment and continuous assessment.
2019 Form 20-F / ORANGE – F - 38 |
Clarifications of when the ownership interest does not imply a de facto presumption are provided in Note 19 which lists the main consolidated entities.
Joint ventures and companies over which the Group exercises significant influence (generally corresponding to an ownership interest of 20% to 50%) are accounted for using the equity method.
When assessing the level of control or significant influence exercised over a subsidiary or associate, the existence and effect of any exercisable or convertible potential voting rights at the closing date is taken into account.
Material intragroup transactions and balances are eliminated.
Takeovers (business combinations)
Business combinations are accounted for using the acquisition method:
– the acquisition cost is measured at the fair value of the consideration transferred, including all contingent consideration, at the acquisition date. Subsequent changes in the fair value of contingent consideration are accounted for either through profit or loss or through other comprehensive income, in accordance with the applicable standards;
– goodwill is the difference between the consideration transferred and the fair value of the identifiable assets and liabilities assumed at the acquisition date, and is recognized as an asset in the statement of financial position. Considering the Group’s activity, the fair values of the identifiable assets relate mainly to licenses, to customer bases and to brands (which cannot be recognized as assets when internally developed), generating induced deferred taxes. The fair value of these assets, which cannot be observed, is established using commonly adopted methods, such as those based on revenues or costs (e.g.: the "Greenfield" method for the valuation of licenses, the "relief from royalty" method for the valuation of brands and the "excess earnings" method for customer bases).
For each business combination with an ownership interest below 100%, non-controlling interest is measured:
– either at its fair value: in which case, goodwill is recognized for the portion relating to non-controlling interests;
– or proportionate to its share of the acquiree's identifiable net assets: in which case, goodwill is only recognized for the share acquired.
Acquisition-related costs are directly recognized in operating income in the period in which they are incurred.
When a business combination is achieved in stages, the previously held equity interest is re-measured at fair value at the acquisition date through operating income. The related other comprehensive income, if any, is fully reclassified to profit or loss.
Internal transfer of consolidated shares
IFRS do not address the accounting treatment for the transfer of consolidated shares within the Group resulting in changes in ownership interest. The Group applies the following accounting policy:
– the transferred shares are carried at historical cost and the gain or loss on the transfer is fully eliminated in the acquirer’s accounts;
– the non-controlling interests are adjusted to reflect the change in their share in the equity against Group retained earnings, with no impact on profit and loss and equity.
Assets held for sale
The Group qualifies an asset or group of assets as “held for sale” when:
– the management is committed to a plan to sell;
– the asset is available for immediate sale in its current state (subject to any conditions precedent that are usual in such disposals); and
– the sale is highly probable, within 12 months.
Thus, when the Group is committed to a plan to sell involving the loss of control or significant influence over one of its assets, it classifies all assets and liabilities of the entities concerned under a separate line in the statement of financial position: "Assets/Liabilities held for sale", at a value equal to the lower of the net carrying value and the fair value net of disposal costs.
In addition, when the asset or group of assets held for sale represents a major line of business, its contribution to the income statement is presented separately (below “consolidated net income of continuing operations”); its cash flow contribution is presented in the statement of cash flows.
Note 4 Sales
4.1 Revenue
The presentation of revenue is disaggregated by category and segment in the Note “Segment information” (see Note 1.1). Breakdown of revenues by source is as follows:
– Mobile services only: mobile services revenue is generated by incoming and outgoing calls (voice, SMS and data), excluding convergent services (see below);
– Fixed services only: revenue from fixed services includes fixed broadband and narrowband services, excluding convergent services (see below) and fixed network business solutions, including voice and data;
– Convergence packages: these include revenue from convergence packages for the Mass market (Internet + Mobile products);
– Equipment sales: all equipment sales (mobile phones, broadband equipment, connected objects and accessories), excluding sales of equipment related to integration and information technology services and sales of equipment to external distributors and brokers, presented in “Other revenue”;
2019 Form 20-F / ORANGE – F - 39 |
– IT & integration services : IT & integration services revenue includes unified communication and collaboration services (LAN and telephony, consultancy, integration, project management), hosting and infrastructure services (including Cloud computing), applications services (customer relations management and other applications services), security services, video conferencing offers as well as sales of equipment related to the above products and services;
– Carrier services (Wholesale): roaming revenue from customers of other networks (national and international), revenue from Mobile Virtual Network Operators (MVNO) and from network sharing, among others;
– Other revenue: equipment sales to external distributors and brokers.
Accounting policies
Most revenue falls within the application scope of IFRS 15 "Revenue from contracts with customers". Orange's products and services are offered to customers under service contracts only and contracts combining the equipment used to access services and/or other service offers. Revenue is recognized net of VAT and other taxes collected on behalf of governments.
– Standalone service offers (mobile services only, fixed services only, convergent service)
Orange proposes to Mass market and Corporate markets customers a range of fixed and mobile telephone services, fixed and mobile Internet access services and content offers (TV, video, media, added-value audio service, etc.). Some contracts are for a fixed term (generally
Service revenue is recognized when the service is provided, based on use (e.g. minutes of traffic or bytes of data processed) or the period (e.g. monthly service costs).
Under some content offers, Orange may act solely as an agent enabling the supply by a third-party of goods or services to the customer and not as a principal in the supply of the content. In such cases, revenue is recognized net of amounts transferred to the third-party.
Contracts with customers generally do not include a material right, as the price invoiced for contracts and the services purchased and consumed by the customer beyond the specific scope (e.g. additional consumption, options, etc.) generally reflect their standalone selling prices. We have no significant impact related to contract modification for this type of contract. Service obligations transferred to the customer at the same pace are treated as a single obligation.
When contracts include contractual clauses covering commercial discounts (initial discount on signature of the contract or conditional on attaining a consumption threshold) or free offers (e.g.
If the performance obligations are not classified as distinct, the offer revenue is recognized on a straight-line over the contract term. The initial service connection in the context of a service contract and communication offer, is a good example. It is not generally separable from the service contract and communication offer and is therefore recognized in income over the average term of the expected contractual relationship.
– Separate equipment sales
Orange proposes to Mass market and Corporate market customers several ways to buy their equipment (primarily mobile phones): equipment sales may be separate from or bundled with a services offer. When separate from a services offer, the amount invoiced is recognized in revenue on delivery and receivable immediately or in instalments over a period of up to
Where Orange purchases and sells equipment to indirect channels, the Group generally considers that Orange maintains control until final resale to the end-customer (the distributor acts as an agent), even where ownership is transferred to the distributor. Sales proceeds are therefore recognized when the end-customer takes possession of the equipment (on activation).
– Bundled equipment and services offers
Orange proposes numerous offers to its Mass market and Corporate market customers comprising equipment (e.g. a mobile terminal) and services (e.g. a communications contract).
Equipment revenue is recognized separately if the
The provision of a Livebox® (Internet proprietary box) is neither a separate component of the Internet access service nor a lease, as Orange maintains control of the box.
– Services including a build and run phase
Some Corporate market contracts include two phases: a build phase followed by the management of the IT platforms. Revenue recognition requires an analysis of the facts and circumstances of each contract in order to determine whether distinct performance obligations exist. Depending on the contract, the Group recognizes build phase revenue at completion if this phase is qualified as distinct. These contracts are generally multi-year, with scalable offers. On each contract modification, we assess the scope modification or its impact on the contract price in order to determine whether the amendment must be treated as a distinct contract, as if the existing contract were terminated and a new contract signed, or whether the amendment must be considered as a change to the existing contract.
2019 Form 20-F / ORANGE – F - 40 |
– Service offers to carriers (wholesale)
– Pay-as-you-go model: contract generally applied to “legacy” regulated activities (bit stream call termination, local loop access, roaming and certain data solution contracts), where contract services are not covered by a firm volume commitment. Revenue is recognized as the services are provided (which corresponds to transfer of control) over the contractual term;
– Send-or-pay model: contract where the price, volume and term are defined. The customer has a commitment to pay the amount indicated in the contract irrespective of actual traffic consumed over the commitment period. This contract category notably includes certain MVNO (Mobile Virtual Network Operator), IDD (International Direct Dialing) or hubbing (call free floating) contracts. Related revenue is recognized progressively based on actual traffic during the period, to reflect transfer of control to the customer;
– Mixed model: hybrid contract combining the “Pay-as-you-go “ and “Send-or-pay” models, comprising a fixed entry fee providing access to preferential pricing conditions for a given volume (“Send or pay” component) and invoicing of traffic consumption (“Pay-as-you-go” component). The entry fee invoiced under this type of commercial agreement is recognized progressively in revenue based on actual traffic over the period. The amount invoiced for the entry fee included in this type of commercial agreement is recognized progressively in revenue based on actual traffic over the period.
Agreements between major transit carriers are not billed (free peering) and therefore not recognized in revenue.
– Service level commitment clause
The contracts entered into by Group and its customers include service level agreements regarding the processing of orders, deliveries and after sales support (delivery time, performance, service reinstatement time). If the Group fails to comply with one of these commitments, then it pays compensation to the end-customer, which is usually a tariff reduction. The projected amount of these penalties is deducted from revenue in the event that it is likely that the commitment is not or will not be fulfilled
– Public-private service concession arrangements
The Group rolls-out and/or operates certain networks under service concessions, such as the public initiative networks implemented in France to roll-out optical fiber networks in less populated areas. Some contracts are analyzed in accordance with IFRIC 12, Service concession arrangements. When the Group builds a network, construction revenue is recognized in exchange for a right to receive consideration from either a public entity or users of the public service. This right is accounted for as:
– an intangible asset, if the Group has a right to charge users of the public service. This asset is measured at the infrastructure fair value and amortized over the agreement period;
– a financial receivable, if the Group has an unconditional right to receive payments from the public entity. This asset is measured at the infrastructure fair value and accounted for at amortized cost.
– Leases
Orange lease revenue concerns either its regulatory obligation to lease technical sites to competitors, the supply of equipment under certain contracts with Enterprise markets, or occasionally, one-off leases to third-parties of excess space in certain buildings.
Lease revenues are recognized on a straight-line basis over the contract term, except for certain equipment leases to Enterprise market customers classified as finance leases; in such cases the equipment is considered sold on credit.
4.2 Other operating income
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Net banking income |
| |
| |
| |
Tax credits and subsidies |
| |
| |
| |
Income from universal service |
| |
| |
| |
Brand & management fees (1) |
| |
| |
| |
Other income |
| |
| |
| |
Total |
| |
| |
| |
(1) | Invoiced to certain uncontrolled entities. |
Net banking income (NBI) represents the net balance between banking products (fees charged to customers, interest from loans, banking activities retail commissions and other income from banking operations) and expenses from banking operations (interest paid in respect of bank loans, commissions paid and other expenses from banking operations).
It is prepared in accordance with accounting practices that are commonly used in France in the banking sector.
Other income is predominantly comprised of income on impaired trade receivables, rebilling of network sharing costs, income relating to line damages.
4.3 Trade receivables
2019 Form 20-F / ORANGE – F - 41 |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 (1) |
Net book value of trade receivables - in the opening balance |
| |
| |
| |
IFRS 9 transition impact | — | ( | — | |||
Net book value of trade receivables - including IFRS 9 transition impact | | | | |||
Business related variations |
| |
| |
| |
Changes in the scope of consolidation |
| |
| |
| |
Translation adjustment |
| |
| ( |
| ( |
Reclassifications and other items |
| ( |
| ( |
| ( |
Reclassification to assets held for sale |
| |
| |
| |
Net book value of trade receivables - in the closing balance |
| |
| |
| |
(1) | As authorized by IFRS 9 (see Note 2.3). Group has chosen not to restate the comparative periods 2016 and 2017. |
Orange established a program of non-recourse sales of its deferred payment receivables in several countries. These receivables are derecognized from the balance sheet. The trade receivables sold as of December 31, 2019 in France, Poland and Spain generated an early receipt of respectively approximately
(in millions of euros) | December 31, | December 31, | December 31, | ||||
| 2019 |
| 2018 |
| 2017(1) |
| |
Trade receivables depreciated according to their age |
| |
| |
| | |
Trade receivables depreciated according to other criteria |
| |
| |
| | |
Net trade receivables past due |
| |
| |
| | |
Not past due (2) |
| |
| |
| | |
Net trade receivables |
| |
| |
| | |
o/w short-term trade receivables |
| |
| |
| | |
o/w long-term trade receivables (3) |
| |
| |
| | |
o/w net trade receivables from telecom activities |
| |
| |
| | |
o/w net trade receivables from Orange Bank |
| — |
| — |
| — |
(1) | As authorized by IFRS 9 (see Note 2.3), the Group has chosen not to restate the comparative period 2017 |
(2) | 2018 not past due receivables are presented net of IFRS 9 provision for ( |
(3) | Includes receivables from sales of handset with payment on instalments that are payable in more than |
Shown below is the aging table of the net trade receivables which are past due and impaired according to their age:
(in millions of euros)
The table below provides an analysis of the change in impairment for trade receivables in the statement of financial position:
(in millions of euros) |
| 2019 |
| 2018 |
| 2017(1) |
|
Allowances on trade receivables - in the opening balance |
| ( |
| ( |
| ( | |
IFRS 9 transition impact | — | ( | — | ||||
Allowances on trade receivables - including IFRS 9 transition impact | ( | ( | ( | ||||
Net addition with impact on income statement (2) |
| ( |
| ( |
| ( | |
Losses on trade receivables |
| |
| |
| | |
Changes in the scope of consolidation |
| ( |
| ( |
| ( | |
Translation adjustment |
| ( |
| ( |
| | |
Reclassifications and other items |
| ( |
| |
| | |
Reclassification to assets held for sale |
| |
| |
| | |
Allowances on trade receivables - in the closing balance |
| ( |
| ( |
| ( |
(1) | As authorized by IFRS 9 (see Note 2.3), the Group has chosen not to restate the comparative period 2017. |
(2) | The change in IFRS 9 provision for 2019 amounts to ( |
2019 Form 20-F / ORANGE – F - 42 |
Accounting policies
The trade receivables are mainly short-term with no stated interest rate and are measured at original invoice amount. Those receivables which include deferred payment terms over
Impairment of trade receivables is based on
– a collective statistical method: this is based on historical losses and leads to a separate impairment rate for each aging balance category. This analysis is performed over a homogenous group of receivables with similar credit characteristics because they belong to a customer category (mass-market, small offices and home offices);
– a stand-alone method: the assessment of impairment probability and its amount are based on a set of relevant qualitative factors (ageing of late payment, other balances with the counterpart, rating from independent agencies, geographical area). This method is used for carriers and operators (national and international), local, regional and national authorities and for large accounts of Enterprise Communication Services;
– a provisioning method based on anticipated loss: IFRS 9 requires recognition of expected losses on receivables immediately upon recognition of the financial instruments. In addition to the pre-existing provisioning system, the Group applies a simplified approach of anticipated impairment at the time the asset is recognized. The percentage applied depends on the maximum revenue non-recoverability rate.
Impairment losses identified for a group of receivables represent the step preceding impairment identification for individual receivables. When information is available (clients in bankruptcy or subject to equivalent judicial proceedings), these receivables are then excluded from the statistical impairment database and individually impaired.
The trade receivables may be part of securitization programs. When they are sold to consolidated special purpose entities, they are still recognized in the statement of financial position. Other sales to financial institutions may lead to their de-recognition where the risks and benefits are transferred as described by IFRS 9.
4.4 Customer contract net assets and liabilities
(in millions of euros) |
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 |
Customer contract net assets (1) |
| |
| |
| |
Costs of obtaining a contract |
| |
| |
| |
Costs to fulfill a contract |
| |
| |
| |
Total customer contract net assets |
| |
| |
| |
Prepaid telephone cards |
| ( |
| ( |
| ( |
Connection fees |
| ( |
| ( |
| ( |
Loyalty programs |
| ( |
| ( |
| ( |
Other deferred revenue (2) |
| ( |
| ( |
| ( |
Other customer contract liabilities |
| ( |
| ( |
| ( |
Total deferred revenue related to customer contracts |
| ( |
| ( |
| ( |
Total customer contract net assets and liabilities |
| ( |
| ( |
| ( |
(1) | Assets net of remaining performance obligations. |
(2) | Includes subscription fees. |
The following tables give an analysis of the balances of customer contract net assets and the costs of acquiring and fulfilling them in the financial statements.
(in millions of euros) | 2019 | 2018 | 2017 | ||||
Customer contract net assets - in the opening balance |
| |
| | | ||
Business related variations(1) |
| ( |
| ( | ( | ||
Changes in the scope of consolidation |
| — |
| — | — | ||
Translation adjustment |
| |
| ( | | ||
Reclassifications and other items |
| — |
| | | ||
Reclassification to assets held for sale |
| — |
| — | — | ||
Customer contract net assets - in the closing balance |
| |
| | |
(1) | Mainly includes the new customer contract assets net of related liabilities, the transfer of the net contract assets directly to trade receivables and impairment of the period. |
Below is presented the change in deferred income on customer contracts (prepaid telephone cards, service access fees, loyalty programs and other unearned income) in the statement of financial position.
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Deferred revenue related to customer contracts - in the opening balance | ||||||
Business related variations |
| ( |
| ( |
| ( |
Changes in the scope of consolidation |
| |
| |
| — |
Translation adjustment |
| |
| |
| ( |
Reclassifications and other items |
| ( |
| ( |
| |
Reclassification to assets held for sale |
| — |
| — |
| — |
Deferred revenue related to customer contracts - in the closing balance |
| |
| |
| |
Accounting policies
Customer contract net assets and liabilities
The timing of revenue recognition may differ from customer invoicing.
2019 Form 20-F / ORANGE – F - 43 |
Trade receivables presented in the consolidated statement of financial position represent an unconditional right to receive consideration (primarily cash), i.e. the services and goods promised to the customer have been transferred.
By contrast, contract assets mainly refer to amounts allocated per IFRS 15 as compensation for goods or services provided to customers for which the right to collect payment is subject to providing other services or goods under that same contract (or group of contracts). This is the case in a bundled offer combining the sale of a mobile phone and mobile communication services for a fixed-period, where the mobile phone is invoiced at a reduced price leading to the reallocation of a portion of amounts invoiced for telephone communication services to the supply of the mobile phone. The excess of the amount allocated to the mobile phone over the price invoiced is recognized as a contract asset and transferred to trade receivables as the service is invoiced.
Contract assets, like trade receivables, are subject to impairment for credit risk. The recoverability of contract assets is also verified, especially to cover the risk of impairment should the contract be interrupted. Recoverability may also be impacted by a change in the legal environment governing offers.
Contract liabilities represent amounts paid by customers to Orange before receiving the goods and/or services promised in the contract. This is typically the case for advances received from customers or amounts invoiced and paid for goods or services not transferred yet, such as contracts payable in advance or prepaid packages (previously recognized in deferred income).
Customer contract assets and liabilities are presented, respectively, in current assets and current liabilities since they are a normal part of the Group's operations.
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Costs of obtaining a contract - in the opening balance | ||||||
Business related variations |
| |
| ( |
| ( |
Changes in the scope of consolidation |
| |
| — |
| — |
Translation adjustment |
| |
| ( |
| |
Reclassifications and other items |
| |
| |
| — |
Reclassification to assets held for sale |
| |
| — |
| — |
Costs of obtaining a contract - in the closing balance |
| |
| |
| |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Costs to fulfill a contract - in the opening balance | ||||||
Business related variations |
| |
| |
| ( |
Changes in the scope of consolidation |
| |
| — |
| — |
Translation adjustment |
| |
| |
| — |
Reclassifications and other items |
| |
| ( |
| — |
Reclassification to assets held for sale |
| |
| — |
| — |
Costs to fulfill a contract - in the closing balance |
| |
| |
|
Accounting policies
Cost of obtaining a contract
Where a telecommunications service contract is signed via a third-party distributor, this distributor may receive business provider remuneration, generally paid in the form of a commission for each contract or invoice-indexed commission. Where the Group considers the commission incremental and believes that it would not have been paid in the absence of the contract, the commission cost is estimated and capitalized in the balance sheet. It should be noted that the Group has adopted the simplification measure authorized by IFRS 15 to recognize the costs of obtaining contracts as an expense when they are incurred if the amortization period of the asset, it would have recognized in respect of them, would not have exceeded a year.
The costs of obtaining fixed-period mobile service contracts are capitalized and released to profit or loss on a straight-line over the enforceable contract term, as these costs are generally incurred each time the customer renews the fixed-period. The costs of obtaining fixed-period landline services for Mass market customers are expensed on a straight-line over the estimated period of the customer relationship. The costs of obtaining business and operator solutions contracts are not material.
Costs to fulfill a contract
Costs to fulfill a contract consist of all the initial contractual costs necessary to fulfill one or more performance obligations of a contract. These costs, when they qualify as non-distinct from the performance obligation, are capitalized and costs incurred are recorded on a time-apportioned basis over the effective period of the contract.
At Group level, these costs mainly concern contracts for Corporate customers, with, for example, design, installation, connection and migration fees that relate to a future performance obligation of the contract.
The assumptions underlying the period over which the costs of fulfilling a contract are expensed are periodically reviewed and adjusted in line with observations; termination of the contractual relationship with the customer results in the immediate expensing of the remaining deferred costs. Where the carrying amount of deferred costs exceeds the remaining consideration expected to be received for the transfer of the related goods and services, less expected costs relating directly to the transfer of these goods and services still to be incurred, the excess amount is similarly immediately expensed.
The cost of obtaining and fulfilling contracts impacted EBITDAaL in 2019 and adjusted EBITDA in 2018 and 2017.
2019 Form 20-F / ORANGE – F - 44 |
The following table presents the transaction price assigned to unfulfilled performance obligations as of December 31, 2019. Unfulfilled performance obligations are the services that the Group is obliged to provide to customers during the remaining fixed term of the contract. As allowed by the simplification procedure in IFRS 15, these disclosures are only related to performance obligations with an initial term greater than one year.
(in millions of euros) |
| December |
31, 2019 | ||
Less than one year |
| |
Between 1 and 2 years |
| |
Between 2 and 3 years |
| |
Between 3 and 4 years |
| |
Between 4 and 5 years |
| |
More than 5 years |
| |
Total remaining performance obligations |
| |
Accounting policies
Unfulfilled performance obligations
On the allocation of the total contract transaction price to identified performance obligations, a portion of the total transaction price can be allocated to performance obligations that are unsatisfied or partially satisfied at the end of the reporting period. We have elected to apply certain available practical expedients when disclosing unfulfilled performance obligations, including the option to exclude expected revenues from unsatisfied obligations of contracts with an original expected duration of one year or less. These contracts are primarily monthly service contracts.
In addition, certain contracts offer customers the ability to purchase additional services. These additional services are not included in the transaction price and are recognized when the customer exercises the option (generally on a monthly basis). They are not therefore included in unfulfilled performance obligations.
Some multi-year service contracts with Corporate business customers and Operator customers include fixed monthly costs and variable user fees.
These variable user fees are excluded from the table of unfulfilled performance obligations.
4.5 Deferred income
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Deferred income - in the opening balance | |||||||
Business related variations |
| |
| ( |
| ( | |
Changes in the scope of consolidation |
| |
| |
| | |
Translation adjustment |
| |
| |
| ( | |
Reclassifications and other items |
| ( |
| |
| | |
Reclassification to assets held for sale |
| |
| |
| | |
Deferred income - in the closing balance |
|
| |
| |
4.6 Other assets
December 31, | December 31, | December 31, | |||||
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Advances and downpayments |
| |
| |
| | |
Submarine cable consortiums (1) |
| |
| |
| | |
Security deposits paid |
| |
| |
| | |
Orange Money - restriction of electronic money (1) |
| |
| |
| | |
Others |
| |
| |
| | |
Total |
| |
| |
| |
(1) | These receivables are offset by the liabilities of the same amount (see accounting policies and Note 5.7). |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Other assets - in the opening balance |
| |
| |
| |
Business related variations |
| |
| |
| |
Changes in the scope of consolidation |
| |
| |
| ( |
Translation adjustment |
| |
| |
| ( |
Reclassifications and other items |
| |
| ( |
| ( |
Reclassification to assets held for sale |
| |
| |
| |
Other assets - in the closing balance |
| |
| |
| |
o/w other non-current assets |
| |
| |
| |
o/w other current assets |
| |
| |
| |
Accounting policies
Other assets relating to “Submarine cable consortiums” are receivables from submarine cable consortium members when Orange is in charge of centralizing the payments to the equipment suppliers that build and manage these cables. These receivables are offset by the liabilities of the same amount (see Note 5.7).
Orange Money is a money transfer, payment and financial services solution provided via an electronic money (“e-money”) account linked to an Orange mobile number.
2019 Form 20-F / ORANGE – F - 45 |
Since 2016, the Orange group has become an Electronic Money Issuer (“EMI”) in some of the countries in which it operates, via dedicated, approved, internal subsidiaries. Regulations state that EMIs, as last-resort guarantors for the reimbursement of e-money holders, are obliged to restrict the funds collected in exchange for the issue of e-money (obligation to protect holders). The e-money distribution model relies on Orange’s subsidiaries and third-party distributors. EMIs issue e-money (or units of value “UV”) at the request of these distributors in exchange for funds collected therefrom. The distributors then transfer the e-money to end holders.
Within the Orange group, this restriction includes the protection of third-party holders (distributors and customers).
These transactions have no impact on the Group's net financial debt and are listed under the following headings:
– assets restricted to an amount equal to the e-money in circulation outside of the Orange group (or UV in circulation);
– UV in circulation under liabilities, representing the obligation to reimburse the third-party holders (customers and third-party distributors).
These two headings are presented under “other assets” and “other liabilities” and under operating activities as “change in working capital requirement”.
4.7 Related party transactions
The French State, either directly or through Bpifrance Participations, is one of the main shareholders of Orange SA. The communication services provided to the French State are done so as part of a competitive process held for each service according to the nature of the service. They have no material impact on consolidated revenues.
Transactions with associates and joint ventures are presented in Note 11.
Accounting policies
Orange group’s related parties are listed below:
– the Group’s key management personnel and their families (see Note 6);
– the French State, and its departments in Bpifrance Participations and central State departments (see Notes 10 and 14);
– associates, joint ventures and companies in which the Group holds a significant stake (see Note 11).
Note 5 Purchases and other expenses
5.1 External purchases
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Commercial, equipments expenses and content rights |
| ( |
| ( |
| ( | |
o/w costs of terminals and other equipment sold |
| ( |
| ( |
| ( | |
o/w advertising, promotional, sponsoring and rebranding costs |
| ( |
| ( |
| ( | |
Service fees and inter-operator costs |
| ( |
| ( |
| ( | |
Other network expenses, IT expenses |
| ( |
| ( |
| ( | |
Other external purchases |
| ( |
| ( |
| ( | |
o/w rental expenses |
| ( |
| ( |
| ( | |
Total |
| ( |
| ( |
| ( |
Accounting policies
Firm purchase commitments are disclosed as unrecognized contractual commitments (see Note 15).
Advertising, promotion, sponsoring, communication and brand marketing costs are recorded as expenses during the period in which they are incurred.
As of January 1, 2019, lease expenses include lease payments on contracts of 12 months or less, contracts where the new value of the underlying asset is less than
5.2 Other operating expenses
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Allowances and losses on trade receivables – telecom activities |
| ( | ( | ( | |||
Expenses from universal service |
| ( | ( | ( | |||
Litigation |
| ( | ( | ( | |||
Operating foreign exchange gains (losses) | ( | | ( | ||||
Cost of bank credit risk |
| ( | ( | ( | |||
Integration costs(1) | ( | — | — | ||||
Other expenses |
| ( | ( | ( | |||
Total |
| ( | ( | ( |
(1) | Since January 1st 2019, integration costs are presented in other operating expenses. In 2018 and 2017 those costs were presented in restructuring costs (see Note 5.3). |
Impairment and losses on trade receivables of telecom activities are detailed in Note 4.3.
2019 Form 20-F / ORANGE – F - 46 |
The cost of credit risk exclusively applies to Orange Bank and includes impairment charges and reversals on fixed-income securities, loans and receivables to customers as well as impairment charges and reversals relating to guarantee commitments given, losses on receivables and recovery of amortized debts.
Expenses for legal disputes for which provisions or immediate payment have been made include the reassessment of the risk related to various disputes.
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Provision for litigation - in the opening balance |
| |
| |
| | |
Additions with impact on income statement |
| |
| |
| | |
Reversals with impact on income statement |
| ( |
| ( |
| ( | |
Discounting with impact on income statement |
| — |
| |
| | |
Utilizations without impact on income statement (1) |
| ( |
| ( |
| ( | |
Changes in consolidation scope |
| |
| |
| — | |
Translation adjustment |
| |
| |
| | |
Reclassifications and other items |
| |
| ( |
| ( | |
Reclassification to assets held for sale |
| |
| |
| | |
Provision for litigation - in the closing balance |
| |
| |
| | |
o/w non-current provision |
| |
| |
| | |
o/w current provision |
| |
| |
| |
(1) | In 2018, mainly related to the payment of the fine in Poland for |
Payments related to some litigation are directly recorded in other operating expenses.
The Group’s significant litigations are described in Note 17.
Accounting policies
Litigation
In the ordinary course of business, the Group is involved in a number of legal and arbitration proceedings and administrative actions described in Note 17.
The costs which may result from these proceedings are accrued at the reporting date if the Group has a present obligation towards a third party resulting from a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount of that liability can be quantified or estimated within a reasonable range. The amount of provision recorded is based on a case-by-case assessment of the risk level, and events arising during the course of legal proceedings may require a reassessment of this risk. Where appropriate, litigation cases may be analyzed as contingent liabilities, which correspond to:
– probable obligations arising from past events that are not recognized because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the Company’s control; or
– present obligations arising from past events that are not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or because the amount of the obligation cannot be measured with sufficient reliability.
Integration costs
Integration costs are incurred at the time of acquisition of legal entities (costs linked to the acquisition of the entity, consultancy fees, training costs for new staff, migration costs associated with customer offers, labor expenses associated with the transition). They are incurred over a maximum period of 12 months following the acquisition date.
