Orange SA (ORAN) 2010 Q2 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to France Telecom 2010 first-half results conference call. The call will be hosted by Stephane Richard, CEO; and Gervais Pellissier, Deputy CEO and CFO; and Delphine Ernotte, Executive VP Deputy for French Operations; with members of FTE's executive committee for the Q&A session that will start after the presentation.

Thank you, and let me hand over to Stephane Richard.

Good afternoon everybody. Welcome to this first-half 2010 results conference.

I'm very happy to present this afternoon a very robust set of results for the first half of 2010. In a few seconds, Gervais will take you through more details about our results, and the rest of the management team is at your disposal to answer your questions at the end of this introduction. I will also come back later on and tell you about our new shareholder remuneration policy, which is I think a highlight in this presentation.

Let me first press the main points and the main figures that we achieved in this first-half of 2010. Those results demonstrate and justify the confidence that we have in the midterm prospects of the Group.

We are globally in-line with our expectations, clearly in terms of revenues, with an improvement especially obvious in the second quarter of 2010. And I would say, despite all the difficult elements in our environment in every country, we have been able also in this first half 2010 to contain margin erosion at the very limited proportion, less than 1 point.

And those solid commercial results and economic performance make us comfortable about the target in terms of operating free cash flow of EUR8 billion. As you will see, we reached nearly EUR4 billion for the first half 2010, which is a number very close to what we did in 2009.

Those performances, those results have led me to ask the Board to take a strong commitment to our shareholders in terms of remuneration policy with the confirmation of a EUR1.40 per share dividend on the next three years, 2010 to 2012. This is clearly in evidence of the very deep confidence that we have in our prospects, but also in the strategic roadmap that we set to ourselves through our plan, Conquests 2015.

On page five of the presentation, I would like to mention the first evidences of Conquests 2015 track, and let me just mention a few examples.

We have been able to reach an agreement in Egypt with our partner, Orascom Telecom. This will enable us to fully consolidate our Egyptian operation from 1st July 2010, and this will bring an additional 17 million customers to our footprint and around EUR700 million revenue coming from emerging markets.

At the same time we have launched with tremendous success of our Tunisian operation. We have been able to convince and to attract more than 300,000 customers in Tunisia.

The launch of the animals offers in the mobile market at Orange UK. Its launch in Spain and Poland has been very successful in the first half 2010, and this is also the reason of our good performance in the mobile market in those countries.

In terms of net worth, you know that within our Conquests 2015 plan the quality of network and the investment in network is one of our priorities for the coming years, and we are very glad to be able to announce that the -- our network in France has been ranked number one by almost all criteria by ARCEP, the French regulator, at the end of the first half 2010. So we have today by far the best mobile network in terms of quality of service in France, and this is completely coherent with our clear priority given to the network.

We have been also able to sign a very important project named ACE -- Africa Coast to Europe -- which is a submarine cable. We are going to be the leading player of a very wide consortium in order to build this sea cable, and this is going clearly to bring access to Internet to several dozens of millions of African customers, and more than 10 countries are going to first access to Internet through this cable.

In France, as you know, we have launched a very ambitious plan around a new social contract, and we have been able to launch in the first half 2010 one of the important elements of the plan, which is the training facilities program named Orange Campus. We'll be able to open the first of those facilities in the beginning of 2011.

On page six, you have here I think a very impressive set of numbers that show the spectacular expansion and solidity also of our position throughout the world. I would like maybe to lay the stress on the mobile customer base, which is still in a very substantial growth, 7%, with a 17% growth in Africa and Middle East, which clearly confirms that our strategy to grow in those markets is relevant.

You know that within our plan Conquests 2015 we want to be number one or number two there in every market where we are, and I am pleased to tell you that we have now 21 out of 27 operations where we are number one or number two -- this is two more than previously.

As far as the broadband market is concerned, broadband is, both in mobile and fixed, is a growth driver for our activities and revenues. We have today in the fixed line business throughout the world in broadband a total customer base which is above 13 million customers, which is the -- once again, a big -- a big result.

In the mobile markets, the mobile data services are still growing at a very high level, around 30% growth of personal 3G customers. We have today about 30 million customers in the world accessing to the mobile data.

On page seven you have here the main revenue trends in our key countries, and you can see that in all those countries the trend is positive. We are progressively recovering in a more positive trend in terms of revenues. This is clearly true in France, where the second quarter of 2010 is slightly above the first one.

It is clearly true in Spain and in Poland, where the trend is even more positive in terms of revenues, and clearly in the rest of the world. And I want also to mention the good performance of the enterprise segment, which has to deal with a difficult economic and competitive environment, and that has been able to record a better-than-expected performance in terms of revenues.

We go now to the main financials of this first half 2010. On all those items we are in line with our guidance and slightly better than expected in terms of revenues, in terms of EBITDA, with an EBITDA margin of 35%, in reduction of only 0.9 points. We are properly in line in terms of CapEx, with a special effort in France, where we are strictly online with our budget, and resulting from it, from this is a good performance in the production of organic cash flow. We are very near EUR4 billion, which makes us very confident in our capacity to reach our full-year target of EUR8 billion.

On page nine I would like to remind you that despite the problems that we had to deal with in some countries, and especially in France, and despite also our ambition in terms of social contract and improvement of working conditions in this country, we are still focusing on our efficiency through a lot of different programs, and I want to really emphasize that in this first half 2010 we've been able to save about EUR300 million of different costs. You have here the main that are described, which is a better result than 2009.

So everybody should keep in mind that the efforts of all the Group, all the company, all the teams who improve our efficiency the way we manage our cost structure is still very one of our priorities, and we remain in the same pace in the coming quarters.

I'm going now to let the floor to Gervais to get into more details by country.

Thank you Stephane. So just to start with page 11, which shows a little more details on the revenue evolution for our major geographies, or group of countries. Just one or two questions.

First of all, the -- and you mentioned it -- the change in the trends, as you can observe it on the right-hand part of the charts, where to a certain extent if you look a little backwards, it seems that the weakest bunch was third-quarter '09, and that since that date we have been progressively recovering, not yet to be positive, getting close, but recovering towards a better figure.

