Orange SA (ORAN) 2009 Q2 法說會逐字稿

Hello to everybody. Just a few words of introduction before I had over to our CFO Gervais Pellissier. A few points.

The first point I would like to highlight our commercial performance. Our position in the first half remains solid despite the continued deterioration of the macroeconomic environment and the impact of regulatory measures. Our revenue has decreased compared to the first half of last year by 0.5%, but it remains more dynamic than the GDP of our economic -- of the economies in which we operate.

I also want to highlight that the increase in our customer base of 6.6% in a year takes our total number of customers to 186 million worldwide. This has allowed the group to hold its position, even though the competitive environment is intensifying.

This shows our capacity to adapt to the economic crisis and its consequence. I know we cannot continue acquiring new customers with the same marketing approach we had two years ago. And so we added that to the new situation. Since the start of the crisis the direction, I have given to the group has been one of simpler lower-cost services like the big phone, the terminal [hello], the second line telephones, discount offers and so on.

The second point, an improvement in our operating margin. After shrinkage in the first quarter, our EBITDA margin has improved in the second quarter by 0.2 points at 35.4%. This revival of our margin is the natural results of mastering your costs, particularly general expense and commercial expense.

The third point, a strict management for our investments. Our level of investment is at 9.9% of revenues for the first half. That is EUR2.5 billion, which is less than last year. This reduction is due to the optimization of our investments, particularly in the context of the current climate. I have asked that we put in place a thorough review process for our investments being careful to protect investments that are critical for our future performance, particularly compared to the competition. Of course, this is a key point.

The fourth point, overall we are at this point of the year on track for our main financial objective. To generate EUR8 billion of organic cash flow in 2009, an objective that I confirmed today. This is for me a real point of satisfaction, even if we need to keep up our efforts for the second half of the year.

Of course, we want our shareholders to continue benefiting from the good health confirmed by France Telecom for the first half. And that is why the board of directors have again decided to make an interim dividend payment. This will be EUR0.60 per share and paid on the 2nd of September.

To finish, I would like to say a few words about the rest of the year. As you know, the macroeconomic environment of the second half is likely to be comparable to that of the first. Moreover, the impact of regulatory measures is likely to intensify. In this context, the rest of the year will not be easy, but I think we remain prepared to continue adapting. That is what I wanted to say to get us started.

Now I had over to Gervais who will explain the details of our results. Thank you very much.

Thank you, Mr. Chairman. So you have in front of you I guess most of you have the presentation and the slides. So I will go directly to slide five because I think the words said by Didier Lombard have summarized our main KPIs as they appear on slide four.

Just to start with our revenue evolution and you have on slide five, what has happened for the last quarters. We see a gap between our revenue performance and the GDP for the same period and also our revenue performance before regulatory impact. So excluding regulatory impact and you see that after the slowdown we have been recording each quarter since Q2 2008, GDP is continuing to deteriorate and has deteriorated in the second quarter compared to first quarter. Our revenue maintained a strong gap, a strong differential. Our revenue evolution maintains a strong differential with the GDP evolution and especially in Q2 where our GDP evolution is minus 3.2%, whereas our revenue (inaudible) minus 1.3%. And if we look at it excluding the regulatory impact, you see that even in this last quarter we would have still posted 0.4% positive growth within our footprint, and we come back on that later on. France, Africa and Middle East remain very resilient, whereas Poland, Spain, UK, Eastern Europe countries are suffering from the economic environment and the termination rate cuts in this first half.

On page six you see the situation for the main regions, and what we can just say that we have first a size impact on our revenue line, really part of years in Europe, whereas we have some businesses and especially two big distances in Poland in (inaudible) and in the UK in British pound, and there is a strong impact of the erosion of those two currencies against the euro of EUR755 million in this first half.

Then if you look at the different geographies, France, Africa, Middle East has been growing as well as the international carrier business, whereas all the other regions are declining on the semester. What we can mention on those, which are declining, the decline would have been much less if we are not to take into account termination rate cuts, which have happened in most of those countries.

Another way to look at the revenues is to look at revenues for the mobile component and for the fixed line home division. And you see it on page seven where global revenue is declining by 1.3 as we reported, but with quite different situations. In France performance continued to be quite good with 1% revenue growth driven by mobile and mobile with a 5.5% revenue growth in Q2. Whereas in the UK revenue from mobile is declining by 4%, whereas because of what we do on the fixed profitability, the cash consumption is leading us to continuously decrease the customer base and to have a relatively strong revenue impact.

In Spain revenue evolution is minus 5.5%, out of which more or less is the same rate for mobile and fixed, which is completely linked with the economic environment. Because if you look at our mobile performance compared to our competitors, we are ahead at least in part with our main competitors and our relative performance in Spain has clearly improved against competition, especially against those competitors who are considered as leading the market, including in terms of market growth for the last years.

In Poland the situation is more difficult for us with a 7% decline, especially driven by mobile and where we have been facing a difficult first half as reported, by the way, by TPSA when they reported their figures yesterday morning. Where the mobile market is difficult, slightly strong termination rate cuts, but on top of that the arrival of a fourth player, late last year with a strong disruptive pricing policy for prepaid, which has created some trouble on the market as a whole and has impacted both our revenues and margins. We are actually taking those marketing actions to recover from that, but also strong actions to adjust the cost structure of TP in the second half of the year.

The rest of the world is contrasted between Africa, Middle East, still growing at a very good rate. 6% in the second quarter of the year, whereas Eastern countries continue to be strongly impacted by the economic crisis, especially in Romania. Our situation is relatively better in Moldavia, Slovakia but also in Western Europe in countries like Belgium and Switzerland.

For Orange business services, after some very slight growth in the first quarter of the year, the economic impact of the crisis has come, and our revenue has been declining even if -- and in the context where we have kept, however, and even increased the profitability level of the business.