5.3 Restructuring and integration costs
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Restructuring costs | ( | ( | ( | ||||
Departure plans(1) | ( | ( | ( | ||||
Lease property restructuring (2) | | ( | ( | ||||
Distribution channels(3) | ( | ( | ( | ||||
Other | ( | ( | ( | ||||
Integration costs(4) | — | ( | ( | ||||
Acquisition costs of investments | — | ( | ( | ||||
Total restructuring costs | ( | ( | ( |
(1) | Mainly voluntary departure plans of Orange Polska in 2019 and 2017 (approximately |
(2) | In 2018 and 2017, essentially related to vacant leases in France. |
(3) | Concerns the end of the relationship with some indirect distributors. |
(4) | From January, 1 2019, Integration costs are presented in "Other operating expenses". |
2019 Form 20-F / ORANGE – F - 47 |
Some restructuring and integration costs are directly recorded in operating income and are not included in the following movements of provisions:
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Restructuring and integration provision - in the opening balance |
| |
| |
| | |
Additions with impact on income statement | | | | ||||
Reversals releases with impact on income statement |
| ( |
| ( |
| ( | |
Utilizations without impact on income statement |
| ( |
| ( |
| ( | |
Translation adjustment |
| |
| ( |
| ( | |
Reclassifications and other items (1) |
| ( |
| |
| | |
Reclassification to assets held for sale |
| |
| |
| | |
Restructuring and integration provision - in the closing balance |
| |
| |
| | |
o/w non-current provision |
| |
| |
| | |
o/w current provision |
| |
| |
| |
(1) | In 2019, effect of IFRS 16 application (see Note 2.3.1) |
Accounting policies
Restructuring costs
The adjustment of Group activities in line with changes in the business environment may also incur other types of transformation costs. These actions may have a negative effect on the period during which they are announced or implemented; for instance but not limited to, some of the transformation plans approved by the internal governance bodies.
Provisions are recognized only when the restructuring has been announced and the Group has drawn up or started to implement a detailed formal plan prior to the end of the reporting period.
The types of costs approved by the Group as restructuring costs primarily consist of:
– employee departure plans;
– indemnities paid to suppliers to terminate a contract (distribution networks, content operations, etc.);
– cost of vacant buildings
(Out of the scope of IFRS 16);
– transformation plans for communication network infrastructures.
Onerous contracts: during the course of a contract, when the economic circumstances that prevailed at inception change, some commitments towards the suppliers may become onerous, i.e. the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
5.4 Broadcasting rights and equipment inventories
(in millions of euros) | December 31, | December 31, | December 31, | ||||
| 2019 |
| 2018 |
| 2017 |
| |
Handset inventories (1) |
| |
| |
| | |
Other products sold |
| |
| |
| | |
Available broadcasting rights |
| |
| |
| | |
Others supplies |
| |
| |
| | |
Gross value |
| |
| |
| | |
Depreciation |
| ( |
| ( |
| ( | |
Net book value |
| |
| |
| |
(1) | Of which inventories treated as consignment with distributors amounting to |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Inventories - in the opening balance |
| |
| | | |
Business related variations |
| ( |
| | | |
Changes in the scope of consolidation |
| |
| | | |
Translation adjustment |
| |
| ( | ( | |
Reclassifications and other items |
| |
| ( | ( | |
Reclassification to assets held for sale |
| |
| | | |
Inventories - in the closing balance |
| |
| | |
Accounting policies
Network maintenance equipment and equipment intended for sale to customers are measured at the lower of cost or likely realizable value. The cost corresponds to the purchase or production cost determined by the weighted average cost method.
Handset inventories include inventories treated as consignment with distributors when these are qualified, for accounting purposes, as agents in the sales of handsets bought from the Group.
Film or sports broadcasting rights are recognized in the statement of financial position when they are available for exhibition and expensed when broadcast.
2019 Form 20-F / ORANGE – F - 48 |
5.5 Prepaid expenses
| December 31, |
| December 31, |
| December 31, |
| |
(in millions of euros) | 2019 | 2018 | 2017 | ||||
Prepaid external purchases |
| |
| |
| | |
Other prepaid operating expenses |
| |
| |
| | |
Total |
| |
| |
| |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Prepaid expenses - in the opening balance |
| |
| | | |
Business related variations |
| |
| | | |
Changes in the scope of consolidation |
| |
| | — | |
Translation adjustment |
| |
| — | ( | |
Reclassifications and other items |
| ( |
| | | |
Reclassification to assets held for sale |
| |
| | | |
Prepaid expenses - in the closing balance |
| |
| | |
5.6 Trade payables
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Trade payables - in the opening balance |
| |
| |
| |
Business related variations |
| ( |
| |
| |
Changes in the scope of consolidation |
| |
| |
| ( |
Translation adjustment |
| |
| |
| ( |
Reclassifications and other items |
| ( |
| |
| ( |
Reclassification to assets held for sale |
| |
| |
| |
Trade payables - in the closing balance |
| |
| |
| |
o/w trade payables from telecom activities |
| |
| |
| |
o/w trade payables from Orange Bank |
| |
| |
| |
Supplier payment terms are mutually agreed between the suppliers and Orange in accordance with the rules in force. Certain key suppliers and Orange have agreed to a flexible payment schedule which, for certain invoices, can be extended up to
Trade payables and fixed asset payables that were subject to a payment extension, and had an impact on the change in working capital requirements at the end of the period, amounted to approximately
Accounting policies
Trade payables resulting from trade transactions and settled in the normal operating cycle are classified as current items. They include those that have been financed by the supplier (with or without notification of transfer to financial institutions) under direct or reverse factoring, and those for which the supplier proposed an extended payment period to Orange and for which Orange confirmed the payment arrangement under the agreed terms. Orange considers these financial liabilities to carry the characteristics of trade payables, in particular due to the ongoing trade relationship, the payment schedules ultimately consistent with the operational cycle of a telecommunications operator in particular for the purchase of primary infrastructures, the supplier’s autonomy in the anticipated relationship and a financial cost borne by Orange that corresponds to the compensation of the supplier for the extended payment schedule agreed.
For payables without specified interest rates, they are measured at nominal value if the interest component is negligible. For interest bearing payables, the measurement is at amortized cost.
5.7 Other liabilities
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
|
2019 | 2018 | 2017 | |||||
Provision for litigation (1) |
| |
| |
| | |
Cable network access fees (IRU) (2) |
| |
| |
| | |
Submarine cable consortium (3) |
| |
| |
| | |
Security deposit received |
| |
| |
| | |
Orange Money – units in circulation (3) |
| |
| |
| | |
Other |
| |
| |
| | |
Total |
| |
| |
| | |
o/w other non-current liabilities |
| |
| |
| | |
o/w other current liabilities |
| |
| |
| |
(2) | See Note 5.2. |
(3) | See accounting policies Note 4.6. |
(4) | These liabilities are offset by the receivables of the same amount (see accounting policies and Note 4.6). |
2019 Form 20-F / ORANGE – F - 49 |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Other liabilities - in the opening balance |
| |
| | | |
Business related variations |
| |
| ( | | |
Changes in the scope of consolidation |
| |
| | | |
Translation adjustment |
| |
| ( | ( | |
Reclassifications and other items |
| ( |
| ( | | |
Reclassification to assets held for sale |
| |
| | | |
Other liabilities - in the closing balance |
| |
| | |
5.8 Related party transactions
Orange does not purchase goods or services from the French State (either directly or via Bpifrance Participations), except the use of spectrum resources. These resources are allocated after a competitive process.
Note 6 Employee benefits
6.1 Labor expenses
(in millions of euros) |
| Note |
| 2019 |
| 2018 |
| 2017 |
|
Average number of employees (full-time equivalents) (1) |
| |
| |
| | |||
Wages and employee benefit expenses |
|
|
| ( |
| ( |
| ( | |
o/w wages and salaries |
|
|
| ( |
| ( |
| ( | |
o/w social security charges (2) |
|
|
| ( |
| ( |
| ( | |
o/w French part-time for seniors plans |
| 6.2 |
| |
| ( |
| ( | |
o/w capitalized costs (3) |
|
|
| |
| |
| | |
o/w other labor expenses (4) |
|
|
| ( |
| ( |
| ( | |
Employee profit sharing |
|
|
| ( |
| ( |
| ( | |
Share-based compensation |
| 6.3 |
| ( |
| ( |
| | |
Total in operating income |
|
|
| ( |
| ( |
| ( | |
Net interest on the net defined liability in finance costs |
|
|
| ( |
| ( |
| ( | |
Actuarial (gains)/losses in other comprehensive income |
|
|
| ( |
| |
| |
(1) | Of whom |
(2) | Net of approximately |
(3) | Capitalized costs correspond to labor expenses included in the cost of assets produced by the Group (see Notes 8.4 and 8.5). |
(4) | Other labor expenses comprise other short-term allowances and benefits, payroll taxes, post-employment benefits and other long term benefits (except French part-time for seniors plans). |
6.2 Employee benefits
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
|
2019 | 2018 | 2017 | |||||
Post-employment benefits (1) |
| |
| |
| | |
Other long-term benefits |
| |
| |
| | |
o/w French part-time for seniors plans |
| |
| |
| | |
Provision for employment termination benefits |
| |
| |
| | |
Other employee-related payables and payroll taxes due |
| |
| |
| | |
Provision for social risks and litigation |
| |
| |
| | |
Total |
| |
| |
| | |
o/w non-current employee benefits |
| |
| |
| | |
o/w current employee benefits |
| |
| |
| |
(1) | Does not include defined contribution plans. |
The payments to be made in respect of post-employment benefits and other long-term benefits are presented below. These are estimated based on Group headcounts as of December 31, 2019, including rights acquired and not acquired at December 31, 2019, but for which it is assumed the rights will be acquired by the year 2040 approximately:
(in millions of euros) | Schedule of benefits to be paid, undiscounted |
| |||||||||||
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| 2025 and beyond | ||
Post-employment benefits |
| |
| |
| |
| |
| |
| | |
Other long-term benefits (1) |
| |
| |
| |
| |
| |
| | |
o/w French part-time for seniors plans |
| |
| |
| |
| |
| |
| | |
Total |
| |
| |
| |
| |
| |
| |
(1) | Provisions for Time Saving Account (CET) and long-term leave and long-term sick leave not included. |
6.2.1 Types of post-employment benefits and other long-term benefits
In accordance with the laws and practices in force in the countries where it operates, the Group has obligations in terms of employee benefits:
– with regard to retirement, the majority of employees are covered by defined contribution plans required by law or under national agreements. In France, civil servants employed by Orange SA are covered by the French government sponsored civil and military pension plan. Orange SA’s obligation under the plan is limited to the payment of annual contributions (French law No. 96-660 dated July 26, 1996). Consequently, Orange SA has no obligation to fund future deficits of the pension plans covering its own civil servant employees or any other civil service plans. Expenses
2019 Form 20-F / ORANGE – F - 50 |
recognized under the terms of defined contribution pension plans amounted to
– the Group is committed to a limited number of annuity-based defined-benefit plans: notably the Equant plans in the United Kingdom for
– the Group is also committed to capital-based defined benefit plans where, in accordance with the law or contractual agreements, employees are entitled to bonuses on retirement, depending on their years of service and end of career salary; this essentially relates to bonuses due upon retirement in France, particularly for employees under private-law contracts (
– other post-employment benefits are also granted to retired employees: these are benefits other than defined-benefit and defined-contribution plans;
– other long-term benefits may also be granted such as seniority awards, long-term compensated absences and French part-time for seniors plans (TPS) detailed below.
French part-time for seniors plans
The part-time for seniors plans are accessible to civil servants and employees under private contract from the French entities who are eligible for full retirement benefits within
These plans give employees the opportunity to work
– a base salary between
– the retirement entitlement benefits of full-time employment during the period in question (both the Company’s and the employee’s contributions);
– a minimum salary level.
These plans last for a period of at least
The beneficiaries may decide to invest part of their base compensation (
At December 31, 2019
6.2.2 Key assumptions used to calculate the amount of obligations
The assessment of post-employment benefits and other long-term benefits is based on retirement age calculated in accordance with the provisions applicable to each plan and the necessary conditions to ensure entitlement to a full pension, both of which are often subject to legislative changes.
The valuation of the obligation of the French part-time for seniors plans is sensitive to estimates of the potentially eligible population and to the sign-up rate for the plans (estimated at
The discount rates used for the euro zone (which accounts for
| December 31, |
| December 31, |
| December 31, |
| |
2019 | 2018 | 2017 | |||||
More than 10 years |
| % | % | % | |||
Less than 10 years |
| - | %(1) | - | % | - | % |
(1) | A - |
The discount rates used for the euro zone are based on corporate bonds rated AA with a duration equivalent to the duration of the obligations.
The increase in annuities of the Equant plans in the United Kingdom is based on inflation (
The main capital-based defined benefit plan (retirement bonuses for employees under private-law contracts in France) is principally sensitive to employment policy assumptions (Orange has historically had high numbers of staff at retirement age). The estimated increase in the capital of this plan is based on a long-term inflation assumption of
The impacts on pension benefit obligations of changes in key assumptions would be as follows:
(in millions of euros) |
| Rate increase by |
| Rate decrease by |
|
Discount rates (1) |
| ( |
| ||
| Rate decrease by |
| Rate increase by | ||
Sign-up rates for French part-time for seniors plans (2) |
| ( |
|
(1) | Includes |
(2) | Sensitivity is performed on future entries in French part-time for seniors plans (TPS). |
6.2.3 Commitments and plan assets
2019 Form 20-F / ORANGE – F - 51 |
(in millions of euros) | Post-employment benefits | Long-term benefits |
| ||||||||||||||
French part- | |||||||||||||||||
| Annuity- |
|
|
| time for |
|
|
|
|
| |||||||
based | Capital-based | seniors plans |
| ||||||||||||||
| plans | plans | Other | (TPS) | Other | 2019 | 2018 | 2017 | |||||||||
Total benefit obligations in the opening balance |
| |
| |
| |
| |
| |
| |
| |
| | |
Service cost |
| |
| |
| |
| | |
| |
| |
| | ||
Net interest on the defined benefit liability |
| |
| |
| |
| ( |
| |
| |
| |
| | |
Actuarial losses/(gains) arising from changes of assumptions |
| |
| |
| ( |
| ( |
| |
| |
| ( |
| | |
o/w arising from change in discount rate |
| |
| |
| |
| |
| |
| |
| ( |
| | |
Actuarial losses/(gains) arising from experience |
| |
| |
| |
| ( |
| — |
| |
| |
| | |
Benefits paid |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | |
Translation adjustment and other |
| |
| ( |
| |
| |
| |
| |
| |
| ( | |
Total benefit obligations in the closing balance (a) |
| |
| |
| |
| |
| |
| |
| |
| | |
o/w benefit obligations in respect of employee benefit plans that are wholly or partly funded |
| |
| |
| — |
| — |
| — |
| |
| |
| | |
o/w benefit obligations in respect of employee benefit plans that are wholly unfunded |
| — |
| |
| |
| |
| |
| |
| |
| | |
Weighted average duration of the plans (in years) |
| |
|
|
|
|
|
|
|
(in millions of euros) | Post-employment benefits | Long-term benefits |
| ||||||||||||||
French part- | |||||||||||||||||
| Annuity- |
|
|
| time for |
|
|
|
|
| |||||||
based | Capital-based | seniors plans |
| ||||||||||||||
| plans | plans | Other | (TPS) | Other | 2019 | 2018 | 2017 | |||||||||
Fair value of plan assets in the opening balance |
| |
| ( |
| — |
| — |
| — |
| |
| |
| | |
Net interest on the defined benefit liability |
| |
| ( |
| — |
| — |
| — |
| |
| |
| | |
(Gains)/Losses arising from experience |
| |
| ( |
| — |
| — |
| — |
| |
| |
| | |
Employer contributions |
| |
| — |
| — |
| — |
| — |
| |
| |
| | |
Benefits paid by the fund |
| ( |
| — |
| — |
| — |
| — |
| ( |
| ( |
| ( | |
Translation adjustment and other |
| |
| — |
| — |
| — |
| — |
| |
| ( |
| ( | |
Fair value of plan assets in the closing balance (b) | |
| ( |
| — |
| — |
| — |
| |
| |
| |
Funded annuity-based plans represent
The funded annuity-based plans are primarily located in the United Kingdom (
2019 Form 20-F / ORANGE – F - 52 |
Employee benefits in the statement of financial position correspond to commitments less plan assets. These have not been subject to asset ceiling adjustment for the periods presented.
(in millions of euros) | Post-employment benefits | Long-term benefits |
| ||||||||||||||
French part- | |||||||||||||||||
| Annuity- |
| Capital- |
|
| time for |
|
|
|
| |||||||
| based | based | seniors plans | ||||||||||||||
| plans | plans | Other | (TPS) | Other | 2019 | 2018 | 2017 | |||||||||
Employee benefits in the opening balance |
| |
| |
| |
| |
| |
| |
| |
| | |
Net expense for the period | | | | ( | | | | | |||||||||
Employer contributions | ( | — | — | — | — | ( | ( | ( | |||||||||
Benefits directly paid by the employer | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||
Actuarial (gains)/losses generated during the year | | | ( | — | — | | ( | ( | |||||||||
Translation adjustment and other |
| |
| ( |
| |
| |
| |
| |
| |
| | |
Employee benefits in the closing balance - Net unfunded status (a) - (b) |
| |
| |
| |
| |
| |
| |
| |
| | |
o/w non-current |
| |
| |
| |
| |
| |
| |
| |
| | |
o/w current |
| |
| |
| |
| |
| |
| |
| |
| |
The following table discloses the net expense:
(in millions of euros) | Post-employment benefits | Long-term benefits | ||||||||||||||
French part- | ||||||||||||||||
| Annuity- |
| Capital- |
|
| time for |
|
|
|
| ||||||
| based | based | seniors plans | |||||||||||||
| plans | plans | Other | (TPS) | Other | 2019 | 2018 | 2017 | ||||||||
Service cost |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Net interest on the net defined benefit liability |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
Actuarial gains/(losses) |
| — |
| — |
| — |
| |
| ( |
| |
| ( |
| ( |
Total |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
o/w expenses in operating income |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
o/w net interest on the net defined liability in finance cost |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
Accounting policies
Post-employment benefits are granted through:
– defined contribution plans: the contributions, paid to independent institutions which are in charge of the administrative and financial management thereof, are recognized in the fiscal year during which the services are rendered ;
– defined-benefit plans: the sum of future obligations under these plans are based on actuarial assumptions using the projected unit credit method:
– their calculation is based on demographic (employee turnover, mortality, gender parity, etc.) and financial assumptions (salary increases, rate of inflation, etc.) defined at the level of each entity concerned;
– the discount rate is defined by country or geographical area and by reference to market yields on high quality corporate bonds (or government bonds where no active market exists). Its computation is based on external indices commonly used as reference for the Eurozone;
– actuarial gains and losses on post-employment benefits are fully recorded in other comprehensive income;
– the Group’s defined benefit plans are generally not financed. In the rare cases where they are, hedging plan assets are set up by employer and employee contributions which are managed by separate legal entities whose investments are subject to fluctuations in the financial markets. These entities are generally administrated by joint committees comprising representatives of the Group and of the beneficiaries. Each committee adopts its own investment strategy which is designed to strike the optimum strategies to match assets and liabilities, based on specific studies performed by external experts. It is generally carried out by fund managers selected by the committees and depends on the market opportunities. Assets are measured at fair value, determined by reference to quoted prices, since they are mostly invested in listed securities (primarily shares and bonds) and the use of other asset categories is limited.
Other long-term benefits may be granted such as seniority awards, long-term compensated absences and French part-time for seniors plan (TPS) agreements. The calculation of the related commitments is based on actuarial assumptions (including demographic, financial and discounting assumptions) similar to those relating to post-employment benefits. The relevant actuarial gains and losses are recognized in profit or loss when they arise.
Termination benefits are subject to provisions (up to the related obligation). For all commitments where termination of employment contracts would trigger payment of an indemnity, actuarial gains and losses are recognized in profit or loss for the period when modifications take place.
6.3 Share-based payment
Orange Vision 2020 free share award plan
2017 - 2019 free share award (FSA) plan
On October 25, 2017 the Board of Directors approved the implementation of a free share award plan for employees of
2019 Form 20-F / ORANGE – F - 53 |
Vesting occurred at December 31, 2019 and the awarding of shares on March 31, 2020, the shares being subject to:
– a condition of employment from September 1, 2017 to December 31, 2019; and
– internal performance conditions, specifically the adjusted EBITDA including banking activities (
Each of these indicators will be compared to the budget approved by the Board of Directors for each of the
Performance is assessed for the years 2017, 2018 and 2019 in relation to the budget for each of these
Long Term Incentive Plan (LTIP) 2017 - 2019
In addition to the free share award plan, the Board of Directors’ Meeting on July 26, 2017 approved the implementation of a free share award plan (Long Term Incentive Plan or LTIP) reserved for the Executive Committee, Corporate Officers, executives and leaders involving
Vesting occurred at December 31, 2019, and the awarding of shares on March 31, 2020, the shares being subject to:
– a condition of continued employment from January 1, 2017 with respect to corporate officers and members of the Executive Committee and from July 15, 2017, with respect to the qualifying senior executives, until December 31, 2019;
– performance conditions, internal and external respectively, namely the organic cash flow from telecom activities (
Valuation assumptions:
| Free share award |
| Long Term | ||
plan | Incentive Plan | ||||
Measurement date | October 26, 2017 | July 26, 2017 | |||
Vesting date | December 31, 2019 | December 31, 2019 | |||
Price of underlying instrument at measurement date | |||||
Price of underlying instrument at closing date | |||||
Expected dividends (% of the share price) | | % | | % | |
Risk free yield | ( | % | ( | % | |
Fair value per share of benefit granted to employees | |||||
o/w fair value of internal performance condition | |||||
o/w fair value of external performance condition | — |
Accounting effect
For the portion of the free share award plan issued in the form of shares, fair value has been determined based on the market price of Orange shares on the date of allocation and the expected dividends discounted until December 31, 2019. For the portion of the LTIP plan issued in the form of shares, fair value also takes into account the likelihood of achievement of the market performance conditions, determined using the Monte Carlo method. For the portion of the plans issued in cash, as of December 31, 2019, fair value has been determined based on the market price of Orange shares on the closing date.
All the performance criteria were met with the exception of the criteria relating to 2018 organic cash flow.
The total charge of the plan amounted to
The social security contributions for the French entities will be due upon delivery of the shares in 2020.
Long Term Incentive Plan (LTIP) 2018 - 2020
The Board of Directors’ Meeting on July 25, 2018 approved the implementation of a free share award plan (Long Term Incentive Plan or LTIP) reserved for the Executive Committee, Corporate Officers, executives and leaders involving
Vesting will occur at December 31, 2020, and the awarding of shares on March 31, 2021, the shares being subject to:
– a condition of continued employment from January 1, 2018 until December 31, 2020;
– performance conditions, internal and external respectively, namely the organic cash flow from telecom activities (
2019 Form 20-F / ORANGE – F - 54 |
Valuation assumptions
| Long Term |
| ||
Incentive Plan |
| |||
Measurement date | July 25, 2018 | |||
Vesting date |
| December 31, 2020 | ||
Price of underlying instrument at measurement date |
| |||
Price of underlying instrument at closing date |
| |||
Expected dividends (% of the share price) |
| | % | |
Risk free yield |
| ( | % | |
Fair value per share of benefit granted to employees |
| |||
o/w fair value of internal performance condition |
| |||
o/w fair value of external performance condition |
|
For the portion of the plan issued in the form of shares, fair value has been determined based on the market price of Orange shares on the date of allocation and the expected dividends discounted until December 31, 2019. For the portion of the LTIP plan issued in the form of shares, fair value also takes into account the likelihood of achievement of the market performance conditions, determined using the Monte Carlo method. For the portion of the plan issued in cash, as of December 31, 2019, fair value has been determined based on the market price of Orange shares on the closing date.
Accounting effect
In 2018, the performance criterion based on organic cash flow was not met, a charge of
In 2019, all performance criteria were met, a charge of
The social security contributions for the French entities will be due upon delivery of the shares in 2021.
Long Term Incentive Plan (LTIP) 2019 - 2021
The Board of Directors’ Meeting on July 24, 2019 approved the implementation of a free share award plan (Long Term Incentive Plan or LTIP) reserved for the Executive Committee, Corporate Officers, executives and leaders involving
Vesting will occur at December 31, 2021, and the awarding of shares on March 31, 2022, the shares being subject to:
− a condition of continued employment from January 1, 2019, until December 31, 2021;
− performance conditions, internal and external respectively, namely the organic cash flow from telecom activities (
Valuation assumptions
| Long Term |
| ||
Incentive Plan |
| |||
Measurement date | July 24, 2019 | |||
Vesting date |
| December 31, 2021 | ||
Price of underlying instrument at measurement date |
| |||
Price of underlying instrument at closing date |
| |||
Expected dividends (% of the share price) |
| | % | |
Risk free yield |
| ( | % | |
Fair value per share of benefit granted to employees |
| |||
o/w fair value of internal performance condition |
| |||
o/w fair value of external performance condition |
|
For the portion of the plan issued in the form of shares, fair value has been determined based on the market price of Orange shares on the date of allocation and the expected dividends discounted until December 31, 2019. For the portion of the LTIP plan issued in the form of shares, fair value also takes into account the likelihood of achievement of the market performance conditions, determined using the Monte Carlo method. For the portion of the plan issued in cash, as of December 31, 2019, fair value has been determined based on the market price of Orange shares on the closing date.
Accounting effect
In 2019, all the performance criteria were met, a charge of
The social security contributions for the French entities will be due upon delivery of the shares in 2022.
2019 Form 20-F / ORANGE – F - 55 |
Other plans
All stock option plans granted by the various Group entities reached maturity in 2017.
Accounting policies
Employee share-based compensation: the fair value of stock options and bonus shares is determined by reference to the exercise price, the life of the option, the current price of the underlying shares at the grant date, the expected share price volatility, expected dividends, and the risk-free interest rate over the option’s life. Vesting conditions other than market conditions are not part of the fair value assessment, but are part of the grant assumptions (employee turnover, probability of achieving performance criteria).
The determined amount is recognized in labor expenses on a straight-line basis over the vesting period, with as counterparty:
– employee benefit liabilities for cash-settled plans, re-measured against profit or loss at each year-end; and
– equity for equity-settled plans.
6.4 Executive compensation
The following table shows the compensation booked by Orange SA and its controlled companies to persons who were members of Orange SA’s Board of Directors or Executive Committee at any time during the year or at the end of the year.
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
|
2019 | 2018 | 2017 | |||||
Short-term benefits excluding employer social security contributions (1) |
| ( |
| ( |
| ( | |
Short-term benefits: employer’s social security contributions |
| ( |
| ( |
| ( | |
Post-employment benefits (2) |
| ( |
| ( |
| ( | |
Share-based compensation (3) |
| ( |
| ( |
| ( |
(1) | Includes all compensation: gross salaries including the variable component, bonuses, attendance fees and benefits in kind, incentive scheme and profit-sharing, cash settled Long Term Incentive Plan (LTIP) in 2017 and 2018. |
(2) | Service cost. |
(3) | Includes employee shareholding plans and shares settled Long Term Incentive Plan (LTIP). |
The total amount of retirement benefits (contractual retirement bonuses and defined-benefit supplementary pension plan) provided in respect of persons who were members of the Board of Directors or Executive Committee at the end of the year was
Executive Committee members’ contracts include a clause providing for a contractual termination settlement not exceeding
Orange has not acquired any other goods or services from persons who are or were at any time during the year or at the end of the fiscal year, members of the Board of Directors or Executive Committee of Orange SA (or any parties related thereto).
Note 7 Impairment losses and goodwill
7.1 Impairment losses
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
2019 | 2018 | 2017 | ||||
Jordan | ( | ( | — | |||
Luxembourg | — | — | ( | |||
Democratic Republic of the Congo |
| — |
| — | ( | |
Total of impairment of goodwill |
| ( |
| ( |
| ( |
The impairment tests on Cash Generating Units (CGUs) may result in impairment losses on goodwill and on the fixed assets (see Note 8.3).
At December 31, 2019
In Jordan, the
In Egypt, the reversal of
At December 31, 2018
In Jordan, the
2019 Form 20-F / ORANGE – F - 56 |
In Niger, the telecommunications market continued to fall in terms of value in a still-difficult business context. Because of its economic and financial position, the Company remained prudent and recognized an impairment of property assets in the amount of (
At December 31, 2017
In Niger, the impairment of fixed assets in the amount of
In Luxembourg, the goodwill impairment in the amount of
In the Democratic Republic of the Congo, the impairment in the amount of
7.2 Goodwill
| |||||||||||
(in millions of euros) | December 31, 2019 | December 31, 2018 | December 31, 2017 |
| |||||||
Accumulated | |||||||||||
impairment |
| ||||||||||
| Gross value |
| losses |
| Net book value |
| Net book value |
| Net book value |
| |
France |
| |
| ( |
| |
| |
| | |
Spain | | ( | | | | ||||||
Europe |
| |
| ( |
| |
|
| | ||
Poland |
| |
| ( |
| |
| |
| | |
Belgium |
| |
| ( |
| |
| |
| | |
Romania |
| |
| ( |
| |
| |
| | |
Slovakia |
| |
| — |
| |
| |
| | |
Moldova | | — | | | | ||||||
Luxembourg | | ( | | | | ||||||
Africa & Middle East | | ( | | | | ||||||
Egypt |
| |
| ( |
| — |
| — |
| — | |
Burkina Faso |
| |
| — |
| |
| |
| | |
Côte d’Ivoire |
| |
| ( |
| |
| |
| | |
Jordan |
| |
| ( |
| |
| |
| | |
Morocco |
| |
| — |
| |
| |
| | |
Sierra Leone |
| |
| — |
| |
| |
| | |
Democratic Republic of the Congo |
| |
| ( |
| — |
| — |
| — | |
Cameroon |
| |
| ( |
| |
| |
| | |
Other |
| |
| ( |
| |
| |
| | |
Enterprise |
| |
| ( |
| |
| |
| | |
International Carriers & Shared Services |
| |
| — |
| |
|
| | ||
Goodwill |
| |
| ( |
| |
| |
| |
(in millions of euros) |
|
| December 31, |
| December 31, | December 31, | ||
Note | 2019 | 2018 | 2017 | |||||
Gross Value in the opening balance |
|
|
| |
| |
| |
Acquisitions |
|
| |
| |
| | |
Disposals |
|
| ( |
| ( |
| | |
Translation adjustment |
|
|
| |
| ( |
| ( |
Reclassifications and other items |
|
| |
| ( |
| | |
Reclassification to assets held for sale |
|
| |
| |
| | |
Gross Value in the closing balance |
|
|
| |
| |
| |
Accumulated impairment losses in the opening balance |
|
|
| ( |
| ( |
| ( |
Impairment |
| 7.1 |
| ( |
| ( |
| ( |
Disposals |
|
|
| |
| |
| |
Translation adjustment |
|
|
| ( |
| |
| ( |
Reclassifications and other items |
|
| |
| |
| | |
Reclassification to assets held for sale |
|
|
| |
| |
| |
Accumulated impairment losses in the closing balance |
|
|
| ( |
| ( |
| ( |
Net book value of goodwill for continuing operations |
|
|
| |
| |
| |
7.3 Key assumptions used to determine recoverable amounts
The key operational assumptions reflect past experience and expected trends: unforeseen changes have in the past affected, and could continue to significantly affect, these expectations. In this respect, the review of expectations could affect the margin of recoverable amounts over the carrying value tested (see Note 7.4) and result in impairment losses on goodwill and fixed assets.