This is also the case in Africa/Middle East, where [third] quarter -- [first quarter that was a soft] quarter '09 was also the weakest quarter, and that afterwards we are [in the book] to catch up with growth above, and then 7% or 8%. That's quite encouraging when you look a little backwards on how we are compared to the timing versus the macroeconomic environment and versus the global picture in the industry.

The second point is that when we look into some other figures, especially for France, France remains resilient, and we have good improvements of the situation in Poland and -- but also in [other] mid (inaudible) markets, whereas for enterprise we said that 2010 would be changing. That's -- however, Q2 is better than Q1, and I think good -- a good thing also is East Africa.

On page 12 you see the splits for the geographical areas between mobile and fixed business, personal and home, and there just to highlight that major mobile operations have grown above 4%, around 4% in Q2, before regulatory impact, which means that the revenue we get from our customers has been growing, as you know, at a good level thanks to the growth of the customer base, the fact that most of those geographies have either stabilized or increased the market share, but also thanks to the development too of non-voice revenue, with more and more weight of mobile that are revenue within our figures.

Regarding the margin, so erosion, as announced by Stephane, has been contained below 1 point of revenues -- at 0.9 points to revenues. And again, getting -- looking into more details within the different geographies, France EBITDA remains steady, in spite of adverse effects, including regulations, including tax, including the fact of taking into account the cost of the social contracts, I mean a couple of adverse effects we've seen of the P&L of France. And in spite of that, the margin has remained above 40%.

Spain has continued to increase its EBITDA margin by 1 point, mainly thanks to some projected recovery of the [GSM] business in terms of profitability. Enterprise [had] I think a very good achievement, despite of the strong revenue hit, that we were able to keep the same margin rate, [this 0.2%] erosion, which again puts us and puts our enterprise division hopefully as a benchmark within the payers within Europe.

As regards to the evolution between mobile and fixed, it's reflected on page 14, and there again I think there is -- we have mentioned it on several occasions. There is a strong impact from regulation.

The good news is that our feeling -- not only our feelings, the math shows that weight of the regulation in specific terminals [that we've got] should decrease over time. If you take the position within France where [commission] rates are already very low, there is much less to be caught in the future than what you have already been suffering from in the past.

And -- however, when we exclude the regulatory impact, you see that our three major geographies have increased their EBITDA coming from mobile. Again, it's a good sign in terms of soundness of the business, of underlying soundness of the business, the ability to grow the profitability with -- by [reducing] our costs, improving the quality of service.

Regarding the CapEx, we said that -- now, regarding it midyear, the evolution of the EBITDA -- sorry, on page 15 -- we said that, again, we have been continuing to work on the improvement of the performance of the company and to work with performance programs in order to save more and more costs on our cost structure, since Orange, as Stephane said, [lost] EUR300 million.

[In fact this is] especially to decrease the G&A line, the OpEx biz line of the company by EUR[150] million, and this has partially offset some of the adverse effects we have [from] regulation, basically EUR[185] million negative, interconnect costs, because it's true that for keeping the market share continuing to develop the customer base, we need to enrich the offer with more abundant offer, especially in terms of voice and [SMS]. But also we need also to have more fuel within the sales engine in terms of tax and [mill efficiencies] to increase the loyalty of customers.

Net income has amounted to EUR3.7 billion, which is EUR1.2 billion above last year. A huge part of that has been these capital gains we have recorded with the sale of Orange UK, [which is the new JV]. We got a [shell] of the [JV] in exchange. But we -- this is also a demonstration of let's say the fact that you are quite careful into assessing the value of our assets within the company in terms especially of goodwill valuation, and the fact that we were able to take a capital gain shows that the value we had put in our books on Orange UK was really at the low end of the range.

The other reasons for which the (inaudible) has improved are coming from reduction of the financial expense, and also the fact that we are able to generate new tax assets within the Group.

Regarding CapEx, on page 17, through Q1 we were lagging behind the situation in terms of investment compared to Q1 2009. Q2, we have invested EUR[70] million more than we did a year ago, second quarter, and we think that our plan, the scheduling of investment for the second half of the year, we are able to confirm that we [spent] the 12% revenue announced at the beginning of the year, which is probably an increase of CapEx between EUR200 million and EUR300 million compared to a year ago. France is above 2009. We are investing mainly in 3G Plus coverage, whereas -- important after the exceptional weather conditions of Q1, a catch-up is underway to really be effective in H2.

In terms of the nature of our investments -- this appears on page 18. Again, continuation to invest into 3G coverage in France, but also outside of France, including the ability to accumulate more mobile data traffic. At the same time, ramp up of [FTH] will really start in France in the second half this year; whereas, we have also invested in France a little more in IT systems to prepare the evolution of our tools, including to improve the working conditions of our employees and the quality of service vis-a-vis the customers.

Cash flow for first-half 2010 -- on page 19 -- at EUR4 billion is in line again with what you expect for the year and really helps us to confirm the full year objective at EUR8 billion. Again, I remind you that the EUR8 billion objective is before taking into account the penalty payments of EUR[960] million for French tax professionals after the litigation with [Brussels], which was paid in January, and also excludes the spectrum licensing expenses within Europe, which are relative to acquisition of new band -- of bandwidth after the digital dividend in some countries, like we did in France by buying (inaudible) in the first half of the year for EUR285 million.

Regarding the debt of the company, on page 20, again, we have continued to decrease the debt. Now our net debt is below EUR30 billion. And this helps us to achieve the best net debt to EBITDA ratio within the industry in Europe at 1.86. This ratio, just for the sake of (inaudible), includes 50% of the debt of the [JV] in the UK, and 50% of the [equity].

The main drivers for the debt decrease is increased -- the strong cash flow generation, the EUR4 billion, the fact that we include -- we got some reimbursement of debt on the UK [JV]. I just mentioned that Deutsche Telekom has agreed upon that we share also the level of the debt. And we have paid EUR2.1 billion of dividends to the (inaudible) shareholders, and EUR200 million dividends to the minority shareholders of the entity.

