Orange SA (ORAN) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to France Telecom Orange 2012 First-Half Results Conference Call. The call will be hosted by Stephane Richard, Chairman and Chief Executive Officer, and Gervais Pellissier, Deputy CEO and CFO, with members of FT's Executive Committee for the Q&A session that will start after the presentation. Thank you and let me hand over to Stephane Richard.

Yes. Thank you very much. Good morning to everybody. I will start the presentation of our figures and Stephane will be -- will conclude our session of today. So we have decided to have this conference quite early to leave space to our colleagues, because we know that this end of July a lot of people will publish their results, especially some of our peers in this sector, Telefonica, just afterwards.

Just a few comments first, and I would like to start with page 10 of the presentation, just to come back on the main figures we have. This is revenue, minus -- a 1.9% decrease, mainly the consequence of regulation. Excluding this effect, the revenues are almost stable at minus 0.1%. And I think we can observe that there are countries where revenue is under pressure. But at the same time, in our footprint, we are quite happy that regions or countries are still growing, especially Spain, emerging markets and the international carriers activities.

EBITDA, still penalized by EUR100m reduction linked with regulation, stands slightly above EUR7b. The erosion has been limited at 1.6 points, out of which 0.3 point is coming from the retirement and pension issue for the French public servants according to the decision made by EC and which will be applied by the French government this summer.

Net income is reflecting the EBITDA decrease and the impairments of goodwill in Romania for EUR159m. At the same time, Group has not slowed down in this expense since it spent 1% more in H1 CapEx compared to last year and the CapEx represent 11.3% of our revenue.

The level of operating cash flow at EUR4.5b makes us comfortable to meet the year, and Stephane will explain to you this in our -- in his conclusion. At the same time, we have maintained a solid net debt to EBITDA ratio at 2.11 times, which is stable compared to the end of the year. And this makes us also quite confident in coming back to a level of 2 in the medium term.

Revenues by geographies are described on page 11 -- are described on page 11, and they are with a penalized point coming from regulation, minus EUR400m. The effect is quite sensitive in France, and H2 might be even more impacted than H1. Revenue decrease in France is minus 2%; in Spain, the performance has remained quite high; and in Poland, revenue decrease was limited to 1.1%, thanks to the ICT revenue. In the rest of the world revenues are increasing. African countries posting impressive revenue growth rates, like Ivory Coast or Niger, and more than 5% growth for AMEA in the second quarter of the year. The Animals Social launch in Belgium is quite encouraging for the last two months in Belgium, and Orange Romania is back to positive growth.

Enterprise segment revenues are down by 2.6%, still penalized by the legacy solutions, whilst other domains are growing, which means that if we look at our revenue picture in total, we are, I think, quite good compared to what is happening with other big incumbents in Europe when we look at the first published results from our colleagues.

EBITDA is under pressure, however, with the pressure limited to 1.6 points as I explained, and with 22% of the decrease coming from regulation. In terms of segments, legacy operations are for sure more suffering than others. In France, EBITDA is down by EUR400m, in Poland by EUR52m, in Enterprise EUR36m (sic - see slide 7 "EUR53m"). However, we have good contributors coming from Spain, EUR74m increase, and in rest of the world, especially thanks to AMEA performance.

If I go to page 13, the trends in EBITDA are mainly coming from the revenue impact, lose revenue as it was explained, and out of which, the regulatory impact is EUR101m. Regarding the cost structure of the Company, we have some small pressure on the labor cost; however, rather limited compared to what could happen for a group like us, especially because there is a very slight salary increase in the Company in France for this year.

The cost-saving programs, which have been implemented, especially Chrysalid, are helping us keep better situation for EBITDA, and this is what's reflected in this very low increase of costs on the IT and property and G&A where we have the benefit of Chrysalid that you find on page 14 with, for Chrysalid, savings of EUR252m in OpEx and a total savings of EUR310m for the total of the Group.

I'll just remind you, we might comment that in the Q&A, that the Chrysalid program is really covering all the cost structure reduction we can operate in this Company through network sharing, through improvement of our processes. And this is what is described on page 15, where you see that we have taken some illustration of the project with RAN sharing in Poland, transmission costs in Spain, our mass market customer relationship in France, where we try to optimize our processes, share the means with our competitors when it is feasible, and leads to a better structure for the future and not just generate savings for the year.

Regarding CapEx, as I said, we had a slight increase in CapEx, but we have mainly focused the CapEx on the strategic aspects we need to focus on, especially LTE self-deployment, Fiber-to-the-Home for the French market, and change also of -- swap 2G/3G in the other geographies. And if you look at the increase, we have 6% increase of the network spending for the Group, we have 2% increase in IT, whereas we have rather installed our CPE in the Group with the exchange of [light] box we did last year and which is now quasi terminated, and that's why we have been decreasing the investment in this area.

In terms of geographies, you see that there is a slight increase in France, increase in Spain because we are accelerating some of the change of the structure for our 3G network, and a slight increase in the rest of the world.