And to comment on profitability, as it is on page eight, you see that in the first quarter of the year -- a little increase of the revenue was not coming with a small increase of OpEx, and OpEx has been increasing because we had to adjust to the activity level, which was to a certain extent unexpected at this level of decline. And in the second half, we have been able to recover to adjust our cost structure, even if we are also facing some additional costs that were, let's say, not fully in our view, especially the French TV tax, as well as some Chattel law impact for about EUR50 million.

If we look at the EBITDA margin and at the cost structure of France Telecom on page nine, excuse me at the EBITDA structure by main regions, you see that the margin evolution is also quite different from one area to the other. Very good protection of the margin for the enterprise division, which is slightly increasing. Also, in the UK where thanks to the improvement in the mobile division, the total margin rate is more or less stable. Also, a very good protection of the margin in France in spite of some negative impacts and of the -- taking into account of the content costs that we did not have a year ago. Whereas Spain is able to increase its margin by nearly 5 points, which is a strong improvement for the total margin of the country. The rest of the world is also sporting some decrease, which is also (inaudible) with very high margins we are facing in this region. And unfortunately Poland with a 6 point decline mainly linked with what I said before, to which one should add the currency exposure where Poland is facing a huge part of purchases in Europe and with deteriorated local currency.

In terms of cost structure on page 10, a few comments. First of all, the regulatory impact on our cost structure and our profitability. You see that because of regulatory decisions we have had EUR383 million less revenue than we could have had. At the same time, regulatory prices have been also positively impacting our cost structure with a cost decrease of EUR229 million.

But one should add to this of impact of legal or tax measures, which are not telecom pricing regulations, especially the French TV tax and the Chattel law for EUR81 million page. Which means that in total, if we add all the regulatory measures which have a direct cost financial impact on our P&L, it is net negative impact of EUR235 million in this first half of the year.

If you look at the other lines of cost, they are clearly under control with the containment of the labor costs thanks to the account division -- the account reduction we did in the previous years. Other item costs are also under control. G&A has been decreasing even more than what it appears if we take into account the TV tax and Chattel law impact. And our commercial costs have also been contained. This also to take into consideration the fact that we are now taking the full effect of our investment in content, which represents EUR156 million more than a year ago.

Net income is stable, even slightly better in comparable terms than a year ago with a few elements of difference. So lower EBITDA but lower depreciation because we have less investment to depreciation but also some positive currency effect on the depreciation.

Lower financial expense. This is on the financial result line; I am on page 11. Lower income tax because in some countries, especially Poland, because of the pressure, there is less income tax to be paid. And very little exceptional items between the net income as published and on comparable terms, but which shows some slight increase, a 2% increase compared to a year ago.

As regards our investment, our CapEx, there are many questions as seen on topic spending in our industry, including ourselves. What is shown on page 12 is that the real reduction we have been operating in our CapEx is 13%. Because last year we spent, if you remember, an extra spending of more than EUR160 million to repurchase some technical buildings in France, which are useful to us but which are not generated in our CapEx plans. We generally don't spend money on buildings and real estate, especially to purchase buildings and real estate.

So if you want to compare apples-to-apples, the net reduction is EUR378 million compared to a year ago, out of which a reduction has been spread on several areas but keeping in mind two main priorities. One, this is to preserve the ability of the group to key or increase its market share against its competitors. This is what we have been trying to do in most of the countries where we are. And the second point, which was recalled by Didier Lombard a minute ago, is to preserve the innovation capacity of the group. This explains why, for instance, we have continued to invest into the backbone and back haul and why by regarding 3G, DSL and services platform reduction has been highly prioritized.

One should also notice what we had invested quite much in the previous years because if you remember we have been investing more or less 1 point more than planned between 2006 and 2008 when we announced the next plan into 2005. We are targeting CapEx to set a ratio of 12 and (inaudible) to spend our 13% a year for the last three years.

Thanks to this the first level of the partial cash flow, which is the EBITDA minus CapEx, has increased by 5% and is above 2008, even in real terms in historical terms even if we have to take into account the strong Forex impact of EUR140 million.

Our cash, and this is on page 14, I'm on page 14. Our cash, our targeting cash flow has increased by 12% compared to our first half 2008, which represents more or less a EUR500 million increase. It looks big, and it requires some explanations.

And the first part are the direct operational effects of the activity. First, EBITDA minus CapEx, so there is some increase, EUR137 million more. Two, the reduction of the income tax we have to pay minus EUR167 million, which is an additional cash for the company in the period. Third, lower interests paid, EUR96 million, and then a few items, among them a much lower level of 3G license, less cash to pay the pre-retirement we had implemented in the group, and a few other things of that type for EUR152 million.

At the same time, the phasing of spending in first-half 2009 has been quite different from what it was in first-half 2008, and we evaluate to around EUR160 million this difference of phasing. Where, in fact, we have paid more to our suppliers than we did for the same level of activity on the period.

And a few items are considered as exceptional. The strong positive item, the strong cash flow coming from the restructuring of some of our debt and financial instruments. On one hand, joint disrupts which has been unwinded, and we have repurchased some (inaudible) for about EUR2 billion and at a relatively good discount.

But at the same time, we have also some additional negative effects, which are clearly linked with this 2009 year. Maybe some of you remember, but France has implemented the so-called (spoken in French) which imposed to pay -- to shorten the payment terms to the suppliers and which is low which has been implemented -- which has been implemented since January 1, and we have been trying to adapt. We were and we are like most of the big companies in France, a relatively slow payer, and so we have been call it adjusting on the required payment terms, and it has, of course, a relatively strong cost this year.