Regarding debt and balance sheet management, we have continued to improve the situation -- or to (inaudible) the situation of the company with a higher level of liquidity. One should not forget that bond markets are liquid when they are open, but they are sometimes closed. Trust me, the issues of sovereign debt situation in these first-half markets have been closed from more or less five or six weeks, April and beginning of May, and that to have liquidity is very important.

Second aspect, we are continuing to work on the covenant of the debt. We're able to raise debt at very low cost. We raised EUR1.8 billion of new debt at [3.54], which is we think the lowest cost, again, within the sector. This helps us to renew and to refresh our debt, which we have been doing last year, and to decrease the average cost of debt.

We have decreased the average cost of debt by [0.8%], which is I think a good achievement in one year only, whilst keeping the good majority with nearly 8 years and low installments for the years to come, because the biggest installment is below EUR4.5 [billion].

In terms of business performance, maybe I will leave Delphine Ernotte to comment the French situation, and then I will take the (inaudible) of the other countries.

On the French market, we have a slight revenue growth, [0.3]%, excluding regulatory impacts, and slight decline on home revenues.

On the personal markets we are very pleased with our marketing policy since the revenue is up to [4]% and the negative impact of both regulation and voice revenue decline is almost compensated by the growth of our customer base, [7.6]%, and the success of SMS and data usages and revenues.

On the fixed market, our revenue are declining by 2%, and the broadband growth does no longer compensate the PSTN revenue decrease.

Our EBITDA was down to [1.6] points, due mainly to home revenues decline and regulation.

If we focus on the personal markets, we are very pleased with our stabilized market share at 47.1%. Also, for our 26.2 million customers the share of contracts is constantly increasing, up to [69.8]%. We had 209 new contract customers, thanks to the -- our Origami offers and also the launch on the -- of the iPhone 4.

Our annual rolling ARPU, that slightly increased (inaudible) regulation by [0.7]%, (inaudible) ARPU growing by [15.5]%, driven by increased multimedia services usages, compensating voice ARPU decreased due to our abundance and the market abundance offers.

On the home markets, our performance on ADSL has been stabilized in Q2 compared to Q1. It launched a new offer in June, and we have now the best enriched offer of the market. Our market share in Q2 is at [15.5]%, and the good news is that we are going to be able to do cross-selling. Our competitors did a lot of cross-selling in H1, and we'll be able to do the same in H2.

Our ARPU in broadband has increased by 4.6% and reached EUR36.6, thanks to two major things, our mix, which is more native [ADSL] customers, and also increase of pay TV. We have 1,000,006 pay TV packages sold in H1, which is a 30% growth compared to last year, and also our VOD, which has increased by 48%. The number of [access copper lines] is quite stable.

Now if we focus on our main objective, which is to recover around 30% of net adds, [the] market share in H2, we've set up a marketing plan which aims to recover this market share. The main things we did in H2 is a pricing policy with now the best enriched ADSL offer in the market. It has an impact of course on gross adds but also on our loyalty efficiency.

The plan consists in some actions, some to regain new customers. We're going to launch a new [critical] play offer mid August. We are also going to use fiber in very dense areas to recover our market share, and also optimize our channel mix, pull out the best efficiency out of each channel.

On the loyalty plans, we are -- we have to identify and [securitize] our most vital customers. We already improved our house moving process, because it's a very period for moving in the summer. And we're going to optimize our retention process, as we did in the mobile, and it was quite successful.

The key enablers for those two action plans on new customers and reducing the churn are, first, our ability to cross-sell -- we're going to do so in H2; and also a very strong plan on quality of service. We are going to renew our customer boxes very proactively in the second part of the year, and also optimize our bandwidth for a better quality of service.

So this marketing approach has an effect on our two major levers. The first one is to win new customers, and the second one is to reduce the churn. It has already shown a very positive short-term impact on the gross adds. We've over-achieved our gross add objectives in June and should reduce customer churn in the longer term.

Thank you Delphine. So I continue with going with Spain, on page 27. That's to mention that the financials for this first half confirm the improvement of trends we observe in Spain, especially on mobile now for more than around two years.

Revenues are down, but limited erosion compared to what we have, and especially if you take into account the regulatory impact, because before regulation, revenue increased by -- have been increased by 3.7% in this first half, and we have -- you will see that afterwards -- an improvement into the quality of the base, of course in terms of size but also in terms of mix, compared to what we have. It may be down [more than] [50]% of the customers under contract.

As regards to the fixed business, broadband business, it is improving, even if the revenue is still with the negative evolution at minus [1.7]% in the second half, [after] a 4% decrease in first quarter and minus 10% decrease that you may remember in fourth quarter 2009.

The global profitability of our space has increased by 1.3% of EBITDA margin, mainly thanks to the reduction of losses within the fixed business, and at the same time the ability to contain the costs on the mobile business with 24.5% EBITDA rate on mobile, so stable compared to what it was a year ago.

Regarding the KPIs for the mobile business, on page 28, this shows good commercial trends in terms of net adds. If we exclude the fact that because of the change of security law in Spain, we have been obliged to [clean 842] subscriptions, prepaid subscriptions (technical difficulty) [took out] within the base by lack of personal identification of the customer. And this I think is true for all operators in Spain, where everybody has to implement the law during the first quarter -- the second quarter.

Regarding the customer base, I think it's also a good [signal] because we have been able to reduce the churn by more than 1 point year-over-year, and we expect that the launch of the iPhone in the second half of the year will help us to even increase the quality of the base and at the same time to increase the mobile [that's our revenue in Spain].

Home business, as I mentioned, is slightly better. Churn, as you know, reduced by 5 points, and we are working on the margin in this business, especially on the interconnection margin, by having more and more of our customers on our [under-link sites] compared to a rental situation with Swiss Telefonica, which should help us to meet our total year objective to be breakeven at EBITDA level on this business in Spain.

Poland's (inaudible) [TP Group] -- they have published their results. I guess you know them. I will not comment in any too detailed, just to say that I think they are also in line and even better than our expectation in that Poland has even -- be able to [review] its guidance up, which means that situation is good.