To conclude for the first-half results for Group as a whole, we have the situation of the cash flow and the debt, and we are reducing the debt by EUR1.1b in this first half coming from EUR32b to EUR31.2b at the end of H1. And this is due to the level of cash flow generation, operating cash flow, EUR4.5b, in line with our full-year guidance. And on top, we have some positive contribution with EUR1.4b coming from the Orange Switzerland disposal and EUR225m net debt reduction as a result of the new agreement reached with our co-shareholder Mr. Sawiris in Egypt.

Positive effects, which are negatively offset by EUR920m of interest, EUR748m of cash tax, which is an increase of about EUR400m compared to a year ago, and EUR600m change, negative change, in working capital mainly due to the investment phase of the Company, and the debt vis-a-vis the suppliers. We have also paid the balance of the dividend at EUR0.80 on June 13, and we have in the other financial items EUR216m non-monetary effect due to increase in debt.

A last comment on the debt is that we continue to refinance our debt with the best-in-sector conditions, and at the end of June, we have kept our liquidity position after dividend payment with nearly EUR15b liquidity position. We have continued to prepare the future by reinvesting the credit quality with the strengthening of our balance sheet, anticipating future redemptions and keeping diversifying our funding sources. We have reduced the average cost of our debt, thanks to the debt refinancing at best-in-sector conditions.

In January, we have seized the window of opportunity in the dollar market and issued $900m 30-year bond at 4.86%. In June, we have issued a EUR1b 10-year bonds with a record low coupon at 3%, and this contributed to decrease the average cost of debt in bonds from 5.29% to -- from 5.48% to 5.29% at the end of 2011. And we have increased the maturity of the debt by half a year in this first semester of the year.

Now I leave the floor to Stephane to present the figures, conclusion of the results, and I will come back on the results by geography afterwards.

Hi, good morning, everyone. Let me give you a few major information about our performance in the first half 2012, and then Gervais will comment to more details country by country, market by market.

So if we can go to page five, where we have the main figures and the main results. I would like to begin with our French results by saying that we have been able at the end of this first half to stabilize our market share at 38.1% in the mobile retail market. The good news in this market after the entrance of a new player is that we have divided by four the number of customer losses between Q1 and Q2. And we are even back to positive net adds in June, 27,000 new customers.

This has been achieved mainly thanks to the success of Sosh, our web-only SIM-only offer that has been able to attract 367,000 customers, but also through a very powerful marketing tool which is the quad-play bundle, Open, with more than 2m customers. We have also simplified a lot our Origami offers, which is the classic set of offers in the mobile market.

Those results have been achieved also thanks to the contribution of the Enterprise area, with positive net adds, and especially boosted by significant M2M contracts. And resulting from this is limited the revenue decrease in the mobile market at 4.5%, even 2% if we exclude regulation, this is for the overall French operation. Clearly those figures has been also kept under control thanks to the roaming agreements that we have signed with the fourth player.

On the broadband market, we have, in the very challenging conditions, we have been able to keep our market share around 24% in Q2. So in the first half we are not far from that level, which is I think a very satisfactory performance in a very aggressive market.

The Group revenue, the overall revenue, as has been mentioned by Gervais earlier, is almost stable, with especially strong performance coming from emerging markets, the 6.2%, excluding regulation, and in Spain. And this has led us to keep control of our EBITDA margin erosion which is limited to 1.6 points. This has been also made possible thanks to a very active management of commercial costs, but also with tighter OpEx control thanks to the Chrysalid program, we'll come back later on, on those big programs.

As far as the debt is concerned, we are very stable around 2.1 as the ratio debt to EBITDA. And last but not least, those first-half results are totally consistent with our yearly guidance in terms of operating cash flow, close to EUR8b that I can confirm very clearly today. We will come back also on the prospect.

Let me give you a few information, achievements that show that we are very consistent with our Conquest 2015 plan and very steady in terms of implementation of these plans. I will start with the network priority by saying first that our network CapEx has still been increasing in the first half at a yearly rate of 6%. We have recently launched our 4G first operation in Marseille, south of France, and we have three other cities that are planned in the second half of this year. And we plan to launch our first offers 4G/LTE offers early 2013, at a time when we have a set of devices that will be compatible with our 4G. We have now launched 3G services in 14 out of 20 emerging countries. And this is a very important first priority in those countries to differentiate by the quality of the network and the quality of 3G services.

We are rolling out fiber network in France very much according to the plan, the overall plan that we have presented, announced eight months ago. And we have also started to roll out fiber network in Spain. We have built and we are going to open the first big, large data center for cloud services both for enterprise and residential customers in France. This will be opened in autumn.

And last, and though this is not clearly what I could call an achievement in terms of network priorities, we have managed our network outage in France a few days ago I think as efficiently as possible and we have now a situation which is back to fully normal. And we took less than 12 hours to fix this major incident, I think without any significant consequence or damage on our customer base.

In terms of people, we have received in 2012 several Top Employer labels in France, Belgium, Poland, and also in the Dominican Republic. We have good results from our social inquiries in France that clearly show that the climate, the working environment is perceived as much better than it used to be in the past. We have been able to come to I think a decent agreement in terms of French salaries the beginning of this year. And our Senior Part-Time plan in France is a big success, and with the new rules regarding the retirement plans in France, we will be able to add 1,030 -- 300 more people entering in this Senior Part-Time plan.