On top of that, there is a lower revenue and an OpEx decrease, which has also a negative impact on the working capital, and lower CapEx also implies that we have less credit on the CapEx suppliers. So and these items are clearly linked with this 2009 first-half specific situation. All this gives the EUR4.1 billion of cash flow you see. But when we look at what is extraordinary, what is ordinary, what is seasonal, we confirm our guidance for the year of EUR8 billion, not more, not less.

So what has been the use of the cash flow for this first half or balance dividend payment, dividend payment to the minorities, the repurchase of the minority shareholders in Spain and all of this being used. After that, we have been able to reduce our debt by a little more than EUR1 billion over the period. And if you come on page 16, you can see that we have continued to manage very carefully our liquidity and debt position trying to optimize the debt, trying to increase the liquidity but also trying to reduce the costs. And we have been able to raise a EUR4.8 billion bond in this first half of the year at 4.9% average cost, which is probably the best rate achieved within the sector and among European players in telecom. The good diversification with the 66% of our first-half issues in other currencies than euro, and we have put back EUR1.4 billion of (inaudible), which will eliminate the 1.5% of future dilution.

Regarding our liquidity, we are enjoying now EUR16 billion of liquidity position, out of which more than EUR6 billion of cash.

I will look quite quickly on the performance by country. You have different slides on each of them and maybe to help you to raise more questions. Starting with France on page 18. With mobile business in France, just to say that we are quite happy with the revenue growth of 6.4% in this first half, mainly due to the increase of the customer base, but also to the development of the data business. If you look at the slide, these are the two main drivers for the revenue growth of this period, which has implied on top of what we do on the cost structure a slight improvement of the profitability of the period.

If you look at the operational KPIs on page 19, our market share has been maintained, even coming not far from the level of Q3 2008 at 46.7%. We have also increased the share of the MVNOs, which are now representing 2 million customers, and 24% of revenues are non-voice -- the service revenues are non-voice revenues. Whereas the contract mix, the mix between contracts and prepaid customers is still improving in favor of prepaid customers or in favor of contact customers, and whereas the ARPU is continuing to increase, mainly linked to the data business.

Regarding home revenue evolution is minus 1.5 as I said, but a strong regulatory impact, mainly because of the decisions to decrease the unbundling price, the unbundling wholesale price to our competitors. And this has had a direct impact on the EBITDA, whereas we are quite (inaudible) at retail revenues have slightly increased because for the second consecutive semester, retail Internet revenues are superseding PSTN revenue decline.

Regarding the operational KPIs, we are quite happy with the broadband ARPU increase, which is to a huge extent linked with the additional services, including content, including pay-TV we are developing for our customers. We have reached 400,000 subscriptions, paid TV subscriptions at the end of June 2009. But the market is more challenging, and our conquest share in terms of ads has been reduced to 26% of other periods, which also demonstrates that the price premium which we are obliged to keep because of the regulatory framework in France is putting us into a more challenging situation.

This is why, and it is on page 22, among the main priorities for the French market, on top of all what we do in terms of marketing and to improve the offers, there are two main exits. One is to continue on cost reduction to improve the cost structure to be able to have more appealing retail prices. But at the same time, we think that it is now more than time to put more pressure on the regulatory system to be able to adjust the markets in France on the regulatory playing field where the level of competition is at the height level of competition and with no privilege for competitors who may have been smaller in the past, but who are now as strong acquisition engines than us in terms of number of shops or in terms of resources.

Regarding the UK, not many comments just to say that we are (inaudible) not as good as the best and clearly better than the two worst on these markets. So in mobile with a market which is difficult, it remains challenging. Low margins, even if we improve the EBITDA, we are still in a market which is changing. And regarding the broadband business in the UK, our strategy is to forecast on where we have invested at the risk, which happens, by the way, to lose some customers, especially when they are not in the unbundled areas where we have invested.

Regarding Spain, on page 26 just to mention that mobile revenue has been decreasing, as I said, by 5.5%, but margins are increasing by more than 2 points. And if we go on page 27, we see that there is a still good acquisition engine, even if we have observed for the last quarter some shift between prepaid and postpaid. Until the beginning of the year, crisis had no effects -- and so it is also partly true for the UK -- had no real effect on the move we have been observing in our markets from prepaid to postpaid. It is less the case at the end of this first half where we see some revival of the prepaid business, mainly for cost reasons for the customers, and this is especially the development of money offers on those markets.

Regarding home in Spain on page 28, just to mention that the profitability has strongly improved, even if the revenue is not so strong. But we are continuing to develop the business, especially with voice over IP, a concentration of our customers on the local loop unbundling where we have invested and including also development of triple play.

Regarding Poland, so I mention the main issues on page 30; I mention the main issues on the mobile. Whereas, if you go on page 31, restitution for fixed is slightly better, even if it's not so easy because I see some cannibalization of the fixed business by mobile on the Polish market. But our situation in terms of market share for broadband in spite of the very de-skilled regulatory environment, we have been able to better maintain our market share.

If I go on page 34 to look very happy at the rest of the world, as I mentioned, we are quite happy with Africa and Middle East growth, plus 6%, whereas the European countries have been declining by about 4%. So Africa and the Middle East I think is clearly strong. We will come back on that.

With double-digit growth in Egypt, (inaudible) and Botswana and most of the country operations also growing with one exception, which is Madagascar, because of the political climate.

In other European countries, the situation is I would say average with relatively stable and maintained performance in Western Europe, Belgium and Switzerland, as well as in Slovakia. And clearly more difficulties in Romania where revenue has been dropping by 15% because of the economic crisis and its impact on the purchasing power of people.

In terms of KPIs for the rest of the world, on page 35 you see that the customer base has continued to increase by 20% in mobile and by more than 66% for the DSL customer base. And one should notice that we have increased the African DSL customer base by 100,000 more customers, which we are quite proud of when we look at those figures.

