Orange SA (ORAN) 2014 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to today's Orange Q1 2014 results conference call. For your information this conference is being recorded. The call will be hosted by Gervais Pellissier, Deputy CEO and CFO with members of Orange's executive committee for the Q&A session that will start after the presentation. Thank you. Let me hand you over to Gervais Pellissier. Please go ahead.

Good morning everybody. Thank you very much for joining us this morning. I'm with my colleagues from the executive of committee of Orange to help you maybe better comment to -- better understand our first-quarter results.

So my first comment on these results is that without putting too much emphasis on it we are quite happy with those results, especially because even in this first quarter we are able to reach our main objective for the year, which is the stabilization of our EBITDA rate.

And this leading, by the way, also to confirm -- helping us to confirm the full-year guidance in terms of EBITDA in terms of absolute values. But to come maybe in a little more details and starting with the presentation we have on slide 4, looking at the financials, so you see that EBITDA is stabilized at 30.8% of revenue, so fully in line with the yearly guidance.

This achievement has been clearly made possible by two things, one which is the slowdown of revenue erosion, minus 3.8% in this quarter after a decline of more than 5% in Q4 2013, resulting in a quarter-on-quarter improvement of 1.3 points, helped by improved results in most geographies, this is a contribution of 0.8 points, and a lighter regulatory impact contributing to 0.5 points.

But the second point, which is a continuation of what we have been doing last year, this is to continue to work on our cost structure. And our cost base has been reduced in this quarter by more than EUR250m. I will come back later by giving you a little more details.

Our CapEx our slightly up. With further rebalancings -- rebalancing to our networks and towards very high-speed networks overall the share of CapEx dedicated to networks has increased by 5 points compared to a year ago, with today 58% of our CapEx dedicated to network infrastructure.

On slide 5 you will see we have tied to gather in a slide what are the main comments we can make on the commercial performance of the Group. First, the customer base has increased by more than 3m customers in Q1, leading to 239m customers, which is a 4% increase year over year.

A significant contribution in terms of customer growth comes from the prepaid base in the AMEA region, while very high broadband, both fixed and mobile, and convergent services were the clear driver of customer growth in the European countries.

Concerning fixed broadband around Spain has been the key contributor, consolidating its position as the main challenger on the market, whereas, in France we have continued our fiber deployment plan. We have now 2.7m homes that can benefit from fiber to the home, an increase of 47% compared to the situation at end of March 2013.

This has allowed us to be the leader in terms of very high broadband conquest share, with 47,000 new customers on FTTH in Q1 2014. For now the first year, 2014, we will have -- will acquire more customers in fiber than the customers in traditional DSL. Fiber is now the main area of growth for the broadband market in France.

Regarding mobile, our major European countries have presented a record quarter in terms of contract net adds, excluding machine to machine. In Poland plus 114 -- (sic - see presentation "114,000") postpaid net adds. Our mobile number portability balance for this quarter has been positive for the first time since 2008.

In France plus 86,000 postpaid net adds. We recorded the first positive Q1 contract net adds since 2010 with an improved mix towards premium offers. In Spain plus 73,000 postpaid net adds continued to have a remarkable commercial performance with the contract customer base growing by 6% year over year.

4G is now the competitive edge for the Group and we have reinforced our position in all countries. In the UK we are leading the market with 72% population coverage and a 4G customer base up by 900,000 customers to reach 2.9m customers. In France we have continued to increase 4G coverage to reach 58%. And 4G customer numbers are now 1.35m.

While Spain exceeded 1m 4G customers at the end of Q1 with nearly 50% coverage. And Mobistar was ranked number one in network performance across several categories, including 4G speed, following comprehensive independent testing from CommSquare.

Generally our fixed and mobile markets are becoming more and more convergent with an additional 2 points to 5 points in terms of convergent penetration in our quarter-on-quarter customer base, especially in Spain.

On slide 6 maybe a brief comment on the EBITDA and cost structure. So the positive momentum in cost reduction has continued in Q1 2014 and has strongly contributed to stabilizing the EBITDA margin at Group level. This quarter almost 70% of the revenue drop was offset by OpEx savings, which is in line with the expectations we gave during our full-year results.

After a decrease of 1.6 points in 2012 and 1 point in 2013 this strong performance enabled us to stabilize Group EBITDA margin. We confirm our guidance to stabilize the margin over the full-year 2014.

On slide 7 you can see how the improving trend has been achieved. This quarter restated EBITDA is down by EUR120m after a drop of EUR222m a year ago. This quarter the EBITDA margin is stable at 30.8%, whereas, it was down by 0.8 points last year.

Overall OpEx decreased by 3.8% year over year as Q1 results confirms the positive momentum in cost reduction with EUR267m reduction compared to a year ago.