As far as customers are concerned, this is page seven, I have already mentioned the success of our main new offers in France, Open, the quadruple-play, Sosh, and new Origami bundles. We have launched similarly web-only offers in Spain, which is branded Amena, used to be the brand of our business in Spain a few years ago.

We have rebranded our Polish fixed activities in Poland. Today, in Poland, all our services and products are under Orange brand and we have been I think very successful in delivering communication services for the UEFA 2012 Championship in this country. Orange Money in Africa and in the Middle East is still a very -- success with now over 4m customers.

Overall, we have a customer base still increasing by 3.6% to 224m customers. And this has been achieved keeping commercial and content costs under control and even down by 1.4%.

International development has been highlighted by our efforts to clarify the shareholding structure of our business in Egypt which is now done. We own more or less 94% of MobiNil, our Egyptian operation. And this operation has enabled us to spare more than EUR270m of cash-out. And we are now focusing on integrating new operation in Iraq with Korek or in Democratic Republic of Congo with CCT. Last, the B2B revenues in emerging markets have grown by more than 10%.

I now let the floor again to Gervais. Thank you.

Thank you, Stephane. So maybe now a few comments on our different geographies.

First, to start with France, and in France, so I'm coming on page 20, in France, as anticipated, the top line continued to slow down. This is something that Stephane commented. And this is in spite of the positive contribution of our fixed broadband activity and of the domestic roaming agreements with Iliad.

Regulation continues to weigh on the top line as it represented EUR290m of revenue decline, you were explained moments ago. The impact is mainly coming from MTR cuts from EUR0.03, to [EUR0.015] in first half 2012. And just to keep in mind that excluding regulation, excluding regulation, mobile service revenues were slightly growing at plus 0.5% whilst the roaming agreements is compensating the decrease of retail activity.

In-home usage revenues, the trend has improved year over year, with a decline of EUR190m year over year, which is 30% less than what we had in the first half 2011, whilst the loss of PSTN lines is decreasing, and broadband revenue are back to a significant growth level.

The margin has been efficiently managed in the difficult situation, and Delphine is with us to answer your question if you have later on. Keeping in mind that the margin has been managed by really managing the commercial expense, which have been optimized through again value customers while continuing the amount spent in handset subsidies. And at the same time, the indirect costs on French operations have been stabilized thanks to the Chrysalid program which has generated [EUR115m] of savings, mostly on customer management.

Regarding some of the operational KPIs on page 21, looking at mobile first, we observed a swing to positive consumer contract net adds, this was underlined by Stephane, in June, with the total net customer net losses divided by four in Q2 compared to what was lost in Q1, mainly thanks to the attractiveness of our new offers and the reshuffling of our tariff for the Origami offer.

We managed to stabilize our retail market share at 38.1%, which means stable market share in Q2 compared to the 1.5 point loss in Q1. And the 2Q contraction went down by 9 points to 18% in Q2 compared to 27% in Q1. So I will not say that we are coming back to normal. As you're aware, on the market, with four operators, we'll have a higher level of churn that what we had with market with three operators. But I think we are now quite confident that we can manage the situation in terms of market.

We reported 1.75m gross adds in Q2, which is the best performance ever on the French market, which means that we should not also forget that the French market is sustained in terms of commercial activity.

If we look now at the value per customer base, ARPU was down by 6%, as anticipated. And this is mainly the consequence of our offer adjustment and of regulatory impact. Out of this 6% decrease, let's not forget that there is about two-thirds coming from the decrease of regulation.

Regarding the fixed line indicators, home segment continue to report good commercial figures, with 24% net share of conquest that was referenced by Stephane just a minute ago. And we consider that in the environment where it is -- where there is also, with the competition on mobile, an increased competition on DSL, this is a good position, especially taking into account the various commercial offers that have been proposed by some competitors.

At the same time, the ARPU from DSL continues to grow, and the PSTN line losses continue to decrease. We are losing about 100,000 less lines in this quarter than we had a year ago.

For Spain, good results underlined by this second quarter, with revenue growth of 2.5% in Q2 after 2.2% in Q1, which is even after -- excluding regulation, 4.5% growth. Mobile revenue is still growing at 1% over H1, plus 3.9% excluding regulation. And I think compared to the results that are published or will be published by our competitors, this is really a very strong achievement. It is mainly driven by data service and equipment revenue, and achieved in spite of the slowdown in voice usage that we observed on the whole market, the reduction of voice traffic for all operators in Spain.

The contract customer base increased by 7%. And in terms of portability, Orange Spain has been the market leader in this second quarter with at the same time reducing its subsidy and its commercial costs in the move, that by the way is underway on the Spanish market.

For the fixed line revenues, growth is 9%, which is quite impressive, nearly 10% in Q2. Fixed broadband revenues are growing by 17% and represent two-thirds now of the revenue of the fixed line business in Spain, with 11% growth of the broadband customer base and 4% increase of ARPU. This has led to a very impressive improvement of the first-half EBITDA, plus 19%, coming from the data service growth on the lower level of commercial costs and from the efficiency improvement in the fixed line division.

Poland, which published their results yesterday, the second quarter has been marked by an improving revenue trend and steady commercial KPIs. We have rebranded this plan activity in Orange Polska, as said by Stephane a minute ago. We had also the event of the Euro soccer competition, which by the way has resulted to some increase in revenue in terms of services provided through this competition. And I think we have kept also our value market share, our position of number one on the Polish market in value market share, whereas the home revenues are still challenged even if we continue to gain clients in DSL.