I would just like to mention that in mobile we have recovered our position of leader in terms of value market share, which is the good achievement; whereas on the fixed line situation, it remains difficult. Except there is a continued development of [TV]. The [TV] client base continued to increase. It's 90% increased in terms of [pay] TV provided to our broadband customers.

Regarding the other countries -- so again we mentioned the good revenue performance of -- excuse me -- regarding the -- excuse me, I'm confused in my [sights] with page 33.

For rest of the world, so we have already been mentioning the good performance of Africa/Middle East in terms of revenue evolution, plus 7% for the semester. And plus 8% before regulation. Whereas in Europe one should also underline the very good performance of Mobistar, which was published last week with [6]% growth, whereas Moldova remains the only open country with double-digit growth, and we are quite satisfied with that. As regards to other European countries, they have been fighting in more difficult situation but really seem quite well in terms of market share.

As regards to the customer base for the rest of the world, just to mention that the total customers have -- mobile customers continue to increase by 12%, many triggered by Africa/Middle East, where we have now 17% growth, which was mentioned by Stephane, and the reinforcing of our market positioning is now 98% of our customer base in countries where we are number one or number two on the market.

One point just on Egypt. It's on page 35. So Egypt has not been consolidated into our figures, except for the state of the customer base, but within the financials, it's just -- we just took a stake of the net -- our equity stake of the net results. We will consolidate a full consolidation on July 1st.

Egypt again -- we have finalized the agreements in the (inaudible) on July the 13th. And those figures I guess you know, the figures of (inaudible) have been under pressure in this second half, with the strong regulatory pressure and [an increase] of competition intensity. I think that having now control of operation, will help I think much more effectively our Egyptian colleagues to improve the performance in half of [this year].

The last segment -- so the enterprise division, where revenue has been under strong pressure, as for lots of our competitors, for three main reasons.

First of all, our exposure, our portfolio exposure is mainly to European-based companies, or companies with a lot of (inaudible), and Europe is clearly lagging behind in terms of the global economic recovery, compared to America or to Asia. That's one reason.

The second reason is that in periods of economic downturn our clients tend to accelerate their migration towards new tools and new technologies, especially when their supplier has been good enough to demonstrate that those new technologies are powerful and reliable, and [IP], both for telephony and for data transmission, has proven now to be more or less as reliable as the classical PSTN or the traditional [data list line], and then those customers, though we prefer we stay -- they with us with the new technologies, but unfortunately it's at the lower tariff and by cutting some of the legacies.

This explains the impact on the revenues. However, an improvement in second quarter linked with some recovery in the IT services, whereas at the same time, as I mentioned, again, the division has been able to keep steady its margin rate, in spite of this strong hit on the revenues.

As regards to the -- some of [the partial] KPIs, just to mention that the weight of new activities is even bigger because of this accelerated migration and that we see some improvement in the new areas when you look at some of the KPIs in terms of IP connections in France with 50% growth, whereas Internet and other IP connections continue to progress, if you just take the French [people].

I will now go to page 39 to give you more or less some of our ideas on the second half, before leaving the floor to Stephane for the conclusion.

On page 39 -- so we have given some indication on our marketing action plans on those geographies. I think if -- without mentioning all of them, just to mention that we observed two or three things. One is that in the (inaudible) business (inaudible) the broadband business, segmentation and quality of service (inaudible) the two elements to improve the conquests share by the situation in most of the geographies.

Second element -- I think we need to continue to maintain our leadership on mobile, and despite continuing to push for mobile data growth, knowing that voice continues to reduce. Just to give one figure reference, voice (inaudible) continued to reduce more and more [abundant for first], whereas now the non-voice business represents nearly 1/3 of what we invoice to customers. And only to date 1/3 of the customers have a 3G connection. So seeing that there is still a huge potential, but also we need to not only to follow but to be proactive on this move towards new sources of [activities] and revenues.

And the last point is that we need to continue to develop in EMEA, including by specific offers like Orange Money, like we have been proposing now in several African countries as one way to increase the business.

And if I take all these, summarize how we see second half, we think that today we can confirm our forecast in terms of revenues. But we think the revenue will be flat, and when I say flat, maybe slightly above flat, in terms of a revenue before regulation. [But] the EBITDA, we will erode our EBITDA, not more in second half than what we did in first half, which means limit it to a maximum 1 point. [But] reinvest 12% [to] revenues, and that [will] generate EUR8 billion cash flow in 2010, but also we are very confident today to be able to keep the same level of cash flow generation in 2011.

A few words now about our philosophy regarding our shareholders. I would like first to tell you very simply that when I look at France Telecom today and when I try to compare France Telecom to its main peers, and especially in Europe, what strikes me is really the quality of this company, either its economic and commercial performance, the quality of its international footprint. We have no weakness. We have no country, no operation where we are really facing major problems.

We are one of the most resilient player in our domestic historic markets in France. And to be very clear, I am convinced that we -- among the big European telco's, we are really one of the best on all those criteria.

And at the same time, I hear from time to time that we would be maybe less shareholder friendly than some of our peers. And let me clearly to try to be as clear as possible in -- at that moment. And I asked the Board yesterday to permit the company, the management and myself, in simply ensuring to our shareholders the best possible return. This is a strong commitment in the midterm, and the first evidence of this is the commitment to pay a EUR1.40 dividend per share for each fiscal year from 2010 to 2012, starting with a stable interim dividend of EUR0.6 on September 2nd.

We have announced in the beginning of July the set of the social commitments and projects, especially new hires and various employee benefits, and I think that it is just fair for everybody to take those commitments, those midterm commitments, towards our shareholders.

By preparing those commitments, we also examined other shareholder remuneration options, especially share buybacks. Before we have not decided to retain those options insofar as we think that the commitment on dividends is the most simple, the most straightforward kind of return that we can ensure to our shareholders. This is cash. This is direct. And this benefits to all our shareholders.