In 2019 the Group updated its strategic plan. Thus, new business plans have been established for all CGUs.
2019 Form 20-F / ORANGE – F - 57 |
– Discount rates and growth rates to perpetuity used to determine the values in use were revised as follows at the end of December 2019:
– the discount rates, which may incorporate a specific premium reflecting increased risk in executing certain business plans or in-country risks, were raised in Europe and lowered in the Middle East and Africa, where the risk premium is trending down. In Europe, Brexit is a factor of volatility for the market and economic activity that might in the future affect interest rates and therefore discount rates,
– the perpetual growth rate was higher in Poland and Slovakia and lower in the Middle East and Africa region, where we make more conservative assumptions about trajectories past the business plan horizon. In Europe, the perpetual growth rates were maintained, on the whole, as in the assessment carried out at the end of December 2019, the economic situation is not expected to lead to any change in the long-term outlook of the industry of services offered by the Group;
– as of December 31, 2019, the specific random factors were as follows:
– in Europe:
◾ the tradeoffs to be made by regulatory and competition authorities between reducing prices to consumers and stimulating business investment, or in terms of rules for awarding 5G operating licenses or of market concentration,
◾ the fiercely competitive nature of the markets where the Group operates, where price pressure is strong, particularly in Spain,
◾ the Group’s ability to adjust costs and capital expenditures to potential changes in revenue;
– in the Middle East and Maghreb (Jordan, Egypt, Tunisia) and some of the African countries (Mali, Democratic Republic of the Congo, Central African Republic):
◾ changes in the political situation and security with their resulting negative economic impacts on overall business climate,
The parameters used for the determination of recoverable amount of the main consolidated operations are set forth below:
December 31, 2019 |
| France |
| Spain |
| Poland |
| Enterprise |
| Belgium |
| Sierra Leone |
| Liberia |
|
Basis of recoverable amount | Value in use |
| |||||||||||||
Source used | Internal plan |
| |||||||||||||
Methodology | Discounted cash flow |
| |||||||||||||
Perpetuity growth rate |
| | % | | % | | % | | % | | % | | % | | % |
Post-tax discount rate |
| | % (1) | | % | | % | | % | | % | | % | | % |
Pre-tax discount rate |
| | % | | % | | % | | % | | % | | % | | % |
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Basis of recoverable amount |
| Value in use | |||||||||||||
Source used |
| Internal plan | |||||||||||||
Methodology |
| Discounted cash flow | |||||||||||||
Perpetuity growth rate |
| | % | | % | | % | | % | | % | | % | | % |
Post-tax discount rate |
| | % (1) | | % | | % | | % | | % | | % | | % |
Pre-tax discount rate |
| | % | | % | | % | | % | | % | | % | | % |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basis of recoverable amount |
| Value in use | |||||||||||||
Source used |
| Internal plan | |||||||||||||
Methodology |
| Discounted cash flow | |||||||||||||
Perpetuity growth rate |
| | % | | % | | % | | % | | % | | % | | % |
Post-tax discount rate |
| | % (2) | | % | | % | | % | | % | | % | | % |
Pre-tax discount rate |
| | % | | % | | % | | % | | % | | % | | % |
(1) | The after-tax discount rate for France includes a corporate tax reduction of |
(2) | The after-tax discount rate for France includes a corporate tax reduction of |
The Group’s listed subsidiaries are Orange Polska (Warsaw Stock Exchange), Orange Belgium (Brussels Stock Exchange), Jordan Telecom (Amman Stock Exchange), Sonatel (Regional Stock Exchange (BRVM)) and Business & Decision (Euronext). The aggregated share of these subsidiaries, which publish their own regulated information, is less than or equal to
7.4 Sensitivity of recoverable amounts
Because of the correlation between operating cash flow and investment capacity, sensitivity of net cash flow is used. Cash flow for the terminal year forming a significant part of the recoverable amount, of which a change of plus or minus
Cash flow is cash provided by operating activities net of acquisitions and sales of property, plant and equipment and intangible assets (including tax at a standard rate, lease liabilities repayments and debts related to financed assets repayments, related interest expenses and excluding other interest expenses).
2019 Form 20-F / ORANGE – F - 58 |
Sensitivity test was conducted for these CGUs and is presented below to allow readers of the financial statements to estimate the impact in their own assessment. Variations higher that the levels presented have been observed in the past on cash flow, perpetuity growth rates and discount rates.
|
|
| Decrease in the discounted cash |
| |||
Increase in discount rate in order | Decrease in the perpetual growth | flows of the terminal value in | |||||
for the recoverable amount to be | rate in order for the recoverable | order for the recoverable amount to | |||||
equal to the net carrying value (in | amount to be equal to the net | be equal to the net carrying value | |||||
| basis points) |
| carrying value (in basis points) |
| (in %) |
| |
December 31, 2019 |
|
|
|
| |||
France | + | ( | ( | % | |||
Spain | + | ( | ( | % | |||
Poland |
| + |
| ( |
| ( | % |
Belgium |
| + |
| ( |
| ( | % |
Enterprise |
| + |
| ( |
| ( | % |
Sierra Leone |
| + |
| ( |
| ( | % |
Liberia |
| + |
| ( |
| ( | % |
December 31, 2018 |
|
|
|
|
|
| |
France |
| + |
| ( |
| ( | % |
Spain |
| + |
| ( |
| ( | % |
Poland |
| + |
| ( |
| ( | % |
Belgium |
| + |
| ( |
| ( | % |
Enterprise |
| + |
| ( |
| ( | % |
December 31, 2017 |
|
|
|
|
|
| |
France |
| + |
| ( |
| ( | % |
Spain |
| + |
| ( |
| ( | % |
Poland |
| + |
| ( |
| ( | % |
Belgium |
| + |
| ( |
| ( | % |
Enterprise |
| + |
| ( |
| ( | % |
Romania |
| + |
| ( |
| ( | % |
Jordan |
| + |
| ( |
| ( | % |
Liberia |
| + |
| ( |
| ( | % |
At December 31, 2019 the sensitivity analysis performed on the impaired CGU in Jordan did not disclose any significant risk of additional impairment.
This analysis was carried out on each of the following criteria, taken one at a time:
– Discount rate higher by
– Perpetual growth rate lower by
– Cash flow in final year lower by
The same analysis was performed on Spain and disclosed an impairment risk estimated at about
The other entities not listed above, with the exception of the Orange brand presented in Note 8.3, each account for a less than
Accounting policies
Goodwill recognized as an asset in the statement of financial position comprises the excess calculated:
– either on the basis of the equity interest acquired (and for business combinations after January 1, 2010, no subsequent changes for any additional purchases of non-controlling interests); or
– on a
Goodwill is not amortized. It is tested for impairment at least annually and more frequently when there is an indication that it may be impaired. Thus, the evolution of general economic and financial trends, the different levels of resilience of the telecommunication operators with respect to the decline of local economic environments, the changes in the market capitalization values of telecommunication companies, as well as actual economic performance compared to market expectations represent external indicators that are analyzed by the Group, together with internal performance indicators, in order to assess whether an impairment test should be performed more than once a year.
These tests are performed at the level of each Cash Generating Unit (CGU) (or group of CGUs). These generally correspond to operating segments or to each country in Africa and the Middle East. This is reviewed if the Group changes the level at which it monitors return on investment for goodwill testing purposes.
To determine whether an impairment loss should be recognized, the carrying value of the assets and liabilities of the CGUs or groups of CGUs is compared to recoverable amount, for which Orange uses mostly the value in use.
Value in use is the present value of the expected future cash flows. Cash flow projections are based on economic and regulatory assumptions, license renewal assumptions and forecast trading and investment activity drawn up by the Group’s management, as follows:
–
2019 Form 20-F / ORANGE – F - 59 |
– post-tax cash flow projections beyond that timeframe may be extrapolated by applying a declining or flat growth rate for the next year, and then by a growth rate to perpetuity reflecting the expected long-term growth in the market;
– post-tax cash flows are subject to a post-tax discount rate, using rates which incorporate a relevant premium reflecting a risk assessment for the implementation of certain business plans or country risks. The value in use derived from these calculations is identical to the one that would derive from discounting pre-tax cash flows at pre-tax discount rates.
The key operating assumptions used to determine the value in use are common across Group’s business segments. These assumptions include:
– key revenue assumptions, which reflect market level, penetration rate of the offerings and market share, positioning of the competition’s offerings and their potential impact on market price levels and their transposition to the Group’s offerings bases, regulatory authority decisions on pricing of services to customers and on access and pricing of inter-operator services, technology migration of networks (e.g. extinction of copper local loops), decisions of competition authorities in terms of concentration or regulation of adjacent sectors such as cable;
– key cost assumptions, on the level of marketing expenses required to renew product lines and keep up with competition, the ability to adjust costs to potential changes in revenues or the effects of natural attrition and committed employee departure plans;
– key assumptions on the level of capital expenditure, which may be affected by the roll-out of new technologies, by decisions of regulatory authorities relating to licenses and spectrum allocation, deployment of fiber networks, mobile network coverage, sharing of network elements or obligations to open up networks to competitors.
Tested net carrying values include goodwill, land, and assets with finite useful life (property, plant and equipment, intangible assets and net working capital requirements including intragroup balances). The Orange brand, an asset with an indefinite useful life, is subject to a specific test, see Note 8.3.
If an entity partially owned by the Group includes goodwill attributable to non-controlling interests, the impairment loss is allocated between the shareholders of Orange SA and the non-controlling interests on the same basis as that on which profit or loss is allocated (i.e. ownership interest).
Impairment loss for goodwill is recorded definitively in operating income.
Note 8 Fixed assets
8.1 Gains (losses) on disposal of fixed assets
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Transfer price |
| |
| |
| |
Net book value of assets sold |
| ( |
| ( |
| ( |
Proceeds from the disposal of fixed assets (1) |
| |
| |
| |
(1) | In 2019, the gains on disposal of fixed assets related to the sale and leaseback transactions amount to 195 million euros and mainly comprise property asset disposals in France and Poland, as well as mobile site disposals in Spain. These transactions fall within the context of the Group asset portfolio review. |
8.2 Depreciation and amortization
(in millions of euros)
2019 Form 20-F / ORANGE – F - 60 |
The increase in depreciation and amortization by 63 million euros in 2019 and by 201 million euros in 2018 is mainly due to the effect of the increase in investments on very high-speed broadband networks (4G and optical fiber) in France, Spain and Poland.
Depreciation and amortization of intangible assets
(in millions of euros)
Depreciation and amortization of property, plant and equipment
(in millions of euros)
Accounting policies
Assets are depreciated to expense their cost (generally with no residual value deducted) on a basis that reflects the pattern in which their future economic benefits are expected to be consumed. The straight-line basis is usually applied. The useful lives are reviewed annually and are adjusted if current estimated useful lives differ from previous estimates. This may be the case for outlooks on the implementation of new
2019 Form 20-F / ORANGE – F - 61 |
technologies (for example, the replacement of copper local loop by optical fiber). These changes in accounting estimates are recognized prospectively.
Main assets | Depreciation period (average) |
Brands acquired | Up to |
Customer bases acquired | Expected life of the commercial relationship: |
Mobile network licenses | Grant period from the date when the network is technically ready and the service can be marketed |
Indefeasible Rights of Use of submarine and terrestrial cables | Shorter of the expected period of use and the contractual period, generally less than |
Patents | |
Software | |
Development costs | |
Buildings | |
Transmission and other network equipment | |
Copper cables, optical fiber and civil works | |
Computer hardware |
8.3 Impairment of fixed assets
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Egypt |
| |
| ( |
| |
Niger |
| |
| ( |
| ( |
Democratic Republic of the Congo |
| |
| — |
| ( |
Poland |
| ( |
| |
| ( |
Other |
| ( |
| ( |
| ( |
Total of impairment of fixed assets |
| |
| ( |
| ( |
The impairment of fixed assets resulting from the impairment tests on Cash-Generating Units (CGUs) are described in Note 7.1.
Key assumptions and sensitivity of the recoverable amount of the Orange brand
Key assumptions and sources of sensitivity used in the assessment of recoverable amount of the Orange brand are similar to those used for the goodwill of consolidated operations (see Note 7.3), which affect the sales base and potentially the level of brand fees.
Other assumptions that affect the assessment of the recoverable amount are as follows:
December 31, |
| December 31, |
| December 31, |
| ||
| 2019 |
| 2018 |
| 2017 |
| |
Basis of recoverable amount | Value in use | Value in use | Value in use |
| |||
Source used | Internal plan | Internal plan | Internal plan |
| |||
Methodology | Discounted net fees | Discounted net fees | Discounted net fees |
| |||
Perpetuity growth rate | | % | | % | | % | |
Post-tax discount rate | | % | | % | | % | |
Pre-tax discount rate | | % | | % | | % |
The sensitivity analysis did not highlight any risk of impairment of the Orange brand.
Accounting policies
Given the nature of its assets and businesses, most of the Group’s individual assets do not generate cash flow independent of the cash flows generated by Cash-Generating Units. The recoverable amount is therefore determined on the level of CGU (or CGU group) to which belong the assets, according to a method similar to the one for goodwill.
The Orange brand has an indefinite useful life and is not amortized but is tested for impairment at least annually. Its recoverable amount is assessed based on the expected contractual royalties (and included in the business plan) discounted in perpetuity, less the costs attributable to the brand’s owner.
8.4 Other intangible assets
2019 Form 20-F / ORANGE – F - 62 |
(in millions of euros) | December 31, 2019 |
| December 31, | December 31, |
| |||||||||
|
| Accumulated |
|
| 2018 |
| 2017 |
| ||||||
depreciation |
| |||||||||||||
and | Accumulated | Net book | Net book | Net book |
| |||||||||
Gross value | amortization | impairment | value |
| value | value |
| |||||||
Telecommunications licenses |
| |
| ( |
| ( |
| |
| |
| | ||
Software |
| |
| ( |
| ( |
| |
| |
| | ||
Orange brand |
| |
| — |
| — |
| |
| |
| | ||
Other brands |
| |
| ( |
| ( |
| |
| |
| | ||
Customer bases |
| |
| ( |
| ( |
| |
| |
| | ||
Other intangible assets |
| |
| ( |
| ( |
| |
| |
| | ||
Total |
| |
| ( |
| ( |
| |
| |
| |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Net book value of other intangible assets - in the opening balance |
| | | | |||
Acquisitions of other intangible assets | | | | ||||
o/w telecommunications licenses (1) | | | | ||||
Impact of changes in the scope of consolidation (2) | | | ( | ||||
Disposals | ( | ( | ( | ||||
Depreciation and amortization | ( | ( | ( | ||||
Impairment (3) | | ( | ( | ||||
Translation adjustment | | | ( | ||||
Reclassifications and other items | | | | ||||
Reclassifications to assets held for sale | | | | ||||
Net book value of other intangible assets - in the closing balance | | | |
(1) | Relates in 2019 to licenses for |
(2) | In 2019, mainly relates to the effects of SecureLink and SecureData acquisitions (see Note 3.2). |
(3) | Includes impairment detailed in Note 7.1. |
Internal costs capitalized as intangible assets
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Labor expenses |
| |
| |
| | |
Total |
| |
| |
| |
2019 Form 20-F / ORANGE – F - 63 |
Information on telecommunications licenses at December 31, 2019
Orange’s principal commitments under licenses awarded are disclosed in Note 15.
(in millions of euros) |
|
| Residual | |||
| Gross value |
| Net book value |
| useful life (1) | |
LTE ( |
| |
| |
| |
UMTS ( |
| |
| |
| |
| |
| |
| ||
France |
| |
| |
| |
5G ( |
| |
| |
| |
LTE ( |
| |
| |
| |
| |
| |
| ||
GSM ( |
| |
| |
| |
Spain |
| |
| |
| |
LTE ( |
| |
| |
| |
UMTS ( |
| |
| |
| |
GSM ( |
| |
| |
| |
Poland |
| |
| |
| |
| |
| |
| ||
| |
| |
| ||
GSM ( |
| |
| |
| |
Egypt |
| |
| |
| |
| |
| |
| ||
| |
| |
| ||
| |
| |
| ||
Morocco |
| |
| |
| |
| |
| |
| ||
| |
| |
| ||
| |
| |
| ||
Romania |
| |
| |
| |
| |
| |
| ||
UMTS ( |
| |
| |
| |
| |
| |
| ||
Jordan |
| |
| |
| |
LTE ( |
| |
| |
| |
| |
| |
| ||
| |
| |
| ||
Belgium |
| |
| |
|
|
Other |
| |
| |
|
|
Total |
| |
|
|
|
(1) | In number of years, at December 31, 2019. |
(2) | Comprises the |
Accounting policies
Intangible assets consist mainly of acquired brands, acquired customer bases, telecommunications licenses and software, as well as operating rights granted under certain concession agreement.
Intangible assets are initially recognized at acquisition or production cost. The payments indexed to revenue, especially for some telecommunications licenses, are expensed in the relevant periods.
The operating rights granted under certain concession arrangements give right to charge users of the public service (see Note 4.1).
8.5 Property, plant and equipment
(in millions of euros) | December 31, 2019 | December 31, | December 31, | |||||||||||
|
| Accumulated |
|
| 2018 | 2017 | ||||||||
depreciation | ||||||||||||||
and | Accumulated | Net book |
| Net book | Net book |
| ||||||||
Gross value | amortization | impairment | value | value | value | |||||||||
Networks and terminals |
| |
| ( |
| ( |
| |
| |
| | ||
Land and buildings |
| |
| ( |
| ( |
| |
| |
| | ||
IT equipment |
| |
| ( |
| ( |
| |
| |
| | ||
Other property, plant and equipment |
| |
| ( |
| ( |
| |
| |
| | ||
Total property, plant and |
| |
| ( |
| ( |
| |
| |
| |
2019 Form 20-F / ORANGE – F - 64 |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Net book value of property, plant and equipment - in the opening balance |
| |
| |
| | |
IFRS 16 transition impact (1) | ( | — | — | ||||
Net book value of property, plant and equipment - including IFRS 16 transition impact | | | | ||||
Acquisitions of property, plant and equipment |
| |
| |
| | |
o/w finance leases |
| — |
| |
| | |
o/w financed assets | | — | — | ||||
Impact of changes in the scope of consolidation (2) |
| ( |
|
| | ||
Disposals and retirements |
| ( |
| ( |
| ( | |
Depreciation and amortization |
| ( |
| ( |
| ( | |
o/w fixed assets | ( | ( | ( | ||||
o/w financed assets | ( | — | — | ||||
Impairment (3) |
| ( |
| ( |
| ( | |
Translation adjustment |
| |
| ( |
| ( | |
Reclassifications and other items |
| |
| ( |
| ( | |
Reclassifications to assets held for sale |
| — |
| — |
| — | |
Net book value of property, plant and equipment - in the closing balance |
| |
| |
| |
(1) | Following IFRS 16 application as of January 1, 2019, financial lease contracts have been reclassified in right-of-use assets (see Note 2.3.1). |
(2) | Mainly relates in 2019 to the disposal of Orange Niger. In 2018, mainly related to Basefarm entities acquisition. |
(3) | Includes impairment detailed in Note 7.1. |
Financed assets
Financed assets include as of December 31, 2019 the set-up boxes in France which are financed by an intermediary bank and meet the standard criterion of a tangible asset according to IAS 16. The debts associated to these financed assets are presented in financial liabilities and are included in the definition of the net financial debt.
Property, plant and equipment held under finance leases
(in millions of euros) | December 31, | December 31, | |||
2018 | 2017 | ||||
| Net book value |
| Net book value |
| |
Land and buildings | |
| | ||
Networks and terminals |
| |
| | |
IT Equipment and other |
| |
| | |
Total |
| |
| |
Internal costs capitalized as property, plant and equipment
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Labor expenses |
| |
| |
| | |
Total |
| |
| |
| |
Accounting policies
Property, plant and equipment are made up of tangible fixed assets and financed assets. They mainly comprise network facilities and equipment.
The gross value of property, plants and equipment is made up of their acquisition or production cost, which includes study and construction fees as well as enhancement costs that increase the capacity of equipment and facilities. Maintenance and repair costs are expensed as incurred, except where they serve to increase the asset’s productivity or extend its useful life.
The cost of property, plant and equipment also includes the estimated cost of dismantling, removing and restoring the site occupied due to the obligation incurred by the Group.
The roll-out of assets by stage, especially for network assets, in the Group’s assessment, does not generally require a substantial period of preparation. As a result, the Group does not generally capitalize the interest expense incurred during the construction and acquisition phase for its property, plant and equipment and intangible assets.
In France, the regulatory framework governing the optical fiber network roll-out (Fiber To The Home – FTTH) organizes the access by commercial operators to the last mile of networks rolled-out by another operator on a co-funding basis (ab initio or a posteriori) or through a line access. The sharing of rights and obligations between the various operators co-financing the terminal section of networks is classified as a joint operation in accordance with IFRS 11 “Partnerships”: Orange only recognizes as an asset its share of the network assets self-built or purchased to other co-financing operators.
The Group has entered into network sharing arrangements with other mobile operators on a reciprocal basis, which may cover passive infrastructure sharing, active equipment or even spectrum. Accordingly, in Poland, the arrangements with Deutsche Telekom have been qualified as a joint operation: the infrastructure and equipment of the access networks recognized as fixed assets are equivalent to the proportionate share of the Group in the assets installed by the Group or Deutsche Telekom, each in their geographical zone.
As a reminder, before applying IFRS 16, the accounting principles related to the assets acquired in form of finance lease and in operating lease were the following:
The assets acquired in form of finance lease did not affect the cash flow on acquisition. However, the subsequent rental payments during the leasing period represented interest payments (cash flow on operating activities) and capital repayments (cash flow on financing activities).
The majority of the assets held under finance lease were office and network buildings. The land and buildings hosting radio sites could belong to the Group, or be held through a finance lease, or be available under an operating lease or be simply made available.
2019 Form 20-F / ORANGE – F - 65 |
The lease agreements of office buildings and points of sale generally were qualified as operating leases and the future lease payments were disclosed as unrecognized contractual commitments.
Simultaneously the equipment, very often generic, of which the risks and rewards of ownership are transferred from the Group to third parties via a lease, was considered as sold.
8.6 Fixed assets payables
(in millions of euros) |
| 2019 |
| 2018 |
|
| 2017 |
Fixed assets payables - in the opening balance |
| |
| | | ||
Business related variations |
| |
| ( | | ||
Changes in the scope of consolidation |
| ( |
| | | ||
Translation adjustment |
| |
| | ( | ||
Reclassifications and other items |
| |
| | ( | ||
Reclassification to assets held for sale |
| |
| | | ||
Fixed assets payables - in the closing balance |
| |
| | | ||
o/w non-current fixed assets payables |
| |
| | | ||
o/w current fixed assets payables |
| |
| | |
Accounting policies
These payables are generated from trading activities. The payment terms can be over several years in the case of infrastructure roll-out and license acquisition. The payables due in more than
Trade payables also include those that the supplier may have sold with or without notifying financial institutions in a direct or reverse factoring arrangement (see Note 5.6).
Firm purchase commitments are disclosed as unrecognized contractual commitments(see Note 15), net of any prepayment, which are recognized as prepayment on fixed assets.
8.7 Dismantling provision
The asset dismantling obligations mainly relate to restoration of mobile telephony antenna sites, dismantling of telephone poles, treatment of electrical and electronic equipment waste and dismantling of telephone booths.
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Dismantling provision - in the opening balance |
| |
| |
| | |
Provision reversal with impact on income statement |
| |
| — |
| — | |
Discounting with impact on income statement |
| |
| |
| | |
Utilizations without impact on income statement |
| ( |
| ( |
| ( | |
Changes in provision with impact on assets (1) |
| |
| ( |
| | |
Changes in the scope of consolidation |
| — |
| — |
| — | |
Translation adjustment |
| |
| ( |
| | |
Reclassifications and other items |
| |
| |
| — | |
Reclassification to assets held for sale |
| |
| |
| | |
Dismantling provision - in the closing balance |
| |
| |
| | |
o/w non-current provision |
| |
| |
| | |
o/w current provision |
| |
| |
| |
(1) | Included in 2018 extinctions of obligations for ( |
Accounting policies
The Group is required to dismantle technical equipment and restore technical sites.
When the obligation arises, a dismantlement asset is recognized in compensation for the dismantling provision.
The provision is based on dismantling costs (on a per-unit basis for telephone poles, terminals and telephone booths, and on a per-site basis for mobile antennas) incurred by the Group to meet its environmental commitments over the asset dismantling and site restoration planning. The provision is assessed on the basis of the identified costs for the current fiscal year, extrapolated for future years using the best estimate of the commitment settlement. This estimate is revised annually and adjusted where appropriate against the asset to which it relates. The provision is present-discounted at a rate set by geographical area and equal to the average rate of risk-free investments in
In case of extinguishment of the obligation, the provision is reversed in compensation for the net carrying value of the dismantlement asset and of the net carrying value of the underlying assets if the dismantlement asset is less than the reversal of the provision.
Note 9 Lease agreements
In the course of its activities, the Group regularly enters into leases as a lessee. These leases concern the following asset categories:
− Land and buildings
− Networks and terminals
− IT equipment
2019 Form 20-F / ORANGE – F - 66 |
− Other
Accounting policies
The main accounting positions related to the application of IFRS 16 norm as of January 1, 2019 are detailed in the dedicated transition note (see Note 2.3.1).
The Group classifies as a lease, a contract that conveys to the lessee the right to control the use of an identified asset for a given period, including a service contract if it contains a lease component.
The Group has defined
− Land and buildings: these contracts mainly concern commercial (point of sale) or service activity (offices and head office) leases, as well as leases of technical buildings not owned by the Group. Real estate leases entered into in France generally have long terms (
− Networks and terminals: the Group is required to lease a certain number of assets in connection with its mobile activities. This is notably the case of lands to be used to install antennas, mobile sites leased to a third-party operator and certain “TowerCos” contracts (companies operating telecom towers). Leases are also entered into as part of fixed wireline access network activities. These leases mainly concern access to the local loop where Orange is a market challenger (total or partial unbundling), as well as the lease of land transmission cables.
− IT equipment: this asset category primarily comprises leases of servers and hosting space in datacenters.
− Other: this asset category primarily comprises leases of vehicles and technical equipment.
Leases are recognized in the consolidated statement of financial position via an asset reflecting the right to use the leased assets and a liability reflecting the related lease obligations (see Notes 9.2 and 9.1). In the consolidated income statement, amortization and depreciation of the right-of-use asset (see Note 9.2) is presented separately from the interest expenses on the lease liability. In the consolidated statement of cash flows, cash outflows relating to interests impact operating flows, while repayments of the lease liability impact financing flows.
When the Group proceeds with a transaction qualified as sale and leaseback according to IFRS 16, a right-of-use asset is recognized in proportion of the accounting value of the asset retained as a result of the leaseback against a lease liability. A gain (or loss) on disposal of fixed assets is recognized in the income statement in proportion of the rights transferred to the buyer-lessor. The adjustment of the gain (or loss) on disposal recognized in the income statement for the share on which the Group retains its right to use the underlying asset corresponds to the difference between the right-of-use asset and the lease liability recognized in the balance sheet.
Finally, the Group applies the two exemptions proposed by IFRS 16, concerning leases with a term of
9.1 Lease liabilities
As of December 31, 2019, lease liabilities amount to
The following table details the undiscounted future cash flows of lease liabilities:
(in millions of euros) | December | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 and | |||||||
| 31, 2019 |
|
| beyond | ||||||||||
Undiscounted lease liabilities |
| |
| |
| |
| |
| |
| |
| |
Accounting policies
The Group recognizes a liability (i.e. a lease liability) at the date the underlying asset is made available. This lease liability is equal to the present value of fixed and in-substance fixed payments not paid at that date, plus any amounts that Orange is reasonably certain to pay at the end of the lease, such as the exercise price of a purchase option (where it is reasonably certain to be exercised), or penalties payable to the lessor for terminating the lease (where the termination option is reasonably certain to be exercised).
The Group only takes into account the lease component of lease when measuring the lease liability. For certain asset classes where the lease includes service and lease components, the Group may recognize a single contract classified as a lease (i.e. without distinction between the service and lease component).
Orange systematically determines the lease term as the period during which leases cannot be canceled, plus periods covered by any extension options that the lessee is reasonably certain to exercise and by any termination options that the lessee is reasonably certain not to exercise. In the case of “3/6/9” leases in France, the term adopted is assessed on a contract by contract basis.
This period is also defined taking into account any laws and practices specific to each jurisdiction and business sector regarding the firm lease commitment term granted by lessors. This is the case for open-ended leases, where Orange generally adopts the notice period as the enforceable period. The Group nonetheless assesses, based on the circumstances of each lease, the enforceable period taking account of certain indicators such as the existence of non-insignificant penalties in the event of termination by the lessee. The Group considers in particular the economic importance of the leased asset when determining this enforceable period.
When non-removable leasehold improvements have been made to leased assets, the Group assesses, on a case-by-case basis, whether these improvements provide an economic benefit when determining the enforceable period of the lease.
2019 Form 20-F / ORANGE – F - 67 |
When a lease includes a purchase option, the enforceable term is equal to the useful life of the underlying asset where the Group is reasonably certain to exercise the purchase option.
