Orange SA (ORAN) 2013 Q2 法說會逐字稿

(Interpreted). Good morning to everybody. Welcome to the presentation of the H1 results of the Orange Group for 2013. And I think we can now call the company by this name. First of all, I would like to emphasize the major point -- the key points of these results, and we'll talk about the performance of the Group in the first half of the year.

First of all, commercially speaking, we've had very good interesting figures for the first half of the year, with good performance from the mobile market in France and Poland. I will come back to that in a few minutes. France, very good results there. Good performance from Spain as well.

And the second major point I'd like to talk about is the speeding up of the results and the efforts which we are making in terms of changing our cost structure in the group. Our aim was to have an annual reduction of EUR600m, and we've achieved two-thirds of this figure already at the end of June. So I think that we will be beyond this figure of EUR600m by the end of the year.

If we look at some of the key trends underlying these figures. First of all, let me start with the two countries, which for different reasons and factors, are what everybody is focusing on.

France, first of all, H1 in a market which is a very dynamic market. In fact, we have demonstrated the fact that we can really play our role to the full on these markets, I think two outstanding projects, the Open quadruple play, Sosh and the Origami package, which has been redesigned. And we have positive net sales over the first half of the year. And even for the second quarter of 2013, we've got the strongest growth in a quarter for customer base since the arrival of the fourth operator.

And in Q2 2013, we had a 20% market conquest, which is slightly below our medium-term objectives, but nevertheless, it is up compared with Q1, up 4 points. And this is supported by the development of our fiber base and the good figures which are coming in from the Livebox Play.

So, all of this has meant that we've been able to preserve our market share. And we're fully in line with what we said in terms ARPU going down. ARPU, which should be standing at 12% to 13% over the year, a reduction of therefore, with a reduction nevertheless, in the churn rate.

Let me also point out to you that at the end of 2013, roughly 90% of our major customers will have an offer, which will be launched after the arrival of the fourth entrant on the market there. I think by then -- by the end of this year, the arrival of the new operator on the market will really have been taken into account on the market overall.

So the performance for the cost structure modification overall for France has been very positive. As I said, we've been aiming for a total reduction in direct costs of -- a total reduction of EUR120m.

Poland, this is a market which is -- or have been suffering a great deal from repricing. This was a major problem last year. And it led us to undertake pretty energetic plans for last year to overcome this. But we've got encouraging results coming in. The sales are above expectations. And as in France, we have net sales which are particularly on the mobile contracts. So these are above expectations, and these are very encouraging results, indeed, especially compared to -- with the figures for the same time last year, bearing in mind, of course, that there was the positive effect of the Euro 2012 competition last year.

If we look at the rest of Europe, pretty positive results there, with five countries out of eight growing in terms of sales figures and extra regulatory affairs, Spain, Romania, Luxembourg, Moldavia, Armenia and the Dominican Republic as well.

We have growth recovering in Spain. I would say outstanding results for the group in Spain, with sales up 4.5% excluding the regulatory affairs in Q2. And this is a very important figure for us. It's actually a record which we are registering here, plus 50% conquest on broadband. Excellent figures there. I think this result is absolutely outstanding.

In AMEA, we have a 4.4% increase in Q2, slightly above the figure for Q1, which was at 3%. And this is driven by some countries, in particular, Cote d'Ivoire, Senegal, Egypt and Guinea. Egypt, in fact, had very good results in the month of June. There was a 10% increase compared with 2012. So this was for Egypt in June. Once again, we have great success from the mobile banking service, Orange Money, and the number of customers there has grown by 30%, now standing at 7.4m.

Just a few points to give you about the UK, very good results from Everything Everywhere; very strong results in EBITDA, which is up 9%; and at the end of June, roughly 700,000 customers for the 4G service, which are bringing in extra ARPU of roughly 10% compared with the 3G.

If we look at Belgium, where we've had a few more problems and obviously, the regulatory situation in that country has made things very difficult for us from the beginning of the year. Mobistar is really between a rock and a hard place, between the fixed and mobile operators, I don't want to go into all the details. You may have questions on that later on. But let me just point out that the regulatory problems and weaknesses in this country are really having an impact on the balance of competition.

We've seen a very strong decrease in the mobile prices, which are now being used as an attractive price to bring in customers. This is what the fixed players are doing. Whereas the triple-play prices, ADSL and cable, are the highest there of all the surrounding countries. So this is really leading to problems, and we do hope that the situation -- the competition situation will balance out in Belgium in the short term.

On the Enterprise side, the economy in general, particularly in France, of course, is suffering, generally speaking. And therefore, this has had an impact on our sales figures, on our revenue. However, our market share and the revenues from the cloud are continuing to hold steady. For the cloud, the figures have gone up by 26%.

Overall, for H1, and I think this is definitely the good news to give you, the EBITDA margin for the Group has gone down very slightly, but it's only gone down by 1%, which is much better than the figure which we had in H2 2012, when the figure went down by 1.6%.

So I think that we really are looking forward to our landing -- the landing which we're planning for 2014, with our target of EUR7b operating cash flow for the end of this year. And we're already at EUR4b cash flow, EUR4b for the end of June. So we have achieved over 67% of our target already.

I'll say a few words now about the marketing initiatives, which have reinforced the main markets where we operate. Particularly, in the latest first quarter, I talked about France, Sosh and Open. We have 1.4m customers for Sosh, 3.8m for Open. Real successes there, not just in France, but in most European countries as well for the Livebox Play. This is a product which was launched in February, and now we have 500,000 customers using this.

One interesting figure to look at is the 4G figures. It's still early days, of course. But I can tell you that at the end of June, we have 250,000 access customers using 4G on our French network. And these customers have usage of the 4G with 50% above of that other customers and the ARPU is 10% up two months after its launch. Now these are figures which we have to be careful with. Of course, we've only been using the 4G, putting the 4G on the market for the past few months. But these are very encouraging figures.

We launched a convergent offer both on Sosh with Internet and the TV access. And now the aim is to have 150,000 customers at the end of the year.