A point of price, so a difficult revenue evolution in the second quarter with an impact on the legacy business by impact linked with traffic and usage less travel, less usage, enterprise reducing their consumption mainly for voice. It is a little less for the data business. And even if the advanced business network and the services are continuing to grow, their pace, of course, is lower than what it was. No longer big enough to face the decline in the legacy business. But in spite of that, the division has been able to control its customer churn and to accommodate with some new regulatory impacts, especially their share of the TV tax in LME and able to keep the margin even slightly better than it was before in margin rates.

As we have to go now on the outlook, so on page 40, and to come to some of the points where how we see the market and how we consider could the next month -- what could happen in the next months.

On the market itself, it is sure that even if we are resilient against the GDP, that does not mean that we are immune. We have some impact of the economic downturn. Positive for a few of them but also some negatives.

First of all, we observed that this market segmentation is devolving and with lower and high-end segments gaining importance. The middle range is decreasing at the expense of the extremes. People are either spending much less or spending more because they are attracted by innovation, by new technologies, by smartphones.

This is by the (inaudible) the fact that we continue to observe strong demands for new technologies. When you look at the group whole figures for smartphone, especially for iPhone, not only in our territories, you see that there is still a strong appetite to use new technologies, mobile broadbands, VOD, etc.

The third point is that there is much less roaming traffic both for enterprise but also for consumers. People are traveling less, and when they travel, they spend less.

And then there is a slower handset renewal. The pace of the timing to renew handsets -- and by the way, it could be quite an advantage for us, and this is why we have introduced on the French market but also to extend other markets. So our first one is to give some money to people who expect to keep their terminal one year more, and we have started the sale of refurbished terminals on the French market.

We observed but it is not in all geographies some price pressure, a price war started and (inaudible) by competitors. It is especially because it is in Poland and Romania. We see most of our customers, including the Orange optimizing the usage and being careful not to spend over the bundle, and business customers more and more inclined to renegotiate, even if they are not at the end of the period of the contract.

What do we do? I think I will not comment too long on that, and you can ask questions to my colleagues. But, first of all, we are clearly improving and I would say prioritizing our marketing approach in terms of segmentation to be more and more adapted to the customer needs by customer segment with the at the same time cap contracts, similar offers. In terms of tariff, we try to take care of the consumption patterns of the people and the way they would like to spend their money and at the same time to give them more unlimited offers. We know that if you want to keep and to develop our customers, they need some bundles, especially in terms of SMS data but also in terms of voice.

We have, and this is something Didier Lombard announced at the beginning of the year, we are putting a strong emphasis on our innovation resources to go to more simplicity, to more local solutions because we think that they are what is needed on the market today, and we have developed a few offers around that.

Hello for the French market, LightBox2, but also Orange money. And we are on the customer-facing part developing the Orange cap program with, as I said, cash in exchange of keeping your terminal for more time. And also the first mobile offer for the unemployed people in France at 10-year-old amounts. And also in the enterprise division, we are not waiting that the customers come to us saying I want to stop the contract. We are taking a proactive approach towards that also to their specific situations. Because we know that some of them are also in a difficult situation.

The business trends for the second half. Regarding revenue we expect more pressure on the revenue in the second half than what we had in the first half. Why? Because the economic climates in our view will not be better.

IMF projections in terms of GDP evolution are more or less at the same level than what has happened in the first half. But regulatory impact is stronger for us. You saw that in the first half we had a little less than 400 million impact on our revenues. We think that it will be more or less 2 times this in the second half when we look at all the termination rate cuts and roaming prices cuts decisions that are playable as of July 1.

Which means that if we take all this into account, our revenue will be slightly negative before those termination rate cuts, which means again that if we take them into account, which we did unfortunately already, revenue will be down in second half. This is why we are continuing to work and to protect our margin by workings on the cost structure, and I will say a few words on the Orange 2012 transformation afterwards. But in order to be able to remit the evolution of the EBITDA in this second half and to continue to tightly manage the CapEx, we have more CapEx spending in second half. Any link with this is a negative of our plans, and we will spend, however, more or less with the same reduction rate compared to second-half '08 and what we did in the first half.

Regarding the cost structure and what we do to transform the Company, it is on page 42. So you remember that and we announced that on March 5, we have launched an Orange 2012 transformation plan to be able to achieve about EUR1.5 billion savings on the running rates as on the CapEx on the CapEx line. And this is what we announced. We have now put this program in place, but with a very dynamic approach where in most of the entities, most of the countries we are working on projects to improve the cost structure of the CapEx structure and to generate a group portfolio, which has followed that cap level and were we also measure the savings. And the situation of the program appears on page 43 with today a portfolio of actions of around EUR1.7 billion, which is not sufficient yet to achieve the EUR1.5 billion savings a year, we know that. But it was much less a few months ago, and we continue to increase it. We will report on it at the end of the year, and we think this portfolio you see more or less how it is split. It is split among the geographies, but it is also split with some strong savings expected from our network costs, our network CapEx, and this is also linked with the network sharing programs we are putting in place. We have also something in from our IT systems, from our customer assessing processes, but also from the product front where you remember we said we like to simplify our products and to work to pruning of the others. So these are all the measures. And about EUR1.5 billion -- out of this EUR1.7 billion, 80% are on the OpEx line.

So to conclude with the outlook for the second half on page 44, so to confirm again the level of organic cash flow at EUR8 billion, so comparable to what it was a year ago. This first picture on acquisition we are less concerned by the risk of spending money on spectrum this year to a very large extent than what we were at the beginning of the year. We don't say it will not happen, but it is less likely. CapEx to sales ratio slightly below 12 as we said at the end of April, and the board has agreed, as Mr. Lombard announced, to distribute an interim dividend of EUR0.6 per share on September 2. And in 2010 the board will decide per pounds dividend, but no change on the dividend per (inaudible) that was announced, which is 45% of the organic cash flow.