This cash policy is clearly fully compliant with our midterm organic cash flow generation and also with the constraints that we set to ourselves in terms of financial structure and especially leverage. And this will [let] us some room for maneuver to fund a disciplined, rigorous, selective value-creative M&A policy that I would like now, at page 42, to remind in the main aspects.

I mentioned when I presented the Conquests 2015 plan for the Group that we will try in the future to focus our M&A efforts on markets and countries where we can bring to the Group growth assets in order to contribute to sustain the growth rates of our revenues. And this will lead us clearly to consider as a priority the developments that we can make in emerging markets, with a clear focus in the Africa/Middle East area, where we want to capitalize on our existing position, teams, networks.

But this will be made clearly within the financial constraints that I mentioned, especially the return to our shareholders. And this will be clearly also very strictly selective in terms of valuation of those assets. We have a set of opportunities today, and we once again would be very selective in those opportunities.

We do not envisage any transformational or [purely] equity deal. We don't want to solicitate our shareholders to finance those projects, and we will use the financial margins that we will have from our operations.

And once again, I want to remind that in terms of international footprint, first, I consider that we have one of the best quality international footprint in the market, and I want to reiterate also the objective that we have to be number one or number two in any country, any market where we operate in the world.

Now to conclude this [press] presentation, I want to tell you that I really think that we have a very solid first-half 2010, and that is a very good foundation for this Conquests 2015 strategic roadmap that we gave to ourselves. This -- the quality of this -- of those results allow me to take a strong commitment towards all the employees but also towards all our shareholders that this three-year contract that I mentioned is true for our employees. It is also true for our shareholders through the dividend policy.

We are currently working on the detailed strategic plan, which will be derived from the Conquests 2015 plan. The objective is clearly to give more sales figures in the midterm in terms of revenues and resources, but also to enrich the equity story that I will present you after the end of this year, probably in early December, at the end of this process.

Thank you for your attention, and we are ready now for your questions.

(Operator Instructions). Frederic Boulan, Morgan Stanley.

Two questions please. First of all on margins, if you could come back a bit on the action plan that you have to contain the margin pressure, especially in the domestic business, after the 160 bps reduction in the first half. You mentioned a couple of commercial actions in this retention, or a boost in mobile and fixed. So what can you (technical difficulty) do on the other cost drivers to maintain this -- those margins? And do you expect EBITDA to stabilize at one point?

And secondly, on mobile, we thought we'd have a deceleration in [inter-plan] in Q2. So what's your view here on the rest of the year? Specifically on data, we're starting -- we're seeing in most markets that the ARPUs remain negative, so when do you expect data growth to start to offset voice decline? And what are the implications for -- on margins in this push on smart phones? Thanks a lot.

So to -- regarding the margin evolution in the second half, I think we expect some of the same trends regarding some of the adverse effects we have already embedded into our plans. There is two or three points. One is that regulatory -- there will be still some regulatory impact. There will be still some let's say insufficient revenues, even if the situation is better than what are expected. The revenue is still relatively with low growth, and this with us, the negative impact on the -- a negative impact on the margin at the end of the [game].

So the second point is also the fact -- and I think that's the very good news also from this [perspective] is that we have -- we continue to make savings with our performance program. We said it's EUR[270] million in this first half. We expect also something probably in the same range in the second half of the year, which means that globally speaking we expect the pressure on the EBITDA to be not more in the second half than what it was in first half.

Now, country by country it could be slightly different, but you can consider that this evolution of EBITDA, which will be limited to less than 1 point erosion in second half, (technical difficulty) like the first half, will mainly come also from France, France representing [50]% of the business.

Regarding the evolution of the mobile revenue for -- I think it's for -- it's for France. Maybe could you comment?

So the growth on the mobile revenues is up to 4%, excluding regulatory impact, and the share of the SMS and data revenue out of those mobile revenue is up to 30%.

Size, as I said, we are able to put out more value out of our customers because our mix, our contract mix is still increasing. And the size -- the growth of data and SMS is compensating in our ARPU the decline on -- of the voice revenues.

Frederic Doussard, Oddo Securities.

Three questions maybe on M&A. So if I remember well, some of your managers say that there could be possible deals announced this summer in Africa and Middle East. For the moment there is nothing announced. So can we expect some small announcement in the coming weeks? Or do you think it will be a longer process? So that's the first question.

To answer your question, we are currently working on a number of selected opportunities that are completely in compliance with the criteria that I have defined in terms of valuation, in terms of amount, and in terms of interest, strategic interest and a geographical footprint.

I'm not able today to tell you how long it will take to come to a conclusion regarding those various opportunities, so I don't want -- I don't know if it's a question of weeks or months. The only thing that I can tell you is that we have I think interesting opportunities that are once again totally coherent with the specifics that I reminded a few minutes ago.

Okay. And two questions related to your answer -- can we say that one big or two big deals are more likely than a succession of small deals?

No. It depends on what you consider as a big deal (technical difficulty) or a small deal. Today we have no major deals clearly on track. We have sizable deals but that are completely, once again, compatible with the strict constraints that we set in terms of M&A. So interesting, sizable but not major in terms of amount.

Okay. And last question on this topic -- so when you said no transformational deals, that means still a turnover of the targets below 10% of your growth turnover? Something like that? Or --?

I would say that it means both all deals that would lead us to solicitate our shareholders in terms of a capital increase. So -- or change -- yes. Or change clearly our guidance in terms of the EBITDA to date -- to debt -- debt to EBITDA ratio. So this is -- I think this gives you the size of what we can consider transformational or non-transformational.

There will be -- we are not working on anything that would not be coherent with the guidance that we gave to the market in terms of financial constraints and in terms of size related to financial structure and return to shareholders.

So thank you very much. And congratulation for the deals and [commitments].

James Britton, Nomura.

I've got two questions please. First of all, what share of the French mobile market is only taking voice and text offers at the moment? And can you answer that in terms of the customers, but also the revenues that those customers represent?

And the second question would be on the cross-selling that you are going to initiate. Do you think that the benefits from cross-selling in France, we'll be seeing more on up-selling your mobile products into the fixed line households? Or from up-selling fixed products into your mobile base and so helping you to improve your broadband market share? Thank you.