For the other geographies of the Group, we have in fact mixed results between a steady growth in emerging markets and I would say the situation for European countries which is more comparable to what it is in the rest of Europe with the exclusion of Spain. We have, however, on the emerging markets a slight slowdown, which is due to the deceleration in Egypt where second quarter is a little more challenging than what was first quarter, linked also with the political environment. However, at the same time, very strong performance in some African geographies, especially Ivory Coast, with 34% growth in second quarter, and full recovery of our operations in Ivory Coast compared to the very disastrous situation we had at the end of the political turmoil at the end of first half last year.

Also strong revenue growth from new operations, around 36% growth, such as Uganda, Guinea (inaudible), Guinea-Bissau, Central African Republic and Niger. Overall, the customer base has grown by more than 15%. And if we consider the mobile business only, our growth in Africa and Middle East is more than 7%.

In Europe, first half revenue trends are down by 2.2% and turn to flat evolution if we exclude the regulatory impacts we have in most of the countries. The slowdown in Q2 is due to a slight deteriorating trend in Romania after a good first quarter, and in Belgium, where pressure is still there, with the change of the business model on the market with the introduction of subsidy and also a market which is also constrained by macroeconomic conditions. Mobistar reports, however, encouraging operational KPIs at the end of the quarter with return to positive post-pay net adds since May, whereas the first part of the semester was more difficult. EBITDA has increased by 2.5% for the other geographies as a group, mainly supported by the emerging markets.

And last but not a, the Enterprise division, Orange Business Services, with the revenue decline of 2.6%, lower revenue decline in Q2 compared to Q1. However, still a strong pressure on the legacy businesses. We observed, by the way, more pressure on the B2B for legacy. Actually pleased on what we see in the consumer business. And also mature networks with low revenue growth with now quasi 100% equipment of most of the businesses with IP solutions.

Growing networks are still with a strong revenue growth, 8.4%, with a strong growth of voice-over-IP revenues and a strong growth in advanced network revenues such as Wi-Fi and satellite. And services, which are accompanying our connectivity offer, are growing nearly 4%, which is not too bad in an environment where IP services are not growing that fast in Europe.

While at the end of the (inaudible) we keep our leadership in terms of margin in this business compared to our competitors, especially if you see again the last published results from operators who are active in the B2B field, but this is impacted by the revenue pressure and a changing business mix, what we have lost 1 point of EBITDA rate, which is not so bad for the first half.

And again, yesterday we have published the results of Everything Everywhere, our JV with Deutsche Telekom, with a good commercial performance, a good, let's say, implementation of the synergy, especially on the network, but still some pressure on EBITDA, mainly linked with the high competition on the British market in terms of subsidies, either through reseller commissions or through SAC initiatives which is quite different from what we observed in other European markets. The pace of subsidies continued to increase on the British market at the opposite of what we observed on some Continental Europe markets.

Now, Stephane.

(technical difficulty) today and even to -- including within this guidance, the impact of the French pension new regime which has been set by the European Commission that we clearly contest. But in the meantime, we have included the impact, the financial impact of those decisions within our guidance. And despite this, we still confirm the close to EUR8b operating cash flow guidance for the year.

And this combined to -- with our debt management, as it has been explained and shown, and also the cash generation of the Company, enables us to announce the payment of the interim dividend at the level that has been announced previously, EUR0.6 per share.

Now, when we look at the rest of the year, I would say that we expect still some pressure on our revenues, mainly in the French market where we will have the repricing effect of -- which is linked to Free's arrival later on in the year and next year. But in the same time, we are now confident in our capacity to protect our market share. And to that extent, what we have been able to do in June is, I think, is very important. We have been able once again to regain commercial momentum and to increase our customer base in this very competitive market. And it is, I think, the proof that our marketing strategy, reshaping the Origami offers and using Sosh and Open in the French market, is the relevant strategy and efficient, and it makes us reasonably confident on -- in our performance in the French market for the coming month.

In the same time, we have clearly accelerated our efforts to better master our cost structure, especially thanks to the Group programs that we have implemented. And we will not sacrifice our investments, especially investments in the networks. We are going to accelerate the 4G/LTE rollout in France, and we will just do what we have committed to in terms of fiber rollout. So we will invest in the networks because we see this as clearly core business and core for our future.

And this is the main things that we could say about 2012, so I would say clearly the confirmation of our guidance, all our financial guidance. But there is serious management of our debt position, because in the current times in Europe, it's clearly an absolute priority for the team in terms of use of cash also for the Company.

And then what I would like to do is -- the next rendezvous when we announced our third-quarter results the end of October. This is the time where we will give you some outlook on 2013. We think that after the summer we will have a much more relevant comprehensive view on, especially on the French market. Hopefully in the momentum of the end of the first half we will have also better knowledge and information about maybe some new laws in France after the first interim finance law that is currently under discussion in the French Parliament. And so at that time we will be able to give you I think some views, information, guidance also next year results of the Company.

That's it. So I think we are now available, ready for your questions. The whole team is in this room around me. So we are ready to answer your questions.