And finally, we launched a service which is called guaranteed 24 hours, which really plays on the differentiation between the premium offers with excellent services attached to this offer so that we can stand out from the low-cost operators. And we also launched a new mobile service called Joyn in June, which I announced back in November last year in the Hello show.

If we look at Spain, we have the convergent Canguro offer, which was launched in April. And we now have more than 220,000 customers on the 4G side. We launched at the beginning of July. We launched the 4G there in Spain with the aim to cover more than 20% of the population at the end of 2013. And we are the operator with most sites there. And we are pretty certain of holding or sticking to our target of 0.5m customers in one year.

In Poland, we have the low-cost Nju brand, which has started off over 80,000 customers there in three months. And one interesting point there is that one-third of the customers are new customers. So this is really a very good way of winning back customers.

For the rest of Europe, the Animals offer, which has been launched in Slovakia, is doing well -- doing very well. The Animals have 11m customers.

We've got the Go Europe package, which includes substantial reductions in the roaming tariffs which were decided on by the EU last year. And the aim is to sell at least 1m Go Europe packages this year and to double the traffic on this. And I think that we are even slightly ahead of the target for this product.

And let me point out again that we've launched a new TV -- pay-TV service in Romania in June with DailyMotion -- working with DailyMotion. And there, too, the launch has been extremely encouraging.

For Africa, at least, we are continuing to roll out the 3G with a spectacular increase in the number of Orange customers who use the data services. We have an increase of 84% in the number of customers compared with 2012.

And then I talked about Orange Money. If I could just talk to you about the average monthly transaction volume figures, we've got EUR160m there, EUR160m. And really countries where the Orange Money services really significantly changed the habits of -- the transactional habits of customers.

If we look now at cost reduction because this is one of the major contributors to the figures of this half year, which really demonstrates that the Group is totally committed to mastering its cost structure, both direct and indirect costs. And as I've said, we have a target of EUR600m savings for 2013. And you will see on the diagram on page six that we've already achieved a figure of EUR203m, EUR83m for indirect costs.

The cost savings, in fact, speeded up in H1 of 2013. As I said, EUR83m reduction on indirect costs, with EUR27m coming in Q1. We've really been very good on tackling the indirect costs and the NCR cuts as well.

The main contributor to these reductions is France through two main levers, first of all, reduction in headcount. We have a reduction of 1,800 people in France or full-time equivalents, though we are working hard on this in France. We're working on the part-time people as well, plus the departure programs there for the seniors in the company.

And we've also done very well in terms of the Chrysalid plan, the operational efficiency plan thanks to which, the reduction in headcount has not been so much a part of a financial project, but as part of an operational project working on quality of service. In fact, I can give you one example of this. There's been very significant reductions in the number of calls we receive in the call centers and also roughly 10% reduction in the redirect of call centers, the people calling up several times -- customers calling several times because they've not been satisfied with the answer the first time around. So this really reflects the quality improvement. And thanks to this, we've been able to contribute even more to the overall effort in keeping a lid on the cost structure.

Let me say a few words about the 4G now. This is one of the major priorities of the Group, being -- we want to be one of the leaders in 4G fixed and mobile. So for 4G, this has been launched in seven countries so far, France, Spain, Luxembourg, Romania, Moldavia, UK and the Dominican Republic.

Now I told about the UK just now. And we are the only company offering the 4G in the UK so we cover roughly 60% of the population. And we have excellent performances on our 4G network with ultrahigh speed offers, which are really far better than those of our competitors. We have an extra ARPU of roughly 10%, as I said.

In France, we are far and away leaders in the rollout of the 4G. We have over 100 towns and cities which are covered by the 4G. We have three times more active sites than our closest competitor. And we have theoretical speeds which are way beyond those which our competitors could even hope to achieve. And this is thanks to the quality of the spectrum which we use. And as you recall, we started to roll this out, and we started to plan this 18 months ago.

So for Spain, we launched the 4G in the beginning of July in Madrid and in five other cities as well.

For fiber now, fiber optics, we have a EUR2b investment for 2015. If we look at where we stand at the moment compared with last year, it was double the number of customers who are connectable. And we've also doubled the numbers -- the number of customers who have been connected. We now have 239,000 customers. When I came into this job in 2010, we had 60,000. Fiber optics thus really give us an average increase in ARPU of EUR3, thanks to the content.

And for the 4G, our strategy, which is to be the leader in the rollout of ultrahigh speed in order to provide better services to our customers. This strategy is working. The initial results are extremely encouraging.

For fiber optics there, we have a market share of 55% now. And these figures are very encouraging. They're very, very good. They demonstrate where we stand vis-a-vis our competitors, some of whom are extremely aggressive on prices in order to promote their product. But we have, as I said, a very good market share of 55%. We are a legitimate incumbent operator.

In Spain, let me remind you that we signed an agreement to roll out the fiber optics there with Vodafone, EUR6m in total, with an investment of -- through the investment agreement with Vodafone. And we have also an agreement there with Telefonica to have access to the vertical fiber optics. With these agreements, the aim is to be able to connect up to 800,000 households at the end of Q1 2014. We are continuing to work on ADSL, of course.

And then finally in Poland, where the fixed high speed we have 2.3m customers who can be connected up. This is through the VDSL, principally. And we have 260,000 customers who have actually been connected up already.

At the beginning of 2013, we also -- we pointed out some operating objectives. I'm not going to give you the details of the table. But I would like to underscore the fact that at mid-year 2013, as you can see with the green lights here, we are in line with virtually all of our objectives and quite ahead in certain cases.

If you take the increase in data revenue, 22% in H1, the annual objective is 10% -- as our mobile market share in France, 36.2%. We're well above the objective, which is 35% the current objective. We mentioned fiber, 4G. We mentioned Orange Money, too.

Regarding something that's a little more complicated, I'd like to say a word about the Livebox Play. We're somewhat shy of the objective, which is the success of growth sales in broadband using Livebox Play. We're somewhat shy of that. This is essentially ascribed to the fact that we had to cast particular efforts on low-end offers without the Livebox Play to respond to the aggressiveness of one of our competitors who has put promotion upon promotion and offered great deals. So we could not offer with Livebox, and hence, the effects of that to date.