On the first question, all our net customers are data customers. So of course it's not the case on the base. It's more than [central] for our customers that are data customers. But all our (inaudible) customers are data ones.

On the cross-selling, of course we have two initiatives to [adopt]. The first one is to use mobile base [as core] customers and to [pose] broadband services -- first point. And the second one is the second (technical difficulty) we're going to lunch a (technical difficulty) triple play offer mid-August, and of (technical difficulty) course we can also use both (technical difficulty) our mobile base and our broadband base to propose and this new offer.

Can I -- I have a follow-up on the first question, please? If you say that perhaps data -- if data is being used by about 30% of your customer base, i.e., pretty much in line with those who have a 3G handset, what is the revenue share of that 30% of your customer base? Presumably they are high ARPU customers, so the revenues accounted by that data user must be more like 60% to 70% of your revenue base. Is that correct?

This is a figure we don't communicate because -- just to remind you that I don't think our competitors in the French market communicate it because it remains -- and by the way, I understand why you are interested in, because it is a relatively strategic figure to know what is the difference of ARPU between your data customers and what is the real part of ARPU. So we communicate the total -- the asset on the total customer base. The ARPU -- non-voice ARPU, that ARPU is 29% of the total ARPU in France, (inaudible) we have.

Now we say 32% of the customer base is 3G user, and it's true that non-3G users' ARPU are low data users. There are a few, but they are small. There are still some BlackBerry (technical difficulty) 3G or things like that, but that's very little usage.

So these are the two figures we communicate. And the other figure we give, [but it's] -- which is more an indication than a figure -- we say that in general a 3G customer generates between EUR10 and EUR20 more ARPU than a non-3G customer.

So these are the three figures we give to the market now, for you to try to use that. But to give more details -- I'm sorry -- is a very sensitive information in terms of competition.

Nicolas Cote-Colisson, HSBC.

Obviously we don't get a great deal of numbers regarding the UK anymore. But could you share with us some KPI, such as churn trends or usage in mobile in the UK? And also if you could tell us where you stand regarding your ADSL subscriber base?

The comment [this season] of the two shareholders has been to decide to not publish any data on the UK until September the 28th, which will be the date where we will publish a full set of data.

You can also imagine that if we don't publish anything, this is because there are no bad news, because if there were real bad news within the UK figures, we would've felt obliged between ourselves to publish something. It means that we think it's on track, while -- with what we said for the market before. Now as our JV has been just constituted on April 1st, it's not so easy to adjust the two sets of data of the two companies and to align the two reportings. So we're working on that, and you will be satisfied. Sorry for the -- for leaving you with no answer going to vacation, but you will have to wait until we come back. So no news, good news.

Right. I can wait. If you don't mind, if I can ask another question about your network savings in H1, talking about nearly EUR100 million between [IT] and network. Is it mainly OpEx? And do you have any more details on that?

I think it is mainly OpEx. We need to check. It's mainly OpEx, and it -- because it is energy consumption and maintenance of the networks.

Dimitri Kallianiotis, Citigroup.

I've got two questions, please. The first one is just going back on the point you raised on the share buyback. I just wanted to know under what conditions you would reconsider doing a share buyback, or [if you're saying] you are basically ruling it out for the next three years.

And my second question is on the French (inaudible) market. I just wanted to come back on your targets in terms of market share of net adds. Is it still -- do you still -- do you think now that you're going to launch your [quadruple] play and you lower your [price] that you will be able to get to 30%, 35% sort of targets in terms of market share for net -- market share of net adds in broadband? Or do you think it's still too early to expect a big uptick there? Thank you.

The share buyback, as a Stephane mentioned, has been discussed, and I think it is typically a matter where the Board has discussed -- and by the way, including the last road shows we did, I think it's the discussion between investors and (inaudible). I don't think there is such a common view on when, if, with which order of magnitude a share buyback will be implemented, which was not the case for the visibility and the [commencement] of the dividend.

But I think this is -- the main decision taken by this company is to confirm the three-year and to have a commitment and on a three-year dividend. I think share buybacks can always happen if the company feels there is some interest to do it, including by the way, as there is one point which I didn't mention in too our press release, the fact that there could be a free share plan for the employees with the same order of magnitude as the last one, which was done, and by definition a free share plan will be done through share buyback. We will not issue new shares to create this time.

Regarding the home market share --

Regarding the home market share, it's true that our new [24.9] offer has already shown a very good efficiency on our June growth, and it has also an efficiency on the churn, because when we ask our customers why they are leaving Orange, the first answer is the price, so we expect this new offer to have a very strong impact also on the churn.

The second point is the quadruple play offer. Of course, it's going to have an impact on the market share.

But those two offers are part of a more -- of the wider marketing plan. We have also actions on loyalty. We have actions on quality of services. And all these marketing plans aimed at recovering 30% market share during the H2.

Thank you. Very clear.

Antoine Pradayrol, Exane.

Just two detailed questions please. The first one is on enterprise. The revenue decline in Q2 was milder than in Q1, and I see that there is a line, the fourth line of enterprise, which is called other or something like that, which is up in Q2. Is this trend sustainable? Can we expect that the rest of the year will be declining less than 5%? That's my first question.

Yes. There are two parts to the answer. It's true that the second quarter has been mildly more satisfactory than the first one. Trend wise, when we listen to our customers overall, we are still I'd say cautiously optimistic to -- for the read across to the second half.

Specifically for the others line, it includes equipment resale, which has been pretty active in particular in Asia Pac, and as well as there's been a World Cup effect on GlobeCast, which has generated a specific benefit in the second quarter, which was the World Cup, so that's been one of the line items that has sustained the second quarter.

So if I understand well, the -- everything except this other line this is basically sustainable in your view? No? Can I -- do I understand when (inaudible)

(technical difficulty)

I'm sorry?

I don't think I got the -- can you repeat that (multiple speakers) [last] part of your comment?