For each contract, the Group applies a discount rate determined based on the government loan yield, specific to each contract, according to its currency, term and the lessee country, plus the Group’s credit spread.
After the lease commencement date, the amount of the lease liability may be reassessed to reflect changes introduced in the following main cases:
− a change in term resulting from a contract amendment or a change in assessment of the reasonable certainty that a renewal option will be exercised or a termination option will not be exercised;
− a change in the amount of lease payments, for example following application of a new index or rate in the case of variable payments;
− a change in assessment of whether a purchase option will be exercised;
− any other contractual change, for example a change to the scope of the lease or the underlying asset.
9.2 Right-of-use assets
(in millions of euros) | December 31, 2019 | January 1, 2019 | ||||||||
Gross value | Accumulated | Accumulated | Net book | Net book value | ||||||
depreciation | impairment | value | ||||||||
and | ||||||||||
amortization | ||||||||||
Land and buildings |
| |
| ( |
| ( |
| |
| |
Networks and terminals |
| |
| ( |
| — |
| |
| |
IT equipment |
| |
| ( |
| |
| |
| |
Other right-of-use |
| |
| ( |
| |
| |
| |
Total right-of-use assets |
| |
| ( |
| ( |
| |
|
(in millions of euros) |
| December 31, 2019 |
Net book value of right-of-use assets - in the opening balance |
| |
Increase (new right-of-use assets) (1) |
| |
Impact of changes in the scope of consolidation |
| |
Depreciation and amortization (2) |
| ( |
Impairment (3) |
| ( |
Impact of changes in the assessments |
| |
Translation adjustment |
| |
Reclassifications and other items |
| ( |
Reclassifications to assets held for sale |
| — |
Net book value of right-of-use assets - in the closing balance |
| |
(1) | Including |
(2) | Including right-of-use assets depreciation and amortization expenses of land and buildings for ( |
(3) | Impairment losses on right-of-use assets concern real estate leases qualified as onerous contracts in France. |
In 2019, the rental expense recognized in external purchases in the income statement amounts to
Accounting policies
A right-of use is recognized as an asset, with a corresponding lease liability (see Note 9.1). This right-of-use asset is equal to the amount of the lease liability, plus any direct costs incurred under certain leases such as fees, lease negotiation expenses or administration costs and less rent-free period liabilities and lessor financial contributions.
Work performed by the lessee and modifications to the leased asset, as well as guarantee deposits, are not components of the right-of-use asset and are recognized in accordance with other standards.
Finally, the right-of-use asset is depreciated in the consolidated income statement on a straight-line basis over the lease term adopted by the Group.
Note 10 Taxes
10.1 Operating taxes and levies
10.1.1 Operating taxes and levies recognized in the income statement
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Territorial Economic Contribution, IFER and similar taxes |
| ( |
| ( |
| ( | |
Spectrum fees |
| ( |
| ( |
| ( | |
Levies on telecommunication services |
| ( |
| ( |
| ( | |
Other operating taxes and levies |
| ( |
| ( |
| ( | |
Total |
| ( |
| ( |
| ( |
2019 Form 20-F / ORANGE – F - 68 |
Although comprising a directly identifiable counterpart, the periodic spectrum fees are presented within the operating taxes and levies as they are set by and paid to the States and Local Authorities.The breakdown of operating taxes and levies per geographical area is the following:
(in millions of euros)
10.1.2 Operating taxes and levies in the statement of financial position
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
|
2019 | 2018 | 2017 | |||||
Value added tax |
| |
| |
| | |
Other operating taxes and levies |
| |
| |
| | |
Operating taxes and levies – receivables |
| |
| |
| | |
Value added tax |
| ( |
| ( |
| ( | |
Territorial Economic Contribution, IFER and similar taxes |
| ( |
| ( |
| ( | |
Spectrum fees |
| ( |
| ( |
| ( | |
Levies on telecommunication services |
| ( |
| ( |
| ( | |
Other operating taxes and levies |
| ( |
| ( |
| ( | |
Operating taxes and levies – payables |
| ( |
| ( |
| ( | |
Operating taxes and levies – net |
| ( |
| ( |
| ( |
Developments in tax disputes and audits
In the same way as other telecom operators, the Group regularly deals with disagreements concerning the taxation of its network in various countries.
In 2017, Orange Espagne received a notification of a tax adjustment of approximately
In addition, Orange Espagne is involved in various tax disputes related to local taxes on mobile services. In May 2016, the Supreme Court of Spain amended its previous ruling and considered admissible some terms and conditions of taxation over mobile telecom operators using the infrastructures located on the local public domain. Since then, some municipalities sent out tax bills in accordance with the ruling of the Supreme Court. In 2018, Orange has re-evaluated the risk in light of the course of the proceedings. There are no new developments in 2019 that would lead to a modification of the Group’s accounting position.
Changes in operating taxes and levies
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Net operating taxes and levies (payables) in the opening balance |
| ( |
| ( |
| ( | |
Operating taxes and levies recognized in profit or loss |
| ( |
| ( |
| ( | |
Operating taxes and levies paid |
| |
| |
| | |
Changes in the scope of consolidation |
| |
| ( |
| — | |
Translation adjustment |
| ( |
| ( |
| | |
Reclassifications and other items |
| ( |
| |
| ( | |
Reclassifications to assets held for sale |
| |
| |
| | |
Net operating taxes and levies (payables) in the closing balance |
| ( |
| ( |
| ( |
Accounting policies
VAT (Value Added Tax) receivables and payables correspond to the VAT collected or deductible from the various states. Collections and repayments to states have no impact on the income statement.
2019 Form 20-F / ORANGE – F - 69 |
In the normal course of business, the Group regularly deals with differences of interpretation of tax law with the tax authorities, which can lead to tax reassessments or tax disputes.
Operating taxes and levies are measured by the Group at the amount expected to be paid or recovered from the tax authorities of each country, based on its interpretation with regard to the application of tax legislation. The Group calculates the tax assets, liabilities and accruals recognized in the statement of financial position based on the technical merits of the positions it defends versus that of the tax authorities.
10.2 Income tax
10.2.1 Income tax
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Orange SA tax group |
| ( |
| ( |
| ( | |
• Current tax |
| ( |
| ( |
| ( | |
• Deferred tax |
| ( |
| ( |
| ( | |
Spanish tax group |
| ( |
| ( |
| ( | |
• Current tax |
| ( |
| ( |
| ( | |
• Deferred tax |
| ( |
| ( |
| ( | |
Africa & Middle East |
| ( |
| ( |
| ( | |
• Current tax |
| ( |
| ( |
| ( | |
• Deferred tax |
| ( |
| |
| ( | |
United Kingdom |
| ( |
| ( |
| ( | |
• Current tax |
| ( |
| ( |
| ( | |
• Deferred tax |
| ( |
| |
| | |
Other subsidiaries |
| ( |
| ( |
| ( | |
• Current tax |
| ( |
| ( |
| ( | |
• Deferred tax |
| |
| |
| ( | |
Total Income tax |
| ( |
| ( |
| ( | |
• Current tax |
| ( |
| ( |
| ( | |
• Deferred tax |
| ( |
| ( |
| ( |
The breakdown of current tax by geographical area or by tax group is the following:
(in millions of euros)
Orange SA tax group
As part of the law enacted on July 11, 2019 concerning the creation of a digital services tax, the French government instituted a new measure maintaining the corporate income tax rate to
The corporate tax rate applicable for the 2018 fiscal year was
In 2017, the corporate tax rate was
Current tax expense
Since 2018, the current tax expense reflects the requirement to pay income tax calculated on the basis of
In 2017, the current tax expense reflected the requirement to pay a minimum level of income tax calculated on the basis of
2019 Form 20-F / ORANGE – F - 70 |
Deferred tax expense
Deferred taxes are recorded at the tax rate expected at the time of their reversal.
Until 2017, the deferred tax expense mainly arose from the use of tax loss carry forwards.
The 2018 French Finance Act, that passed in late December 2017, reinforced the gradual reduction in the corporate tax rate with an expected tax rate of
In 2017, this gradual rate reduction resulted in a (
The 2020 French Finance Law enacted in December 2019 modifies the originally planned downward trajectory of the corporate income tax without changing its target of
Developments in tax disputes and audits in France
Tax audits
Orange SA underwent tax audits of fiscal years 2010 to 2016, for which the outcome has no material impact on the Group’s financial statements.
Dispute over the 3% tax on dividends
The Constitutional Court, in its decision of October 6, 2017, recognized as unconstitutional the
Disputes in progress concerning fiscal years 2000-2006
In the context of the absorption of Cogecom by Orange SA and pursuant to an adverse ruling by the Court of Montreuil on July 4, 2013 which triggered the payment of the amounts claimed by the Tax authority, Orange SA had to pay in 2013 the remaining balance on principal and late payment interest claimed for a total amount of
Over the last few years, the main developments in terms of legal proceedings brought before the Versailles Administrative Court of Appeal were the following:
– concerning fiscal year 2000-2004:
– in a ruling given on July 24, 2018, the Administrative Court of Appeal of Versailles upheld the request from Orange. As the Tax administration did not appeal in cassation, this litigation is now closed. The accounting consequences were taken into account in the 2018 consolidated financial statements with no material impact.
– concerning fiscal years 2005-2006:
– in a ruling of February 18, 2016, the Administrative Court of Appeal of Versailles upheld the judgment of July 4, 2013, despite the contrary conclusions of the appointed Rapporteur. The Group then appealed to the Conseil d’État on April 18, 2016 to rule on the substance of the case,
– in a ruling dated December 5, 2016, the Conseil d’État annulled the February 18, 2016 ruling by the Administrative Court of Appeal of Versailles and remanded the dispute to the same Court, on the grounds argued by the Group, i.e., the principle of intangibility of the opening balance sheet of the earliest fiscal year still subject to audit,
– in a ruling dated July 24, 2018, the Administrative Court of Appeal of Versailles made an adverse decision against Orange, despite the contrary conclusions of the appointed Rapporteur. The Group appealed in cassation to the Conseil d’État which will render the final decision.
A favorable outcome to this dispute would result in a current tax income of
Spanish tax group
Current tax expense
The corporate tax rate applicable is
Deferred tax expense
The deferred tax expense for 2019 mainly represents the evolution of futures perspectives for the recoverability of the deferred tax assets.
In 2018, a deferred tax expense of
Africa & Middle East
The main contributors to the income tax expense are Senegal, Mali, Côte d'Ivoire and Guinea.
In Senegal, the corporate tax rate is
2019 Form 20-F / ORANGE – F - 71 |
United Kingdom
Current tax expense
The current income tax expense primarily reflects the taxation of activities related to Orange’s brand activities. The corporate tax rate sets to
Deferred tax expense
The 2016 Finance Act adopted on September 15, 2016, included a reduction in the tax rate to
Group tax proof
(in millions of euros) |
| Note |
| 2019 |
| 2018 |
| 2017 |
|
Profit before tax of continuing operations |
|
|
| |
| |
| | |
Statutory tax rate in France |
|
|
| | % | | % | | % |
Theoretical income tax |
|
|
| ( |
| ( |
| ( | |
Reconciling items : |
|
|
|
|
|
|
| ||
Exceptional surtax(1) | — | — | ( | ||||||
Impairment of goodwill (2) |
| 7.1 |
| ( |
| ( |
| ( | |
Impairment of BT shares |
| 12.7 |
| ( |
| ( |
| ( | |
Share of profits (losses) of associates and joint ventures |
|
|
| |
| |
| | |
Adjustment of prior-year taxes |
|
|
| |
| |
| | |
Recognition / (derecognition) of deferred tax assets |
|
|
| ( |
| ( |
| ( | |
Difference in tax rates (3) |
|
|
| |
| |
| | |
Change in applicable tax rates (4) |
|
|
| |
| ( |
| ( | |
Other reconciling items (5) |
|
|
| |
| ( |
| | |
Effective income tax |
|
|
| ( |
| ( |
| ( | |
Effective tax rate |
|
|
| | % | | % | | % |
(1) | Effect of the exceptional surtax put in place in France for 2017 which increased the corporate tax rate from |
(2) | Reconciliation item calculated based on the tax rate applicable to the parent company of the Group. The difference between the tax rate of the parent company and the local tax rate of subsidiaries is presented below in "Difference in tax rates". |
(3) | The Group is present in jurisdictions in which tax rates are different from the French tax rate. This mainly includes the United Kingdom (tax rate of |
(4) | Takes into account the remeasurement of the deferred tax due to change of tax rate in tax legislation. It also takes into account the impact of the fact that some deferred tax are booked with a different tax rate than the on-going one. |
(5) | Notably includes the non-deductible interests in France, respectively an income tax expense of |
Includes the tax income of
10.2.2 Income tax on other comprehensive income
(in millions of euros) | 2019 | 2018 | 2017 |
| |||||||||
Gross | Deferred | Gross | Deferred | Gross | Deferred | ||||||||
| amount |
| tax |
| amount |
| tax |
| amount |
| tax |
| |
Actuarial gains and losses on post-employment benefits (1) |
| ( |
| |
| |
| ( |
| |
| ( | |
Assets available for sale |
| — |
| — |
| — |
| — |
| |
| — | |
Assets at fair value | ( | — | ( | — | — | — | |||||||
Cash flow hedges |
| |
| ( |
| ( |
| |
| |
| ( | |
Translation adjustment |
| |
| — |
| ( |
| — |
| ( |
| | |
Other comprehensive income of associates and joint ventures |
| — |
| — |
| — |
| — |
| ( |
| — | |
Total presented in other comprehensive income |
| |
| ( |
| ( |
| |
| ( |
| ( |
(1) | In 2017, the deferred tax includes the remeasurement of the deferred tax in France. |
10.2.3 Tax position in the statement of financial position
(in millions of euros) | December 31, 2019 | December 31, 2018 | December 31, 2017 |
| |||||||||||||||
| Assets |
| Liabi-lities |
| Net |
| Assets |
| Liabi-lities |
| Net |
| Assets |
| Liabi-lities |
| Net |
| |
Orange SA tax group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
• Current tax |
| — |
| |
| ( |
| — |
| |
| ( |
| — |
| |
| ( | |
• Deferred tax (1) |
| |
| — |
| |
| |
| — |
| |
| |
| — |
| | |
Spanish tax group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
• Current tax |
| — |
| |
| ( |
| — |
| |
| ( |
| |
| — |
| | |
• Deferred tax (2) |
| |
| — |
| |
| |
| — |
| |
| |
| — |
| | |
Africa & Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
• Current tax |
| |
| |
| ( |
| |
| |
| ( |
| |
| |
| ( | |
• Deferred tax |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
• Current tax |
| — |
| |
| ( |
| — |
| |
| ( |
| — |
| |
| ( | |
• Deferred tax (3) |
| |
| |
| ( |
| — |
| |
| ( |
| — |
| |
| ( | |
Other subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
• Current tax |
| |
| |
| ( |
| |
| |
| ( |
| |
| |
| ( | |
• Deferred tax |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
• Current tax |
| |
| |
| ( |
| |
| |
| ( |
| |
| |
| ( | |
• Deferred tax |
| |
| |
| |
| |
| |
| |
| |
| |
| |
(1) | Mainly includes deferred tax assets on employee benefits. |
2019 Form 20-F / ORANGE – F - 72 |
(2) | The recognized deferred tax assets are partially offset by the deferred tax liabilities on the goodwill which is tax deductible. |
(3) | Mainly deferred tax liabilities on the Orange brand. |
Change in net current tax
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Net current tax assets / (liabilities) in the opening balance |
| ( |
| ( |
| ( | |
Cash tax payments (1) |
| |
| |
| | |
Change in income statement (2) |
| ( |
| ( |
| ( | |
Change in other comprehensive income | — | — | — | ||||
Change in retained earnings (3) |
| |
| — |
| ( | |
Changes in the scope of consolidation |
| ( |
| |
| | |
Translation adjustment |
| ( |
| ( |
| | |
Reclassification and other items |
| ( |
| ( |
| ( | |
Reclassification to assets held for sale |
| |
| |
| | |
Net current tax assets / (liabilities) in the closing balance |
| ( |
| ( |
| ( |
(1) | Includes in 2017 the reimbursement of |
(2) | Of which |
(3) | Mainly corresponds to the tax effect relating to the remeasurement of the portion of subordinated notes denominated in foreign currency. |
Change in net deferred tax
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Net deferred tax assets in the opening balance |
| |
| |
| | |
Change in income statement (1) |
| ( |
| ( |
| ( | |
Change in other comprehensive income |
| ( |
| |
| ( | |
Change in retained earnings (2) |
| |
| — |
| ( | |
Change in the scope of consolidation |
| ( |
| ( |
| | |
Translation adjustment |
| |
| ( |
| | |
Reclassification and other items |
| ( |
| |
| | |
Reclassification to assets held for sale |
| |
| |
| | |
Net deferred tax assets in the closing balance |
| |
| |
| |
(1) | Of which |
(2) | Mainly corresponds in 2017 to the tax effect relating to the remeasurement of the portion of subordinated notes denominated in foreign currency. |
Deferred tax assets and liabilities by type
(in millions of euros) | December 31, 2019 | December 31, 2018 | December 31, 2017 |
| |||||||||||||||
|
|
| Income |
|
|
| Income |
|
|
| Income |
| |||||||
Assets | Liabilities | state-ment | Assets | Liabilities | state-ment | Assets | Liabilities | state-ment |
| ||||||||||
Provisions for employee benefit obligations |
| |
| — |
| ( |
| |
| — |
| ( |
| |
| — |
| ( | |
Fixed assets |
| |
| |
| ( |
| |
| |
| ( |
| |
| |
| ( | |
Tax losses carryforward |
| |
| — |
| |
| |
| — |
| ( |
| |
| — |
| ( | |
Other temporary differences |
| |
| |
| ( |
| |
| |
| ( |
| |
| |
| ( | |
Deferred tax |
| |
| |
| ( |
| |
| |
| ( |
| |
| |
| ( | |
Depreciation of deferred tax assets |
| ( |
| — |
| ( |
| ( |
| — |
| |
| ( |
| — |
| | |
Netting |
| ( |
| ( |
| — |
| ( |
| ( |
| — |
| ( |
| ( |
| — | |
Total |
| |
| |
| ( |
| |
| |
| ( |
| |
| |
| ( |
As of December 31, 2019, the tax losses carry forwards mainly relate to Spain and Belgium, all of the tax losses carry forwards in France were used since 2018.
As of December 31, 2019, the unrecognized deferred tax assets mainly relate to Spain for
Most of the other tax losses carry forwards for which no deferred tax assets were recognized will expire beyond 2024.
Accounting policies
Current income tax and deferred tax are measured by the Group at the amount expected to be paid or recovered from the tax authorities of each country, based on its interpretation with regard to the application of tax legislation. The Group calculates the tax assets and liabilities recognized in the statement of financial position based on the technical merits of the positions it defends versus that of the tax authorities.
Deferred taxes are recognized for all temporary differences between the carrying values of assets and liabilities and their tax basis, as well as for unused tax losses, using the liability method. Deferred tax assets are recognized only when their recovery is considered probable.
A deferred tax liability is recognized for all taxable temporary differences associated with investments in subsidiaries, interests in joint ventures and associates, except to the extent that both of the following conditions are satisfied:
– the Group is able to control the timing of the reversal of the temporary difference (e.g. the payment of dividends); and
– it is probable that the temporary difference will not reverse in the foreseeable future.
2019 Form 20-F / ORANGE – F - 73 |
Accordingly, for fully consolidated companies, a deferred tax liability is only recognized in the amount of the taxes payable on planned dividend distributions by the Group.
Deferred tax assets and liabilities are not discounted.
At each period end, the Group reviews the recoverable amount of the deferred tax assets carried by certain tax entities with significant tax losses carry forwards. The recoverability of the deferred tax assets is assessed in the light of the business plans used for impairment testing. This plan may be adjusted for any tax specificities.
Deferred tax assets arising on these tax losses are not recognized under certain circumstances specific to each company/tax consolidation group concerned, and particularly where:
– entities cannot assess the probability of the tax loss carry forwards being set off against future taxable profits, due to the horizon for forecasts based on business plans used for impairment testing and uncertainties as to the economic environment;
– entities have not yet begun to use the tax loss carry forwards;
– entities do not expect to use the losses within the timeframe allowed by tax regulations;
– it is estimated that tax losses are uncertain to be used due to risks of differing interpretations with regard to the application of tax legislation.
Note 11 Interests in associates and joint ventures
The interests in associates and joint ventures included the activities of Orange as an operator in various African and Middle Eastern countries, including in particular Tunisia and Mauritius.
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Interests in associates - in the opening balance |
| |
| |
| | |
Dividends |
| ( |
| ( |
| — | |
Share of profits (losses) |
| |
| |
| | |
Impairment |
| |
| — |
| — | |
Change in components of other comprehensive income |
| |
| — |
| ( | |
Changes in the scope of consolidation |
| |
| ( |
| ( | |
Translation adjustment |
| ( |
| |
| ( | |
Reclassifications and other items |
| ( |
| |
| ( | |
Reclassification as held for sale |
| |
| |
| | |
Interests in associates - in the closing balance |
| |
| |
| |
Changes in other comprehensive income of associates and joint ventures (excluding "assets held-for-sale") are presented below:
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
|
Profit (loss) recognized in other comprehensive income during the period |
| |
| — |
| ( | |
Reclassification to net income for the period |
| |
| — |
| — | |
Other comprehensive income of associates and joint venture – continuing operations |
| |
| — |
| ( |
The unrecognized contractual commitments entered into by the Group relating to the interests in associates and joint ventures are described in Note 15.
The operations performed between the Group and the interests in associates and joint ventures are reflected as follow in Orange’s consolidated financial statements:
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
|
2019 | 2018 | 2017 |
| ||||
Assets |
|
|
|
|
|
| |
Non-current financial assets | | | | ||||
Trade receivables |
| |
| |
| | |
Current financial assets |
| |
| ( |
| ( | |
Other current assets |
| |
| — |
| | |
Liabilities |
|
|
|
| |||
Current financial liabilities |
| |
| |
| | |
Trade payables |
| |
| |
| | |
Other current liabilities |
| |
| — |
| — | |
Deferred income |
| |
| — |
| — | |
Income statement |
|
|
|
| |||
Revenue |
| |
| |
| | |
Other operating income |
| |
| |
| | |
External purchases and other operating expenses |
| ( |
| ( |
| ( | |
Finance cost, net |
| |
| — |
| |
Accounting policies
The carrying amount accounted for under the equity method corresponds to the initial acquisition cost increased by the share of profit or loss in the period. If an associate incurs losses and the carrying amount of the investment is reduced to zero, the Group ceases to recognize the additional share of losses since it has no commitment beyond its investment.
An impairment test is performed at least annually and when there is objective evidence of impairment, for instance a decrease in the quoted price when the investee is listed, significant financial difficulty of the entity, observable data indicating that there is a measurable decrease in the estimated future cash flows, or information about significant changes having an adverse effect on the entity.
2019 Form 20-F / ORANGE – F - 74 |
An impairment loss is recorded when the recoverable amount is lower than the carrying amount, the recoverable amount being the higher of the value in use and the fair value less costs to sell. The unit of account is the whole investment. Any impairment is recognized as “Share of profits (losses) of associates and joint ventures”. Impairment losses shall be reversed once the recoverable amount exceeds the carrying amount.
Note 12 Financial assets, liabilities and financial results (excluding Orange Bank)
12.1 Financial assets and liabilities of telecom activities
In order to improve the readability of financial statements and to be able to distinguish the performance of telecom activities from the performance of Orange Bank, the notes related to financial assets and liabilities as well as financial income or expenses are split to respect these two business areas.
Note 12 presents the financial assets, liabilities and related gains and losses specific to telecom activities and Note 16 concerns the activities of Orange Bank with regard to its assets and liabilities, with net financial income being not material.
The following table reconciles the contributive balances of assets and liabilities for each of these two areas to the consolidated balance sheet (intra-group transactions between telecom activities and Orange Bank are not eliminated) with the consolidated statement of financial position as of December 31, 2019.
(in millions of euros) | Orange | O/w | Note | O/w | Note | O/w | |||||||
consolidated | telecom | Orange | eliminations | ||||||||||
financial | activities | Bank | telecom | ||||||||||
| statements |
|
|
|
|
| activities / bank | ||||||
Non-current financial assets related to Orange Bank activities | | — | | 16.1.1 | — | ||||||||
Non-current financial assets |
| | | 12.7 |
| — | ( | (1) | |||||
Non-current derivatives assets |
| | | 12.8 |
| — | 16.1.3 | — | |||||
Current financial assets related to Orange Bank activities | | — | | 16.1.1 | ( | ||||||||
Current financial assets |
| | | 12.7 |
| — | — | ||||||
Current derivatives assets |
| | | 12.8 |
| — | 16.1.3 | — | |||||
Cash and cash equivalents |
| | |
| | — | |||||||
Non-current financial liabilities related to Orange Bank activities | — | — | | 16.1.2 | ( | (1) | |||||||
Non-current financial liabilities |
| | | 12.3 |
| — | — | ||||||
Non-current derivatives liabilities |
| | | 12.8 |
| | 16.1.3 | — | |||||
Current financial liabilities related to Orange Bank liabilities | | — | | 16.1.2 | — | ||||||||
Current financial liabilities |
| | | 12.3 |
| — | ( | ||||||
Current derivatives liabilities |
| | | 12.8 |
| — | 16.1.3 | — |
(1) | Loan granted by Orange SA to Orange Bank. |
12.2 Profits and losses related to financial assets and liabilities
The cost of net financial debt consists of gains and losses related to the components of net financial debt (described in Note 12.3) during the period.
Foreign exchange gains and losses related to the components of net financial debt correspond mainly to the revaluation in euros of bonds denominated in foreign currencies (Note 12.5) as well as to the symmetrical revaluation of associated hedges.
The net foreign exchange financial loss mostly reflects the effect of revaluation of the economic hedges of foreign exchange risk on notional amounts of subordinated notes denominated in pounds sterling and recognized in equity at their historical value (see Note 14.4).
Other financial expenses mainly comprise interest on lease liabilities in the amount of (
Finally, other comprehensive income includes the revaluation of financial assets at fair value through other comprehensive income (Note 12.7) and cash flow hedges (Note 12.8.2).
2019 Form 20-F / ORANGE – F - 75 |
Other gains and losses related to financial assets and liabilities are recognized in the operating income (foreign exchange gains and losses on trade receivables, trade payables and the associated derivative hedges) for (
(in millions of euros) | Other |
| |||||||||||||
compre- |
| ||||||||||||||
Finance costs, net | hensive income |
| |||||||||||||
Cost of | Gains | Cost of net | Foreign | Other net | Finance | Reserves |
| ||||||||
gross | (losses) on | financial | exchange | financial | costs, net |
| |||||||||
financial | assets | debt | gains | expenses(2) |
| ||||||||||
debt(1) | contributing | (losses) |
| ||||||||||||
to net |
| ||||||||||||||
financial |
| ||||||||||||||
|
| debt |
|
|
|
|
|
| |||||||
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Financial assets |
| — |
| |
| |
| |
| ( |
|
|
| ( | |
Financial liabilities |
| ( |
| — |
| ( |
| ( |
| — |
|
|
| — | |
Lease liabilities | — | — | — | — | ( | — | |||||||||
Derivatives |
| |
| — |
| |
| |
| — |
|
|
| | |
Discounting expense |
| — |
| — |
| — |
| — |
| ( |
|
|
| — | |
Total |
| ( |
| |
| ( |
| |
| ( | ( |
| | ||
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Financial assets |
| — |
| |
| |
| ( |
| |
|
|
| ( | |
Financial liabilities |
| ( |
| — |
| ( |
| ( |
| — |
|
|
| — | |
Derivatives |
| |
| — |
| |
| |
| — |
|
|
| ( | |
Discounting expense |
| — |
| — |
| — |
| — |
| ( |
|
|
| — | |
Total |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
| ( | |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Financial assets |
| — |
| |
| |
| ( |
| ( |
|
|
| | |
Financial liabilities |
| ( |
| — |
| ( |
| |
| — |
|
|
| — | |
Derivatives |
| |
| — |
| |
| ( |
| — |
|
|
| | |
Discounting expense |
| — |
| — |
| — |
| — |
| ( |
|
|
| — | |
Total |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
| |
(1) | Include interests on debt relating to financed assets for ( |
(2) | Include interest on lease liabilities for ( |
12.3 Net financial debt
Compared with December 31, 2018, the definition of the net financial debt as of December 31, 2019 now excludes the lease liabilities included in the scope of IFRS 16 (see Note 2.3.1) and includes the debts relating to financed assets (see Note 8.5).
Net financial debt is one of the indicators of financial position used by the Group. This aggregate, not defined by IFRS, may not be comparable to similarly entitled indicators used by other companies. It is provided as additional information only and should not be considered as a substitute for an analysis of all the Group’s assets and liabilities.
Net financial debt as defined and used by Orange does not include Orange Bank activities for which the concept is not relevant.
It consists of (a) financial liabilities excluding operating payables (translated into euros at the year-end closing rate) including derivative instruments (assets and liabilities), less (b) cash collateral paid, cash, cash equivalents and financial assets at fair value.
2019 Form 20-F / ORANGE – F - 76 |
Furthermore, financial instruments designated as cash flow hedges included in net financial debt are set up to hedge in particular items that are not included therein, such as future cash flows. Effects of these hedges are carried in other comprehensive income. As a consequence, the portion of these components related to unmatured hedging instruments is added to gross financial debt to offset this temporary difference.