Net debt is still a focus for us, and we want to keep our net debt to EBITDA ratio below 2 and continuing to improve the quality of our financing.

Thank you very much.

(Operator Instructions). Damien Maltarp, Credit Suisse.

I have got a couple of questions. Firstly, there seems to be some comments on the wires about some potential interest in some of [Zane]'s assets. Perhaps you could just clarify what your thinking is there?

And secondly, just in terms of your gearing, I guess you are at about 2 times net debt to EBITDA at the moment or just under. If you were looking at some of Zane's assets if you bought in, let's say, the minorities for example, I guess you would go above 2 times net debt to EBITDA. Are you happy to go above, or do we need to worry about the dividend in that case?

I think on the questions -- in fact, two questions, regarding Zane, we have been quite clear we are not interested into buying a stake into the Zane Group neither minority, nor majority, nor whatever. It has been very clear with us because the first rumors we have made clear statements on that.

What you have always said, however is that we are interested in two African assets. On self-standing stand-alone African assets are the small medium as we did in the past. So if by any chance, the Zane Group decides to sell some or one of its assets, we may look at it. This is what we said. Which means that taking this into consideration, your second question has a relatively little chance to be answered or to need an answer because we will remain into the two lines given both the dividend distribution and the debt ratio.

Frederic Boulan, Morgan Stanley.

Two quick questions, please. First of all, on the cost side, you managed to grow margins in Q2 with very solid cost control across the board and a low level of restructuring costs. So with the current focus of management on costs, plus content costs annualizing, what is driving the deterioration in margin that you expect for the second half?

And secondly, if you could share your thinking on shareholder remuneration, should we expect dividend to continue to grow it the group executes on the EUR8 billion for cash commitment? And should we see your proposal to pay half the final dividend in shares as a recurring practice, which was more one of things to last year macro situation?

On the cost control, we still have some, let's say, negative impact in terms of comparison in the second half compared to the second half last year, especially on the content part. Which you remember we started our content business progressively our fixed TV -- our pay-TV content business progressively in the second half with the start of the soccer in August, but the start of Orange Cinema series only in November. So now we have to take the full impact of that, and this is part of the difference.

On top of that, we will have the full effect of the audiovisual so-called corporate tax. The corporate tax started only in March, so we had more or less only three months or three months and a half of tax in this first half. We will have the full semester of tax in this second quarter.

However, including this, we say what you have to understand what we say, that we will not increase the erosion of the EBITDA compared to what has been done in the first half. This is more or less the message. Okay?

On the dividend payments, I think if we confirm what has been said, a cash flow of EUR8 billion, a distribution of EUR45 billion. And if we give -- if the board has chosen to keep stable the interim dividend, this is more or less a message of stable dividend. I don't say it is a decision of stable dividend, but I think there are some clues which are explaining that we are in a situation, and with the yearly performance, with the stable dividend, if by any chance we have a fabulous cash flow and EUR1 billion more, we will be so pleased there will be decisions to be made at that date. But I don't believe we will be in this situation.

Regarding the payment in shares, it is a point to be discussed with the board, not decided today.

Antoine Pradayrol, Exane BNP Paribas.

I have two clarification questions, please. The first one on revenues. What you are saying is that excluding regulation, there was a growth of 1% in H1, and that will become negative in H2. And then you say also that the regulation impact will double in H2 compared to H1, so it was minus 1.5% in H1, so minus 3% in H2. So should I understand that the H2 revenue decline would be somewhere between 3% and 4%? That is the first question, please.

Actually we are giving -- you have understood well quite the elements we have been giving. Maybe you are taking the figures in maybe a slightly too pessimistic way.

Okay. But why? I mean is there something else which we forget?

Everything at the extreme, then you go to the figures you are giving -- (multiple speakers)

Okay, okay. It makes sense. And the second clarification is on the free cash flow. Just to understand, you keep your EUR8 billion of guidance for the year. But the H1 figure includes EUR560 million of currency swap and TDIRA, etc. I mean is the EUR560 million now included in the guidance, or should we -- (multiple speakers) I think it is on top of the guidance because (multiple speakers)

Unfortunately our strategy is not on top of the guidance since the previous question on the dividend would be answered differently. But to face the EUR500 million you are mentioning of positive cash, we have a few negatives that we consider will not replicate. If I take LME implementation, it is in one year, and I don't think we will have a second LME where you see even more of the payment terms next year.

Okay. But LME you already said there would be an impact. So I think some people were expecting the negative impact. So it might have been in the models already, while the EUR500 million positive probably was not in the models. Do you understand what I mean?

Okay. But again, I think behind your questions there are two points. One, it is true that if your question is that, have you less operating cash than you initially thought, for sure because we have less revenues than we initially thought for 2009. And that is quite clear. The revenue evolution is more negative than what everybody initially thought at the beginning of the year. So, however, if you look at the ability to continue to generate EUR8 billion cash, if we take some of the negatives and some of the positives of the EUR8 billion this year, if we keep a level of activity comparable to the year after, we should be able to generate more or less the same (inaudible) cash flow.

Okay, I understand. And maybe just a follow-up question if I can on the costs in Spain. I mean the margin in Spain is very strong. And if I calculate the OpEx, it seems to be down roughly EUR100 million year on year. I'm just looking at personal Spain, so OpEx down EUR100 million H1 '09 compared to H1 '08. Are there any one-offs in that, or is the sustainable -- (multiple speakers)

There are no one-offs, but mainly the fact that there this is a market where most of the players have decreased their commercial expense.