Also, we decided not to cut the prices of our premium propositions, in which we offer the Livebox plays. So that, of course, preserves the future value of the market. That's how it was -- that's how it's panned out.

Now a word about the 2013 guidance. The quality of these H1 '13 results allows us to clearly confirm our operating cash flow above EUR7b in 2013, that's the first very important item.

As far as balance sheet is concerned, we'd also like to point out that our net-debt-to-EBITDA ratio is -- will be tending towards 2 at the end of 2014 and will be around 2.2 in 2013. You must construe this ratio apart from the impact of a tax dispute, thank goodness it's not recurring. And two days ago, our appeal was turned down, but of course, we're going to appeal again. So this is a significant tax dispute, significant tax -- very substantial. Gervais Pellissier will give you the minute details of the tax dispute.

The lower court sentence that we have an appeal for will lead us to cash out EUR2b by the end of July. And of course, it will have an impact on the ratio. But apart from this one-shot impact, which has been on our provisions for a long time anyway, our financial balance sheet discipline will, of course, play their role.

This balance sheet discipline of ours and the confidence that senior staff has in meeting the effect of stabilizing EBITDA at the end of December 2014 lead us to fully confirm our dividend payout policy, with dividend of at least EUR0.80 per share with an interim dividend at EUR0.30. That will be settled on December 11.

As far as portfolio of businesses is concerned, we have decided to examine our operations in the Dominican Republic, which could lead us to consider potential buyers, which I'll keep you abreast in a potential presentation.

Okay. Before handing it over to Gervais, I would like to close the presentation by stressing the three key highlights of H1 '13. First, sharp acceleration of the efforts cast on our cost structure. The objectives for 2013 will probably be exceeded at the end of the year. And the performance and cost reduction was quite notable in H1. And this means that we are well underway to stabilize EBITDA next year.

Second thing I would like to underscore is the very encouraging startup of 4G in the UK and in France. This demonstrates that there's appetite on the customers' side. And we can create a value with this ultrahigh speed proposition and the success and the conquest of share for bandwidth -- of high-speed fiber in spite of tough competition and the significant addition in ARPU. That is what I had to tell you.

All this brings me and my staff to be reasonably confident and fully mobilized to meet the objectives we set (inaudible) in 2014. It's well within reach. And the demand -- the dynamics we have in H1 '13 regarding cost structure and commercial performance, enables us to believe that this 2014 objective is indeed quite achievable.

Let me hand it over to Gervais.

(Interpreted). Thank you, Stephane. I will now comment on the first-half financial and operational results. We're on slide number 11. You see here the main aggregates. Regarding our revenue trend, it deteriorated by minus 4.5% in H1 with regulatory impact still weighing in France and in Europe.

The good news is that in certain countries such as France, we are at the end of the cycle of [regulation] cuts, so there will be fewer reductions due to regulations moving ahead. In fact, there's still some uncertainty regarding roaming in Europe. And we have already factored all that into our operations.

And there's also the macroeconomic impact, whether it be in France or in Spain in particular.

The second thing is that despite this deteriorating revenue trend, there's a decline in H2 that's somewhat greater than in H1. Nevertheless, we are containing margin erosion -- the margin erosion, and we're even doing a little bit better in Q2 than in Q1.

Against this difficult backdrop, as Stephane said, we maintained investments, a 1% rise in investment in absolute terms, which is far from negligible, whereas there's a lot of pressure there on sales. And in spite of that and with the work done on our cost structure, we can meet our operating cash flow for the full year because we already have EUR4b in H1 of the EUR7b that we've committed to regarding the full year.

Regarding net debt over EBITDA, I'll come back to that later on when I speak about the taxes suit and we are indeed [meeting the effects there]. But the taxes due itself has worked pressure on the ratio of -- it raised by 0.15%. And that, of course, will be factored into the full year account. Because since the settlement is on July 30, it's not in our books for June 30.

Regarding the details. Here, we are moving on to slide 12. In France, revenue was down 4.6%, excluding regulatory impact. We still have the impact of the repricing in our mobile customer base, but that is tapering off because 90% of our customers are expected -- on a tariff post-Iliad launch.

In Spain, we still have solid growth. But there too, the repricing matters and the ARPU decline is comparable in Spain to France. There are gains in broadband that make it possible to have growing sales, even if you consider regulatory impact. And we're probably the best performer on the Spanish market in that regard too.

In Poland, we also have tariff cuts, reductions and that, of course, has consequences on revenue, mobile revenue.

And in other European countries, well, Mobistar is the main source of decline, as our other countries grew slightly..

Back to Middle East, well, grew by nearly 5% with very positive growth levels in the countries such as Senegal and Cote d'Ivoire countries, where mobile business has reached maturity.

Regarding Enterprise, as mentioned, well, there's less consumption actually, due to the macroeconomic situation, (inaudible) their decisions and that explains the pressure exerted on revenue in H1 for Enterprise.

Slide 13, EBITDA. As mentioned, EBITDA is contained in terms of the erosion, under 1 point down essentially, on the strength of the efforts made on costs. Direct costs were down 6%, and indirect costs were down by EUR130m with significant improvements regarding cost of labor, our network operating costs and on G&A as well.

And here, we need to point out the performance of Orange France, which accounts for virtually all of the Group's cost reduction, not that the other structures haven't dropped others have, indeed, but this is offset by increases in countries where sales have been rising.

Regarding the cost of labor, OpEx for the first time ever, our labor OpEx went down due to de-staffing because we have savings greater than the increase -- than the slight increase in payroll expenses in France, and outside France. Presently, now, we're at 2.6% in average of payroll expense rise and outside France, there can be inflation in some cases, not that we're more or less generous in our pay policy, depending on the countries. It's because inflation varies from one country to the next and in emerging countries, inflation is rather high. And that explains the rise in payroll expenses. So we saved EUR153m in H1 in labor OpEx, ascribed to the effect of the part-time senior plan, the senior part-time plan. It was EUR79m last year.