Direct costs decreased by EUR150m, minus 6%, of which a bit more than one-third linked to interconnection and a lower level of commercial costs related to both the increase of SIM-only offer across our footprint, especially in Spain, and a lower level of commission paid to indirect distributors, especially in France and Belgium.

Indirect costs decreased by EUR114m, minus 3%, significantly helped by the EUR76m drop in labor costs. I will come back on this on the next slide. For the remaining EUR38m of indirect cost savings the underlying trend is closer to EUR16m since we have posted a EUR22m capital gain from the disposal of our stake into Arkadin that has been accounted for in this quarter.

Within this there are some diverging trends; reduction in general expense minus 11%; CRM minus 10%; advertising and promotion minus 12%, more than offsetting some increase, especially the indirect component of network and IT mainly coming from network extension upgrades with 4,000 new sites, but also from difficult weather conditions in Europe during the winter; operational tax, especially the new [peeyon] tax in Belgium and the increased telecom tax in Ivory Coast which are a weighting for more than EUR10m.

Concerning the increased trends of cost savings over 2013 the year-on-year improvement seen in Q1 cannot be fully extrapolated for 2014. This is why we confirm our guidance [as just] to achieve at least a EUR250m decrease of indirect costs in 2014.

Moving on slide 8 you can see more detail on the labor cost evolution, with a drop of 3%, minus EUR76m, compared to Q1 2013. The savings are driven by significant volume effects both in France and Poland, offset by some price effect increase.

In France the plus 2% price effect increase is somewhat offset by the increase from 4% to 6% in the employee tax offset, credit d'impot competitivitie employ. And as I have just mentioned there are also some year-on-year phasing difference in the accounting for holidays in France which should not be extended to the fully year.

Internationally the average price effect of plus 3.7% was impacted by the higher levels of inflation in some of our Africana and Middle Eastern countries.

The graph on the right hand gives more detail of the volume effect. It shows that the average level of full-time equivalent employees is down by 4% year over year, mainly coming from France and Poland where the senior part-time and voluntary departure plans are in operation.

In terms of our prospects for 2014 we expect a further improvement in the labor OpEx savings compared to the EUR1.07m achieved last year. Our current projection, which takes into account the holiday phasing difference, suggests that for the full year we'll see a doubling of the Q1 year-on-year variation.

On slide 9 a few indications on our CapEx evolution. CapEx spending for first quarter has reached EUR1.160b, which means -- which represents 11.8% of sales, increasing by 0.6 points as a percent of sales. And 58% of that has been dedicated to networks.

Over the quarter CapEx on both mobile and fixed very high broadband networks went up by 66% year over year. They were also allocated a higher share of our investment, namely, 29% of network CapEx. A EUR77m year-over-year CapEx increase in very high speed networks was partially offset by a reduction in other programs which peaked or were completed in 2013.

In France we now cover 58% of the population with 4G, 8% more than what we had at the end of 2013, thanks to more than 5,400 active 4G sites. In Spain 4G covers around 40 -- 50%, sorry, of the population and this coverage should increase up to 66% by year end. I just remind you also that the objective for France is to reach at least 70% by year end.

In Poland 4G was commercially launched in January 2014 and population coverage doubled since then from 16% to 29% end of March. 90% of the RAN sharing program with T-Mobile is now also completed.

In other countries strong investment in the AMEA region, especially in Jordan, Ivory Coast and Guinea, as well as in Europe with 4G launch in Romania and Belgium.

Page -- slide 10, sorry, with -- you know that we don't publish any figures of the balance sheet, neither any indication in terms of profit and loss statement below the EBITDA. However, I wanted to give you an update on how we are managing the debt and the balance sheet of the Company.

Over the last few months we have actively managed this balance sheet and especially improved the liquidity with three main elements; the sale of Orange Dominicana for about EUR900m after tax, EUR1b of cash received; the issuing of the equivalent of EUR2.8b of subordinated perpetual bonds, hybrid bonds.

These are considered as equity under IFRS rules, allowing Orange to reinforce its equity at a very attractive rate of 4.9%, which is in line with the average cost of existing bonds and no dilution to shareholders.

And taking advantage of very attractive market conditions the Group has extended the maturity of its debt while reducing its debt servicing cost. On January 31, 2014 Orange has issued $1.6b bonds in very attractive conditions with maturity of 5 and 30 years. These proceeds were used for the early repayment of $1.2b bonds that were to mature in July 2014.

Just to tell you that today we have no longer any redemption for the future above EUR3b a year, which means that now the liquidity of the Group is rather sized with its future cash flow capacity. Now some snapshots on the operations and maybe a little more details on the business itself with slide 12.