Okay.

These are markets where commercial expense -- if you totalize the commercial expense (inaudible) of the total mobile market in Spain, it is decreasing.

Okay. And do you think it is just enabled into H2 at least in 2009?

Our view is that it will continue at maybe not the same level of -- maybe not the same level of improvement, but it will continue to improve in H2.

Nicolas Cote-Colisson, HSBC.

I have got two questions. The first one is -- sorry to come back on the OpEx, but I'm just wondering I'm trying to understand better what could be the H2 OpEx and wondering what kind of impact the Orange 2012 confirmation action plan could have on anything like IT or general properties and others type of expenses?

And my second question is on your strategy on pay-TV as to the recent comments from the competition authorities regarding auto distribution.

I will answer your first question, and maybe Jean-Yves Larrouturou will answer your second question. We are not commenting on the detailed impact of the Orange action plan. Because let's be clear in this first year of the Orange transformation plan, there is a mixture of contingency, let's say, cost cuts and a mixture of more structural savings. So we will report at the end of the year what we are doing, but we want to keep the flexibility. Because of some of the structural actions I have been describing, we are not so sure yet of the full effect this year. So we keep our margin flexibility. But what we commit to, this is to be in line with what we said.

Jean-Yves, on the --

Yes, just a few comments. As you know, this paper from the l'Autorite de la concurrence gives kind of negotiation but some [hiders] are depending on the policy of the CSA, the regulation authority in charge of media ads print. Another part depends on possible new bill on all these matters, particularly regarding the regulation of the pay-TV in France. I think there's many very interesting things in this paper regarding the analysis of this situation on the pay-TV factor, and I think we share a few of the l'Autorite de la concurrence. But at this stage, it is difficult to understand what could be really the legal framework for all these operations in the coming months or years.

So we are analyzing that, and we are also trying to understand what could be the answer of the government and of the Parliament on this subject. And we need to have this indication before deciding what kind of adaptation we need to have regarding our business model on that. We hope that all that will be, let's say, clear or not clear, partly clear in the coming months, and that before we hand off this semester, we could decide what kind of adaptation, what kind of changes are needed or useful or adequate.

James Britton, Nomura.

I have two questions, please. Firstly, on regulation you seem to have become sort of the victims of a tougher regulatory stance in France. Whereas in other European markets, regulators have been maybe holding it back a little bit. They have been incentivized more investment. Can you just outline what you see as the most critical regulatory decisions for the group over the next 12 months or so? And would you expect the negative impact on profits to be any greater or any less beyond this year?

And the second question would just be on on your M&A policy. The appetite for telco credits seems to have been getting a lot stronger in recent months. So when does it make sense for France Telecom to open the door again to transformational activity given that you have a medium-term objective of increasing scale and the valuations are at historically cheap or very cheap levels?

So first, regarding the regulation, I think the figures given by Gervais regarding the negative impact on the regulatory decisions on our performance in the second half are not at all new. All that is related to decisions taken at the end of 2008 or at the beginning of this year. So nothing new. But it is clear that this impact is clearly -- it is a huge one. In fact, double what we have in the first -- regarding the first half of the year.

So particularly regarding the NTR cut, just a decision taken at the European level or in every country where we are in the last year and then something which is absolutely clear. But the impact of that particularly in this current economic context has to be pointed out.

Regarding the perspective, I think there is quite different -- possibly it is the first point at all debates related to the new generation access network at the level of the union, as well as in some countries, particularly in France. The debates are crucial for the future, but not for the coming months, the coming semesters or coming years. It is a problem of the investment to be made in the coming years, in fact, and with possibly impacts on our performance during the decade.

Maybe you are seeing that the last draft recommendation from the outset is quite different from the previous text and we are analyzing that, and we hope to be in a position given this text to be worked out by the asset. But also given the debate within the French parliament to win the situation before the end of this year to see how we could invest as maybe just as a follower, maybe where we are with the investment plan. All that has to be clarified in the coming months.

Regarding the NTR, as I said during the Investor Day, we are more or less at the hand of this process with many additions taken regarding NTR cuts. But also, and I'm sure (inaudible), the recent decision taken by the French state concept Conseil d'Etat regarding the end of the [FC] metric or privilege given to [Breek], and I think that is a very positive decision from our point of view. Not maybe from Breek's point of view, but also for the future regarding a possible fourth entrant into the mobile market in France.

The third main field is all related to wholesale tariff, and I am sure you are aware we obtained from the asset definitely decisions regarding our 2009 wholesale tariff but also the securitization, if I can use his word, of the wholesale tariff of the previous years. This means that this debate is now at the European level, but with a very solid decision taken by the French authority. It means it is also we are not at the hand of the debate, but it's a very positive decision taken regarding all the debate and all the contestation on the table by the [vendor] for an example.

So it means that we are not in a black or white situation, but with very huge impact. Most of them already decided and were known and with some possibly to have clarification regarding the regulatory framework for the next generation investment.

Concerning the M&A policy, we remain on the prudent side of this policy, which means if I want to summarize, we will certainly not go in the direction of big deals, and we prefer to watch on the assets on which the value has to be created by us and not enterprise. And so we are not backing this bigger yard of the big deals. Obviously we are out of that. We are trying to buy licenses to create activities from scratch, in fact, to do the job ourselves and not to buy expensive sets. So there is no way for us to go into the yard of big deals.

Matthew Bloxham, Deutsche Bank.

A couple of questions, one on the margin again and one on cash flow. Just on the EBITDA margin, I just wanted to clarify comments that (inaudible) made that we should think about your focus on managing the EBITDA erosion in the second half. That is the EBITDA margin, so we should not be expecting the margin erosion to be any greater than the first half.