Regarding CapEx, you see the geographical breakdown here. As Stephane pointed out, the two priorities are 4G and fiber. But if you look at this under the surface, you can see that all the countries have slightly increased their CapEx. There are two exceptions. Enterprise, their CapEx has to do with customer contractors less sales to the customers, so there's less CapEx. We spend CapEx on our customer contracts. And the other one is Rest of the World. There, major investment programs in submarine cables and 3G deployment were essentially focused on emerging countries last year in the programs, so less ambitious this year, a slight slowdown there in 2013.

Moving on to this tax dispute that Stephane broached upon and there's a specific release by Orange. This has to be put into the accounting and tax context of the France Telecom Group, which is now Orange. In 2000 to 2002 our Group accounted roughly EUR20b in losses. The EUR20b in losses gave rise to EUR9b in potential tax savings due to the fact that we could absorb future profit with the losses incurred. But as most of you know, it is difficult to coordinate the legal and accounting organization of a Group with its tax organization. All groups have that problem. And that problem has to do with the French organization only.

The French intermediate holding Cogecom recorded a major portion of these losses. But up until 2005 the tax administration did not recognize the way in which provisions were calculated for asset impairment whereby we could deduct the losses. The administration has changed its calculation system since then, but that's the way it was. So, no deductibility, although the provisions accounted for actual losses in the Group's business.

There has been a restructuring of France Telecom, conducted from 2002 onwards. Many things have been done, including the legal streamlining. There were 1,500 legal entities, and in the streamlining effort made, there were companies that were bought all over the world. So all this was streamlined. And the holding Cogecom was dissolved and put into France Telecom. As I say, from an accounting standpoint, we had to take over the provisions that have been accrued. And in order to avoid double taxation and the provisions could not be deducted when they were accrued, the Group considered that they should not be reintegrated when they were taken over. So they were not to be considered as profit since they could not be deducted when they had been accrued.

And that is what the tax dispute with the administration is all about. Following a tax audit that we were expecting, the tax -- they did not recognize the situation, this peculiar, unfair double taxation situation, and in [this situation] there was no connection between what happened before 2005 and what happened after 2005, considering that there was an after and a before. And there was comparison between apples and oranges. Hence the dispute, hence the tax audit in 2010. Nevertheless; out of caution the Group has been communicating on this. You'll have the information -- you've had the information in our other segments in the closing of 2010, and we built up provisions for the rest, taking into consideration of the cost of tax in advance, both in our P&L and in our balance sheet.

So since 2010 the amount that we have paid out temporarily to the administration have been considered as tax due, amounting to EUR1.7b for the main portion, and there's interest of, I think, EUR400m. So from a tax standpoint, this has to take place, because it's legitimate and the Group has the right to have this tax saving. Also the question is that we have to do it regarding the financial management of the Group. Yes, because if we hadn't done it, the EUR2b would have had to be cash out from 2008 to 2010. But actually this was financed at 4.8%, which is below the average cost of the Group debt.

So of course it appears as a rather sudden event, this court ruling. But at the same time, in terms of the management of the Company, it was a good decision to the extent that we have not lost. The administration has not requested any damage or compensation or penalty and the administration and the court recognize our good faith. And we do believe that the Administrative Court of Appeal in Versailles and the Conseil d'Etat will prove us right.

Nevertheless, the -- while writing up due tax leads to a mechanical deterioration of our net -- net over average DA ratio, because of course the translation of a line in the balance sheet amounting to EUR2b has a 0.15 impact on the ratio. I believe that the market and the analysts had well identified the dispute. The judgment that people had about the success [appeal] may have varied, but it's also fair to say that this is early days, we're in the infant stages of procedure. There's two more instances of appeal to reach the end of the story. And the end of the story is like 2017. So EUR2b is an opportunity. Some day Orange will be given EUR2b, and we must consider that as an option that's part of the Group's value.

Okay, now moving on to net profit. So net income is not impacted by the tax dispute by any stretch of the imagination, because it has been factored into the results at the closing of 2010, even in the closing of the books in 2005. So net income is down due to the pressure on -- at EBITDA, and due to the fact that we had to write up our provisions to the tune of roughly EUR400m regarding the value of our shares in Mobistar was the main item. There are plusses and minuses but that's the bulk of it all. And that explains the change from [my share].

If we take a look at debt as at June 30, before the EUR2b, do not forget that the Group has continued to alleviate its debt by EUR1b in H1, as pointed out in the bar chart on slide 19 here. And we still pay out the dividend. And we still have the same expenses and there's a slight increase in WCR in H1 as always. So we have 2.21 at the end of June and we believe that the ratio will stay like that at the end of the year. And it will increase roughly 0.15, taking into consideration the EUR2b paid to the tax administration on July 30.

Our debt structure remains at high level of liquidity to face up to events such as the one I just described. You also improve maturity above EUR4b. The next one is 2014; it's already partly pre-financed. As of 2014 there is no amount to be paid above EUR2.9b compared with the Group's operating cash flow. You see that we are quite cautious indeed. And that probably places among the best in class in the telecom industry in Europe, which means that we still have our rating, although it's quite likely that the rating agencies may scratch their heads following the EUR2b element in the tax, which is why we've improved the maturity of our debt -- nine years, 1.5 times greater than that of other large groups in the telecom industry in France. And it's 1.2, 1.3 times greater than that of European groups.

Now, I will skip over the country breakdown but I'll say a few words about France and Spain now.

In France, as Stephane pointed out, H1 was good in terms of the business. Nevertheless, it does not fully reflect on the top line, because the top line is impacted by the effect of repricing, which carry over from 2012/2013. There would be something less in 2014. The good news is that in spite of the pressure on sales, sales shall remain under control because today we can confirm that the decline, in ARPU, in March we'd said that it would be anywhere between 12% and 13%, and now we can say that it will be around 12%. So the second quarter did not bring any bad news regarding the decline of ARPU over the full year. But the 12% decline in ARPU of course is ascribed to the -- it reflects in mobile sales decline. And also the dynamics were not what we expected regarding broadband orders. Broadband sales are somewhat shy of our expectations. And all this explains the 6.8% decline, 4.5% excluding regulation.