So Group revenue's evolution improved in Q1 compared to previous quarters thanks to the good commercial performance we had in Q4 2013 and some lower regulatory impact, especially in France.

However, mobile service revenue still decreased by 7% due to the global re-pricing and the partial shift to SIM only of the customer base in Europe. Q1 shows a better trend after the continuous deterioration we have seen across 2013. The improvement in this quarter mainly relates to France, Poland and Belgium.

The decease in mobile service revenue is partially offset by the strong success of equipment sales linked to the SIM-only model with installment, especially in Spain, where revenues from equipment sales have more than tripled in a year.

Fixed services decreased by less than 2% and this comes from the contraction of legacy revenues especially in France, minus 12%, and in Poland minus 15%, while broadband services are supported by the good performance in France and Spain.

In Spain fixed broadband revenues grew by more than 11% in Q1 2014, a substantial growth coming from the continuously strong commercial performance during the last year.

Lastly, the relative improvement in the enterprise segment is the result of a lower level of pricing pressure and is sustained also by a strong growth of IT integration services, especially in cloud and security.

Globally the slightly improved trend of Q1 is visible in most of our geographies, as I will show you in the next slides, which are now country by country.

So to start with France on slide 13, revenue decrease slowed down at minus 5% after, if you remember, minus 7% in Q4 and minus 6% in Q1 2013 and with very little regulatory impact this quarter.

Regulation impacted revenues in 2013 by 1.8 points on the French revenues. On this quarter it's nearly zero. However, unfortunately, we will have further regulatory effects in H2 with the European roaming regulation being implemented as July 1, 2014.

Two main elements explain the sequential revenue evolution. Our mobile service revenues, which decreased by 9.7% in Q1 2014 versus minus 8% in Q1 2013, indicated the continuous re-pricing of our customer base and the mix elevation towards SIM only and convergent offers. 89% of the contract based is now on the post-2011 offer and 79% on the 2013 offer and this re-pricing is visible in our ARPU figures.

ARPU was also negatively affected by the growing share of convergent offers, which, we should not forget, has positive effects. It increased the customer loyalty. We have the lower Q1 churn on mobile since 2010. And convergence provides more opportunity to sell premium offers since 61% of our customer -- consumer contract gross adds were done on Origami or Origami within Open.

Fixed service decreased by 1.6% versus [4.3%] decrease in Q1 2013. The main driver of the improvement is the slowdown of PSTN revenue decline, in line with the customer base evolution and also thanks to the increase of the subscription fees in June 2013 that we will continue to benefit until May 2014.

Broadband revenues are stable after a slight decrease in 2013, with a 2% increase in customer base compared to Q1 2013 offset by the increased share of convergent offers negatively impacting also the fixed ARPU. Excluding this convergent discount our broadband ARPU would be stable.

And one point to be noticed and that we'll comment, and as always Delphine is with us also to answer to your questions, we are really resisting to the price pressure put by some competitors on the fixed-line market. We are -- and this with very little impact for nothing, no impact on our churn and this is very important for us.

Regarding some of the mobile indicators, on Page 14, our mobile contract customer base grew for the first time since Q1 2010 with a significant 86,000 net adds in this quarter.

This performance was made possible thanks to two key elements, the relevant segmentation of our offers illustrated by the increased share of premium offers, Origami, Open, representing 61% of our quarterly gross adds and 58% of our contract mass market base.

Sosh remains a key component also of our segmentation and now counts a bit more than 2m customers, but also a favorable contract churn back to its 2011 level on an annual rolling basis, so before the VAT increase of Q1 2011 and the entrance of the fourth player early 2012.

Our focus on value is illustrated by the ramp up of 4G customers, now at 1.35m customers. These customers benefited from an increased 4G coverage that I have been mentioning and reducing the gap with Bouygues while it widens compared to SFR and Illiad. We activated twice more sites than Bouygues in this quarter, three times more than Illiad and four times more than SFR.

Our objective is to significantly increase our 4G coverage while offering the best throughput thanks to the most adequate spectrum to reach at least 2.5m customer by year end and, as I said, 70% coverage.

The market shifted more and more towards contracts. This is why we provided you with the contract market share in addition to the total market share. You can see that we have lost less than 1 point of contract market share in one year.

Regarding the fixed business, on slide 15, the broadband market has been characterized by a strong uptake of fiber, plus 47,000 new customers, leading to a very high broadband share of conquest for Orange exceeding 50% for the first time and the continuous success of quadruple play offers.

As Orange has the largest broadband customer base the key factor for us is to control the churn using fiber as the strong retention, but also as an acquisition too. This is illustrated by the growing share of Open customers.