And then secondly, just on the cash flow, I'm just wondering to what extent you get a positive swing back in the second half from either working capital or the supplier variation, which we will see both quite negative in the first half?

Regarding the EBITDA, generally speaking the EBITDA is lower in the second half than in the first half in rate because there is a strong impact of commercial expense in the last quarter of the year. The sales activity generally is the biggest in the month of December, but it is also in November and October. This is the most active commercial part in our business.

So if you look at the past and at the figures for the previous years, you will see that generally speaking the spending and -- don't forget that (inaudible) commercial expense as a whole represent more than 15% of our revenues in total of the total business, which is by the way, much more on the mobile part itself.

So this is something which is in terms of facility quite strong. So even if you are careful on the expense and so the comparison quarter after quarter or half after half when we are not giving the margin rates normally should be lower in the second half than what it was in the first half.

Now in comparison to last year, let me speak about margin erosion, margin erosion we compared to last year's second half. And the comparison on last year's second-half is that we should not erode more than we did in the first half, and we are -- when we look at our cost structure, at the Orange transformation first proceeds we are recommending a moment ago, and on a few other factors, we think we should be able to keep this erosion at the level we set.

Regarding the cash flow, I have not completely understood your question. For me there is when we speak of a change of seasonality, it is true that if between your words there is the expectation that it should reverse positively, that is partly true. There will be some effect because this is a change of payment dates, payment terms between second half and first half.

So we will have these effects. But you have other effects, which explains that at the end there is probably a lower cash flow in the second half this year than we had in second half last year. Because if we have done more than EUR500 million more in the first half and if you confirmed the total year at EUR8 billion, this means that the cash flow is lower in second half. It is just pure arithmetic. And we have a few reasons to extend that especially in the payment terms and including the following impact of the LME in the second half and more CapEx spending in the second half than the first half.

Jerry Dellis, JPMorgan.

Two questions, please. Firstly, thinking about CapEx trends into the second half, you mentioned that on an underlying basis CapEx was 13% down year on year in H1. Is that sort of 13% decline in absolute terms a reasonable benchmark for H2 that would potentially take us down towards 11% CapEx sales for the full year? Would you be comfortable with that?

And then secondly, a question on French mobile. Obviously growth is still pretty strong, trending at slightly above 5%. Much stronger than in other markets. It seems to be principally driven by data. Are you comfortable that the rate of data ARPU growth is sustainable, and at what point do you think voice tariffs come under a little bit more pressure in preparation for the fourth entrant?

On the CapEx I see your calculation is not far from what we expect. We said we should have more or less 13% reduction, and we said at the same time that for the full year we have a CapEx to sales guidance, which is to be slightly below 12%. So, let's say, between 11% and 12%, which is more or less what you said.

Regarding the mobile business in France and on the tariff situation in preparation of the fourth license, maybe Louis-Pierre?.

I think it is a bit premature to talk about data to false license. It is at least a year ago, and I think for probably until the end of this year, we will follow the natural trend which is currently happening. Meaning there is no real tariff decrease on the voice part. You can see there are more unlimited offers coming to the market, but people taking these offers are usually paying a higher ARPU in their contracts. So I think this will continue, and on the data we are seeing a very strong push currently. You have seen our figures, and we don't believe that this will slow down. And from that perspective, obviously the iPhone was a kind of catalyzer of what is just happening now. So I think we will continue more or less on the current trend of H1.

Thierry Cota, Societe Generale.

I will have two questions, if I may. First, on broadband, the 26% market share of net adds, was it low? It is not the first quarter where it is not too good news. Can you elaborate on the reasons for the performance, and what means you will work on to try and improve the performance going forward?

And secondly, to further the question on French mobile, you had a good net adds postpaid performance in Q2. Can you tell us any impact of the loss of the iPhone exclusivity in the French market and if we could get a sense of the proportion of iPhone customers in those [two one 3000] net adds?

And lastly, on the four placements which was just mentioned, any news on the calendar of the launch of the tender itself?

Let me start with the mobile part. I understand your question was, what was the influence of the loss of the exclusivity on the iPhone?

Of course, we are now selling a bit less of iPhone than we were previously because they are three of us selling them. But it looks from the numbers we know that we are probably selling a bit more than our normal market share. And surveys we made showed that in the minds of the French people, Apple is more related to Orange than to our two other competitors. This might explain the first part of it.

On the broadband what is happening, it is basically two things. The first one is that the crisis has made people more sensitive to what they are paying, and you know way that we have a premium, which is basically unavailable because of the regulation constraints we have.

The second reason is also that one of our competitors has finished his merger. He was in very poor shape last year. Now he came back in the market, and he is able to sell within a physical routine network his offers, which was not the case before. Of course, we will react starting as early as the end of August in a more segmented approach, and we will also make sure that some of the policies applied by our competitors, namely crossing their customer bases between mobile and broadband, which is still forbidden for us. We will be able also to do this in the future or they will have to stop so that we are treated in the same way they are.

Do you get a sense that the content spending that you have been making over the last quarters and the offers that you have does make a difference? I mean would it have been much worse without your exclusive content offers?

I think it is hard to say if it would be much better or much worse. But we had a very interesting feedback. We had some customer forums where we invited the people from Orange and people from other competitors, and when we asked them what is for you the different share for Orange versus your competitors, their answer was first service, which is something, of course, we know, which is something we are always bending on.

But very strongly the second point was contents, and clearly they said it is a different share. Now, as we said, we are happy with the fact that we have been growing our paying base to 400,000 clients within a few months. But it is only the beginning. And so unfortunately it does not show up enough in the figures as we believe it will in a few quarters from now.

And on the four placements -- (multiple speakers)

Four placements, just to say that without any particular insider information, does it work with -- yes, without any insider information or a crystal ball, the only precise information we have that it is just 32 remaining hours to bet that it could be launched before the end of July.