(in millions of euros) | December 31, | December 31, | December 31, |
| |||||
| Note |
| 2019 |
| 2018 |
| 2017 |
| |
TDIRA |
| 12.4 |
| |
| |
| | |
Bonds |
| 12.5 |
| |
| |
| | |
Bank loans and from development organizations and multilateral lending institutions |
| 12.6 |
| |
| |
| | |
Debt relating to financed assets | | — | — | ||||||
Finance lease liabilities |
|
|
| — |
| |
| | |
Cash collateral received |
| 13.5 |
| |
| |
| | |
NEU Commercial Papers (1) |
|
|
| |
| |
| | |
Bank overdrafts |
|
|
| |
| |
| | |
Other financial liabilities |
|
|
| | (2) | |
| | |
Current and non-current financial liabilities (excluding derivatives) included in the calculation of net financial debt |
|
|
| |
| |
| | |
Current and non-current Derivatives (liabilities) |
| 12.8 |
| |
| |
| | |
Current and non-current Derivatives (assets) |
| 12.8 |
| ( |
| ( |
| ( | |
Other comprehensive income components related to unmatured hedging instruments |
| 12.8 |
| ( |
| ( |
| ( | |
Gross financial debt after derivatives (a) |
|
|
| |
| |
| | |
Cash collateral paid (3) |
| 13.5 |
| ( |
| ( |
| ( | |
Investments at fair value (4) |
| 12.7 |
| ( |
| ( |
| ( | |
Cash equivalents |
|
| ( |
| ( |
| ( | ||
Cash |
|
| ( | ( |
| ( | (5) | ||
Assets included in the calculation of net financial debt (b) |
|
|
| ( |
| ( |
| ( | |
Net financial debt (a) + (b) |
|
|
| |
| |
| |
(1) | Negotiable European Commercial Papers (formerly called “commercial papers”). |
(2) | Include |
(3) | Only cash collateral paid, included in non-current financial assets of the consolidated statement of financial position, are deducted from gross financial debt. |
(4) | Only investments at fair value, included in current financial assets of the consolidated statement of financial position, are deducted from gross financial debt (Note 12.7) |
(5) | As of December 31, 2017, the amount does not take into account the effect of the escrowed amount of approximatively |
Net financial debt is most carried by Orange S.A. in the amount of
Debt maturity schedules are presented in Note 13.3.
Changes in financial assets or financial liabilities whose cash flows are disclosed in financing activities in the cash-flow statement are the following (see Note 1.7):
(in millions of euros) | December 31, | Cash | Other changes with no impact | December 31, | |||||||||
2018 | flows | on cash flows | 2019 | ||||||||||
Changes in | Foreign | ||||||||||||
the scope of | exchange | ||||||||||||
consolidation | movement | Other | |||||||||||
TDIRA |
| |
| — |
| — |
| — |
| — |
| | |
Bonds |
| |
| |
| |
| |
| ( | (1) | | |
Bank loans and from development organizations and multilateral lending institutions |
| |
| |
| ( |
| |
| |
| | |
Finance lease liabilities |
| |
| — |
| — |
| — |
| ( |
| | |
Debt relating to financed assets |
| — |
| ( |
| — |
| — |
| |
| | |
Cash collateral received |
| |
| |
| — |
| — |
| — |
| | |
NEU Commercial Papers |
| |
| ( |
| — |
| — |
| ( |
| | |
Bank overdrafts |
| |
| ( |
| ( |
| |
| |
| | |
Other financial liabilities |
| |
| ( |
| |
| |
| |
| | |
Current and non-current financial liabilities (excluding derivatives) included in the calculation of net financial debt |
| |
| |
| |
| |
| ( |
| | |
Net derivatives |
| |
| |
| ( |
| ( |
| ( |
| ( | |
Cash collateral paid | ( | | — | — | — | ( | |||||||
Cash flows from financing activities |
|
|
| |
|
|
|
|
|
|
|
(1) Mainly corresponding to changes in accrued interests.
2019 Form 20-F / ORANGE – F - 77 |
(in millions of euros) | December 31, 2017 | Cash | Other changes with no impact | December 31, 2018 |
| |||||||||
|
|
| Changes in |
| Foreign |
| Other |
|
| |||||
TDIRA |
| |
| ( |
| — |
| — |
| |
| | ||
Bonds |
| |
| |
| |
| |
| ( | (1) | | ||
Bank loans and from development organizations and multilateral lending institutions |
| |
| |
| |
| |
| |
| | ||
Finance lease liabilities |
| |
| ( |
| |
| ( |
| |
| | ||
Cash collateral received |
| |
| |
| — |
| — |
| — |
| | ||
NEU Commercial Papers |
| |
| ( |
| — |
| ( |
| |
| | ||
Bank overdrafts |
| |
| |
|
| |
| — |
| | |||
Other financial liabilities |
| |
| ( |
| |
| |
| ( |
| | ||
Current and non-current financial liabilities (excluding derivatives) included in the calculation of net financial debt |
| |
| |
| |
| |
| |
| | ||
Net derivatives |
| |
| |
| — |
| ( |
| |
| | ||
Cash collateral paid |
| ( |
| |
| — |
| — |
| — |
| ( | ||
Cash flows from financing activities |
|
|
| |
|
|
|
|
|
|
|
|
(1) | Mainly corresponding to changes in accrued interests. |
(in millions of euros) | December 31, | Cash | Other changes with no impact | December 31, | |||||||||
2016 | flows | on cash flows | 2017 | ||||||||||
Changes in | Foreign | ||||||||||||
the scope of | exchange | ||||||||||||
consolidation | movement | Other | |||||||||||
TDIRA |
| |
| — |
| — |
| — |
| |
| | |
Bonds |
| |
| ( |
| — |
| ( |
| ( | (1) | | |
Bank loans and from development organizations and multilateral lending institutions |
| |
| |
| — |
| ( |
| |
| | |
Finance lease liabilities |
| |
| ( |
| — |
| — |
| |
| | |
Cash collateral received |
| |
| ( |
| — |
| — |
| — |
| | |
NEU Commercial Papers |
| |
| |
| — |
| ( |
| — |
| | |
Bank overdrafts |
| |
| ( |
| — |
| ( |
| — |
| | |
Other financial liabilities |
| |
| |
| — |
| ( |
| |
| | |
Current and non-current financial liabilities (excluding derivatives) included in the calculation of net financial debt |
| |
| |
| — |
| ( |
| ( |
| | |
Net derivatives |
| ( |
| ( |
| — |
| |
| |
| | |
Cash collateral paid |
| ( |
| ( |
| — |
| — |
| — |
| ( | |
Cash flows from financing activities |
|
|
| ( |
|
|
|
|
|
|
|
|
(1) | Mainly corresponding to changes in accrued interests. |
Net financial debt by currency
The net financial debt by currency is presented in the table below, after foreign exchange effects of hedging derivatives (excluding instruments set up to hedge operational items).
(equivalent value in millions of euros at year-end closing rate) |
| EUR |
| USD |
| GBP |
| PLN |
| EGP |
| JOD |
| MAD |
| Other |
| Total |
Gross financial debt after derivatives |
| |
| |
| |
| |
| |
| | |
| |
| | |
Financial assets included in the calculation of net financial debt |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | ( |
| ( |
| ( | |
Net debt by currency before effect of foreign exchange derivatives (1) |
| |
| |
| |
| ( |
| |
| | |
| |
| | |
Effect of foreign exchange derivatives |
| |
| ( |
| ( |
| |
| — |
| — | — |
| ( |
| — | |
Net financial debt by currency after effect of foreign exchange derivatives |
| |
| ( |
| ( |
| |
| |
| | |
| |
| |
(1) | Including the market value of derivatives in local currency. |
Accounting policies
Cash and cash equivalents
The Group classifies investments as cash equivalent in the statement of financial position and statement of cash flows when they comply with the conditions of IAS 7 (see cash management detailed in Notes 13.3 and 13.5):
– held in order to face short-term cash commitments; and
– short term and highly liquid assets at acquisition date, readily convertible into known amount of cash and not exposed to any material risk of change in value.
Bonds, bank loans and loans from multilateral lending institutions
Among financial liabilities, only the bond of
Borrowings are recognized upon origination at the discounted value of the sums to be paid and subsequently measured at amortized cost using the effective interest rate method. Transaction costs that are directly attributable to the acquisition or issue of the financial liability are deducted from the liability’s carrying value. The costs are subsequently amortized over the life of the debt, using the effective interest rate method.
2019 Form 20-F / ORANGE – F - 78 |
Some financial liabilities at amortized cost, mainly borrowings, are subject to hedging. This relates mostly to borrowings hedged against the exposure of their future cash flows to foreign exchange risk (cash flow hedge).
12.4 TDIRA
The perpetual bonds redeemable for shares (“TDIRAs”) with a par value of
The TDIRAs are redeemable in new Orange SA shares, at any time at the holders’ request or, under certain conditions as described in the appropriate prospectus, at Orange SA’s initiative based on a ratio of
Since January 1, 2010, the interest rate on the TDIRAs has been the three-month Euribor +
The TDIRA are subject to split accounting between equity and liabilities. For the securities outstanding on December 31, 2019, the "equity" component before deferred tax stood at
The amounts recognized for the in the financial statements are as follows:
(in millions of euros) |
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 |
|
Number of securities |
| |
| |
| | |
Equity component before deferred taxes |
| |
| |
| | |
Debt component |
| |
| |
| | |
o/w accrued interests not yet due |
| |
| |
| | |
Paid interest |
| |
| |
| |
Accounting policies
Some Group financial instruments include both a liability component and an equity component. This relates to perpetual bonds redeemable for shares (TDIRA). On initial recognition, the liability component is measured at its market value, corresponding to the value of the contractually determined future cash flows discounted at the market rate applied at the date of issue to comparable instruments providing substantially the same conditions, but without the option to convert or redeem in shares. This liability component is subsequently recognized at amortized cost.
The carrying amount of the equity component is determined at inception by deducting the fair value of the financial liability from the notional value of the instrument. This does not change throughout the life of the instrument.
12.5 Bonds
Unmatured bonds at December 31, 2019 were all issued by Orange SA, with the exception of two obligations (each with a fixed-rate tranche and a variable-rate tranche) denominated in Moroccan dirhams held by Médi Telecom, and a euro-denominated bond issued by SecureLink.
With the exception of the commitments made by Médi Telecom, which are redeemable on a regular annual basis, as of December 31, 2019, the bonds issued by the Group were redeemable at maturity. No specific guarantee had been given in relation to their issuance. Some bonds may be redeemed in advance, at the request of the issuer.
2019 Form 20-F / ORANGE – F - 79 |
Bonds or new tranches issued during fiscal year 2019 are shown in bold.
Notional | Initial nominal | Maturity | Interest rate (%) | Outstanding amount (in millions of euros) |
| ||||||||
currency | amount | December 31, | December 31, | December 31, |
| ||||||||
(in millions of | 2019 | 2018 | 2017 |
| |||||||||
| currency units) |
|
|
|
|
|
| ||||||
Bonds matured before December 31, 2019 |
| |
| | |||||||||
EUR |
| |
| February 10, 2020 |
| |
| |
| |
| | |
EUR(1) |
| |
| February 10, 2020 |
| 10Y CMS + | |
| |
| | ||
EUR |
| |
| April 9, 2020 |
| |
| |
| |
| | |
GBP |
| |
| November 10, 2020 |
| |
| |
| |
| | |
EUR |
| |
| January 14, 2021 |
| |
| |
| |
| | |
GBP(2) | | June 27, 2021 | | | | | |||||||
USD |
| |
| September 14, 2021 |
| |
| |
| |
| | |
EUR |
| |
| October 13, 2021 |
| 10Y CMS + |
| |
| |
| | |
EUR |
| |
| December 21, 2021 |
| 10Y TEC + |
| |
| |
| | |
EUR | | January 15,2022 | | | — | — | |||||||
EUR |
| |
| June 15, 2022 |
| |
| |
| |
| | |
EUR |
| |
| September 16, 2022 |
| |
| |
| |
| | |
EUR(3) | | February 6,2023 | EUR 3M + | | — | — | |||||||
EUR |
| |
| March 1, 2023 |
| |
| |
| |
| | |
EUR | | September 11, 2023 | | | | | |||||||
HKD |
| |
| October 6, 2023 |
| |
| |
| |
| | |
HKD |
| |
| December 22, 2023 |
| |
| |
| |
| | |
EUR |
| |
| January 9, 2024 |
| |
| |
| |
| | |
EUR | | July 15, 2024 | | | — | — | |||||||
EUR |
| |
| May 12, 2025 |
| |
| |
| |
| | |
EUR | | September 12, 2025 | | | | — | |||||||
NOK |
| |
| September 17, 2025 |
| |
| |
| |
| | |
CHF | | November 24, 2025 | | | — | — | |||||||
GBP |
| |
| December 5, 2025 |
| |
| |
| |
| | |
MAD(4) | | December 18, 2025 | | | | — | |||||||
MAD(4) | | December 18, 2025 | 1Y BDT + | | | — | |||||||
EUR | | September 4, 2026 | — | | — | — | |||||||
EUR | | November 30, 2026 | | | | | |||||||
MAD(4) | | December 10, 2026 | | | — | — | |||||||
MAD(4) | | December 10, 2026 | 1Y BDT + | | — | — | |||||||
EUR |
| |
| February 3, 2027 |
| |
| |
| |
| | |
EUR | | September 9, 2027 | | | | | |||||||
EUR | | March 20, 2028 | | | | — | |||||||
EUR |
| |
| April 11, 2028 |
| |
| |
| |
| | |
NOK | | July 24, 2028 | | | | — | |||||||
GBP |
| |
| November 20, 2028 |
| |
| |
| |
| | |
EUR |
| |
| January 15, 2029 |
| |
| |
| — |
| — | |
EUR | | April 11, 2029 | | | | | |||||||
CHF | | June 22, 2029 | | | — | — |
(1) | Bond measured at fair value through profit or loss. |
(2) | Exchangeable bonds in BT shares (see below). |
(3) | Bond issued in 2018 by SecureLink at Euribor 3M (floored at |
(4) | Bonds issued by Médi Telecom.Bonds bearing 1Y BDT rate corresponds to 52 weeks Moroccan treasury bonds rate (recalculated once a year). |
2019 Form 20-F / ORANGE – F - 80 |
Notional | Initial nominal | Maturity | Interest rate (%) | Outstanding amount (in millions of euros) |
| ||||||||
currency | amount | December 31, | December 31, | December 31, |
| ||||||||
(in millions of | 2019 | 2018 | 2017 |
| |||||||||
| currency units) |
|
|
|
|
| |||||||
EUR |
| |
| January 16, 2030 |
| |
| |
| |
| — | |
EUR |
| |
| September 12, 2030 |
| |
| |
| |
| — | |
EUR |
| |
| September 17, 2030 |
| |
| |
| |
| | |
EUR |
| |
| November 6, 2030 |
| | (5) | |
| |
| | |
USD |
| |
| March 1, 2031 |
| | (6) | |
| |
| | |
EUR |
| |
| May 29, 2031 |
| |
| |
| — |
| — | |
EUR |
| |
| December 5, 2031 |
| | (zero coupon) | |
| |
| | |
EUR |
| |
| December 8, 2031 |
| | (zero coupon) | |
| |
| | |
EUR |
| |
| January 5, 2032 |
| | (zero coupon) | |
| |
| | |
GBP |
| |
| January 15, 2032 |
| |
| |
| — |
| — | |
EUR |
| |
| September 4, 2032 |
| |
| |
| — |
| — | |
EUR |
| |
| January 28, 2033 |
| |
| |
| |
| | |
EUR |
| |
| September 30, 2033 |
| |
| |
| |
| | |
GBP |
| |
| January 23, 2034 |
| |
| |
| |
| | |
HKD | | June 12, 2034 | | | — | — | |||||||
EUR | | July 11, 2034 | | | — | — | |||||||
EUR |
| |
| April 16, 2038 |
| |
| |
| |
| | |
USD |
| |
| January 13, 2042 |
| |
| |
| |
| | |
USD |
| |
| February 6, 2044 |
| |
| |
| |
| | |
EUR | | September 4, 2049 | | | — | — | |||||||
GBP |
| |
| November 22, 2050 |
| |
| |
| |
| | |
Outstanding amount of bonds |
|
|
|
|
|
|
| |
| |
| | |
Accrued interest |
|
|
|
|
|
|
| |
| |
| | |
Amortized cost |
|
|
|
|
|
|
| ( |
| ( |
| ( | |
Total |
|
|
|
|
|
|
| |
| |
| |
(5) | Bond bearing interests at a fixe rate of |
(6) | Bond with a step-up clause (clause that triggers a change in interest payments of Orange's credit rating from the rating agencies changes). See Note 13.3. |
In the first semester 2019, Orange purchased call options with the same characteristics of the sale of call option included in bonds exchangeable in BT shares. Those instruments have neutralized the original sale of call option, so the Group is no more exposed to the change in fair value of BT shares in relation with the bonds exchangeable in BT shares.
As a reminder, in June 2017, the Group issued bonds exchangeable in BT shares for a notional amount of
12.6 Loans from development organizations and multilateral lending institutions
(in millions of euros) | December 31, | December 31, | December 31, |
| |||
| 2019 |
| 2018 |
| 2017 |
| |
Sonatel |
| |
| |
| | |
Médi Telecom |
| |
| |
| | |
Orange Côte d’Ivoire |
| |
| |
| | |
Orange Egypt |
| | |
| | ||
Orange Mali | | | | ||||
Orange Cameroon |
| |
| |
| | |
Orange Jordanie | | | | ||||
Other |
| |
| |
| | |
Bank loans |
| |
| |
| | |
Orange SA(1) |
| | | | |||
Orange Espagne |
| |
| |
| | |
Loans from development organizations and multilateral lending institutions(2) |
| |
| |
| | |
Total |
| |
| |
| |
(1) | Orange SA negotiated with the European Investment Bank a loan of |
(2) | Primarily the European Investment Bank. |
2019 Form 20-F / ORANGE – F - 81 |
12.7 Financial assets
After application of IFRS 9 on January 1, 2018, the financial assets break down as follows:
(in millions of euros) | December 31, 2019 | December 31, 2018 | January 1, 2018 (1) |
| |||||||
Financial assets |
| ||||||||||
related to telecom |
| ||||||||||
activities including |
| ||||||||||
transactions with |
| ||||||||||
Orange Bank |
| ||||||||||
| Non-current |
| Current |
| Total |
| Total |
| Total |
| |
Financial assets at fair value through other comprehensive income that will not be reclassified to profit or loss | | — | | | | ||||||
Investments securities |
| |
| — |
| |
| |
| | |
Financial assets at fair value through profit or loss |
| |
| |
| |
| |
| | |
Investments at fair value |
| — |
| |
| |
| |
| | |
o/w negotiable debt securities (2) | — | | | | | ||||||
o/w other | — | — | — | | | (3) | |||||
Investments securities |
| |
| — |
| |
| |
| | |
Cash collateral paid (4) |
| |
| — |
| |
| |
| | |
Financial assets at amortized cost |
| |
| |
| |
| |
| | |
Receivables related to investments(5) |
| | |
| |
| |
| | ||
Other |
| | (6) | |
| |
| | (6) | | |
Total financial assets |
| |
| |
| |
| |
| |
(1) | Figures have been adjusted after IFRS 9 application. |
(2) | NEUCP only. |
(3) | OAT bonds (repurchase agreement with Orange Bank). |
(4) | See Note 13.5. |
(5) | Including loan from Orange SA to Orange Bank for |
(6) | Including the escrowed amount of |
As of 2017, for which the IFRS 9 standard was not applied as authorized by the standard, the financial assets broke down as follows:
(in millions of euros) |
| December 31, 2017 |
|
Assets available for sale |
| ||
Equity securities |
| |
|
Financial assets at fair value |
|
|
|
Investments at fair value |
| |
|
o/w negotiable debt securities |
| |
|
o/w others |
| | (1) |
Equity securities measured at fair value |
| |
|
Cash collateral paid |
| |
|
Other financial assets |
|
|
|
Receivables related to investments |
| | (2) |
Other |
| |
|
Total |
| |
|
(1) | OAT bonds (repurchase agreement with Orange Bank). |
(2) | Including loan from Orange SA to Orange Bank for |
Investment securities
Investment securities measured at fair value through other comprehensive income that may not be reclassified to profit or loss
(in millions of euros) |
| 2019 |
| 2018 |
Investment securities measured at fair value through other comprehensive income that may not be reclassified to profit or loss - in the opening balance |
| |
| |
Acquisitions |
| |
| |
Changes in fair value | ( | ( | ||
Sales |
| ( |
| ( |
Other movements |
| ( |
| — |
Investment securities measured at fair value through other comprehensive income that may not be reclassified to profit or loss - in the closing balance |
| |
| |
Investment securities measured at fair value through other comprehensive income that may not be reclassified to profit or loss included numerous shares in companies held by investment funds.
2019 Form 20-F / ORANGE – F - 82 |
Investment securities measured at fair value through profit or loss
(in millions of euros) |
| 2019 |
| 2018 |
Investment securities measured at fair value through profit or loss - in the opening balance | | | ||
Changes in fair value | | ( | ||
Sale of BT shares | ( | ( | ||
Other movements | ( | ( | ||
Investment securities measured at fair value through profit or loss - in the closing balance | | |
For the period 2017 for which IFRS 9 was not applied as authorized, the change in investment securities broke down as follows:
(in millions of euros) |
| 2017 |
Investment securities - in the opening balance | | |
Sale of one third of BT shares |
| ( |
Impairment of BT shares maintained excluding effect of FX risk hedge |
| ( |
Changes in fair value |
| |
Other movements |
| |
Investment securities - in the closing balance |
| |
BT shares
On January 29, 2016, following the disposal of EE, Orange received
In 2017, the Orange Group sold a
In 2018, the Orange Group sold
On June 28, 2019 the Group decided to sell its residual shares of
The effect of the investment in BT on consolidated net finance costs is given below:
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Impact of 2017 sale | — | — | ( | |||
Impact of 2018 sales | — | ( | ( | |||
Impact of 2019 sale |
| ( | ( | ( | ||
Dividends received |
| — | | | ||
Effect in the consolidated financial net income of the investment in BT |
| ( | ( | ( |
Accounting policies
Financial assets
– Financial assets at fair value through profit or loss (FVR)
Certain investment securities which are not consolidated or equity-accounted, and cash investments such as negotiable debt securities, deposits and mutual funds (UCITS), that are compliant with the Group’s risk management policy or investment strategy, may be designated by Orange as being recognized at fair value through profit or loss. These assets are recognized at fair value at inception and subsequently. All changes in fair value are recorded in net financial expenses.
– Financial assets at fair value through other comprehensive income that may not be reclassified to profit or loss (FVOCI)
Investment securities which are not consolidated or equity-accounted are, subject to exceptions, recognized as assets at fair value through other comprehensive income that may not be reclassified to profit/loss. They are recognized at fair value at inception and subsequently. Temporary changes in value and gains (losses) on disposals are recorded in other comprehensive income that may not be reclassified to profit/loss.
– Financial assets at amortized cost (AC)
This category mainly includes loans and receivables. These instruments are recognized at fair value at inception and are subsequently measured at amortized cost using the effective interest method. If there is any objective evidence of impairment of these assets, the value of the asset is reviewed at the end of each reporting period. An impairment loss is recognized in the income statement when impairment tests demonstrate that the financial asset carrying amount is higher than its recoverable amount. For trade receivables, the provisioning system also covers expected losses.
2019 Form 20-F / ORANGE – F - 83 |
As a reminder, before the application of IFRS 9, the accounting policies related to financial assets were as follows:
Assets available for sale
The Group’s assets available for sale mainly consist of investment securities, which are not consolidated and not accounted for using the equity method, and marketable securities that do not fulfill the criteria for classification in any of the other categories of financial assets. They are recognized at fair value at inception and subsequently.
Temporary changes in value are recorded as “Gains (losses) on assets available for sale” within other comprehensive income.
When there is an objective evidence of impairment on available-for-sale assets or a decrease in fair value by at least one-third or over 2 consecutive semesters, the cumulative impairment loss included in other comprehensive income is definitely reclassified from equity to profit or loss within net financial expenses.
Financial assets at fair value through profit or loss
The Group can designate at fair value at inception financial investments such as negotiable debt securities, deposits and mutual funds (UCITS), that are compliant with the Group’s risk management policy or investment strategy (see Note 13.3). They are recognized at fair value at inception and subsequently. All changes in fair value are recorded in net financial expenses.
Other financial assets
This category mainly includes loans and receivables. These instruments are recognized at fair value at inception and are subsequently measured at amortized cost using the effective interest method. If there is any objective evidence of impairment of these assets, the value of the asset is reviewed at the end of each reporting period. An impairment loss is recognized in the income statement when impairment tests demonstrate that the financial asset carrying amount is higher than its recoverable amount.
12.8 Derivatives instruments
12.8.1 Market value of derivatives
(in millions of euros) | December 31, 2019 | December 31, 2018 | December 31, 2017 |
| |||
| Net |
| Net |
| Net |
| |
Hedging derivatives | | ( | ( | ||||
Cash flow hedge derivatives |
| |
| ( |
| ( | |
Fair value hedge derivatives |
| ( |
| ( |
| | |
Derivatives held for trading (1) |
| ( |
| ( |
| ( | |
Net derivatives(2) |
| |
| ( |
| ( |
(1) | Mainly due to the foreign exchange effects of the economic hedges against the revaluation of subordinated notes denominated in pounds sterling (equity instruments recognized at their historical value - see Note 14.4) for ( |
(2) | Of which foreign exchange effects of the cross currency swaps (classified as hedging or held for trading) hedging foreign exchange risk on gross debt notional for |
The risks hedged by these derivative instruments are described in Note 13. These derivatives are associated with cash-collateral agreements, the effects of which are described in Note 13.5.
Accounting policies
Derivative instruments are measured at fair value in the statement of financial position and presented according to their maturity date, regardless of whether they qualify for hedge accounting under IFRS 9 (hedging instruments versus trading instruments).
Derivatives are classified as a separate line item in the statement of financial position.
Trading derivatives are non-qualified economic hedges. Changes in the value of these instruments are recognized directly in profit and loss.
Hedge accounting is applicable when:
– at the inception of the hedge, there is a formal designation and documentation of the hedging relationship;
– the effectiveness of the hedge is demonstrated at inception and it is expected to continue in subsequent periods: i.e. at inception and throughout its duration, the company expects changes in the fair value of the hedged element to be almost fully offset by changes in the fair value of the hedged instrument.
There are three types of hedge accounting:
– the fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability (or an identified portion of the asset or liability) that are attributable to a particular interest rate and/or currency risk and which could affect profit or loss.
The hedged portion of these items is re-measured at fair value in the statement of financial position. Change in this fair value is booked in the income statement and offset by symmetrical changes in the fair value hedging of financial hedging instruments up to the limit of the hedge effectiveness;
– the cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular interest rate and/or currency risk associated with a recognized asset or liability or a highly probable forecast transaction (such as a future purchase or sale) and which could affect profit or loss.
As the hedged item is not recognized in the statement of financial position, the effective portion of change in fair value of the hedging instrument is booked in other comprehensive income. It is reclassified in profit or loss when the hedged item (financial asset or liability) affects the profit or loss or in the initial cost of the hedged item when it relates to the hedge of a non-financial asset acquisition cost;
2019 Form 20-F / ORANGE – F - 84 |
– the net investment hedge is a hedge of the exposure to changes in values attributable to exchange risk of a net investment in a foreign operation, and could affect profit or loss on the disposal of the foreign operation.
The effective portion of the net investment hedge is recorded in other comprehensive income. It is reclassified in profit or loss upon the disposal of the net investment.
For transactions qualified as fair value hedges and economic hedges, the foreign exchange impact of changes in the fair value of derivatives is booked in operating income when the underlying hedged item results from operational transactions and in net finance costs when the underlying hedged item is a financial asset or liability.
Hedge accounting can be terminated when the hedged item is no longer recognized, i.e. when the Group revokes the designation of the hedging relationship or when the hedging instrument is terminated or exercised. The accounting consequences are as follows:
– fair value hedge: at the hedge accounting termination date, the adjustment of the fair value of the liability is amortized using an effective interest rate recalculated at this date . Should the item hedged disappear, the change in fair value is recognized in the income statement;
– cash flow hedge: amounts recorded in other comprehensive income are immediately reclassified in profit or loss when the hedged item is no longer recognized. In all other cases, amounts are reclassified in profit or loss, on a straight basis, throughout the remaining life of the original hedging relationship.
In both cases, subsequent changes in the value of the hedging instrument are recorded in profit or loss.
Concerning the effects of the Foreign Currency Basis Spread, cross-currency swaps designated as cash flow hedges, the Group has chosen to designate them as costs of hedge. This option enables recognizing these effects in comprehensive income and amortizing the cost of the Basis Spread to profit/loss over the period of the hedge.
12.8.2 Cash flow hedges
The Group’s cash flow hedges main goal is to neutralize foreign exchange risk on future cash flows (notional, coupons) or switch floating-rate debt to fixed-rate debt.
The ineffective portion of cash flow hedges recognized in net income is not significant during the periods presented. The main hedges unmatured at December 31, 2019, as well as their effects on the financial statements, are detailed in the table below.
(in millions of euros) | Hedged risk | |||||||
Total | Exchange and interest | |||||||
rate risk | Exchange risk | Interest rate risk | ||||||
|
|
|
| |||||
Hedging instruments | | Cross Currency Swap | Forward | Interest rate swap | ||||
FX swap | Option | |||||||
Option | ||||||||
Carrying amount - asset |
| | | | | |||
Carrying amount - liability |
| ( | ( | ( | ( | |||
Change in cash flow hedge reserve |
| | | ( | | |||
Gain (loss) recognized in other comprehensive income |
| | | ( | | |||
Reclassification in financial result |
| ( | ( | ( | ( | |||
Reclassification in operating income |
| | — | | — | |||
Reclassification in initial carrying amount of hedged item |
| | — | | — | |||
Cash flow hedge reserve |
| ( | ( | ( | ( | |||
o/w related to unmatured hedging instruments |
| ( | ( | ( | ( | |||
o/w related to discontinued hedges |
| | | — | — | |||
Hedged item |
| Bonds and credit line | Purchases of handsets | Bonds and Leasing | ||||
| and equipment | |||||||
Current and non current | Property, plant and | Other Liabilities and | ||||||
Balance sheet item | financial liabilities | equipment | current and non current |
2019 Form 20-F / ORANGE – F - 85 |
The main hedges unmatured at December 31, 2018, as well as their effects on the financial statements, are detailed in the table below.