Is it right if I say that the trends that we have seen in Q2 on enterprise are basically sustainable into H2, except the ones that you have just mentioned regarding equipment and GlobeCast?

Well, yes, on those three items. On the GlobeCast part, of course, the sport event is the second quarter. However, equipment resale was -- that part remains sustainable in the sense that there is good activity in the market, which you also see on the vendors.

Great. The second deal question is that on the international carriers, on shared services, which is quite difficult to model, as you would expect, and the EBITDA loss in H1 was lower than expected by me and consensus, I think, and with a EUR[50] million loss, should we expect that the loss for ICSS is something around EUR100 million on a full-year basis, which is much less than the previous year? Or is there anything specific in H1 which justifies this lower loss in H1?

Just to comment on that first of all, maybe for the understanding of everybody, this entity, ICSS, carries operational activity which is [international wholesale], but also the cost of the corporate, and if this entity is in a loss situation, it's because it includes the cost of [coverage of] wholesale activity is, let's say, correctly for not [saying] more profitable. The difference is lower than anticipated because we are working on the cost of [corporates] and (inaudible) the costs of corporates within the company. This is part of the achievement. It's not on the business if where the business has remained in line with the expectations but is on the fact that you have been stressing cost of corporate.

Okay. So I understand as well that maybe the level of loss that we see in H1 is something we can model for the future.

Yes, more or less. With some improvement maybe.

Matthew Bloxham, Deutsche Bank.

Just had a couple of questions on the M&A policy. In particular, could you give us a little bit more detail on the methodology you used to assess whether a deal is going to be value-creative or not? Is it a kind of classic cash flow analysis with some kind of local return on [capsule]? And I mean, some of your peers in the European market benchmark their M&A against buying back their own stock. Is that something that you would consider as well?

And then, just secondly, also related to the M&A policy within Africa, is the priority more to extend the footprint, or is there more of a priority on consolidating your position in some of your existing markets? Thanks.

I'll try to answer. Just I don't think we are so different from others. We try to be, as we said, professional in the way to assess the target and to price the targets we are interested in.

The basics for us, again -- and I've explained that, so (inaudible) it's not the multiple but is what is the business plan of the assets we are interested in, and how do we value this plan, with clearly very important point which is, which cost of capital do we assess to the target? And there, let's be clear, in emerging markets cost of capitals are always higher than the cost of capital we would apply on [mature] markets in Europe -- as the first thing. And the cost of capital includes the -- let's say the traditional financial analogies in cost of capital, plus a risk factor, which is more linked with political situation, ability to take the dividend out of the country, so it's out of the country, [plus] stability of -- reliability of the potential partner (inaudible) yes, we have some experience in this field. So we try to assess all this, and I think be -- we would pay a higher price for an asset where the political stability and the stability of the legal system and of the tax system is bigger than you can say where regulation appears to be very friendly today but with a low level of stability. So that's the first point.

Then we will compare to the multiples. But let's be clear. Multiples for emerging markets that have good growth potential in terms of cash are by definition at the higher multiples than multiples for Western Europe assets with no growth potential.

The second point is that, why do we target Africa/Middle East? Because we have already a presence in 19 of those countries, and that's for the last decade. And especially for the last two or three years we have invested a lot into the equipment of those countries on the territories, but also around Africa, with a huge investment in submarine cable to prepare also the future for mobile data growth or fixed data growth in those areas, both including the ACE project, which has been announced and reminded to you by Stephane at the beginning of our speech.

So (inaudible) [source of] purchasing power for specific solutions including specific solutions for Africa. I just mentioned that we are the first operator in number of solar powered antennas in Africa.

So these are all those criteria we have decided to apply, and I think it's quite new for the last months. I think we are clear on that as we were before (inaudible) say, because we are clear on that in Western Europe. We are not so clear outside that. This is how we want to target number one, number two and maybe with very little exception, number three positions, when the country is big enough to accommodate three big players. But that's -- if not -- if you cannot achieve a ranking of being number one or number two, we think that with the brands we have, because one should not forget also that the Orange brand is a very strong marketing and synergistic tool in this business. This is more or less what we see.

So this is the way we assess our investments into EMEA.

Now, I don't think you do a comparison between let's say a 200 million or 300 million target with at the same time would I do a share buyback, because the (inaudible) [reason] is not the same. I think you assess your global M&A policy with the share buyback, but not at each target level. I don't think so. At least -- and maybe Stephane will comment on that, but I don't think it's the thing to do.

You have a global policy where you dedicate your resources (inaudible) things. But the (inaudible) reason of an acquisition in emerging markets where the population, especially in Africa, where the population will double in the next 10 years, is another [primary] reason than just to invest in a share buyback to [deploy] the share in -- and now. It's not exactly the same [time already].

Emmet Kelly, Merrill Lynch.

Just three quick questions, please. Firstly, with regard to the EPS commitments that you've given for 2010 through to 2012, is the EUR1.40 a fixed amount? Or could there possibly be upside to that amount if you were to experience a stronger-than-expected performance?

Secondly, on page seven of your presentation you gave a very helpful breakdown of your expectations for trends in the second half of the year on a market by market basis. And could you just say a few words on the trends you're expecting in France for the individual fixed line and mobile businesses? So whether you see a potential rebound in mobile revenues in the second half of the year on the back of lower termination cuts?

And then the third point, third question -- you may not want to answer this one, but you said you can't disclose KPIs for the UK JV. I'm just wondering though, could you say a few words on perhaps your expectation for timing of dividend payments coming from that UK JV? Thank you.

Okay. As far as the first question is concerned about dividend, clearly the EUR1.4 per share is the basis. It's the minimum. It's a guarantee that we want to give to our shareholders. It is coherent with our assessments of the cash flow generation prospects of the Group on this three-year period of time. And clearly, if our operations and results are substantially better than expected, we will reassess this amount. But this is assumed to be a clear minimum guarantee given to our shareholders.

In answer to your second question -- maybe I take the third one [first]. Just to say that we expect the JV to pay some dividend this year. There will be a dividend payment this year, and I think it has been included into the cash flow forecast both of France Telecom and from Deutsche Telekom.