The good news is with EBITDA. You see that EBITDA is down a mere 0.3%, virtually stabilized, on the strength of the major efforts cast on Orange France's cost structure. Delphine Ernotte and Pierre Louette are sitting by my side here, and they will be happy to entertain the questions you may have on structure, on our cost structure.

Regarding business proper, well, the mobile market share sustainment is good, a slight increase in network market share, which has to do with development of our Iliad partner. But we can't complain about the fact that our network is being used, can't complain about that. And there's the improvement in mobile contracts for private individuals. That is what matters most to us. If people look at 4G, which is starting up very handsomely, and we believe that mobile phones will improve in the coming weeks and months.

(technical difficulty) have sustained our growth in the top line, 1.6% year on year excluding regulatory impacts. This is though one country which is still suffering considerably in economic terms, macroeconomic terms, 4% growth if you exclude the regulatory impacts, therefore, and in Q2 at 2.5% growth. With the total for the H1 of 1.6% we're still keeping a good control of costs though. And now for the whole of the business EBITA is 23%. So we're not back to the spectacular result of the longstanding and emerging countries. But nevertheless as the improvement there is significant compared with what we've seen over the past few years. So even when you are right at the bottom of your hole, as the Spanish team has been demonstrating over the past two or three years, we can still do very well. Very good results in terms of the fixed results, the revenues have grown by 15.4%. But Stephane has already given you the main figures.

The final table which I'd like to comment on are the figures for Everything Everywhere, which were commented on yesterday and are in line with our plan, doing very well for 4G. But the rest of the business, as well as doing well, still suffering slightly with pre-paid. But nevertheless excellent performances over all. 4G is really driving the performance of Enterprise and activity as a whole. And we have EBITDA doing well. Compared with the plan which was presented in 2010, Deutsche Telekom and Orange, we have a lot of synergies working there. It's taken time to implement these synergies. Don't forget that the British market is one which has extensive or major commercial expenditure. But overall the performance is satisfactory with 2.6% growth.

Thank you very much indeed. And we're now available to take your questions.

Thank you. (Operator Instructions). Okay, we'll now take our first question from Nick Delfas of Morgan Stanley. Please go ahead.

Yes, thanks very much. Maybe you could talk a little bit more about the French mobile service revenue performance. And I think you mentioned that the ARPU has stabilized Q2 versus Q1. I wonder if you could give us those figures?

And speak also a little bit more about how you see the evolution into 2014. Thanks very much.

Delphine, please.

So on the French mobile revenue, the figures are minus 8% in H1. And what we see -- yes, what we see is that our proactive action on our base, the fact that we proactively repriced that part of our base, that's why nowadays, end of H1, more than 70% of our contract base is on offers plus four (inaudible) launch make a small confidence on the ARPU evolution next year. So we expected to be around minus 8% because we'll have the [Q] of the reprice but we expect more than 90% of our base to be repriced plus free insurance at the end of the year. And among this 80%, 90%, more than 70% on 2013 offers. So we think that we made a big work on our customer base in order of course to reduce churn, but also to stabilize our EBITDA erosion.

Sorry, could you just repeat that? So you think 70% will be repriced on 2013 offers by when?

By end of 2013.

Okay. And the ARPU in Q2 you said on the front page of the press release is stable compared to the first quarter?

Yes, we have a switch between Q1 and Q2. In Q1, we had the plain effect of the EUR2 free offers and also the EUR9.9 [Bouyges] offers. And we managed to, by reacting on both open and fresh offers, to balance this effect and so we had negative net adds in Q1 and positive net adds in Q2 in order to counterbalance the loss of the beginning of the year.

Okay, thanks very much.

I just want to add the fact that the regulation effect will be decreasing in H2 compared to H1 as well.

Okay.

Also in full year 2014.

Okay. Thank you very much.

Welcome. Next question?

Thank you. We'll now take our next question from Antoine Pradayrol of Exane BNP Paribas. Please go ahead.

Yes, good morning, everyone. Two questions, please. The first one on the fixed-line revenue trends, can you tell us a little bit what you expect for H2 2013 compared to H1 2013? And also for 2014? Do you reiterate your comments on fixed line revenue getting better, even though the broadband side is a little bit weak?

And the second -- that's in France, obviously. And the second one is on Stephane Richard's comment that he was confident that the Group can stabilize EBITDA in 2014. I think you said EBITDA and not operating free cash flow. So I wanted to make sure that this is what you said.

And also to underpin this target, can you give us an indication of what you expect in terms of cost cutting in 2014? Is it as much as 2013, or a little bit less, a little bit more? Any color on the cost cutting in 2014 would be useful. Thank you.

Okay. On the first part of the question, the fixed [PSDN] market in France, Delphine?

Yes. We expect almost stable revenues full year versus H1 on the fixed revenue.

Sorry, what does that mean? What do you mean by that?

It's --

No decline in H2 2013 versus H2 2012?

It's the same trend in H2 versus H1.

Okay, okay. And in 2014, do you still say that you expect an almost stabilization of revenues in 2014 in fixed line?

Yes, we are going forward on stabilization. And regarding this target, we have of course our ability to be more efficient on ADSL, but also our increasing fiber penetration, which is going to be -- which is already very helpful in terms of market share. And we go -- will grow in fact in 2014. And beside, we've just launched a quadruple-play low-cost offer with Sosh. It was launched in June. And we expect it to be really efficient in 2013, of course, but also 2014. And besides, we are still very tightly controlling the decrease of PSDN. And we are completely in line with what we were committed two years ago in terms of decrease, PSDN decrease.

Antoine, I would like to emphasize regarding the fixed line market in France is that we have been able to really curb the decreasing trend of PSDN revenues in the last two years, where now the number of lost lines in PSDN is much lower than it used to be two years ago. This is the result of a comprehensive set of actions that aims at reducing the speed of decrease in PSDN market and it proves to be quite efficient.