(in millions of euros) |
| Hedged risk | ||||||
Total | Exchange and interest | Exchange risk | Interest rate risk | |||||
rate risk | ||||||||
|
|
|
| |||||
Hedging instruments | ( | Cross Currency Swap | Forward | Interest rate swap | ||||
FX swap | ||||||||
Option | ||||||||
Carrying amount - asset |
| | | | — | |||
Carrying amount - liability |
| ( | ( | | ( | |||
Change in cash flow hedge reserve |
| ( | ( | ( | | |||
Gain (loss) recognized in other comprehensive income |
| ( | ( | ( | | |||
Reclassification in financial result |
| ( | ( | — | | |||
Reclassification in operating income |
| ( | — | ( | — | |||
Reclassification in initial carrying amount of hedged item |
| | — | | — | |||
Cash flow hedge reserve |
| ( | ( | | ( | |||
o/w related to unmatured hedging instruments |
| ( | ( | | ( | |||
o/w related to discontinued hedges |
| | | | | |||
Hedged item |
| Bonds and credit line | Purchases of handsets | Bonds and Leasing | ||||
| and equipment | |||||||
Current and non current | Property, plant and | Current and non current | ||||||
Balance sheet item | financial liabilities | equipment | financial liabilities |
The change in the cash flow hedge reserve in 2017 was analyzed as follows:
(in millions of euros) |
| 2017 |
|
Gain (loss) recognized in other comprehensive income during the period (1) |
| | |
Reclassification in financial result for the period |
| ( | |
Reclassification in operating income for the period |
| ( | |
Reclassification in initial carrying amount of hedged item |
| | |
Other comprehensive income |
| |
In 2017, the cash flow hedge reserve broke down as follows:
(in millions of euros) |
| December 31, |
|
2017 |
| ||
Other comprehensive income related to unmatured hedging instruments |
| ( | |
O/w Orange SA |
| ( | |
O/w other entities |
| ( | |
Reserve to be amortized for discontinued hedges |
| | |
Other comprehensive income related to hedging instruments |
| ( |
The nominal amounts of the main cash flow hedges are presented below:
Notional amounts of hedging instruments per maturity |
| ||||||||||
(in millions of hedged currency units) | |||||||||||
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| |
and | |||||||||||
beyond | |||||||||||
Orange SA |
| ||||||||||
Cross currency swaps |
|
|
|
|
|
| |||||
CHF | — | — | — | — | | (1) | |||||
GBP |
| |
| |
| — |
| — |
| | (2) |
HKD |
| — |
| — |
| — |
| |
| | (3) |
NOK |
| — |
| — |
| — |
| — |
| | (4) |
USD |
| |
| |
| — |
| — |
| | (5) |
Interest rate swaps | |||||||||||
EUR | — | | — | — | | (6) | |||||
FT Immo H | |||||||||||
Interest rate swaps | |||||||||||
EUR | | | | — | | (7) | |||||
FT Immo H |
| ||||||||||
Forwards | |||||||||||
EUR |
| |
| — |
| — |
| — |
| — |
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
(7) |
2019 Form 20-F / ORANGE – F - 86 |
Note 13 Information on market risk and fair value of financial assets and liabilities (excluding Orange Bank)
The Group uses financial position or performance indicators that are not specifically defined by IFRS, such as EBITDAaL (see Note 1.8) and net financial debt (see Note 12.3).
Market risks are monitored by Orange’s Treasury and Financing Committee, which reports to the Executive Committee. The Committee is chaired by the Group’s Executive Committee Member in charge of Finance and Performance and meets on a quarterly basis.
It sets the guidelines for managing the Group’s debt, especially in respect of its interest rate, foreign exchange, liquidity and counterparty risk exposure for the coming months, and reviews past management (transactions realized, financial results).
13.1 Interest rate risk management
Management of fixed-rate/variable-rate debt
Orange Group seeks to manage its fixed-rate/variable-rate exposure in euros in order to minimize interest costs by using firm and conditional interest rate derivatives such as swaps, futures, caps and floors.
The fixed-rate component of gross financial debt, excluding cash collateral received and agreements to buy back non-controlling interests, was estimated at
Sensitivity analysis of the Group’s position to changes in interest rates
The sensitivity of the Group’s financial assets and liabilities to interest rate risk is only analyzed for the components of net financial debt that are interest-bearing and therefore exposed to interest rate risk.
Sensitivity of financial expenses
Based on a constant amount of debt and a constant management policy, a
Sensitivity of cash flow hedge reserves
A
13.2 Foreign exchange risk management
Operational foreign exchange risk
The Group’s foreign operations are carried out by entities that operate in their own country and mainly in their own currency. Their operational exposure to foreign exchange risk is therefore limited to certain types of flows: purchases of equipment or network capacity, purchases of terminals and equipment sold or leased to customers, purchases from or sales to international operators.
Whenever possible, the entities of the Orange Group have put in place policies to hedge this exposure (see Note 12.8).
Financial foreign exchange risk
Financial foreign exchange risk mainly relates to:
– dividends paid to the parent company: in general, the Group’s policy is to economically hedge this risk as from the date of the relevant subsidiary’s Shareholders’ Meeting;
– financing of the subsidiaries: except in special cases, the subsidiaries are required to cover their funding needs in their functional currency;
– Group financing: most of the Group’s bonds, after derivatives, are denominated in euros. From time to time, Orange SA issues bonds in markets other than euro markets (primarily the US dollar, pound sterling and Swiss franc). If Orange SA does not have assets in these currencies, in most cases, the issues are translated into euros through cross-currency swaps. The debt allocation by currency also depends on the level of interest rates and particularly on the interest rate differential relative to the euro.
Lastly, the Group economically hedges foreign exchange risk on its subordinated notes denominated in pound sterling that are recorded in equity at their historical value (see Note 14.4), with cross-currency swaps, for a notional amount of
The table below shows the main exposures to foreign exchange fluctuations of the net financial debt in foreign currencies of Orange SA, excluding the hedging effects of the subordinated notes described above and of Orange Polska and also shows the sensitivity of the entity to a 10% change in
2019 Form 20-F / ORANGE – F - 87 |
the foreign exchange rates of the currencies to which it is exposed. Orange SA is the entity bearing the major foreign exchange risk, including internal operations which generate a net foreign exchange gain or loss in the consolidated annual financial statements.
(in millions of currency units) | Exposure in currency units (1) | Sensitivity analysis | ||||||||||||
EUR | USD | GBP | PLN | Total | ||||||||||
|
|
|
|
| translated |
| euro |
| euro | |||||
Orange SA |
| — |
| ( |
| ( | ( |
| ( |
| |
| ( | |
Orange Polska | ( | | — | — | ( | | ( | |||||||
Total (euros) |
| ( |
| ( |
| ( | ( |
| ( |
|
|
|
|
(1) | Excluding FX hedge of subordinated notes denominated in pound sterling. |
Foreign exchange risk to assets
Due to its international presence, the Orange Group’s statement of financial position is exposed to foreign exchange fluctuations, as these affect the translation of subsidiaries’ assets and equity interests denominated in foreign currencies. The currencies concerned are mainly the pound sterling, the zloty, the Egyptian pound, the US dollar, the Jordanian dinar and the Moroccan dirham.
To hedge its largest foreign asset exposures, Orange has issued debt in the relevant currencies.
The amounts presented below take into account the activities of Orange Bank (activities only in euros).
(in millions of euros) | Contribution to consolidated net assets | Sensitivity analysis | ||||||||||||||||||||
EUR | USD | GBP | PLN | EGP | JOD | MAD | Other | Total | ||||||||||||||
currencies | gain in | loss in | ||||||||||||||||||||
|
|
|
|
|
|
|
|
| euro |
| euro | |||||||||||
Net assets excluding net debt (a) (1) |
| |
| |
| ( | |
| | |
| |
| |
| |
| ( |
| | ||
Net debt by currency including derivatives (b) (2) |
| ( |
| |
| | (3) | ( |
| ( | ( |
| ( |
| ( |
| ( |
| |
| ( | |
Net assets by currency (a) + (b) |
| |
| |
| |
| | (4) | | |
| |
| |
| |
| ( |
| |
(1) | Excluding net debt by currency do not include components of net financial debt. |
(2) | The net financial debt as defined by Orange group does not include Orange Bank activities for which this concept is not relevant (see Note 12.3). |
(3) | Of which economic hedge of subordinated note denominated in pounds sterling for |
(4) | Share of net assets attributable to owners of the parent company in zlotys amounts to |
Due to its international presence, the Orange Group income statement is also exposed to risk arising from changes in foreign exchange rates due to the conversion, in the consolidated financial statements, of its foreign subsidiaries’ financial statements.
(in millions of euros) | Contribution to consolidated financial income statement | Sensitivity analysis |
| ||||||||||||||||||||
| EUR |
| USD |
| GBP |
| PLN |
| EGP |
| JOD |
| MAD |
| Other |
| Total |
|
|
| |||
currencies | in euro | in euro | |||||||||||||||||||||
| |||||||||||||||||||||||
Revenues | | | | | | | | | | ( | | ||||||||||||
Reported EBITDAaL |
| |
| |
| |
| |
| | |
| |
| |
| |
| ( |
| | ||
Operating income |
| |
| |
| |
| |
| | |
| |
| |
| |
| ( |
| |
13.3 Liquidity risk management
Diversification of sources of funding
Orange has diversified sources of funding:
– regular issues in the bonds markets;
– occasional financing through loans from multilateral or development lending institutions;
– issues in the short-term securities markets under the NEU Commercial Paper program (Negotiable European Commercial papers);
– on December 21, 2016, Orange entered into a
Liquidity of investments
Orange invests its cash surplus in near-cash or in short-term fair value investments (negotiable debt securities, mutual funds or UCITS and term deposits). These investments give priority to minimizing the risk of loss on capital over performance.
Cash and cash equivalents were held mainly in France and other countries of the European Union that are not subject to restrictions on convertibility or exchange control.
Smoothing debt maturities
The policy followed by Orange is to apportion the maturities of debt evenly over the years to come.
2019 Form 20-F / ORANGE – F - 88 |
The following table shows undiscounted future cash flows for each financial liability shown on the statement of financial position. The key assumptions used in this schedule are:
– amounts in foreign currencies are translated into euro at the year-end closing rate;
– future variable-rate interest is based on the last fixed coupon, unless a better estimate is available;
– TDIRA being necessarily redeemable in new shares, no redemption is taken into account in the maturity analysis. In addition, interest payable on the bonds is due over an undetermined period of time (see Note 12.4) therefore, only interest payable for the first period is included (including interest payments for the other periods would not provide relevant information);
– the maturity dates of revolving credit facilities are the contractual maturity dates;
– the “Other items” (undated and non-cash items) reconcile, for financial liabilities not accounted for at fair value, the future cash flows and the balance in the statement of financial position.
(in millions of euros) |
| Note |
| December 31, |
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| 2025 and |
| Other |
2019 | beyond | items (1) | ||||||||||||||||
TDIRA |
| 12.4 |
| |
| |
| — |
| — |
| — |
| — |
| — |
| |
Bonds |
| 12.5 |
| |
| |
| |
| |
| |
| |
| |
| ( |
Bank loans and from development organizations and multilateral lending institutions |
| 12.6 |
| |
| |
| |
| |
| |
| |
| |
| ( |
Debt relating to financed assets |
| 12.3 |
| |
| |
| |
| |
| |
| |
| — |
| — |
Cash collateral received |
| 12.3 |
| |
| |
| — |
| — |
| — |
| — |
| — |
| — |
NEU commercial papers (2) |
| 12.3 |
| |
| |
| — |
| — |
| — |
| — |
| — |
| — |
Bank overdrafts |
| 12.3 |
| |
| |
| — |
| — |
| — |
| — |
| — |
| — |
Other financial liabilities |
| 12.3 |
| |
| |
| |
| |
| |
| |
| |
| — |
Derivatives (liabilities) |
| 12.3 |
| |
| |
| |
| |
| |
| |
| ( |
| — |
Derivatives (assets) |
| 12.3 |
| ( |
| ( |
| ( |
| — |
| ( |
| — |
| ( |
| — |
Other Comprehensive Income related to unmatured hedging instruments |
| 12.3 |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Gross financial debt after derivatives |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
Trade payables |
|
|
| |
| |
| |
| |
| |
| |
| |
| — |
Total financial liabilities (including derivatives assets) |
|
|
| |
| | (3) | |
| |
| |
| |
| |
| |
Future interests on financial liabilities (4) |
|
|
| — |
| |
| |
| |
| |
| |
| |
| — |
(1) | Undated items: TDIRA notional. Non-cash items: amortized cost on TDIRA, bonds and bank loans, and discounting effect on long term trade payables. |
(2) | Negotiable European Commercial Papers (formerly called "commercial papers"). |
(3) | Amounts presented for 2020 correspond to notionals and accrued interests for |
(4) | Mainly future interests on bonds for |
The liquidity position is one of the indicators of financial position used by the Group. This aggregate, not defined by IFRS, may not be comparable to similarly entitled indicators used by other groups.
At December 31, 2019, the liquidity position of Orange’s telecom activities amounts to
Liquidity position
(in millions euros)
At December 31, 2019, Orange telecom activities had access to credit facilities in the form of bilateral credit lines and syndicated credit lines. Most of these lines bear interest at floating rates.
Available undrawn amount of credit facilities amounts to
Any specific contingent commitments in respect of compliance with financial ratios are presented in Note 13.4.
2019 Form 20-F / ORANGE – F - 89 |
Orange’s credit ratings
Orange’s credit rating is an additional performance indicator used to assess the Group’s financial policy and risk management policy and, in particular, its solvency and liquidity risk, and is not a substitute for an analysis carried out by investors. Rating agencies revise the ratings they assign on a regular basis. Any change in the rating could produce an impact on the cost of future financing or restrict access to liquidity.
In addition, a change in Orange’s credit rating will, for certain outstanding financing, affect the compensation paid to investors:
– one Orange SA bond (see Note 12.5) with an outstanding amount of
– the margin of the syndicated credit line of
At December 31, 2019, neither Orange's credit ratings nor the outlook had changed compared with December 31, 2018:
| Standard |
| Moody’s |
| Fitch |
| Japan | |
& Poor’s | Ratings | Credit Rating | ||||||
Long-term debt |
| BBB+ |
| Baa1 |
| BBB+ |
| A |
Outlook |
| Stable |
| Stable |
| Stable |
| Stable |
Short-term debt |
| A2 |
| P2 |
| F2 |
| Not applicable |
13.4 Financial ratios
Main commitments with regard to financial ratios
Orange SA does not have any credit line or loan subject to specific covenant with regard to financial ratios.
Certain subsidiaries of Orange SA are committed to comply with certain financial ratios related to indicators defined in the contracts with the banks. The breach of these ratios constitutes an event of default that can lead to early repayment of the line of credit or loan concerned.
The main obligations are as follows:
– Orange Egypt: in respect of 2018 bank financing contracts, of which the total nominal amount outstanding as of December 31, 2019 was
– Médi Telecom: in respect of its 2012, 2014 and 2015 bank financing contracts, of which the total nominal amount outstanding as of December 31, 2019 was
– Orange Côte d’Ivoire: in respect of its bank financing contracts signed in 2016 and 2019, of which the total notional amount outstanding at December 31, 2019 was
These ratios were complied with at December 31, 2019.
Clauses related to instances of default or material adverse changes
Most of Orange’s financing agreements, including in particular the
13.5 Credit risk and counterparty risk management
The Group could be exposed to a concentration of counterparty risk in respect of its trade receivables, cash and cash equivalents, investments and derivatives.
Orange considers that it has limited concentration in credit risk with respect to trade receivables due to its large and diverse customer base (residential, professional and large business customers) operating in numerous industries and located in many French regions and foreign countries. In addition, the maximum value of the counterparty risk on these financial assets is equal to their recognized net carrying value. An analysis of net trade receivables past due is provided in Note 4.3. For loans and other receivables, amounts past due but not provisioned are not material.
Orange SA is exposed to bank counterparty risk through its investments and derivatives. Therefore, it performs a strict selection based on the credit rating of public, financial or industrial institutions in which it invests or with which it enters into derivatives agreements.
– For each non-banking counterparty selected for investments, limits are based on ratings and maturities of the investments;
– For each counterparty bank selected for investments and derivatives, limits are based on equity, rating, CDS (Credit Default Swap, an accurate indicator of potential default risk) as well as on periodic analyses carried out by the Treasury Department;
– Theoretical limits and consumption limits are monitored and reported on a daily basis to the Group treasurer and the head of the trading room. These limits are adjusted regularly depending on credit events.
For derivatives, master agreements relating to financial instruments (French Banking Federation) are signed with all counterparties and provide for a net settlement of debts and receivables, in case of failure of one of the parties, as well as for calculation of a final balance to be received or paid.
2019 Form 20-F / ORANGE – F - 90 |
These agreements include a CSA (Credit Support Annex) cash collateral clause that can lead to either a deposit (collateral paid) or collection (collateral received), on a daily basis. These payment amounts correspond to the change in market value of all derivatives.
As a rule, investments are negotiated with high-grade banks. Exceptionally, subsidiaries occasionally deal with counterparties with the highest ratings available locally.
Effect of mechanisms to offset exposure to credit risk and counterparty risk of the derivatives
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
2019 | 2018 | 2017 | ||||
Collateralised Derivatives (net) (a) | | ( | ( | |||
Fair value of collateralised derivatives assets |
| |
| |
| |
Fair value of collateralised derivatives liabilities |
| ( |
| ( |
| ( |
Amount of cash collateral paid/(received) (b) | ( | | | |||
Amount of cash collateral paid |
| |
| |
| |
Amount of cash collateral received |
| ( |
| ( |
| ( |
Residual exposure to counterparty risk (a) + (b) (1) |
| |
| |
| ( |
Non collateralised Derivatives (net) | ( | ( | ( | |||
Fair value of non collateralised derivatives assets | | | | |||
Fair value of non collateralised derivatives liabilities | ( | ( | ( |
(1) | The residual exposure to counterparty risk is mainly due to a time difference between the valuation of derivatives at the closing date and the date on which the cash collateral exchanges were made. |
Changes in net cash collateral between 2018 and 2019 stem mainly from the strengthening of the US dollar and the pound sterling against the euro.
Sensitivity analysis of cash collateral deposits to changes in market interest rates and exchange rates
A change in market rates (mainly euro) of +/-
affect the fair value of interest rate hedging derivatives as follows:(in millions of euros) |
| Rate decrease of |
| Rate increase of |
Change of fair value of derivatives |
| ( |
| |
| Rate decrease of | Rate increase of | ||
Amount of cash collateral received (paid) |
|
| ( |
A change in the euro exchange rate of
against currencies of hedged financing (mainly the pound sterling and the US dollar) would impact the fair value of foreign exchange derivatives as follows:(in millions of euros) |
|
| ||
Change of fair value of derivatives |
|
| ( | |
|
| |||
Amount of cash collateral received (paid) |
| ( |
|
13.6 Equity market risk
Orange SA had no options to purchase its own shares, no forward purchase of shares and at December 31, 2019, held
The mutual funds (UCITS) in which Orange invests for cash management purposes contain no equities.
Orange is also exposed to equity risk through certain retirement plan assets (see Note 6.2).
At December 31, 2019, the Group had no material exposure to market risk on stock in listed companies since the disposal in June 2019 of its residual stake of
13.7 Capital management
Orange SA and its non-financial subsidiaries are not subject to regulatory requirements related to equity (other than the usual standards applicable to any commercial company).
Its financial subsidiaries (like electronic money institutions) are subject to regulatory equity requirements specific to their sector and jurisdiction.
Like any company, Orange manages its financial resources (both equity and net financial debt) as part of a balanced financial policy, aiming to ensure flexible access to capital markets, including for the purpose of selectively investing in development projects, and to provide a return to shareholders.
In terms of net financial debt (see Note 12.3), this policy translates into liquidity management as described in Note 13.3 and a specific attention to credit ratings assigned by rating agencies.
This policy is also reflected, in some markets, by the presence of minority shareholders in the capital of subsidiaries controlled by Orange. This serves to limit the Group’s debt while providing a benefit from the presence of local shareholders.
13.8 Fair value of financial assets and liabilities
2019 Form 20-F / ORANGE – F - 91 |
(in millions of euros) | December 31, 2019 | |||||||||||||
Note | Classification | Book | Estimated | Level 1 | Level 2 | Level 3 | ||||||||
under IFRS 9 (1) | value | fair | and | |||||||||||
value | cash | |||||||||||||
Trade receivables |
|
| AC |
| |
| |
| — |
| |
| — | |
Financial assets |
| 12.7 |
|
|
| |
| |
| |
| |
| |
Equity securities |
|
|
| FVOCI |
| |
| |
| |
| — |
| |
Equity securities |
|
|
| FVR |
| |
| |
| — |
| |
| — |
Investments at fair value |
|
|
| FVR |
| |
| |
| — |
| |
| — |
Cash collateral paid |
|
|
| FVR |
| |
| |
| — |
| |
| — |
Financial assets at amortized cost |
|
|
| AC |
| |
| |
| — |
| |
| — |
Cash and Cash equivalents |
| 12.3 |
|
|
| |
| |
| |
| — |
| — |
Cash |
|
|
| AC |
| |
| |
| |
| — |
| — |
Cash equivalents |
|
|
| FVR |
| |
| |
| |
| — |
| — |
Trade payables |
|
| AC |
| ( |
| ( |
| — |
| ( |
| — | |
Financial liabilities |
| 12.3 |
|
|
| ( |
| ( |
| ( |
| ( |
| ( |
Financial debts |
|
| AC |
| ( |
| ( |
| ( |
| ( |
| ( | |
Bonds at fair value |
|
|
| FVR |
| ( |
| ( |
| — |
| ( |
| — |
Other |
|
|
| FVR |
| ( |
| ( |
| — |
| — |
| ( |
Derivatives (net amount) (2) |
| 12.8 |
|
|
| |
| |
| — |
| |
| — |
(1) | AC" stands for "amortized cost", "FVR " stands for "fair value through profit or loss", "FVOCI" stands for "fair value through other comprehensive income that will not be reclassified to profit or loss". |
(2) | IFRS 9 classification for derivatives instruments depends on their hedging qualification. |
The market value of the net financial debt carried by Orange was estimated at
The table below provides an analysis of the change in level 3 market values for financial assets and liabilities measured at fair value in the statement of financial position.
(in millions of euros) |
| Equity securities |
| Financial |
|
liabilities at fair |
| ||||
value through |
| ||||
profit or loss, excluding |
| ||||
derivatives |
| ||||
Level 3 fair values at December 31, 2018 | ( |
| |||
Gains (losses) taken to profit or loss |
| — |
| ( | |
Gains (losses) taken to other comprehensive income |
| |
| — | |
Acquisition (sale) of securities |
| |
| — | |
Transfer to one level to another |
| ( | (1) | — | |
Other | ( | | (2) | ||
Level 3 fair values at December 31, 2019 |
| |
| ( |
(1) | Fair value have been transferred from level 3 to level 1 in relation with the listing of the equity securities on an active market in 2019. |
(2) | Include the effect of the cancellation of the commitment to purchase non-controlling interests (put) of Orange Bank (see Note 15.2). |
(in millions of euros) | December 31, 2018 | |||||||||||||
| Note |
| Classification |
| Book |
| Estimated |
| Level 1 |
| Level 2 |
| Level 3 | |
under IFRS 9 | value | fair value | and cash | |||||||||||
Trade receivables |
|
| AC |
| |
| |
| — |
| |
| — | |
Financial assets |
| 12.7 |
|
|
| |
| |
| |
| |
| |
Equity securities |
|
|
| FVOCI |
| |
| |
| |
| — |
| |
Equity securities |
|
|
| FVR |
| |
| |
| |
| |
| — |
Investments at fair value |
|
|
| FVR |
| |
| |
| — |
| |
| — |
Cash collateral paid |
|
|
| FVR |
| |
| |
| — |
| |
| — |
Financial assets at amortized cost |
|
|
| AC |
| |
| |
| — |
| |
| — |
Cash and Cash equivalents |
| 12.3 |
|
|
| |
| |
| |
| — |
| — |
Cash |
|
|
| AC |
| |
| |
| |
| — |
| — |
Cash equivalents |
|
|
| FVR |
| |
| |
| |
| — |
| — |
Trade payables |
|
| AC |
| ( |
| ( |
| — |
| ( |
| — | |
Financial liabilities |
| 12.3 |
|
|
| ( |
| ( |
| ( |
| ( |
| ( |
Financial debts |
|
|
| AC |
| ( |
| ( |
| ( |
| ( |
| ( |
Bonds at fair value |
|
|
| FVR |
| ( |
| ( |
| — |
| ( |
| — |
Other |
|
|
| FVR |
| ( |
| ( |
| — |
| — |
| ( |
Derivatives (net amount) |
| 12.8 |
|
|
| ( |
| ( |
| — |
| ( |
| — |
The market value of the net financial debt carried by Orange was estimated at
2019 Form 20-F / ORANGE – F - 92 |
The table below is presented according to IAS 39.
December 31, 2017 | ||||||||||||||
(in millions of euros) | Note | Classifi-cation | Book | Estimated | Level 1 | |||||||||
under IAS 39 | value | fair value | and cash | Level 2 | Level 3 | |||||||||
Trade receivables |
|
| L&R |
| |
| |
| — |
| |
| — | |
Financial assets |
| 12.7 |
|
|
| |
| |
| |
| |
| |
Assets available for sale |
|
|
| AFS |
| |
| |
| |
| — |
| |
Equity securities measured at fair value |
|
|
| FVR |
| |
| |
| — |
| |
| — |
Cash collateral paid |
|
|
| L&R |
| |
| |
| — |
| |
| — |
Investments at fair value |
|
|
| FVR |
| |
| |
| |
| |
| — |
Other |
|
|
| L&R |
| |
| |
| — |
| |
| — |
Cash and cash equivalents |
| 12.3 |
|
|
| |
| |
| |
| — |
| — |
Cash equivalents |
|
|
| FVR |
| |
| |
| |
| — |
| — |
Cash |
|
|
| L&R |
| |
| |
| |
| — |
| — |
Trade payables |
|
| LAC |
| ( |
| ( |
| — |
| ( |
| — | |
Financial liabilities |
| 12.3 |
|
|
| ( |
| ( |
| ( |
| ( |
| ( |
Financial debt |
|
|
|
| ( |
| ( |
| ( |
| ( |
| — | |
Bonds at fair value through profit or loss |
|
|
| FVR |
| ( |
| ( |
| — |
| ( |
| — |
Other |
|
|
| FVR |
| ( |
| ( |
| — |
| — |
| ( |
Derivatives, net amount |
| 12.8 |
|
|
| ( |
| ( |
| — |
| ( |
| — |
The market value of the net financial debt carried by Orange was estimated at
Accounting policies
The financial assets and liabilities measured at fair value in the statement of financial position have been classified based on the three hierarchy levels:
– level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
– level 2: inputs that are observable for the asset or liability, either directly or indirectly;
– level 3: unobservable inputs for the asset or liability.
The fair value of the financial assets at fair value through other comprehensive income is the quoted price at year-end for listed securities and, for non-listed securities, uses a valuation technique determined according to the most appropriate financial criteria in each case (comparable transactions, multiples for comparable companies, shareholders’ agreement, discounted present value of future cash flows).
For financial assets at amortized cost, the Group considers that the carrying amount of cash, trade receivables and various deposits provide a reasonable approximation of fair value, due to the high liquidity of these elements.
Among financial assets at fair value through profit or loss, with respect to very short-term investments such as deposits, certificates of deposit, commercial paper or negotiable debt securities, the Group considers that the nominal value of the investment and any related accrued interest represent a reasonable approximation of fair value. The fair value of mutual funds (UCITS) is the latest net asset value.
The fair value of investment securities is the quoted price at year-end for listed securities and, for non-listed securities, uses a valuation technique determined according to the most appropriate financial criteria in each case (comparable transactions, multiples for comparable companies, shareholders’ agreement, discounted present value of future cash flows).
For financial liabilities at amortized cost, the fair value of financial liabilities is determined using:
– the quoted price for listed instruments (a detailed analysis is performed in the case of a material decrease in liquidity to evidence whether the observed price corresponds to the fair value; otherwise the quoted price is adjusted);
– the present value of estimated future cash flows, discounted using rates observed by the Group at the end of the period for other instruments. The results calculated using the internal valuation model are systematically benchmarked with the values provided by Bloomberg.
The Group considers the carrying value of trade payables and deposits received from customers to be a reasonable approximation of fair value, due to the high liquidity of these elements.
The fair value of long-term trade payables is the value of future cash flows discounted at the interest rates observed by the Group at the end of the period.
Financial liabilities at fair value through profit or loss mainly concern firm or contingent commitments to purchase non-controlling interests. Their fair value is measured in accordance with the provisions of the contractual agreements. When the commitment is based on a fixed price, a discounted value is retained.
The fair value of derivatives, mostly traded over-the-counter, is determined using the present value of estimated future cash flows, discounted using the interest rates observed by the Group at the end of the period. The results calculated using the internal valuation model are consistently benchmarked with the values provided by bank counterparties and Bloomberg.
When there are no reliable market data which identify the probability of default, the CVA (Credit Value Adjustment) and the DVA (Debit Value Adjustment) are measured based on historical default charts and CDS (Credit Default Swap) trends. Counterparty credit risk and the Group’s own specific default risk are also continuously monitored based on the monitoring of debt security credit spreads on the secondary market and
2019 Form 20-F / ORANGE – F - 93 |
other market information. Given the implementation of collateralization, and based on counterparty policies and the management of indebtedness and liquidity risk described in Note 12, CVA and DVA estimates are not material compared to the measurement of the related financial instruments.
Note 14 Shareholders’ equity
At December 31, 2019, Orange SA’s share capital, based on the number of issued shares at this date, amounted to
At December 31, 2019, the share capital and voting rights of Orange SA broke down as follows:
14.1 Changes in share capital
14.2 Treasury shares
As authorized by the Shareholders’ Meeting of May 21, 2019, the Board of Directors instituted a new share Buyback program (the 2019 Buyback Program) and canceled the 2018 Buyback Program, with immediate effect. This authorization is valid for a period of
The share buybacks carried out during the period by Orange primarily related to the Orange Vision 2020, Long Term Incentive Plan (LTIP) 2018 - 2018 and LTIP 2019 - 2021 free share award plans (see Note 6.3).
At December 31, 2019, the company held
Accounting policies
Treasury shares are recorded as a deduction from equity, at acquisition cost. Gains and losses arising from the sale of treasury shares are recognized in consolidated reserves, net of tax.
