Orange CFO capturing value of telco's ecosystem

Ramon Fernandez, Orange’s CFO responsible for finance, performance and development since September, understands well the expectations of shareholders and other stakeholders in France’s biggest telecoms group, which was formerly state-owned France Telecom.

As a senior figure in French government, including time as economics adviser to president Nicolas Sarkozy, Fernandez can appreciate the importance of the company to the state, which still owns 23 percent of the business.

He says when he joined Orange six years ago from the French Treasury, where he was director general (DG) as deputy CEO and chief financial and strategy officer, he didn’t have the feeling that he was switching to a totally different world, “Orange is a company which is still influenced by its past, being fully state-owned a few decades ago, but is now a listed company competing against 100 percent privately-owned companies,” he says.

But the breadth of the mission encompasses not only creating shareholder value but also a wider set of societal aims – reflecting the telco’s legacy – such as “bringing connectivity to people everywhere in the country with a commitment also to digital inclusion,” he says.

In that context, Orange embarked on a strategic plan last December called Engaged 2025, which committed the group to targets in areas such as climate change and digital inclusion.

“We are enablers of expansion of digitalisation. There is a challenge for us as a company to transform ourselves, but also to accompany the transformation of other companies, and people who may be left aside by digitisation – for whom we have developed Orange digital centres.

“This is a framework where you’re trying to contribute to a broader commitment, so I haven’t totally changed from the core values that were my motivation in the past,” he says.

That said, the importance of value creation is not lost on Fernandez who is fully aware that the group needs to fully capitalise on opportunities from its fibre network, its 5G licence and a future of its masts business that CEO Stéphane Richard has recently discussed.

If the group’s set of business objectives looked complicated enough at the start of the year, the onset of the coronavirus pandemic- which has seen France one of the hardest hit countries in Europe – increased the set of challenges. Fernandez says that although the pandemic was “somewhere in our risk map”, it was theoretical and that it was more along the lines of risk planning for “a massive world cyber-attack” but “this is a crisis which is impacting everybody,” he says that alongside most other companies “nobody had a clue it could be as bad.”

Looking at the issue from both a government and corporate perspective – he was DG at the Treasury during the global financial crisis (GFC) – he reflects on the failure to learn from previous crises.  “Public authorities were very reactive. Very proactive. I think, once again, the crisis again 10 years ago was a good rehearsal, we have all these tools available, the ESM, and the ECB has been key. In all the countries, the tools were available. The ECB was first to react extremely strongly. Governments were also active very quickly. We can pay tribute to this capacity to act rapidly and putting aside all the rules during the crisis.”

Coronavirus impacted Orange in the short term. “An objective of a slight increase of our profitability in 2020, was revised this July to around minus one percent,” says Fernandez.

The group’s share price, which started the year at over €13 has struggled to recover from a slump to €9.40 in mid-March, trading  at round €10.40 by early December, giving the group a market cap of about €28bn.

Balancing act

Fernandez says he relished the challenge offered by Orange when he arrived after 25 years in public service including two years at the International Monetary Fund (IMF) in Washington in the late 1990s.

After graduating from the Institut d’Études Politiques in Paris (he also attended the École Nationale d’Administration in 1993), Fernandez took up positions in some of France’s key government ministries.

From advisor to the Minister of the Economy, Finance and Industry in the administration Jacques Chirac administration, he went on to be adviser to conservative successor Nicolas Sarkozy.

Then 2008, he was appointed chief of staff to the Minister of Labour, Social Relations, Family and Solidarity before becoming DG of the French Treasury, during the tenure of Socialist president François Hollande.

From this well-rounded perspective, Fernandez says the interest in this role reflects his enthusiasm in achieving a balanced response to competing expectations of a diverse set of stakeholders. He says this must be achieved “without putting at risk the trust of employees, shareholders, bond holders, the ecosystem around you.

“We have to keep in mind the profitability of the company. But we’re not going to address only those who can deliver the highest immediate profit short term. We have also to have a broader view,” he says.

In order for the group to be increasingly dynamic, the group’s finance function was finessed to improve its ability to support the group’s aims- which explains Fernandez’s initial role straddling finance and strategy.

But a change of tack in 2018 resulted in him becoming CFO but also taking direct responsibility for Orange’s presence in the six of the eight European countries the group has a big presence in (other than France and Spain) out of the 26 worldwide it operates in.

At the same time, Orange’s finance department launched a drive to digitalisation called DNA standing for Digital New Adventure with finance playing a key part in improving efficiencies through, for example, RPA (robotic process automation) in areas such as the monthly accounting process, or data visualisation for forecasting or remodelling.

The principles of how finance is run were re-focused under a new set of values- team spirit, trust, agility and boldness- to deliver a greater sense of purpose. In a country where values are enshrined in the nation’s constitution, Fernandez says understanding and implementing a higher purpose is vital for improving workers’ “emotion and mood.”

A mission statement for finance focuses on being “trustworthy partners, acting as one team to foster sustainable value creation for Orange,” and has also helped during the current crisis in which 100,000 staff moved to home working. “This was important for us to manage closing processes, tax issues, Treasury issues, pay suppliers, make sure all procedures are dealt with without being together in the same room,” he says. The group also put in place a digital tool for signing off documents remotely.

Moving forward

The process of realignment took another turn in the Spring to address the challenge of the coronavirus epidemic with the priorities of finance performance and development taking centre stage. “It signals that Orange will stay strong and resilient facing the crisis and has the capacity to seize opportunities,” he says

Finance is helping drive value creation by using tools that can identify valuable insights from vast data sets to improve strategic decision-making across the group in the changing environment.

Opportunity is seen in developing its IT business as well as harnessing the huge amount of data Orange holds. “One of our challenges is to make the most of this, respecting EU regulation on privacy,” he says.

“We’re developing the capacity to rapidly visualise what is going to be the result of all this data collection so we will be able to identify faster shifts in demand in the behaviour of customers. It could help us adapt our offers to evolving situations in all markets, including in some places, a shift towards cheaper bundles.”

“An important challenge for us, as well as our competitors, is to find the right balance between the short-term interest of some equity investors, who would like you basically to sell your assets in terms of, let’s say, towers, based on very high multiples compared to the average multiple of your business, and the long-term interest of bondholders who need to make sure that telco companies will be able to service their debt in 10 years’ time.”

In this respect, a plan for the towers business, which relates to masts and other physical infrastructure, to be devolved into a separate business is being discussed internally ahead of an announcement in February. “It is an important debate, of how can you achieve more value creation with this business,” says Fernandez.

Another is building on the growth engines of the group, including Africa which Fernandez says is growing by more than five percent year on year and is worth 13 percent of total group revenues of Euro42bn. “There is the opportunity to develop mobile finance in Africa, where people have less access to traditional banking,” he explains.

When it comes to long term strategy, Fernandez says Orange is committed to investing in 5G as well as maintaining its position in fibre, where it is Europe’s biggest player, alongside its mobile offer. “The challenge is going to be how we can benefit from investments, because in Europe we now have 45 million customers who can access fibre,” he says.

“What we have seen since coronavirus is an acceleration of migration to fibre because of the speed and connectivity it offers- providing comfort when more people have to work from home,” he adds.

Growing concerns around Brexit are no longer relevant to Orange as it sold its share of UK telco EE, a joint venture with Deutsche Telekom to BT for £12.5bn in 2015. “We were fortunate that we decided to cash in instead of taking shares,” says Fernandez.

“But as Napoleon said, “Give me lucky generals.” If they’re always unlucky, there is a problem.” he adds.

Comments are closed.