Regarding the EBITDA guidance, I can confirm that I was talking about EBITDA generation, not operating cash flow. Operating cash flow would be treated in the future. But as you know, and we have -- it's very clear in the beginning of this year, in 2013, our really major target and focus of the whole management team is to stabilize the EBITDA next year in 2014. And I was saying a few minutes ago that this set of results in the H1 2013 and the rest of our action make us reasonably confident in our capacity to reach this target in 2014.

Regarding the cost-cutting side, we cannot provide today precise figures regarding 2014. But clearly we will keep on focusing on cost-cutting programs next year. There is something that I can mention, which is the headcount policy in France where both demographic parameters but also the senior part-time plans will keep on producing a big impact on the headcount management. This combined with a low level of recruitment and -- but also very reasonable wage policy, will enable us to stay on the same pace of labor cost reduction. And so I can say that we will at least reach the same level next year than this year. And we will also launch new set of programs within Chrysalid in order to secure the EBITDA guidance for next year.

Okay, thank you.

Just one additional point. Regulation should be also lower. We expect at least to be improved by EUR100m on EBITDA impact in terms of regulation.

Thanks very much.

Thank you. We'll now take our next question from Jakob Bluestone from Credit Suisse. Please go ahead.

Hi, there. I've got three questions, please. Firstly on the tax case, could you maybe just talk through how your thinking on dividends would be impacted if you lose your appeal on the tax case. And maybe if you could also just let us know what the timeframe for the appeal is. I'm not sure if that was lost in the translation.

Secondly, you mentioned EUR100m improvement from regulatory drag in the previous question. Is that assuming that the current proposed EC regulation on roaming does not go through? And maybe if you could just mention what you expect would be the impact from that specific proposal?

And then thirdly, given the decline in the share price in Mobistar, could you maybe just give us an update on what your thinking -- your current thinking is regarding increasing or decreasing your ownership in that asset? Thank you.

Okay. Regarding the tax case and the possible impact on dividend, I'll ask Gervais to -- just to give you some details. But I want to start with saying that there will be no impact on our dividend policy due to this case.

Yes, and the timeframe, so that's clear, we have integrated to our debt situation, as I said, this EUR2b. The timeframe for appeal is that we are appealing now. But the timeframe for decision on the appeal is at least two years, which means that we will be in another story, another period within two years from now. And now the cash is out, so a dividend will be measured and distributed based on the cash we have as of today. So again, I think this case, which is painful today, because of the cash (inaudible) becomes an opportunity.

Okay. Regarding the regulation issues and the -- our view on next year, and the fact that the possible EU new roaming package would impact or not this vision on regulation, I'll ask Pierre Louette to make a point.

Yes, regarding the impact of regulation. We know it's regularly decreasing impact that we witness on our accounts. The EBITDA impact expected through 2013 is EUR350m and actually we are looking at a situation in which the worst doesn't always happen apparently. And the last meetings we had recently with Mrs. Kroes in Brussels make us believe that probably the glide path of roaming decrease and the change in the rules of international calls should not probably be implemented, or will not be implemented as quickly as she was considering it. And so we expect an EBITDA impact of EUR150m next year instead of EUR350m this year.

Okay, and regarding Mobistar I'll ask maybe Benoit to answer the question if he has understood the question.

Yes, I think that if I got it right you were asking us about if the current situation in Mobistar is changing potentially our stake within the shareholding structure of the company. It is not the case. We are simply focusing on improving the operational efficiency of the company. You have seen the numbers announced on Monday. The numbers are impacted by several reasons. But what we are currently doing is taking very strict measures to make sure that we can reduce the cost structure and to stabilize the EBITDA by 2014.

So that's our key action focus for the moment, making sure that we stabilize the activities and that we balance as of 2014 and by keeping a very strong position on the market that's what we are focusing on for the time being.

Thank you.

You're welcome. Next question.

Your next question comes from Nicolas Cote-Colisson, HSBC.

Thank you. Just a follow up on your net debt comment you just made. So, (inaudible) you mentioned earlier in the call that you could get some political pressure from rating agencies. What would you do then? Could you sell some assets? Would you play with the 2014 dividend? Or would you be happy to have a net debt to EBITDA ratio of 2.2 times by end '14?

And just a quick question on Everything Everywhere, could you give us an indication regarding the dividend policy for the rest of the year? Thank you.

Regarding the net debt, two things, so the impact of the tax case is 0.15. That's now a clear impact. There is no follow up. I think it's a big difference with some of the issues. That's not like, for instance, the decision of the European Union on the -- European Commission on the pension, which has an impact for the years to come so that's taken.

What we -- my comment on the rating agencies was not to say that they will look at it. And today when we look at our situation, we still have the best rating after Vodafone even if now Vodafone is also under a negative credit watch since it is interested to buy Kabel Deutschland.

But we have the best footing. We are still ahead of Deutsche Telekom. And if you look at the different agencies, there is one agency with which -- with whom we have remained A3. And it is probably this agency that might seize the opportunity of the tax case to downgrade us because we have A3 with a negative outlook whereas now we are, with a stable outlook, BBB+ with the other one.

So in my view, this is not a situation where one of the three agencies could change their rating with this case. But I don't expect that we would be out of the scope of the remaining best-rated operators in Europe, because if you compare our ratios to the ratios of our peers, we more or less would be in the same situation for instance than Deutsche Telekom.

Regarding dividend, so it has been clearly expressed by Stephane. The situation is what he described. And if -- and we count on that we'll stabilize EBITDA in 2014 then we will reduce our net debt to EBITDA ratio not at 2 but we will be again on the way to growth, to up [2] in this period and this is what is important for the rating agencies. It is how we will be in 2014, in a move up or in a move down. And for us, what's important is to be in the move down in terms of improvement of the ratio.

Maybe to make an additional comment on that, I would say that in my mind that this payout policy is not linked, or uniquely linked, to the balance sheet. It's firstly linked to the operational capacity of the company, meaning EBITDA generation and cash flow generation. And this tax case, even though it is clearly painful in the short term, maybe an opportunity in the midterm, has absolutely no impact on our operational capacity on what we are doing in the market, on what we're doing in the cost-cutting programs.