14.3 Dividends
2019 Form 20-F / ORANGE – F - 94 |
Full Year |
| Approved by |
| Description |
| Dividend |
| Payout |
| How |
| Total |
per share | date | paid | (in millions | |||||||||
(in euro) | of euros) | |||||||||||
2019 |
| Board of Directors Meeting on July 24, 2019 |
| 2019 interim dividend |
| |
| December 4, 2019 |
| Cash |
| |
| Shareholders’ Meeting on May 21, 2019 |
| Balance for 2018 |
| |
| June 6, 2019 |
| Cash |
| | |
Total dividends paid in 2019 |
|
| | |||||||||
2018 |
| Board of Directors Meeting on July 25, 2018 |
| 2018 interim dividend |
| |
| December 6, 2018 |
| Cash |
| |
| Shareholders’ Meeting on May 4, 2018 |
| Balance for 2017 |
| |
| June 7, 2018 |
| Cash |
| | |
Total dividends paid in 2018 |
|
| | |||||||||
2017 |
| Board of Directors Meeting on July 26, 2017 |
| 2017 interim dividend |
| |
| December 7, 2017 |
| Cash |
| |
| Shareholders’ Meeting on June 1, 2017 |
| Balance for 2016 |
| |
| June 14, 2017 |
| Cash |
| | |
Total dividends paid in 2017 |
|
| | |||||||||
2016 |
| Board of Directors Meeting on July 25, 2016 |
| 2016 interim dividend |
| |
| December 7, 2016 |
| Cash |
| |
| Shareholders’ Meeting on June 7, 2016 |
| Balance for 2015 |
| |
| June 23, 2016 |
| Cash |
| | |
Total dividends paid in 2016 |
|
| |
The amount available to provide a return to shareholders in the form of dividends is calculated on the basis of the total net income and retained earnings, under French GAAP, of the entity Orange SA, the parent company.
14.4 Subordinated notes
History of subordinated notes
On February 7, 2014, as part of its EMTN program, Orange issued the equivalent of
Orange has a call option on each of these tranches respectively after February 7, 2020, February 7, 2024, and February 7, 2022 and upon the occurrence of certain contractually defined events.
Step-up clauses involve coupon adjustments of
On October 1, 2014, as part of its EMTN program, Orange issued the equivalent of
Both issuances were the subject of a prospectus certified by the AMF under visas no. 14-036 and 14-525.
Orange has a call option on each of these tranches respectively after October 1, 2021, October 1, 2026, and April 1, 2023 and upon the occurrence of certain contractually defined events.
Step-up clauses involve coupon adjustments of
Under the Group understanding, some rating agencies assign an “equity” component from
Under IFRS, these instruments are recognized at their historical value. The tranches denominated in pounds sterling were recognized at the ECB fix rate on the issue date (
Developments in 2019
On April 15, 2019, as part of its EMTN program, Orange issued the equivalent of
Orange has a call option on this tranche after April 15, 2025 and upon the occurrence of certain contractually defined events.
Step-up clauses involve coupon adjustments of
In the same way, Orange has proceeded to a partial redemption of the existing subordinated notes by a contractual offer for a part of subordinated notes in the following tranches:
−
−
2019 Form 20-F / ORANGE – F - 95 |
On September 19, 2019, as part of its EMTN program, Orange issued the equivalent of
Orange has a call option on this tranche after March 19, 2027 (date of the first review of the rates for the tranche concerned) and upon the occurrence of certain contractually defined events.
Step-up clauses involve coupon adjustments of
These issuances were the subject of a prospectus certified by the AMF (under visas no. 14-036, no. 14-525, no. 19-152 and no. 19-442 respectively).
These notes, listed on Euronext Paris, are lowest ranking subordinated notes (senior compared to ordinary shares): the holders will only be remunerated (whether for the nominal, interest or any other amount) after all other creditors, including holders of participating loans and securities, simply subordinated or not, representing a claim on Orange.
At each interest payment date, settlement may be either paid or deferred, at the option of the issuer. Deferred coupons are capitalized and become due and payable in full under certain circumstances defined contractually and under the control of Orange.
On December 12, 2019, the Group announced its intention to exercise, on February 7, 2020, in accordance with contractual stipulations, its call option concerning the remaining
As of December 31, 2019, the amount of subordinated notes presented in the consolidated statements of changes in shareholders' equity does not change due to these operations and corresponds to a nominal of
Subordinated notes remuneration
Coupons impact equity five working days before the annual payment date, unless Orange exercises its right to defer the payment.
The tax effect relating to the payment of the coupons is accounted for as net income.
Since their issuance, Orange has not exercised its right to defer the coupons related to the subordinated notes.
The note holders received the payments shown in the following table:
| Paid coupons |
| Paid coupons | |
(in millions of currency) | (in millions of euros) | |||
|
| | ||
|
| | ||
|
| | ||
|
| | ||
|
| | ||
| |
| | |
Total coupons paid to the holders in 2019 |
|
|
| |
|
| | ||
|
| | ||
|
| | ||
|
| | ||
|
| | ||
| |
| | |
Total coupons paid to the holders in 2018 |
|
|
| |
| | |||
| | |||
| | |||
| | |||
| | |||
| | |||
Total coupons paid to the holders in 2017 | |
(1) | Coupons payment date as of April 1. |
The tax effect of the conversion of subordinated notes whose face value is denominated in pounds sterling was
Accounting policies
Subordinated notes
The Group issued subordinated notes in several tranches.
These instruments have no maturity and the coupon’s settlement could be deferred at the option of the issuer. They are booked in equity.
As equity instruments are recognized at historical value, the tranche denominated in foreign currency is never re-measured. Where appropriate, a translation adjustment impact will be booked in equity at the exercise date of any purchase option.
The holders’ payment is directly booked in equity at the date of the decision to pay the coupons.
2019 Form 20-F / ORANGE – F - 96 |
The tax effect relating to the payment is accounted for as net income and the one relating to the remeasurement of the foreign exchange portion is accounted for as equity.
Equity component of perpetual bonds redeemable for shares (TDIRA) (see Note 12.4)
The equity component is determined as the difference between the fair value of the instrument taken as a whole and the fair value of the debt component. Thus, the equity component determined and recognized at inception is not subsequently re-measured and remains in equity, even when the instrument is extinguished.
14.5 Translation adjustment
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Gain (loss) recognized in other comprehensive income during the period |
| |
| ( |
| ( |
Reclassification to net income for the period |
| ( |
| ( |
| |
Total transaction adjustments for continuing operations |
| |
| ( |
| ( |
Reclassification to the net income for the period |
| — |
| — |
| — |
Total translation adjustments for discontinued operations |
| — |
| — |
| — |
(in millions of euros) |
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 |
Polish zloty |
| |
| |
| |
Egyptian pound |
| ( |
| ( |
| ( |
Slovak koruna |
| |
| |
| |
Sierra leonean leone |
| ( |
| ( |
| ( |
Moldovan leu | ( | ( | ( | |||
Jordanian dinar | | | | |||
Pound sterling | | | | |||
Other |
| ( |
| ( |
| ( |
Total translation adjustments |
| |
| |
| |
o/w share attributable to the owners of the parent company |
| |
| |
| |
o/w share attributable to non-controlling interests |
| |
| |
| |
Accounting policies
The functional currency of foreign operations located outside the euro area is usually the local currency, unless the major cash flows are made with reference to another currency (such as the Orange entities in Romania - euros and in the Democratic Republic of the Congo - US dollars).
The financial statements of foreign operations whose functional currency is neither the euro nor the currency of a hyper-inflationary economy are translated into euros (the Group’s presentation currency) as follows:
– assets and liabilities are translated at the year-end rate;
– items in the income statement are translated at the average rate for the year;
– the translation adjustment resulting from the use of these different rates is included in other comprehensive income.
The translation adjustments are reclassified to profit or loss when the entity disposes or partially disposes (loss of control, loss of joint control, loss of significant influence) of its interest in a foreign operation through the sale, liquidation, repayment of capital or abandon of all, or part of, that activity. The reduction in the carrying amount of a foreign operation, either because of its own losses or because of the recognition of an impairment loss, does not lead to a reclassification to profit or loss of the accumulated translation adjustment.
Recycling of translation adjustment is presented in the consolidated income statement within:
– consolidated net income of discontinued operations, when a line of business or major geographical area is disposed of;
– gains (losses) on disposal of investments and activities, when other businesses are disposed of;
– reclassification of translation adjustment from liquidated entities, in the event of the liquidation or abandonment of an activity without disposal.
14.6 Non-controlling interests
2019 Form 20-F / ORANGE – F - 97 |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Credit part of net income attributable to non-controlling interests (a) |
| |
| |
| |
o/ w Sonatel group |
| |
| |
| |
o/ w Orange Belgium group | | | | |||
o/ w Côte d'Ivoire subgroup | | | | |||
o/ w Jordan Telecom group |
| |
| |
| |
o/ w Orange Polska group |
| |
| — |
| — |
Debit part of net income attributable to non-controlling interests (b) |
| ( |
| ( |
| ( |
o/ w Orange Bank |
| ( |
| ( |
| ( |
o/ w Orange Polska group |
| — |
| ( |
| ( |
Total part of net income attributable to non-controlling interests (a) + (b) |
| |
| |
| |
Credit part of comprehensive income attributable to non-controlling interests (a) |
| |
| |
| |
o/ w Sonatel group |
| |
| |
| |
o/ w Orange Belgium group |
| |
| |
| |
o/ w Côte d’Ivoire subgroup | | | | |||
o/ w Jordan Telecom group | | | — | |||
o/ w Orange Polska group |
| |
| — |
| — |
Debit part of comprehensive income attributable to non-controlling interests (b) |
| ( |
| ( |
| ( |
o/ w Orange Bank |
| ( |
| ( |
| ( |
o/ w Orange Polska group | — | ( | ( | |||
o/ w Jordan Telecom group |
| — |
| — |
| ( |
Total part of comprehensive income attributable to non-controlling interests (a) + (b) |
| |
| |
| |
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Dividends paid to minority shareholders |
| |
| |
| |
o/ w Sonatel group |
| |
| |
| |
o/ w Médi Telecom | | | | |||
o/ w Orange Belgium group | | | | |||
o/ w Jordan Telecom group |
| |
| |
| |
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
|
2019 | 2018 | 2017 |
| ||||
Credit part of equity attributable to non-controlling interests (a) |
| |
| |
| | |
o/ w Orange Polska group |
| |
| |
| | |
o/ w Sonatel group |
| |
| |
| | |
o/ w Orange Belgium group |
| |
| |
| | |
o/ w Jordan Telecom group |
| |
| |
| | |
o/ w Médi Telecom |
| |
| |
| | |
Debit part of equity attributable to non-controlling interests (b) |
| ( |
| ( |
| ( | |
Total equity attributable to non-controlling interests (a) + (b) |
| |
| |
| |
Accounting policies
Commitments to purchase non-controlling interests (put options)
When the Group grants firm or contingent commitments to purchase non-controlling interests, the carrying amount of non-controlling interests is reclassified to financial debt.
When the amount of the commitment exceeds the amount of the non-controlling interests, the difference is recorded as a reduction in equity attributable to the owners of the parent company. Financial debt is re-measured at the end of each reporting period in accordance with the contractual arrangement (at fair value or at present value if fixed price) and, in the absence of any guidance provided by IFRS, against finance income or expense.
Non-controlling interests that are debtors
Total comprehensive income of a subsidiary is attributed to the owners of the parent company and to the non-controlling interests. In accordance with IFRS 10, this can result in the non-controlling interests having a deficit balance.
Transactions with owners
Each transaction with non-controlling interests of an entity controlled by the Group, when not resulting in a loss of control, is accounted for as an equity transaction with no effect on the total comprehensive income.
2019 Form 20-F / ORANGE – F - 98 |
14.7 Earnings per share
Net income
Net income, Group share, used for calculating basic and diluted earnings per share is determined according to the following method:
(in millions of euros) |
| 2019 |
| 2018 |
| 2017 |
Net income of continuing operations |
| |
| |
| |
Effect of subordinated notes |
| ( |
| ( |
| ( |
Net income attributable to the owners of the parent company - basic (adjusted) |
| |
| |
| |
o/w net income of continuing operations | | | | |||
o/w net income of discontinued operations | — | — | | |||
Impact of dilutive instruments: |
|
|
|
| ||
TDIRA |
| |
| — |
| |
Net income attributable to the owners of the parent company - diluted |
| |
| |
| |
o/w net income of continuing operations |
| |
| |
| |
o/w net income of discontinued operations |
| — |
| — |
| |
Number of shares
The weighted average number of shares used for calculating the basic and diluted earnings per share is presented below:
|
|
| ||||
(number of shares) |
| 2019 |
| 2018 |
| 2017 |
Weighted average number of ordinary shares outstanding |
| |
| |
| |
Impact of dilutive instruments on number of ordinary shares: |
|
|
|
|
| |
TDIRA |
| |
| — |
| |
Free share award plan | | | | |||
Weighted average number of shares outstanding – diluted |
| |
| |
| |
The average market price of the Orange share in 2019, 2018 and 2017 is greater than the fair value adopted under the Orange Vision 2020 , LTIP 2018 - 2020 and LTIP 2019 -2021 free share award plans (see Note 6.3). The number of shares corresponding to this difference was dilutive at December 31, 2019, December 31, 2018 and December 31, 2017.
The TDIRA were included in the calculation of diluted net earnings per share at December 31, 2019 and December 31, 2017, since they are dilutive.
The stock option plans granted to employees are expired at December 31, 2017 (see Note 6.3).
Earnings per share
(in euros) |
| 2019 |
| 2018 |
| 2017 |
Earning per share - basic |
| |
| |
| |
o/w earning per share of continuing operations |
| |
| |
| |
o/w earning per share of discontinued operations |
| — |
| — |
| |
Earning per share diluted |
| |
| |
| |
o/w earning per share of continuing operations |
| |
| |
| |
o/w earning per share of discontinued operations |
| — |
| — |
| |
Accounting policies
Earnings per share
The Group discloses both basic earnings per share and diluted earnings per share for continuing operations and discontinued operations:
– basic earnings per share are calculated by dividing net income for the year attributable to the equity holders of the Group, after deduction of the interests of subordinated notes net of tax, by the weighted average number of ordinary shares outstanding during the period;
– diluted earnings per share are calculated based on the same net income, adjusted for the finance cost of dilutive debt instruments, net of the related tax effect. The number of shares used to calculate diluted earnings per share takes into account the conversion into ordinary shares of potentially dilutive instruments outstanding during the period. These instruments are considered to be dilutive when they have the effect of reducing earnings per share of continuing operations.
When basic earnings per share are negative, diluted earnings per share are identical to basic earnings per share. In the event of an issuance of shares at a price lower than the market price, and in order to ensure comparability of the reporting period shown, the weighted average numbers of shares outstanding from current and previous periods are adjusted. Treasury shares owned, which deducted from the consolidated equity, do not enter into the calculation of earnings per share.
Note 15 Unrecognized contractual commitments (excluding Orange Bank)
At December 31, 2019, Orange is not aware of having entered into any commitment involving entities controlled by the Group, that may have a material effect on its current or future financial position, other than the commitments described in this Note.
The amount of unrecognized contractual commitments as of December 31, 2019 has been significantly reduced compared to December 31, 2018 as a result of the application of IFRS 16 (see Note 2.3.1).
2019 Form 20-F / ORANGE – F - 99 |
15.1 Operating activities commitments
(in millions of euros) |
| Total |
| Less than |
| From one |
| More than |
one year | to five years | five years | ||||||
Operating activities commitments |
| |
| |
| |
| |
Operating leases commitments |
| |
| |
| |
| |
Handsets purchase commitments |
| |
| |
| |
| - |
Transmission capacity purchase commitments |
| |
| |
| |
| |
Other goods and services purchase commitments |
| |
| |
| |
| |
Investment commitments |
| |
| |
| |
| |
Public initiative networks commitments |
| |
| |
| |
| |
Guarantees granted to third parties in the ordinary course of business |
| |
| |
| |
| |
Lease commitments
Lease commitments are mainly comprised of property lease commitments associated to contracts with underlying assets available after December 31, 2019 and contracts that are excluded from the scope of IFRS 16 (see Note 2.3.1). The other leases are leases relating to general expenses (equipment, vehicles and other assets).
(in millions of euros) |
| Discounted value of |
| Minimum future |
future lease payments | lease payments | |||
Property lease commitments |
| |
| |
o/w technical activities |
| |
| |
o/w shops/offices activities |
| |
| |
Maturities are set forth below:
(in millions of euros) |
| Minimum |
| Less than |
| 1-2 |
| 2-3 |
| 3-4 |
| 4-5 |
| More than |
future | one year | years | years | years | years | five years | ||||||||
lease | ||||||||||||||
payments | ||||||||||||||
Property lease commitments |
| |
| |
| |
| |
| |
| |
| |
The Group may choose whether or not to renew these leases upon expiration or replace them by other leases with renegotiated terms and conditions. For some of them, a provision for onerous contracts has been booked (see Note 5.3).
The lease commitments correspond to the outstanding minimum future lease payments until the normal date of renewal of the leases or the earliest possible notice date. After periodic revaluation of the leases, these amounts are discounted. The rate used corresponds to the marginal cost of debt.
The information relative to operating leases is provided in accordance with the currently-applicable standards and interpretations. The first application of IFRS 16 as of January 1, 2019 will cause the Group to provide different information, mainly due to:
– different application scopes: the Group will designate a contract as a leasing contract when it gives the lessee the right to control the use of a given asset, including when a service contract includes a lease component (excluding off-balance-sheet commitments for operating leases). The Group has also chosen to use the two exemptions authorized under IFRS 16, namely
– assessment of rents: the off-balance-sheet commitments use a minimum duration without factoring in extension options that the lessee has the reasonable certainty of exercising, including a periodic revaluation of the rents and the rent-free periods based on minimum future payments.
The property lease commitments in France and Europe (excluding Spain) represent respectively
Transmission capacity purchase commitments
Transmission capacity purchase commitments as of December 31, 2019 represented
Other goods and services purchase commitments
The Group’s other goods and services purchase commitments are primarily related to the network and the purchase of content.
At December 31, 2019, these commitments include:
– the purchase of broadcasting rights for an amount of
– "TowerCo" (site management) contracts in Africa: these commitments amounted to
– the network maintenance for
– the maintenance of submarine cables for which Orange has joint ownership or user rights, for an overall amount of
Furthermore, on November 28, 2019, the Group signed a "Built to suit" agreement relating to the construction and deployment by Orange for ATC France of a minimum of
2019 Form 20-F / ORANGE – F - 100 |
At December 31, 2019, given the existing uncertainty regarding the nature and temporality of the sites transferred, the amount of the commitment given with regard to the service contract has no value in the table above.
Investment commitments
At the end of December 2019, investment commitments amounted to
In addition to these commitments, which are expressed in monetary terms, the Group made certain commitments to the national regulatory authorities such as ensuring certain coverage of the population concerning by fixed or mobile networks, particularly in the context of assignment of licenses and quality of service. These commitments will require investment expenditure in future years to roll out and enhance the networks. They are not shown in the table above if they have not been expressed in monetary terms, which is usually the case. The Group has accordingly agreed to meet the following conditions:
In France:
– pursuant to the provisions of Article L.33-13 of the French Postal & Electronic Communications Code regarding coverage in lightly inhabited areas:
– Orange proposed that it commit to ensuring that, within its FttH deployment scope in the AMII area, unless refused by third parties, that
– Outside of the AMII area, Orange proposed that it make deployment commitments within the AMEL area the Vienne, Haute-Vienne, Deux-Sèvres and Lot-et-Garonne departments,
– Lastly, Orange proposed to make commitments outside of the AMII and AMEL areas in the following departments: Orne, Hautes-Pyrénées, Yvelines, Territoire-de-Belfort, Guadeloupe, Martinique;
– on January 14, 2018, the Orange Group and the other French mobile operators signed an agreement (the "New Deal") to ensure better mobile coverage of French territory, particularly rural areas. This agreement includes enhanced coverage obligations, which are included for the period 2018-2021 in our licenses in force in the bands
– targeted programs for the improvement of coverage, with the coverage of
– the generalization of 4G by the end of 2020 on almost all existing mobile sites,
– the acceleration of the coverage of the transport routes, ensuring that the main road and rail routes have 4G coverage,
– the supply of a fixed 4G service and the extension of the service to
– the widespread use of telephone coverage inside buildings, proposing voice over Wi-Fi and SMS over Wi-Fi offers and offers involving the indoor coverage of buildings upon request,
– the improvement of reception quality throughout the country, particularly in rural areas, with good coverage (according to the Arcep decision No. 2016-1678 relative to publications giving information on mobile coverage) by 2024/2027;
– In order to cope with the exceptional deterioration that affected its network in 2018 (storms, theft of cables, deterioration due to the recent protest movements, etc.), and be sure to fulfill its commitments in terms of universal service provision, Orange set up a plan involving a
– in 2015, in France, when the frequencies in the
– coverage obligations in “priority deployment areas” (
– in 2011, in France, when the frequencies in the
– an optional commitment to host mobile virtual network operators (MVNOs) on certain technical and pricing terms under Full MVNO schemes,
– an obligation to provide mobile coverage with theoretical maximum download
– for the 800 MHz band, specifically: a coverage obligation in priority areas (
In Africa & Middle-East:
– in 2016, in Senegal, when the 4G license was awarded and the license for mobile 2G and 3G was renewed:
– a coverage obligation of
– an obligation to cover in 5 years all territory in the inhabited border areas of Senegal whose number of inhabitants is equal to or greater than 200;
– a coverage obligation on national roads and highways in 2 years.
– in 2016, in Egypt, when the 4G license was granted:
– an obligation to provide 4G coverage of
2019 Form 20-F / ORANGE – F - 101 |
Non-compliance with these obligations could result in fines and other sanctions ultimately including the withdrawal of licenses awarded. Management believes that the Group has the ability to fulfill these commitments towards government authorities.
Commitments related to Public Initiative Networks
As part of the deployment of the High and Very High Speed network in France, the Group entered into contracts via Public Initiative Networks (mainly public service delegation and public-private partnerships contracts as well as public design, construction, operation and maintenance contracts). The commitments relating to these network construction, concession and operation contracts amounted to
Guarantees granted to third parties in the ordinary course of business
Commitments made by the Group to third parties in the ordinary course of business represented
The amount of guarantees granted by the Group to third parties (financial institutions, partners, customers and government agencies) to cover the performance of the contractual obligations of non-consolidated entities is not significant. Guarantees granted by the Group to cover the performance of the contractual obligations of the consolidated subsidiaries are not considered as unrecognized contractual commitments, as they would not increase the Group’s commitments in comparison to the underlying obligations of the consolidated subsidiaries.
15.2 Consolidation scope commitments
Asset and liability warranties granted in relation to disposals
Under the terms of agreements between certain Group companies and the acquirers of certain assets, the Group is subject to warranty clauses relating to assets and liabilities. Nearly all material sale agreements provide for ceilings on these warranties.
At December 31, 2019, the main warranties in effect were the following:
– the uncapped warranties granted to the EE joint venture when contributing the operations in the United Kingdom, concerning the restructuring of equity investments and assets done prior to the contribution expiring in 2022;
– a warranty given to BT as part of the EE sale, backed
– standard warranties granted to Vivendi as part of the disposal of its
– miscellaneous standard warranties granted to buyers of real estate sold by the Group.
Orange believes that the risk of these warranties being enforced is remote and that the potential consequences of their being called are not material with respect to the Group’s results and financial position.
Commitments relating to securities
Under the terms of agreements with third parties, Orange can make or receive commitments to purchase or to sell securities. The on-going commitments at December 31, 2019 are not likely to have material impacts on the Group’s financial position.
Orange Tunisie
Under the terms of the shareholders’ agreement with Investec dated May 20, 2009, Orange has a call option giving it the right to purchase at market value
Orange Bank
In accordance with the December 18, 2019 renegotiation of the shareholders’ agreement:
– The commitment by Orange and Groupama to invest at the level of their percentage ownership in the capital increase of Compagnie Financière d'Orange Bank necessary to finance its working capital requirements (per the CET1 ratio) expired. The financial liability recognized in this connection was therefore extinguished;
– The promise to buy (put option) granted to Groupama on
15.3 Financing commitments
The Group’s main commitments related to borrowings are set out in Note 13.
Orange has pledged certain investment securities and other assets to financial institutions or used them as collateral to cover bank borrowings and credit lines.
2019 Form 20-F / ORANGE – F - 102 |
Guarantees granted to some lending institutions to finance consolidated subsidiaries are not set out below.
Assets covered by commitments
The items presented below do not include the impact of the regulation on the transferability of the assets or the possibility of contractual restrictions in network asset sharing agreements.
As of December 31, 2019 Orange has no material pledge on its subsidiaries’ securities.
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
2019 | 2018 | 2017 | ||||
Assets held under finance leases |
| |
| |
| |
Non-current pledged, mortgaged or receivership assets(1) |
| |
| |
| |
Collateralized current assets |
| |
| |
| |
Total |
| |
| |
| |
(1) | Non-current pledged, mortgaged or receivership assets are shown excluding cash collateral deposits, which are presented in Note 12.7. |
Non-current pledged or mortgaged assets comprise the following assets given as guarantees:
| |||||||
December 31, 2019 |
| Total in statement of |
| Amount of asset pledged, |
| Percentage |
|
(in millions of euros) | financial position (a) | mortgaged or receivership (b) | (b)/(a) |
| |||
Intangibles assets, net (excluding goodwill) |
|
|
| |
| | % |
Property, plant and equipment, net |
| |
| |
| 0 | % |
Non-current financial assets |
| |
| |
| | % |
Other (1) |
| |
| — |
| — | |
Total |
|
| |
| | % |
This item mainly includes net goodwill, interests in associates, net deferred tax assets and non-current derivatives assets.
Note 16 Activities of Orange Bank
16.1 Financial assets and liabilities of Orange Bank
The financial statements of Orange Bank were put into the format of Orange group’s consolidated financial statements and therefore differ from a presentation that complies with the banking format.
In order to improve the readiness of financial statements and to be able to distinguish the performance of telecom activities from the performance of Orange Bank, the notes related to financial assets and liabilities as well as financial income or expenses are split to respect these
Note 12 presents the financial assets, liabilities and related gains and losses specific to telecom activities and Note 16 concerns the activities of Orange Bank with regard to its assets and liabilities, with net financial income being not material.
The following table reconciles the contributive balances of assets and liabilities for each of these
(in millions of euros) |
| Orange |
| O/w telecom |
| Note |
| O/w Orange |
| Note |
| O/w eliminations | |
consolidated | activities | Bank |
| telecom | |||||||||
financial | activities / bank | ||||||||||||
statements |
| ||||||||||||
Non current loans and receivables of Orange Bank |
| | — |
| | 16.1.1 | — | ||||||
Non-current financial assets |
| | |
| 12.7 |
| — | ( | (1) | ||||
Non-current derivatives assets |
| | |
| 12.8 |
| — | 16.1.3 | — | ||||
Current financial assets related to Orange Bank activities |
| | — |
|
| | 16.1.1 | ( | |||||
Current financial assets |
| | |
| 12.7 |
| — | — | |||||
Current derivatives assets |
| | |
| 12.8 |
| — | 16.1.3 | — | ||||
Cash and cash equivalents |
| | |
|
| | — | ||||||
Non current debts related to Orange Bank operations | — | — | | 16.1.2 | ( | (1) | |||||||
Non-current financial liabilities |
| | |
| 12.3 | — | — | ||||||
Non-current derivatives liabilities |
| | |
| 12.8 |
| | 16.1.3 | — | ||||
Current financial liabilities related to Orange Bank liabilities |
| | — |
|
| | 16.1.2 | — | |||||
Current financial liabilities |
| | |
| 12.3 |
| — | ( | |||||
Current derivatives liabilities |
| | |
| 12.8 |
| — | 16.1.3 | — |
(1) | Loan granted by Orange SA to Orange Bank. |
Accounting policies
Classification of the bank's balance sheet items as current and non-current was done to match the Group's financial statements as part of the acquisition of the bank in 2016.
Since the concept of current or non-current is non-existent in bank accounting, financial assets and liabilities related to loans and borrowings to customers or credit institutions (the ordinary activities of a bank) have since 2017 all been classified as current for all periods presented.
2019 Form 20-F / ORANGE – F - 103 |
With regard to other financial assets and liabilities, classification as current and non-current has been made in light of both the original intention of management and the nature of the assets and liabilities in question. For instance, with regard to Orange Bank’s other financial assets, since investments are managed by portfolio, only the transaction portfolios (financial assets at fair value through profit or loss) have been recognized in current financial assets.
16.1.1 Financial assets related to Orange Bank transactions (excluding derivatives)
After application of IFRS 9 on January 1, 2018, the financial assets in connection with the transactions of Orange Bank break down as follows:
(in millions of euros) | December 31, 2019 | December 31, 2018 | January 1, 2018 (1) | ||||||||
| Non-current |
| Current |
| Total | Total |
| Total |
| ||
Financial assets at fair value through other comprehensive income that will not be reclassified to profit or loss |
| |
| — |
| | | — | |||
Investments securities |
| |
| — |
| | | — | |||
Financial assets at fair value through other comprehensive income that may be reclassified to profit or loss |
| |
| |
| | | | |||
Debt securities |
| |
| |
| | | | |||
Financial assets at fair value through profit or loss |
| |
| |
| | | | |||
Investments at fair value |
| — |
| |
| | | | |||
Cash collateral paid | | — | | | | ||||||
Others |
| |
| — |
| | | | |||
Financial assets at amortized cost |
| |
| |
| | | | |||
Fixed-income securities |
| |
| |
| | | | |||
Loans and receivables to customers |
| — |
| |
| | | | |||
Loans and receivables to credit institutions |
| — |
| |
| | | | |||
Others |
| — |
| |
| | — | | (2) | ||
Total financial assets related to Orange Bank activities |
| |
| |
| | | |
(1) | Figures have been adjusted for the impact of application of IFRS 9. |
(2) | Loan granted in 2017 by Orange Bank to Orange SA within the framework of the Repurchase agreement of OATs securities between Orange SA and Orange Bank. This loan has been reimbursed in 2018. |
For the period 2017, for which IFRS 9 was not applied as authorized, the financial assets relating to Orange Bank transactions broke down as follows:
(in millions of euros) |
| December 31, 2017 |
|
Assets available for sale(1) |
| |
|
Assets held to maturity |
| |
|
Financial assets at fair value |
| |
|
Investments at fair value |
| |
|
Cash collateral paid |
| |
|
Other financial assets |
| |
|
Loans and receivables of Orange Bank |
| |
|
Other |
| | (2) |
Total Assets related to Orange Bank's activities |
| |
|
(1) | Debt securities only. |
(2) | Loan granted by Orange Bank to Orange SA within the framework of the Repurchase agreements of OATs securities between Orange SA and Orange Bank. |
Debt securities at fair value through other comprehensive income that may be reclassified subsequently to profit or loss
(in millions of euros) |
| 2019 |
| 2018 |
Debt securities measured at fair value through other comprehensive income that may be reclassified to profit or loss - in the opening balance |
| | | |
Acquisitions |
| |
| |
Repayments and disposals |
| ( |
| ( |
Changes in fair value |
| |
| ( |
Other items |
| ( |
| ( |
Debt securities measured at fair value through other comprehensive income that may be reclassified to profit or loss - in the closing balance |
| |
| |
(in millions of euros) |
| 2019 |
| 2018 |
Profit (loss) recognized in other comprehensive income during the period |
| | ( | |
Reclassification in net income during the period |
| | — | |
Other comprehensive income related to Orange Bank |
| | ( |
2019 Form 20-F / ORANGE – F - 104 |
The data below is presented according to IAS 39 (formerly "Assets available for sale").