Thank you. [Operator Instructions].

We'll take our first question today from Nicolas Cote-Colisson from HSBC. Please go ahead.

Thank you. I've got two questions, one fiber, another one on the French mobile market. Just on fiber, I wonder how the new European regulation, but also the current government consultation on fiber may impact your plans. And if you can update us the CapEx budget and also coverage target for France.

And for the French mobile, are you still factoring in the 10% ARPU decrease for the full year?

Regarding the fiber regulation, we have I think a very good positive news a few days ago with the new set of recommendations coming from European Commission which is, I want to underline this, a major move in the European view of regulation. And this very concretely includes a recommendation to stabilize the copper prices for the networks in Europe. And this is I think clearly a good news for our French business.

In terms of figures regarding the fiber rollout, we are, at the end of first half 2012, at an amount cumulated of EUR319m. And if I take the cumulated amount invested in fiber on period of two years, 2010 to 2012, the amount is EUR504m. So we are on track with our plan of investing more or less EUR2b by 2015. In 2012 we will invest twice what we have invested in 2011. In terms of coverage, the ratio, we are at the end of June, at 1.3m homes passed by fiber networks. And last figure that I can give you is that the Group today, stands for 80% to 85% of the private fiber deployment in France. So we are, I would say, totally on track with our plan in terms of the fiber rollout.

Regarding the mobile figures, yes, I can confirm at that stage, the order of magnitude of 10% of decrease in ARPU for 2012. We are at 6.1% of decrease in mobile ARPU for H1 so I think it is consistent with this order of magnitude of 10% of decrease for the full year. This is, by the way, very much close to what we had in mind a few months ago so there is no bad, I would say, surprise regarding this parameter.

Okay, thank you.

Thank you. We now move on to our next question from Jakob Bluestone of Credit Suisse. Please go ahead.

Hi there. Two questions as well, please. Firstly on your French fixed line margins which are down to 300 basis points year on year, could you maybe give us a little bit of a sense of where do you see margins heading in the French fixed line?

And then secondly, last quarter, you very kindly provided a bit of a color on how the mobile development changed during the course of the quarter so it was challenging at the beginning of Q1, better at the end of Q1. Would you be willing to give a little bit of color on how Q2 developed so was it fairly stable throughout or was there a significant improvement to the quarter as well? Thank you.

Maybe I will let Delphine give you some explanations about the margin in fixed line business.

Delphine?

Yes. The margin trend on the fixed market will be on the same trend in H2 that it is in H1 so no change in the trend. We are still controlling the decrease of the normal static telephone line trends and recovering in the broadband market, because we now are increasing the revenue, we are -- after last year, where all the traffic to mobile were included in the offers in the market, we are slowing down in the ARPU, now we are recovering thanks to new content offer and also our very good mix on the broadband market.

And Delphine, regarding the prospects of the mobile market in France?

Well, yes, in Q1, there were first week effects of the fourth entrant's entry and we've lost 615,000 lines and in Q2, there were very -- a slowdown since March in fact and the good news is that in June, we are recovering in positive net adds on the contracts, 85,000 new net adds including machine to machine, of course, but still we see a change in the Q1 trend, of course. And we have decided that the losses by four, which is a real slowing down.

Thank you.

Thank you. We now move on to Hannes Wittig from JP Morgan. Please go ahead.

Yes, good morning. I've got two questions. Just following on the discussion of the French mobile market momentum, you put through some price cuts on July 1 for the smartphone prices and I just wondered whether you have seen any impact related to that in terms of market share momentum beyond what you've already mentioned as a positive development at the end of the second quarter.

And the second question is whether given the news flow we had from KPN and Telefonica and the changes in the French government, the discussions you are having with the government, there is a chance that you would maybe reconsider your dividend policy in order to maybe accelerate investments in certain areas? And it may be too early to ask this question but maybe you have some thoughts that you can share at this point?

On the first point, Delphine?

Yes. So on the first point, it is true that we are very tightly monitoring our SAC and SRCs but we do it on a weekly basis in fact. So our main concern is to stretch the SAC and SRC and to focus on the very high end customer, very loyal customers and reduce SAC and SRC for not lower but less attractive customers. So every week, there could be changes, of course, we are considering what all the competitors are doing at the same time so there is no big change in our SAC and SRC policy nowadays.

For the second point, regarding the dividend policy, first, I would like to emphasize that we do not announce today that we will not pay anymore dividend and it seems to me that it makes a difference, maybe between France Telecom and other players in the industry.

The second point is that I think that the main focus of the European players is probably more the debt position and the financing of the balance sheet than the real CapEx question. And for -- if some companies decided to reduce dividend payments to increase CapEx, it would be to some extent, different than reduced dividend and just to be able to refinance debt.

Fortunately, we have as this has been constantly and steadily mentioned over the past quarters, we have been able to manage very seriously, our debt position and we have been able also to maintain our cash generation and so we are not in a situation comparable to other players and there is no pressure on the dividend payment for this year.

Now, we have not entered so far in the specific discussions with the French government regarding the dividend policy. I would just like to also stress the fact that after the new -- the election in France and the new political majority, the issue of the 2011 dividend was raised and that we had the discussion with the new government and clearly, it was confirmed that -- the new government confirms the commitment that had been made previously.