And so once again, in my view, regarding our shareholders, the decisions regarding the dividend policy and the payout policy should be seen and considered uniquely according to the operational performance and not regarding the balance sheet.

I want to once again remind that we have one of the healthiest and most solid sustainable balance sheets of the whole industry. We have one of the best ratings of the whole industry. And so we have perfectly the capacity to deal with this tax case impact in the short term without any operational consequence. So once again, no one should consider this one=shot event as meaningful regarding the payout policy of the company.

Regarding EE, EE will distribute this year about EUR200m of dividends to each of its shareholders. This is below what we had last year but last year there were an exceptional dividend, so EUR200m, which means in total for EE EUR400m dividend is also what we are trying to size in preparation of a potential IPO. This is also -- we are trying also to normalize the dividend policy of EE to better prepare it for the future. So there is no exceptional elements in this dividend this year.

Okay, thank you very much.

Morning. Thank you for taking the question. My first question was regarding just to make sure I understood correctly the [credit rating] agency. Am I correct to assume that you would be prepared to take a one notch downgrade in terms of your credit rating for the Group at BBB and keep the dividend stable?

And my last question -- and my second question is regarding the top line, which is still getting worse and is not really improving. And you've done a remarkable job on the cost cutting. But that means probably that you're spending less, for instance, on financial cost. Do we expect (technical difficulty) go up in H2 to improve the top line or do you think you will be able to improve the top line through other means? Thank you.

So, regarding the rating agencies, just to remind the situation, we have two agencies with whom our rating is BBB+ with a stable outlook, and there is one agency where we are still the A3 rating with a negative outlook. What I said is that I expect that this event is the occasion for the agency which has remained with -- who has remained with an A3 rating to downgrade us to BBB+. This is what we count. This is our view today based on our different ratios and on the (inaudible) of the Group.

Regarding the top line, I would like first to stress that in H1 the trend in top line is 100% due to the trend of market and absolutely not linked to the relative performance of Orange in the market. As a matter of fact, we have market share that are stable or even improved in some countries. But clearly in Europe, where we are doing, as you know, 90% of our operations, we are operating in markets where the ARPU trends are clearly down and down by a very significant proportion.

So this is the first point that I would like to really underline which is that we are operating in European markets where the ARPU trends are clearly very significantly down. But within this environment, the global commercial performance of the company is very good, probably one of the best in the industry.

I would like also to emphasize that the new offers, both on 4G and on fiber in the fixed market, are quite promising, regarding the ARPU trends and will clearly play a role in the next month and quarters, and will consolidate us in our capacity to stabilize and then to recreate some growth in the top line. And of course, we are also prepared to spend what will be necessary in commercial costs, probably more in H2 than in H1, in order to preserve our market share and to give the maximum [peak] in our top line.

But to put it in a nutshell, I would say that our strategy is clearly to protect our customer bases because this is the main asset of the company for the future. We are currently living within -- and I think we are reaching the end of a cycle very -- with huge price cuts nearly everywhere in Europe, and you know the reason for that situation.

I think that we have been quite successful in protecting our customer bases and our market share and that's in the next month, because of this commercial performance, because also of the regulatory cycle that has been mentioned before and because of the new technologies 4G, fiber especially. And the fact that we will be as aggressive as necessary in the sales cost side, we are reasonably also confident in our capacity to manage the top line.

Frederic Boulan with Nomura.

Hi, good morning. So firstly, if I could come back on your EBITDA target for next year, we've seen some (technical difficulty) in terms of how (technical difficulty) help from (inaudible), etc. So if you could extrapolate a bit more on where we'll be seeing (inaudible) efforts on the (inaudible) side.

And I think if we come back to the total guidance, the plan for 2014 (technical difficulty) grows, [you more] cannot say that and is it something in countries with -- considering from H1 we've seen actually more pressure outside France than in France.

And the second question, some open questions on your asset portfolio (technical difficulty) something in Germany. Do you see still long-term options for consolidation in your footprint or (technical difficulty) portfolio something (inaudible). Thank you.

Okay, all right. Maybe regarding the way we are going to secure the EBITDA stabilization in 2014 in the complex in an environment where there is some pressure. I don't know if it's a growing pressure but I wouldn't say so but there is some pressure on the top line and not only in France. You're right, even though I want here to remind that in five European countries, we have top line growth excluding regulatory impact. So maybe we should be careful about -- I mean those global statements that maybe do not correspond exactly to the reality.

Gervais, do you want to add something regarding the (multiple speakers)?

I think on the cost cutting, and we will comment that probably further in the course of the year. But first, we have the Chrysalid program, which has different steps and which is improving our operations year after year.

Secondly, it has been said earlier by Stephane in answering another question, the labor cut decrease will continue because we are just in 2013 at the first step of labor cuts and number decrease in France, and this will go on for the next year.

Regarding EBITDA between France and outside France, you're right. But this is also portfolio management. We are securing this year not exactly with the figures in terms of EBITDA projection we could have had in mind last year at the same period. So that's part of portfolio management also operational portfolio management to be able to offset and compensate some accident somewhere, some better performance.

If we take Spain, for instance, we have better performance than expected that is true. And even Poland is doing better than what we had initially in mind in our plan, whereas it is true that Belgium has an accident. But this is compensating, I would say, the difference here.

Frederic, maybe I could suggest Pierre to make a point on Chrysalid program because I think it will answer both of your questions regarding the trends in cost cutting program. And then I will take the floor to speak a little bit about M&A and consolidation.

Yes. If you remember the way we designed the Chrysalid program more than two years ago, it's really rather a transformation for them than just a direct cost saving program. So, the costs decrease by controlling the way we operate. It's a program that aims at adapting the functioning of the company to the new realities of this -- especially mobile telephone industry.

So the initial ambition was EUR2.5b when we launched the program. It was brought to EUR3b at the end of last year. And I can tell you that as of today we have covered with our proven initiatives 95%, 96% of the global EUR3b program until 2016.