On the French market side, the regulation impact we are expecting on the 1st of July, we are planning to keep up on the same trend as we have on H1, working on our revenue per customer, both of the mobile market and Internet markets.

Jonathan Dann, Barclays Capital.

Three very quick questions. The first one, was -- is there some -- in order to be able to offer a four play, will you offer 3G roaming to Iliad?

My second question is, could you just remind us, it's clear that you have 21 of your 27 markets where you are either number one or number two. Any thoughts on what you will do where you are perhaps permanently a third operator? And any thoughts about Orange Business Services, where I guess by definition you are not one of the top two operators in any single market?

And then third, you mentioned that by sort of autumn you will have found a partner for the content assets. If you for example form a joint venture, will you de-consolidate some of the media EBITDA losses? And if so, roughly speaking, by how much?

I guess there are my three questions.

Regarding your first question, we don't have any discussion with Iliad regarding the 3G roaming, and we do not intend to open any discussion on that matter with Iliad.

Okay. I thought there was a higher court ruling that gave the -- that effectively said there was a trade-off between four play and roaming. Or is that not the case?

I don't think there has been a ruling yet. We are -- we have indications from past decisions that some of the involved partners' regulators in France might consider that the attributed license would involve 3G rights, but this is not clear yet at all.

Now on the market shares globally speaking, this is -- I'd just remind you that this is what we have done in Europe. We were number four in Denmark. We're number four in the Netherlands. We have sold and we were -- there's no prospects to increase or to improve, and you have (inaudible) now. When you have still some chance to improve, we can do it. For instance, there are two operations which have become number two in this quarter, in this semester, in which we are not number two before. So we are working to generate organic growth and to have a better marketing, a better positioning than others to increase the market positioning. But as we say in good Old French (inaudible). So -- which means that if you see no prospects to change that, you may choose another strategy, which is to get out.

Regarding Orange business, maybe I will leave Vivek Badrinath, who is the head of -- for this to answer.

Yes, Jonathan, I think you are right on being number one or number two doesn't quite apply to the Orange Business Services activity, where you could arguably be seen, when you define the market as serving multinational companies, as being within the top three, outside Verizon, AT&T, or NBT, depending on what sizes of the market or what side of the market you look at. So I wouldn't state that being number -- not being in the top three in a given enterprise market very broadly is a relevant comparison. So we're in the leaders both in terms of quality and revenue size on the MNC market, and that remains relevant.

Can I ask a quick follow-up? Which were the two countries -- which were the two operations that improved?

If I remember, Niger and Equatorial Guinea.

Then regarding content, the strategy as it has been expressed by Stephane is really to be in the business (inaudible) where we globally improve the profitability impact of our strategy into content, which is to decrease the cost. This is [what] they are today.

We have that [growth] through, in one -- in several months of (inaudible) through a deconsolidation, a partial deconsolidation. We don't know yet. It will depend upon the agreements we have with the potential partners.

Presumably, you'd deconsolidate losses though, so the remainder of the Group would be more profitable on a consolidated basis?

Yes, the idea is to improve the P&L of the Group. So -- and to just to add a word on that, I don't know if the consequence of this approach will be to deconsolidate our content assets. We will see. But clearly what we want to do and what we are going to do is to improve the ratio between the cost and the impact on our revenues on our core business. And because today we consider -- I consider that this ratio is not appropriate, and so the target is clearly to reduce substantially the cost of these this content policy and strategy, and to at the same time simultaneously improve the efficiency of those investments on our core business.

Nick Lyall, UBS.

It was two questions, please. Just in France firstly, could you explain if there is any first-time or new costs in the first half 2010 that didn't occur last year, so that we could work back to underlying French cost curves, please.

And then the second point was on headcount. It's been flat for a couple of quarters. Is this a temporary slowdown in the reduction in headcount, as you've been speaking to the unions and employees, and should we expect it to reaccelerate? Or is it now going to remain relatively flat until you hit the large attrition you might see in say 2013, 2014? Thanks.

We are not sure -- I'm not sure I -- we understood your first question.

It was just trying -- do you remember you used to give us a breakdown of the new costs that contributed to France, for example, for the quarter over the half? So (multiple speakers) in terms of TV tax or (multiple speakers)

Yes, you're right. You're right. You mean the additional structure costs (multiple speakers) we had about EUR[40] million of TV tax because these were -- TV tax was just [eliminated] on 1st of March 2009, which means that we didn't pay tax in January and February 2009. It was about EUR[40] million.

There has been about -- if I remember -- EUR20 million, a little (inaudible) than EUR20 million new cost of content, additional content, which is EUR[60] million just on this. Plus the cost of the senior [part-time] plan, which is also an additional EUR[40] million. So this is the additional structural costs on this first half in France is more or less EUR100 million.

And on the staff numbers, is that at a sort of temporary slowdown in the reduction in headcount, and we should assume a resumption (multiple speakers) several quarters?

Does your question concern only France? Or is it a question on the overall?

It's really -- but I mean, it's slowed in -- overall and in France. So I suppose primarily in France I suppose, but (multiple speakers)

Okay. Because, as you know, outside France we have countries where we have strong reductions, like Poland, and we -- and there are countries where we are, on the contrary, where we are increasing the staff, where we have new, additional duties. But overall the global trend for the Group is a decline, still a decline in headcount by -- if you take June 2010 compared to June 2009, it's about five -- a little bit more than 5,000 less employees in 2010 compared to 2009. And in France it's about [1,400] less in 2010 than in 2009.

Now, if we are looking in the midterm, taking into account the targets in terms of new hires, especially the 10,000 new recruitments that have been announced in France by 2012, and taking into account the natural attrition and also the impact of the senior part-time plan, we expect globally in France the headcounts to be slightly in reduction until 2012 and then probably more substantially in reduction after 2012. But there will not be any increase in the headcounts, neither in France or in the rest of the Group, in the coming years.

So thank you very much for having participated through this conference. We will probably meet some of you, for I think most of you, after the vacation, which means second half of September. Thank you.

Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.