So we will see all the parameters of this question in the coming weeks and we will come back to the market as I mentioned, in late October, at the occasion of Q3 results, this is the time where we will provide you with more certainties regarding the distribution policies -- the remuneration policy but once again, I want to really stress the very major differences in my view between what has been a very constant and steady speech and policy of this Group regarding its shareholders compared to other players in the industry.

Thank you.

Thank you. We now move on to a question from Dimitri Kallianiotis from Citi.

Thank you. I just got two questions. Maybe if I can just come back to the last question on the dividend, on your answer, I'm just wondering, in terms of the -- with respect to the credit agencies and your willingness to go back to 2 times net debt to EBITDA and if you got any sort of timeframe by which you want to go back to this 2 times and if you would consider even if it is just something temporary to reduce the dividend to go back immediately to 2 times or if you are happy to just continue the same dividend policy of paying 40% to 45% of your free cash flow.

The my second question was on the in terms of the fixed broadband, the market share net add has been a bit weak over the last couple of quarters, clearly a lot more promotions from some of your competitors. I was wondering if you are willing to go down that route and make more even temporary promotions? And also, if you could update us on when we should expect a new triple play box from Orange. Thank you.

On the first question, Gervais?

We have said that earlier this year, that we would like to come back to the net debt to EBITDA ratio of 2 in the medium term. For us, the medium terms doesn't mean that we want to go there at the end of this year. We give us a timeframe which is probably 18 months to 24 months to go there because we need to keep our investment pace as it is and we want to have some consideration, we think that it was clearly stressed just a minute ago by Stephane, we don't think that the swing from dividend to zero then maybe back to dividend is exactly the best we can do so this is why we are quite careful on that.

However, what we have said is that coming back to this objective is to this level is important and that we will do what is necessary to go there. Today, in our plans we are assuming that this would -- can be with the distribution policy as it is and with as a prospect for this year we have no -- we don't see any risk for 2012 and we have to see what is happening for the future.

Regarding the broadband market in France, I think that it is useful to remind that the most powerful tool that we have at our disposal is the quadruple play bundle, Open, which is very successful and it is probably around Open that we will still try to improve our offers in the next weeks and we will have a new set-top box by the end of this year and it is in our roadmap and then we will have more or less in the same time or the beginning of next year, a new light box this is what we are focusing on.

Delphine, do you want to?

I just wanted to make a comment to say that I don't find our broadband net add market share weak, if you compare it to last year, we were at 27% of net add market share, this year, we will have three sort of quadruple play offer and we managed to have 24% market share. So in my opinion, it's not weak. Maybe it could be deceptive for you but for us, it's a good result considering that we have not launched a new set-top box already, we are going to do it in H2 and besides as you can see in the figures, ARPU is increasing as well. So for us, it's not a weak result.

No, it's a good result, I just recommend you to wait for the figures that will be provided by other players in the market.

Thank you very much.

Thank you. We now move on to our next question, from Vincent Maulay from Oddo. Please go ahead.

Hello, two questions. The first one on the -- if you could give us an update on the number of multi-SIM compared to the 400,000 at the end of Q1. So could it drive net losses in the further quarter, or are you confident in further net adds in contracts and maybe all the more with the iPhone 5 in H2?

The second question, your level of confidence to maintain a premium on the high end offers in mobile in trends of [DF] now that you are being in line with DF in the mid range.

Thank you, two questions for Delphine, I think.

So on the first question, we have 2.1m Open customers, of which 350,000 multi-SIM.

On the second question, it is -- are we confident on our premium mobile offers? Well yes, we have noticed in the first part of the year, that our high end offers were very resilient compared to the low end offers and so in fact, we have stressed this [front] while revamping our Origami offers and maintained quite -- contained the pricing reducing on the high end offers.

Besides, we are stretching our SAC and SRC policy and focusing our main subsidies on high end offers and so we are quite confident on the fact that our high end offers are resilient.

Thank you.

We move on now to Antoine Pradayrol from Exane.

Yes, good morning, everyone. I have two questions, please, relating to M&A. The first one is I think I saw a statement or some quotes from you on Bloomberg saying that you were looking at potential small acquisitions. I just would like to understand whether there is a change in your appetite for M&A. And also, what is your -- framework in terms of debt. You reiterated the target to reduce debt to EBITDA to 2 times but you know, would you be ready to increase that temporarily and to which extent? That is the first question.

And the second question also relating to M&A is do you think there is a change, you mentioned the fact that you know, the European commission has changed its stance on fixed line regulation, do you think there is a change on mobile regulation or more like the ability to consolidate market in market consolidation, do you think the European commission would be more open to a market consolidation in mobile? Thank you.

Thank you for the question. Regarding M&A, there is no change, basically no change in our views and policy. You probably refer to some isolated statements in a press article but in fact, when the journalist ask you if there is a very attractive opportunity in Europe, taking into account the fact that there could be some end-market consolidation in Europe in big countries where you were, will you look at it? You have two options, either you say no and nobody probably believes you or you say, maybe yes, if it really makes sense for us in respect of the guidance that we give to the market in terms of debt to EBITDA ratio and financial structure.