So it's a well-documented transformation program. We know exactly where we're going. We have a lot of initiatives which are undergoing. And so with this, we will transform the way we operate. It will -- it's based technically on many process descriptions and process optimizations, optimization also of network deployment, fertilization and profitization of initiatives brought from one side of the company to the other. So overall, this is going the right direction.

We are going to be massively helped on the indirect cost structure by the demographics of the company. As you know, around 10,000 people will leave the company in the next three years, and they will not be replaced entirely. So this is something also which is in a way linked, and it's parallel to the Chrysalid program. We are looking at a way in which we're going to function in the coming years with less people. So this is underway it's documented, and it's well programmed.

Regarding the situation in Europe, I would say that first what we intend is interesting evolution of the situation in Europe, where in some big countries like Germany today, maybe Italy tomorrow, we see some attempts to consolidate the market. I think we should still remain cautious about the output of those operations because I think that there are still a lot of hurdles to overcome.

What it shows clearly is that the current situation of the industry in Europe is, in my view, not sustainable. As you know, I am clearly an advocate of the consolidation of the industry in Europe. But in the same time, I think we still have to be realistic about the political and regulatory up cycles that are in the way of consolidation. But I think that there's clearly some need for consolidation.

As far as we are concerned, we will, of course, look very seriously to any kind of opportunity in the main markets where we operate. I could mention Spain, where as you know, we were a candidate to buy Yoigo. Maybe this case will reappear in the future. I could mention Poland also. I don't expect in the short term any major consolidation project in countries like France.

I would like also to say that there could be some forms of consolidation, alternative forms of consolidations like RAN sharing. Look at what's going on in France but -- and as you know we have a lot of projects of RAN sharing all over Europe. I could also mention fixed to mobile consolidation or convergence. I think that it could make sense in some countries, maybe like Spain once again, or Romania or other ones. And to that extent, I think also that the German situation is quite interesting.

So to summarize, I would say that there is obviously some need for moves and consolidations in Europe. I think we are in the beginning of this process of this cycle. And as far as Orange is concerned, we are prepared to play the maximum role in this consolidation move if it really happens.

And then, regarding the M&A policy as a whole, I think that we have always been very serious in the way we are working on M&A opportunities for the last three or four years. And of course, the discipline that we have to respect in our balance sheet will keep us clearly, strictly serious in our M&A approach, meaning that we don't have any significant projects in the short term regarding M&A.

Next question, Vincent Maulay of Oddo Securities.

Morning. Two quick follow ups on (technical difficulty) decline compared to H1, (technical difficulty).

Second follow up on RAN sharing, what is your mood to sign with a (inaudible) player for (inaudible) three.

The last one was the timing of M&A on (technical difficulty) and maybe timing for IPO of EE?

Okay first, OpEx savings in H2, Gervais?

We had an objective for the year of savings. EUR600m is what we said in February. We will be above that. I think already EUR440m has been achieved in H1 so it should be above that. I will not confirm any figure today.

I can just say what also Stephane had said before is that there is room for maneuver to increase the commercial expense and especially the need for subsidy in the second half compared to the first half, about I would say a little less it is than 10% increase, between 5% and 10% increase between first half and second half for our commercial expense. But we will be above the initial objective. This is also because the revenue is lower than what we had initially planned, and we had the margin of well over 4 times but maybe not exactly the 2 times what we did in first half.

Thank you. Regarding the French market, the Free subsidies 4G Delphine.

On the subsidies, so it was a test for Free. We don't have the results, of course, but we didn't see any impact on our base. So we'll see what they are going to do. Anyway, as we always do, we anticipate and of course get prepared to any new offers from our competitors in general.

On 4G, as Stephane Richard mentioned previously we are very far ahead of our main competitors. Of course, Bouyges is going to have the opportunity with its frequency to have quite good coverage, but we still are very far ahead from other competitors. So I don't see how now they our competitors, other than Bouyges we are going to be as efficient as we are on coverage, which is key, of course in terms of new network.

Thank you. Regarding the roaming agreement and the RAN sharing prospects with Free, I'll ask Pierre to give you some answers.

So as you know, the roaming agreement could be considered as a first form of mutualization to some extent, it's been commented upon and it's limits more or less described by the competition authority in France in March this year. What is maybe happening today between SFR and Bouygues is also very much looked upon by the competition authority. So we are in France, with a difference to Spain and Romania, for instance and many African countries, we are a bit late in the mutualization processes. It's very well described and defined by the law.

Regarding our talks and the progression of things with Free, it is obvious that the agreement, Memorandum of Understanding signed between our two competitors, is also a sign of the direction in which we might to in the future.

Regarding Dominican Republic, so, as I said, we are regarding or contemplating a potential stake so we have launched a process. With the size of this asset and the situation of this asset we think that such a process could take a few months if it goes through. It's not a two, three, four, five year process unless the potential acquirer could be a competitor within Dominican Republic. But I think there are many other options so we see.

Regarding EE, I think we have said it already, on EE, I think the two partners are still contemplating, and we'll contemplate a potential IPO. Now the timeframe is probably to show to the market a very good first year of 4G and of performance which means a timeframe which is probably 2014.

Regarding more globally the M&A policy, I would like to really make it clear that the management team and myself are today focused on short-term operational management, on cost cutting, on commercial initiatives and clearly not on M&A.

This being said, we are focusing on organic development in our footprint. We do not exclude from time to time to participate in some processes or options in order to buy a license if the country or the market is interesting. It was the case, as you know, recently in Myanmar. Unfortunately, we did not succeed, but maybe this opportunity is not totally lost, so we will see. But organic development in our footprint is the main priority.

And I want also to remind that we still have some opportunities in consolidating some of our African and Middle East operations, where we are still the minority shareholder. And I could mention especially Morocco, where as you have certainly noticed we are not a candidate to buy Maroc Telecom, but we are still a candidate to becoming a majority shareholder of Meditel, which is our Moroccan operation, I could also mention Tunisia.

Maybe I want to thank all of you and to wish you clearly very good holidays, and to thank you also for your attention in this meeting and, more globally, towards Orange. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.