(in millions of euros) |
| 2017 |
Debt securities measured at fair value through other comprehensive income that may be reclassified to profit or loss - in the opening balance |
| |
First integration of Orange Bank |
| |
Acquisitions |
| |
Repayments and disposals |
| ( |
Changes in fair value |
| |
Other items |
| |
Debt securities measured at fair value through other comprehensive income that may be reclassified to profit or loss - in the closing balance |
| |
(in millions of euros) |
|
| 2017 | |
Profit (loss) recognized in other comprehensive income during the period |
|
| | |
Reclassification in net income during the period |
|
| — | |
Other comprehensive income related to Orange Bank |
|
| |
Current loans and receivables of Orange Bank
Loans and receivables of Orange Bank are composed of loans and receivables to customers and credit institutions.
In the context of adapting the bank’s accounts into the Group’s financial statements, the following have been considered as loan and advances to customers: clearing accounts and other amounts due, as well as amounts related to securities transactions on behalf of customers.
(in millions of euros) |
| December 31, |
| December 31, |
| January 1st |
| December 31, |
2019 | 2018 | 2018(1) | 2017 | |||||
Overdrafts |
| | | | | |||
Housing loans |
| | | | | |||
Investment loans |
| | | | | |||
Current accounts |
| | | | | |||
Other |
| | | | | |||
Total loans and receivables to customers |
| | | | | |||
Overnight deposits and loans |
| | | | | |||
Loans and receivables |
| | | | | |||
Other |
| | | | | |||
Total loans and receivables to credit institutions |
| | | | |
(1) | Figures have been adjusted for the impact of application of IFRS 9. |
Accounting policies
Financial assets
– Financial assets at fair value through profit/loss (FVR)
Certain investment securities which are not consolidated or equity-accounted, and cash investments such as negotiable debt securities, deposits and mutual funds (UCITS), that are compliant with the Group’s risk management policy or investment strategy, may be designated by Orange Bank as being recognized at fair value through profit or loss. These assets are recognized at fair value at inception and subsequently. All changes in fair value are recorded in profit or loss.
– Financial assets at fair value through other comprehensive income that may not be reclassified to profit or /loss (FVOCI)
Investment securities which are not consolidated or equity-accounted are, subject to exceptions, recognized as assets at fair value through other comprehensive income that may not be reclassified to profit or loss. They are recognized at fair value at inception and subsequently. Temporary changes in value and gains (losses) on disposals are recorded in other comprehensive income that may not be reclassified to profit or loss.
– Financial assets at fair value through other comprehensive income that are or may be reclassified subsequently to profit or loss (FVOCIR)
Assets at fair value through other comprehensive income that are or may be reclassified subsequently to profit or loss mainly include investments in debt securities. They are recognized at fair value at inception and subsequently. Temporary changes in value are recorded in other comprehensive income that are or may be reclassified subsequently to profit or loss. In case of disposal, the cumulative profit (or loss) recognized in other comprehensive income is reclassified to profit or loss.
– Financial assets at amortized cost (AC)
This category primarily comprises miscellaneous loans and receivables as well as fixed-income securities held with the aim of collecting contractual flows. These instruments are recognized at fair value at inception and are subsequently measured at amortized cost using the effective interest method. Impairment and provisions are recorded as soon as loans are granted or commitments are concluded, without waiting for the appearance of an objective indication of impairment. Impairment and provisions are updated as the credit risk evolves (see below "Impairment of financial assets").
Impairment of financial assets
In accordance with IFRS 9, debt instruments classified as financial assets at amortized cost or as financial assets at fair value through other comprehensive income, rental receivables, financing commitments and financial guarantees given are systematically subject to impairment or a provision for expected credit loss. These impairments and provisions are recorded as soon as loans are granted, commitments are concluded or bond securities are acquired, without waiting for the appearance of an objective indication of impairment.
2019 Form 20-F / ORANGE – F - 105 |
To do this, the financial assets concerned are split into three categories according to the change in credit risk observed since their initial accounting and a depreciation is recorded on the amount outstanding of each of these categories as follows:
- performing loans: the calculation of losses expected is made on a 12-months basis, and the financial income (interest) is calculated on the basis of the instrument's gross amount;
- impaired loans: if the credit risk has significantly worsened since the debt has been booked to the balance sheet, the expected losses, estimated over the duration of the loan, are recognized and the financial income (interest) is calculated based on the gross amount of the instrument;
- doubtful loans: the expected loss, estimated over the duration of the loan, is depreciated. The financial income is calculated on the basis of the amount of the instrument net of the depreciation.
As a reminder, before the application of IFRS 9, the accounting policies relative to financial assets of banking activities were as follows:
Loans and receivables related to Orange Bank
Assets related to Orange Bank activities are classified in the IAS 39 category of “loans and receivables”. They are initially recorded at fair value or its equivalent, which is, as a general rule, the net amount originally issued, and which should include the origination costs directly related to the transaction as well as the commissions received or paid, analyzed as an adjustment to the effective return on the loan.
The loans and receivables are subsequently valued at amortized cost, and interests, as well as transactions costs and commissions included in the initial value of the credits contribute to the net income for these transactions over the term of the credit, calculated on the basis of effective interest rate.
In accordance with IAS 39, loans and receivables are impaired when one or more evidences of depreciation have occurred after the recognition of these receivables. The receivables thus identified are then impaired on an individual basis or on a collective basis. Expected losses are accounted for as impairments, equal to the difference between the carrying amount of the loans (amortized cost) and the total of estimated future cash flows, discounted with the initial effective interest rate, or in the form of discounts for restructured loans due to default from customers.
Impairment is measured as the difference between the carrying value prior to impairment and the discounted value, at the initial rate of the receivable, of the components deemed to be recoverable (principal, interest, guarantees, etc.). The changes in the value of the loans impaired are recorded in the income statement under “Cost of risk” included in other operating expenses. When these changes in value are positive, reflecting a subsequent improvement, they are reversed in the income statement, within the same account.
The “Cost of risk” account dedicated to Orange Bank and part of the “other operating expenses”, corresponds to provisions and reversals related to banking risks (in particular, counterparty risks and operational risks).
Assets available for sale
The assets available for sale include fixed income securities or variable income securities that do not fall within the definition of other categories of financial assets. They are recognized at fair value at inception and subsequently.
Temporary changes in value are recorded as “Gains (losses) on assets available for sale” within other comprehensive income.
The long term impairments associated with the assets available for sale are recorded under “Cost of risk” (within other operating expenses) when the assets are fixed rate securities, but they are recorded in “Net Gains (losses) on financial assets available for sale” when the assets are floating-rate securities.
Assets held to maturity
This category includes fixed-rate securities that the bank intends to hold until their maturity. They must not be disposed of prior to maturity and they are accounted for at amortized cost.
Impairment is recognized on these securities as soon as there is an objective evidence of the existence of an event subsequent to the acquisition of the security that is likely to generate a measurable loss as a result of counterparty risk. Impairment is measured as the difference between the carrying value prior to impairment and the discounted value, with the initial rate, of the components deemed to be recoverable (principal, interest, guarantees, etc.). The changes in value thus impaired are recorded in the income statement, under the “Cost of risk” account (within other operating expenses). When these changes in value are positive, reflecting a subsequent improvement, they are reversed in the income statement under “Cost of risk” within other operating expenses.
16.1.2 Financial liabilities related to Orange Bank transactions (excluding derivatives)
(in millions of euros) |
| December 31, 2019 |
| December 31, 2018 |
| December 31,2017 |
Payables to customers |
| |
| | | |
Debts with financial institutions |
| |
| | | |
Deposit certificate |
| |
| | | |
Other | | | | |||
Total Financial liabilities related to Orange Bank's activities(1) |
| |
| | |
(1) | O/w 27 million of euros of non current financial liabilities in 2019, 2018 and 2017. |
2019 Form 20-F / ORANGE – F - 106 |
Debts related to Orange Bank transactions are composed of customer deposits and bank debts with financial institutions.
(in millions of euros) |
| December 31, |
| December 31, |
| December 31, |
2019 |
| 2018 | 2017 | |||
Current accounts |
| | | | ||
Passbooks and special savings accounts |
| | | | ||
Other |
| | | | ||
Customers borrowings and deposits |
| | | | ||
Term borrowings and advances |
| | | | ||
Securities delivered under repurchase agreements | — | | | |||
Total debts with financial institution |
| | | |
16.1.3 Derivatives of Orange Bank
Derivatives qualified as fair value hedges
The main unmatured fair value hedges at the end of 2019 and put in place by Orange Bank concern the following interest rate swaps:
–
–
–
–
–
The ineffective portion related to these hedging strategies recognized in the 2019 income statement is not material.
Trading Derivatives
– Orange Bank has set up interest rate swaps as economic hedges (not designated as hedges under IFRS) of negotiable debt securities issued by the bank for a total notional amount of
– Orange Bank has set up interest rate swaps as economic hedges (not designated as hedges under IFRS) of BEI securities for a total notional amount of
– Orange Bank has a portfolio of trading swaps with a total notional amount of
– Orange Bank put into place futures with a notional amount of
16.2 Information on market risk management with respect to Orange Bank activities
“Orange Bank” operating segment has its own risk management system, in accordance with the French banking regulation. In terms of banking regulation, Orange Bank is under the supervision of the French Prudential Supervision and Resolution Authority (Autorité de contrôle prudentiel résolution ACPR) and must at all times comply with capital requirements in order to withstand the risks associated with its activities.
Orange Bank’s activities expose it to all of the risks defined by the order of November 3, 2014, relating to the internal control of companies in the sectors of banking, payment services and investment services subject to the control of the ACPR:
– credit risk: risk of loss incurred in the event of default of a counterparty or counterparties considered as the same beneficiary;
– market risk: risk of loss due to movements in market prices;
– operational risk: risk resulting from an inadequacy or a failure due to procedures, staff, IT systems or to outside events, including events that are unlikely to occur but that would imply a risk of material loss. Operational risk includes risks of internal and external fraud;
– interest rate risk: risk related to changes in interest rates on the on-balance sheet and off-balance sheet transactions, excluding, as applicable, transactions exposed to market risks;
– liquidity risk: risk that the company would not be able to meet its commitments or not be able to unwind or offset a position due to the market situation;
– inter-mediation risk on investment service providers: risk of default by a customer or counterparty in the context of a financial instrument transaction in which the company provides a performance guarantee.
2019 Form 20-F / ORANGE – F - 107 |
The size of the bank and its moderate risk profile led to a choice of standard methods regarding the application of Regulation No. 575/2013 of the European Parliament and Council on June 26, 2013.
Orange Bank does not intervene on complex products. For market operations, the strategy defines, on one hand, the limits implemented and controlled and, on the other hand, the quality of the authorized signatories. In addition, the Bank has defined and regularly tests its business continuity system. The Bank has also undertaken, as completely as possible, the identification and assessment of its operational risks, for which it also follows occurrences.
With regard to regulations, and in particular Titles IV and V of the Order of November 3, 2014, the Bank’s Executive Committee has set, upon recommendation of the Risk Management Division, a risk policy in particular regarding customers and risks, modalities and rules for offering credits and for delegations of authority.
The Risk Management Department analyzes and monitors risks, carries out the necessary controls and produces reports for various committees: the Credit Committee (management of counterparty risk), Risks and Audit Committee (management of operational risks), ALM Committee (management of market , interest rate and liquidity risks) and the Executive Committee.
16.2.1 Remaining term to maturity
The following table details the remaining terms of Orange Bank’s financial assets and liabilities, calculated on the basis of the contractual maturity dates:
– maturity-by-maturity for amortizable transactions;
– for roll-over loans, since renewals cannot be presumed, the renewal dates are taken to be the final maturity dates;
– since derivatives are interest rate swaps, they are not subject to any exchange of notional. Their fair value has been broken down by maturity.
(in millions of euros) | Note | December 31, | 2020 | 2021 to | 2025 |
| |||||
|
| 2019 |
|
| 2024 |
| and beyond |
| |||
Investments securities |
| 16.1.1 |
| |
| — |
| — |
| | |
Debt securities |
| 16.1.1 |
| |
| |
| |
| | |
Investments at fair value |
| 16.1.1 |
| |
| |
| |
| — | |
Fixed-income securities |
| 16.1.1 |
| |
| |
| |
| | |
Loans and receivables to customers |
| 16.1.1 |
| |
| |
| |
| | |
Loans and receivables to credit institutions |
| 16.1.1 |
| |
| |
| — |
| — | |
Other financial assets and derivatives |
|
|
| | (1) | |
| — |
| | |
Total financial assets |
|
|
| |
| |
| |
| | |
Payable to customers |
| 16.1.2 |
| |
| |
| — |
| — | |
Debts with financial institutions |
| 16.1.2 |
| |
| |
| |
| | |
Deposit certificate |
| 16.1.2 |
| |
| |
| |
| — | |
Other financial liabilities and derivatives |
|
|
| | (2) | |
| |
| | |
Total financial liabilities |
|
|
| |
| |
| |
| |
(1) | Including the bank cash collateral paid for |
(2) | Including derivatives liabilities for |
16.2.2 Fair value of financial assets and liabilities of Orange Bank
(in millions of euros) | December 31, 2019 | |||||||||||||
Classification | Book value | Estimated | Level 1 and | Level 2 | Level 3 | |||||||||
|
| under IFRS |
|
| fair value |
| cash |
|
| |||||
9(1) | ||||||||||||||
Loans and receivables | 16.1.1 |
| AC |
| |
| |
| — |
| |
| — | |
Financial assets at amortized cost |
| 16.1.1 |
| AC |
| |
| |
| |
| — |
| — |
Financial assets at fair value through profit or loss |
| 16.1.1 |
| FVR |
| |
| |
| |
| — |
| — |
Debt securities |
| 16.1.1 |
| FVOCIR |
| |
| |
| |
| |
| — |
Equity securities |
| 16.1.1 |
| FVOCI |
| |
| |
| |
| — |
| — |
Cash and cash equivalent(2) |
| 16.1.1 |
| AC |
| |
| |
| |
| — |
| — |
Financial liabilities related to Orange Bank's activities |
| 16.1.2 |
| AC |
| ( |
| ( |
| — |
| ( |
| — |
Derivatives, net amount(3) |
| 16.1.3 |
|
|
| ( |
| ( |
| — |
| ( |
| — |
(1) | "AC" stands for "amortized cost", "FVR " stands for "fair value through profit or loss", "FVOCI" stands for "fair value through other comprehensive income that will not be reclassified to profit or loss", "FVOCIR" stands for "fair value through other comprehensive income that may be reclassified to profit or loss". |
(2) | Includes only cash. |
(3) | The classification for derivatives instruments depends on their hedging qualification. |
2019 Form 20-F / ORANGE – F - 108 |
(in millions of euros) | December 31, 2018 | |||||||||||||
Classification | Book | Estimated | Level 1 | Level 2 | Level 3 | |||||||||
|
| under IFRS 9 (1) |
| value |
| fair value |
| and cash |
|
| ||||
Loans and receivables |
| 16.1.1 | AC |
| |
| |
| — |
| |
| — | |
Financial assets at amortized cost |
| 16.1.1 | AC |
| |
| |
| |
| |
| — | |
Financial assets at fair value through profit or loss |
| 16.1.1 | FVR |
| |
| |
| |
| — |
| — | |
Debt securities |
| 16.1.1 | FVOCIR |
| |
| |
| |
| |
| — | |
Equity securities |
| 16.1.1 | FVOCI |
| |
| |
| |
| — |
| — | |
Cash and cash equivalent (2) |
| 16.1.1 | AC |
| |
| |
| |
| — |
| — | |
Financial liabilities related to Orange |
|
|
|
|
|
| ||||||||
Bank's activities |
| 16.1.2 | AC |
| ( |
| ( |
| — |
| ( |
| — | |
Derivatives, net amount (3) |
| 16.1.3 |
|
| ( |
| ( |
| — |
| ( |
| ( |
(3) | "AC" stands for "amortized cost", "FVR " stands for "fair value through profit or loss", "FVOCI" stands for "fair value through other comprehensive income that will not be reclassified to profit or loss", "FVOCIR" stands for "fair value through other comprehensive income that may be reclassified to profit or loss". |
(4) | Includes only cash. |
(5) | The classification for derivatives instruments depends on their hedging qualification. |
(in millions of euros) | December 31, 2017 | |||||||||||||
Classification | Book | Estimated | Level 1 | Level 2 | Level 3 | |||||||||
|
| under IAS 39(1) |
| value |
| fair value |
| and cash |
|
| ||||
Loans and receivables | 16.1.1 | L&R |
| |
| |
| — |
| |
| — | ||
Financial assets, excluding derivatives | 16.1.1 |
| |
| |
| |
| |
| — | |||
Assets held to maturity |
| HTM |
| |
| |
| |
| |
| — | ||
Assets available for sale |
| AFS |
| |
| |
| |
| |
| — | ||
Investments at fair value |
| FVR |
| |
| |
| |
| — |
| — | ||
Other |
| L&R |
| |
| |
| — |
| |
| — | ||
Cash and cash equivalent |
|
| |
| |
| |
| — |
| — | |||
Trade payables |
| LAC |
| ( |
| ( |
| — |
| ( |
| — | ||
Debts related to Orange Bank operations |
| 16.1.2 | LAC |
| ( |
| ( |
| — |
| ( |
| — | |
Financial liabilities, excluding derivatives |
| LAC |
| ( |
| ( |
| — |
| ( |
| ( | ||
Derivatives, net amount (2) |
| 16.1.3 |
| ( |
| ( |
| — |
| ( |
| |
(1) | "HTM" stands for "held to maturity", "AFS " stands for "available for sale", "L&R" stands for "loans and receivables", "FVR" stands for "fair value through P&L", "LAC" stands for "liabilities at amortized costs". |
(2) | IAS 39 classification for derivatives instruments depends on their hedging qualification. |
16.3 Orange Bank’s unrecognized contractual commitments
As of December 31, 2019, Orange Bank is not aware of having entered into any commitment that may have a material effect on its current or future financial position, other than the commitments mentioned below.
Commitments given
(in millions of euros) |
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 |
Financing commitments (1) |
| |
| |
| |
Guarantee commitments (2) |
| |
| |
| |
On behalf of banks |
| |
| |
| |
On behalf of customers | | | | |||
Property lease commitments |
| |
| |
| |
Total |
| |
| |
| |
(1) | Includes |
(2) | Given to credit institutions and customers. |
Commitments received
(in millions of euros) |
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 |
Guarantee commitments | | | | |||
Received from banks (1) | | | | |||
Received from customers | | | | |||
Total | | | |
(1) | Relates to guarantees received in order to counter-guarantee the distributed loans. |
Assets covered by commitments
(in millions of euros) |
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 |
Assets pledged as security to lending financial institutions as guarantees for bank loans |
| | |
| | |
Total |
| | |
| |
Note 17 Litigation
This note presents all of the significant disputes in which the Group is involved with the exception of litigation relating to disputes between Orange and the tax or social administrations in relation to operational or income taxes or social contributions. These disputes are described, respectively, in Notes 10 and 6.2.
2019 Form 20-F / ORANGE – F - 109 |
As of December 31, 2019, the provisions for risks recorded by the Group for all the disputes (except those presented in Notes 10 and 6.2) amounted to
France
Mobile services
– In parallel with the judicial inquiry for which on December 17, 2015 a final verdict was reached by the French Competition Authority fining Orange
– Following the ruling by the French Competition Authority on December 13, 2012 imposing fines of
– Concurrently to their complaints filed with the French Competition Authority, regarding practices of Orange in the mobile and fixed-to-mobile markets in the French Caribbean and in French Guyana, for which Orange was definitively ordered to pay a fine of
Fixed-line services
– In 2010, SFR and then Verizon summoned Orange SA to appear before the Paris Commercial Court demanding the reimbursement of alleged overpayments on interconnection services provided by Orange, the price of which allegedly did not reflect their cost. On June 18 and 25, 2013, the Paris Commercial Court dismissed their claims but ordered Orange to pay Verizon
– In 2012, SFR brought an action against Orange SA before the Paris Commercial Court denouncing its retail offers for the secondary residences market and claiming
Other proceedings in France
– In June 2018, Iliad brought summary proceedings against Orange SA before the presiding judge of the Paris Commercial Court, aiming to ban some of its mobile telephony offers proposing mobile handsets at attractive prices accompanied by a subscription package, on the grounds that they constituted consumer credit offers. The case is currently being investigated by the judges deciding on the merits of the case.
– In December 2018 the administrators of former UK indirect retailer Phones 4U, (which is in administration and no longer trading), filed a claim against the three main UK mobile network operators, including EE, and their respective existing or former parent companies including Orange. The claim (of an unquantified amount) is currently being disputed before the High Court of England and Wales. Orange challenges vigorously the allegations raised by Phones 4U which include collusion.
– Orange Bank is the object of
– On December 20, 2019 the Paris criminal court ordered the Company to pay a criminal fine of
2019 Form 20-F / ORANGE – F - 110 |
compensation based on the findings of harassment if the conditions of compensation for direct, certain and personal harm are met. Orange is in the process of executing the judgment towards the civil parties; and further, the Evaluation and Compensation Committee established by Orange continues to analyze and process the requests received. To date about 190 individual requests have been received, about 90 of which have been closed subsequent to an agreement or a declaration of inadmissibility.
Poland
– In 2011, the Polish Competition Authority (UOKiK) sanctioned the four major Polish mobile operators, including Orange Polska, for collusion to delay the development of new services in the mobile television market. This sanction was nullified in 2015 by the Court for the protection of competition and consumers. In 2017, the Court of Appeal dismissed the appeal of the UOKiK, who appealed to the Supreme Court. On November 26, 2016, the company Magna Polonia brought suit jointly and severally against the operators to the Warsaw Commercial Court and claimed
– In 2013, the UOKiK opened an investigation on the country’s
Romania
– On March 29, 2016, investigators from the Romanian Competition Council made an investigation at the headquarters of Orange Romania, concerning possible discriminatory practices in the mobile payment and advertising markets. Following the investigation, the Competition Council fined Orange Romania
Middle East and Africa
– In September 2008 and December 2009, the Egyptian National Telecommunications Regulatory Authority (NTRA), following a complaint filed by Telecom Egypt (TE), issued
– A number of shareholder disputes are ongoing between the joint venture company made up of Agility and Orange, on the one hand, and its Iraqi co-shareholder in the share capital of Iraqi operator Korek Telecom on the other hand. These disputes, which notably relate to the exercise of Korek Telecom's 7% call option, are the subject of preliminary procedures and arbitrational and judicial litigation. Moreover, on March 19, 2019, an Administrative Decree issued by the Iraqi Kurdistan Regional Government enforced the decision made by the Iraqi regulatory authority (CMC) in 2014 to cancel the partnership of March 2011 between Korek Telecom, Agility and Orange. Consequently, the return of the shares in Korek was forced to the original shareholders. Orange was thus unlawfully expropriated of its investment and addressed, on March 24, 2019, a notice of dispute to the Republic of Iraq based on the Bilateral lnvestment Treaty between the French Republic and the Republic of Iraq with respect to the loss of its investment in Korek Telecom.
Other Group litigation
Other than proceedings that may be initiated in respect of tax audits (see Note 10), there are no other administrative, legal or arbitration proceedings, including any proceedings that are pending, suspended or threatened, of which Orange is aware of, which may have or have had in the last 12 months a material impact on the Company’s and/or Group’s financial position or profitability.
Note 18 Subsequent events
TDIRA buyback
On January 28, 2020, Orange bought
Early loan repayment
On February 6, 2020 the Group made early repayment of the
Public buy-out offer followed by a compulsory squeeze-out of Business & Decision SA
On February 12, 2020, Orange announced a public buy-out offer followed by a compulsory squeeze-out of Business & Decision SA, at price of
2019 Form 20-F / ORANGE – F - 111 |
Note 19 Main consolidated entities
At December 31, 2019, the scope of consolidation consisted of
The main changes in the scope of consolidation in 2019 are set out in Note 3.
As regards subsidiaries with minority interests:
– financial statements for Orange Polska Group, Sonatel Group, Jordan Telecom Group, Orange Belgium Group and Business & Decision Group are respectively published to the Warsaw Stock Exchange, the Regional Stock Exchange (BRVM), the Amman Stock Exchange, the Brussels Stock Exchange and the Paris Stock Exchange, those companies being quoted;
– the others subsidiaries are not significant compared to Orange’s financial data. Consequently, financial information is not presented for these subsidiaries in the notes to Orange’s consolidated financial statements.
Pursuant to ANC Regulation No. 2016-09 of December 2, 2016, the complete list of the companies included in the scope of consolidation, the companies excluded from the scope of consolidation and the non-consolidated equity investments, is available on the Group’s website (https://www.orange.com/en/Investors/Regulated-information).
The list of the principal operating entities shown below was determined based on their contributions to the following financial indicators: revenue and reported EBITDAaL.
Company |
|
| Country | |
Orange SA | Parent company | France | ||
Main consolidated entities |
|
|
|
|
France |
| % Interest |
| Country |
Orange SA – Business Unit France |
| |
| France |
Orange Caraïbe |
| |
| France |
Générale de Téléphone |
| |
| France |
Spain |
| % Interest |
| Country |
Orange Spain and its subsidiaries |
| |
| Spain |
European |
| % Interest |
| Country |
Orange Belgium |
| |
| Belgium |
Orange Communications Luxembourg |
| |
| Luxembourg |
Orange Moldova |
| |
| Moldova |
Orange Polska and its subsidiaries |
| |
| Poland |
Orange Romania |
| |
| Romania |
Orange Slovensko |
| |
| Slovakia |
Africa & Middle-East |
| % Interest |
| Country |
Orange Burkina Faso | | Burkina Faso | ||
Orange Cameroon |
| |
| Cameroon |
Orange RDC | | Congo | ||
Orange Côte d'Ivoire |
| |
| Ivory Coast |
Orange Egypt for Telecommunications and its subsidiaries |
| |
| Egypt |
Orange Guinée (1) |
| |
| Guinea |
Orange Bissau (1) |
| |
| Guinea-Bissau |
Jordan Telecom and its subsidiaries | | Jordan | ||
Orange Mali (1) |
| |
| Mali |
Médi Telecom | | Morocco | ||
Sonatel (1) |
| |
| Senegal |
Sonatel Mobile (1) |
| |
| Senegal |
Enterprise |
| % Interest |
| Country |
Orange SA – Business Unit Entreprise |
| |
| France |
Globecast Holding and its subsidiaries |
| |
| France |
Orange Business Services SA and its subsidiaries |
| |
| France |
Business & Decision and its subsidiaries |
| |
| France |
Basefarm and its subsidiaries |
| |
| Norway |
Orange Business Services Participations and its subsidiaries |
| |
| United Kingdom |
SecureData and its subsidiaries | | United Kingdom | ||
SecureLink and its subsidiaries | | Netherlands | ||
International Carriers & Shared Services |
| % Interest |
| Country |
Orange SA - Business Unit IC&SS |
| |
| France |
FT IMMO H |
| |
| France |
Orange Marine |
| |
| France |
Orange Studio |
| |
| France |
OCS |
| |
| France |
Orange Brand Services |
| |
| United Kingdom |
Orange Bank |
| % Interest |
| Country |
Orange Bank |
| |
| France |
(1) | Orange SA controls Sonatel and its subsidiaries, which are fully consolidated, under the terms of the shareholders' agreement as supplemented by the Strategic Committee Charter dated July 13, 2005 (Orange SA owns and controls |
2019 Form 20-F / ORANGE – F - 112 |
Note 20 Auditors’ fees
As required by Decree no. 2008-1487 of December 30, 2008, the following table shows the amount of fees of the auditors of the parent company and their partner firms in respect of the fully consolidated subsidiaries.
(in millions of euros) | Audit and related services | Other services | Total |
| |||||||||||
Statutory audit fees, certification, | Services required | Sub-total | rendered by |
| |||||||||||
auditing of the accounts | by the law | auditors' networks to |
| ||||||||||||
| o/w issuer |
| o/w issuer |
|
| fully-consolidated |
|
| |||||||
EY |
|
|
|
|
|
|
|
|
|
|
| subsidiaries |
|
| |
2019 |
| |
|
| |
| — |
| |
| |
| | ||
% | | % | % | | % | — | | % | | % | % | ||||
2018 | | — | |||||||||||||
% | % | % | | % | | % | % | % | % | ||||||
2017 | | | |||||||||||||
% | % | % | % | | % | % | % | % | |||||||
KPMG |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
2019 |
| |
|
| |
| |
| |
| |
| |||
% | | % | % | | % | | % | | % | | % | % | |||
2018 | |||||||||||||||
% | % | % | % | % | % | % | % | ||||||||
2017 | |||||||||||||||
% | % | % | % | % | % | % | % |
The services provided by the statutory auditors were authorized pursuant to the rules adopted by the Audit Committee and updated each year since October 2016.
2019 Form 20-F / ORANGE – F - 113 |