So that is it. We have no change in our M&A view. Clearly, this time is not a good time for big M&A operations and our first priority is to keep a robust balance sheet for the Group and that is it. So there is no change in our M&A. If of course, we have very nice opportunities that are still once again, compatible with our financial guidance, we will look at them and that is it.

Then regarding the European regulation on mobile consolidation, in fact, in the set of recommendations that I mentioned earlier, there is nothing concerning the mobile market and it is only the fixed line business but we have discussed a little bit about our mobile situation with the commissioner and I think that they are now aware that we -- that there is no more room for augmenting the number of players in the mobile markets in Europe.

So at least, if there is now, -- everyone in Europe is aware that it is time to stop the increase of the number of players in the mobile market, it's a good news. And yes, I think that even though it is not explicit, in European commission, there is a different -- there will be a different view and look on consolidation operations if we see consolidation operations because everyone is aware that there are some players that are going to get into trouble with the competition situation as it is in some countries.

Look at what is happening in Austria, it will be an interesting -- case to watch and yes, I think that there is a move in the way that European services are viewing the telecom industry as a whole.

Thank you very much.

Thank you. We move on to a question now from Nick Delfas of Morgan Stanley. Please go ahead.

Yes, thanks so much indeed. Two questions. Could you explain the ICSS loss and what is going on in that division?

And secondly, on Sosh, what proportion of the customers that you have on Sosh are previously Orange customers versus new? And what proportion of the previously Orange customers are prepaid? Thanks very much.

Gervais for the ICSS EBITDA.

So ICSS -- this is where we gather international carriers for the international wholesale we do plus the support functions of the group corporate and support.

In fact, there is a pressure on the EBITDA because this is where that we have located the EUR60m of additional pension costs after the European Commission decision. So this is the -- we did not include that into the operations yet, it will go to the operation later. And on top of that, there has been an increase of the cost of benefits for French labor which is the so-called forfait social which has increased by 20% and this is a EUR30m further increase.

So if you take those amounts, you have EUR90m which are those exceptional amounts which impact the margin of the cost structure of ICSS.

Thank you. As far as the customers are concerned, in the Sosh net adds, you have 65% of migration coming from other Orange offers but we are talking about people that would have left Orange to go to another player so it is a powerful retention tool to have the Sosh offer and we have 35% of the new customers that are real acquisition.

We have increased our customer base -- Sosh customer base basis by 157,000 new customers on Q2 and the total amount of customers is 367,000 at the end of H1.

Okay, could I just follow up on the special cost for the European Commission decision and also the part time for seniors. Are all those costs that you have put in to the half year relating just to the half year or do they relate to other periods as well?

The EUR60m are related to the half year, then there has been an additional reserve which has been taken of the senior part time people and this is covering all the potential departures for the future. I think it's covering 1,300 people that could leave earlier with a change of age retirement for some people in France and this is a reserve, this is an accrual. Whereas the EUR60m I'm mentioning in the first statement are the EUR60m just for the first six months of the year. This is a cost that will be taken year after -- month after month over the year.

Perfect, thank you very much.

Thank you. We now move on to a question from Stephane Beyazian from Raymond James. Please go ahead.

Yes, good morning. Three questions if I may. The first one is just on subscriber acquisition cost, is it possible to have more color on the outlook? They are coming down. At the same time, I think the debate in France is now moving to the subsidies business model so can you help us to understand, the risks and opportunities there and where is the right balance for you to further reduce subscriber acquisition cost but at the same time, maintain some differentiation versus the fourth entrant in the market.

The second one if I may is regarding the roaming agreement with Iliad and it seems like you almost offset most of the mobile repricing in the second quarter. I was just wondering whether there is a, let's say,, a fixed part of that agreement which could be booked in the second quarter and which we should not extrapolate in our French mobile forecast going forward.

And the third question if I may, and the last one, regarding Mobistar, we see the market value of your asset significantly dropping over the past month. There are clearly a couple of issues but I think one of them for the market is probably the market positioning of Mobistar and there is also some possible M&A that could be happening. As the main shareholder, how do you view the current situation and possible action that you could take to help and support your asset in Belgium? Thank you.

Okay, thank you for your questions. On the first one, I will ask Delphine.

So we, nowadays, we see the market divided in two, classical offers and SIM-only offers. We expect SIM-only offers to represent 30% of the market. We benefit from those gross adds with no subsidy to sort of reinvest on the high-end subsidy in order to be really competitive on the high-end subsidy even if in H1 2012, we have the gross adds were 30% higher than expected and compared to last year and even if the commercial adds were higher, we managed to reduce the commercial costs so the overall goal is to manage and reduce commercial expenses.

Thank you, on the next two questions, Gervais?

So, on the roaming agreement with Iliad, even if there is a fixed part and a variable part, as regards to fixed part, we accrued in our revenues the fixed part, along with the traffic development and the tax so there is no accounting of 100% of the fixed part (inaudible) in the second [half] it is dealt with correctly.

As well, we don't communicate the split between both parts and we don't communicate the precise amount, this is a confidential agreement between two parties.