[Dmitri Calionitis], Citigroup.

I have got two questions. The first one, again just on regulation therefore on fixed (inaudible) on fibre. If we -- the offset takes with it its view in terms of regulating fibre based on the draft that they published the consultation, would you just delay your spending on fibre, or would you be prepared not to spend on fibre or just being a follower?

My second question is on the top line. As you say, you're expecting the top line to start -- the decline to start accelerating. What initiatives are you putting in place to try to improve the growth rate? Do you now feel more of the need to do some -- to go for some inorganic growth?

Maybe I will start with your second question, and my colleagues will answer on the fibre situation.

Regarding revenue evolution, I think you have tried and you will find in the presentation a few slides either by country or globally at group where we say what we want to do to improve or maintain or protect the top line.

Now there are a few situations where even if you do that, when the customers are spending less and when the market is not growing and declining, if the only possibility is to acquire market share to very (inaudible) from your competitors, I'm not sure you do. The job especially on those customers, if I take the prepaid market in mobile, we know that the low cost portion of the prepaid market is very volatile. So you may take the risk to spend a lot of money to acquire customers and to slightly increase your market share and then to lose this marketshare as quickly as you wanted.

We have observed that in the past, especially in the highly competitive markets like the UK, and we don't think it is the right thing to do. If we take enterprise, we could continue to sell equipment switchboard with no margin or even negative margins, and you would increase revenue. So I'm not sure it is exactly what we have to do in this environment.

Regarding your second question on inorganic growth, I think we are doing two or three things in this area. First of all, we are continuing to develop the business in the adjacent areas. We have not been mentioning it, but the new growth activities -- content, audience, health -- we are continuing to grow, and if you take content, there is revenue growth in content. There is revenue growth in health. There is unfortunately a little less revenue growth in Web advertising because this is not the most beautiful year for advertising spending globally speaking. But you are continuing to look at, let's say, adjacent businesses as through our own means.

So organic are very small acquisitions to complement our EUR2 million size companies as we did in the service business for Orange business. So this is to continue, too.

And then there is the M&A policy that Mr. Lombard has be commenting a moment ago where we said we are looking at targets where we can develop the business. But again, we think that we have to increase the value-added base on our capital employed today. If you want to use more capital for development, it should bring at least the same capacity.

Regarding TTH I think things are clear and are relatively comfortable for half. So the next steps are as for (spoken in French) complication authority has to give its opinion on the new draft recommendation from the asset. The step after that would be if necessary from the point of view -- the standpoint of the assets changed that recommendation to have the opinion of the European Commission.

In parallel, there will be a debate in the French parliament, and it means that we can hope to have all the elements before the end of this year in order to see what could be the good tactics and strategy regarding the investment, what could be the situation in order to have normal revenue growth investment return rates on such kind of investments in the coming years.

And so it is an absolutely normal situation. It means that there will not be any impact in the second half of the year. It could be just into 2010, maybe not in the first months of 2010. But at this stage it is absolutely not possible to say whether we will be in something with a clear ambition or just as a follower, maybe a fast follower as I said earlier regarding the rollout of the TTH or that are in the hands of the assets and of the parliament.

And just I think you have to keep in mind that fibre is interesting only if you can develop services which are not accommodated by the normal network, and for the time being, this is not available. And so we need to work a lot of that because we will certainly not invest if we are not sure to differentiate from our competitors. So no impact on this year. It is obvious.

Carl Murdock-Smith, Cazenove.

Two questions, please. The first one, just an update on the current discussions with Mobinil and the ownership there and your current thoughts and plans.

And secondly, when you talk about regulatory impact, the EUR383 million in H1 and that doubling in H2, is that just strictly the regulatory impacts? And I was wondering what your thoughts were about the results and competitive action that may also occur.

Well, regarding your first question on Egypt, I think the situation is clear and relatively comfortable for half, maybe not so comfortable for the other party and particularly the Egyptian authorities.

As Gervais mentioned it, the operational situation is good and maybe more than that. And, as we have said, the results regarding the first semesters are really brilliant. And it is the most important point because with double-digit growth, as you have seen probably, and it is the most important point because this is our most important asset in the emerging countries.

The second point is a situation regarding these assets, and it is clear that we are now compared with the situation prevailing one year or two years ago. We are clearly in a better situation, a better position. The danger regarding our assets and just with a possibility, more than help to have an upside. The result of the arbitration process triggered by our friend and partner, [Nageep Siwiris], was a result which was not exactly what I supposed you had in mind, but with a clear right perhaps to strengthen, let's say, our contour on these operations.

So it is just on that side difficult clearly to have this right concretized and in concrete, and given ViOS' legal difficulties with the administrative authority in Egypt, that is the reason why we have all these episodes. But at the end of the day, I don't know whether the day is in July, not probable this year -- or in July to 2012 or 2013. We will see. But at the end of the day, I'm sure that we will have the results of this arbitration or a compensation proportionated to that.

So it means that we clearly have preferred to have the positive results within the legal or the Egyptian legal system. And so it means that we would prefer to avoid to have to trigger any international arbitration against the Republic of Egypt. Were it not this case, we would consider also this possibility. But the most important points are what I said earlier. The operational -- very good operational path and the comfort we have on our assets.

Regarding the regulatory impacts in the second half compared to the first half, so in terms of revenues we said it is 2 times -- more or less 2 times second half what we had been facing in the first half. The first half being EUR380 million revenue impact. Margin impact -- our EBITDA impact in the first half was around EUR90 million, and we considered that the impact in the second half will be three. It is also another pressure on EBITDA, and part of the answer to one of the previous questions on why our EBITDA erosion and why the EBITDA is evolving so differently in the second half.

Thank you very much.