Regarding Mobistar, we know the situation and I think, first -- our first feeling is that the market is, sorry to say that, it is slightly overreacting compared to the operational performance of Mobistar, maybe we have to see with our Mobistar colleagues being the main shareholder, how we can probably have a better dialog with the market on the situation because I would say besides the strict financial performance, a lot of things are changing on the Belgian market and I think the fact that Mobistar is part of Orange Group, it's a very strong asset to better adapt on this market which is now going into a subsidized market.

At the same time, subsidization, at the same time, limitation of the duration of the contract without subsidy and the team has been working a lot with our group but I can tell you that we confirm our position of long-term shareholder being not only the long-term shareholder but the controlling shareholder and we think that what's happening in the Belgian market is an occasion to better integrate in terms of marketing Mobistar within the Group work as we did in Spain, as we did also efficiently in Poland, and I think in those markets, which have been quite challenging, the fact that the two companies belong to the Orange Group is helping them to better perform against the competitors.

Regarding M&A, we understand that effectively, the third operator is for sale. And by the way, coming back to the previous question on consolidation, we have not the feeling that the Belgian regular will allow one of the two big players either Belgacom or ourselves to buy BASE so we don't see any potential consolidation of this market in the short term.

Thank you.

Thank you. We now take our next question from Frederic Boulan of Nomura. Please go ahead.

Hi, good morning. Just a quick question on the cost developments in the French business. If we look at what is happening in mobile and in fixed all together, you have lost almost EUR600m of EBITDA in the first half of the year, if I exclude the Iliad roaming contribution. Can you tell us where you are in terms of plans to resize the cost model especially going into 2013 wherein the Iliad contribution year on year would probably be not as strong as what you are currently enjoying? Thank you very much.

Thank you, Delphine?

So we are working on two main costs, first of all the commercial costs and of course, SAC and SRC but also distribution costs so we have a plan to reduce our external commercial costs and also working on our own efficiency with the Chrysalid plan working on capital management and quality of service, for instance, we have managed to reduce the customer calls to our call centers for [SSA] purposes by 20% in one year, so we are working on those funds in order to reduce our cost.

Okay, thank you.

Thank you. We now move on to a question from Jonathan Dann of Barclays. Please go ahead.

Hi there, I have two questions. The first is can you -- it's a follow on on the costs and commercial costs. Could you help us? I know you published churn and SAC and SRC, but are commercial costs in French mobile, are they flat, up, down in the first half of 2012 compared to last year?

And then my second question, looking at your expectations or looking at expectations for CapEx in the second half, can we assume that full-year 2012 CapEx will be below full-year 2012 -- sorry, below full-year 2011? And the second half CapEx will be broadly similar to the first half, I mean, could you give us some guidance around CapEx?

Thank you. Commercial costs in mobile French market, Delphine?

So our commercial costs in H1 are below those of last year EUR55m lower, even if commercial adds were 30% higher, so we are effectively reducing our commercial costs.

Thank you.

Regarding CapEx of the group, our CapEx for 2012 will be slightly above -- there will be a slight increase compared to the CapEx 2011 and it will represent nearly 1 point of revenue more than what we had a year ago. This is what we said and we were lower last year so this is what we -- the CapEx will slightly increase compared to a year ago.

Thank you very much.

The last question if there is one?

We take a question from Jerry Dellis of Jefferies. Please go ahead.

Yes, good morning, I've got two questions please. Following on from your recent meetings with government ministers, some of whom -- some of which have been obviously reported in the press, there seems to be some sort of political shift from pro-consumer to more pro-employment. I wondered to what extent do you think that is a real shift in political attitude and what tangible measures this may lead to?

And then the second question is just on French mobile ARPUs. As we look at contract ARPUs minus 6% this quarter, compared to minus 4% in the previous quarter, how much of that sort of ARPU trend dilution is the result of lower ARPU machine to machine and how much of it is really repricing or associated effects such as the change in mix towards SIM-only? Thank you.

I suggest that Delphine answer to the second question and I will then take the first one and give you a final word about that.

(technical difficulty) and you are right, minus 4% in Q1, there's nothing to do with machine to machine in fact, and it is mainly the reprice effect of our response to Free entry in January which has the impact on the rolling ARPU.

And the calculation I made out -- without M to M so it's really a pure mobile ARPU without M to M.

Now, regarding your first question and more generally speaking, the government -- the new government's approach on our industry and our sector, what I would say is that we have decision makers that are aware that we there is no more room once again, to change some rules regarding the relationship or the rights that are given to consumers in our sector and that the priority should be clearly given to investment and this is, I think a positive move for us and for the industry.

Do we expect any tangible measures that would represent -- some change regarding the current consumer rules? To be honest, not so much because I think that politically, it's not very easy to -- to manage this kind of decision so I don't expect significant or tangible measures that would -- go back to -- in terms of consumer rights in this country. But if the result of this is that we have no more new set of rights or measures given to consumers, it will be a very positive news.

So, I have a limited expectation regarding what we can expect from, I would say, the legislators or the government but I am still very happy to see that we have today, people that are aware that if we want to have powerful operators and able to invest in the networks that we need to develop a digital economy. It is -- there is no more room once again, to expand consumer rights in this industry.

Now, I think it is time to leave so I want to thank you very much, all of you for your attention, for the interest that you have in our company and for those that are in London, I would like to take this opportunity to wish a very happy Olympic Games with a lot of medals.

Thank you very much.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen, you may now disconnect.