At 3.6m, Open now represents 36% of our total broadband base. Open churn rate is on average 3 points below our standard broadband churn. This increasing share explains why Orange benefited from a lower than market average churn rate, around 3 points versus 2 points a year ago.

Q1 confirms the good momentum for fiber; 47,000 net adds. This represents the best quarter than ever and even better than the Christmas period of Q4 2013. Our fiber customer base has increased by 77% year over year.

And when considering the very high broadband market, so including all access with a speed above 100 megabits per second as measured by the regulator, our share of conquest went over 50% for the first time, including, by the way, cable.

Regarding Spain, on slide 16, excluding regulation revenue grew by more than 2%, an improvement versus the 2 -- by 3%, sorry, an improvement versus the 2.7% growth in Q4 2013, while erosion in mobile service revenue more than -- have been more than compensated by growth in fixed broadband and mobile equipment revenues.

The contraction in mobiles sales revenue was driven by a 16% year-over-year reduction in blended ARPU relative to a sharp fall in market price mainly in Q2 -- Q4 2012 and Q1 2013, the ongoing market transition to SIM-only and convergent offers and the impact from regulation.

These effects have been partly offset by Orange Spain's strong commercial performance with the contract customer base growing by 6% year over year and by more than tripling, as I said, the handset revenues.

As regards 4G, Orange Spain reached 1m customers by end of March with about 50% of population coverage and targets to be very near 70%. I think the official objective is 66% coverage by year end.

The plus 10% year-over-year growth on fixed revenues was mostly driven by a 24% growth in broadband customer base, thereby, maintaining our leadership position and share of broadband net adds. Convergent offers now cover 70% of our -- 72%, sorry, of our fixed broadband base with 20 points additional over last year due to the solid commercial success of our Kangaroo offer.

For Poland, which has published its figures, as in previous quarters Poland has shown new progress in turning around its operation and this is clearly visible in the new-found commercial momentum, especially on mobile.

As regards financial performance, revenue erosion has been limited to less than 8% year over year, sequentially improving from 9.4% in Q4 2013. Lower erosion in mobile revenues down minus 1% year over year excluding regulation, as the customer base went up by 3.4% and ARPU decreased by 11.6% year over year.

Continuing erosion in fixed services minus 7.7% excluding regulatory impact, still impacted by a continuing albeit slowing decline in PSTN lines and let's say a still difficult competitive environment on broadband versus cable.

As regards commercial performance growth in mobile customers excluding MVNOs accelerated to 3.4% year over year versus 2.9% in Q4 2013, with 70,000 net customer -- customer net adds in this quarter, of which plus 139 (sic - see presentation "139,000") contract net adds.

This confirms the rebound seen from Q4 2013. We are back now in Poland to a positive mobile number portability balance for the first time since 2008 and our convergence strategy proved to be effective with 67,000 net adds resulting in the 352,000 customers who are convergent today.

We also had continuing momentum in entry-level, SIM-only offers with 126,000 net adds in new mobile, up to 478,000 customers.

For other countries, on slide 18, revenues have been stable at minus 0.2% excluding regulation, with a strong push in emerging markets and Romania able to offset the decline of Belgium and Slovakia.

There is an ongoing positive trend in Romania. Revenues are up by nearly 5% with a good commercial traction and a high level of smartphone penetration driving better revenue growth, plus 25%.

Belgium was down by nearly 20% and Slovakia 10%. In Belgium re-pricing effects continued, with 94% of our customers now positioned on offers launched last June. This effect should reduce significantly from H2 and I think this is what has been perceived by the market when Mobistar have announced their results two weeks ago.

In Africa and the Middle East growth was driven by Egypt, which confirms its recovery. But also Mali, Guinea and Ivory Coast growth was fueled by the mobile customer base, which is up by 11% year over year. And in the meantime we have reached more than 10m customers for our Orange Money offer.

For enterprise revenue decrease slowed down in Q1. Voice decreased at a reduced pace compared to previous quarters, minus 7%, thanks to a general improved trend in terms of lines decrease, traffic and price pressure.

Voice over IP revenues showed an improved trend in France, plus 6% versus plus 3.5% in Q4 2013. And there is also less price pressure in Q1, slightly --especially from data services, minus 3% decrease versus minus 5% decrease in Q4 2013, even if this revenue is still under the pressure of legacy solution decrease, but helped by a lower price renegotiation with big customers.

The solid growth in IT services of plus 5% was supported by a dynamic portfolio review started in 2013 with the acquisition of Atheos and InovenAltenor for security.

Moreover, the new strategic initiative launched by Orange Business Services in the field of cloud computing with the new solution for cloud storage in a partnership with Accenture [will] allow us to even accelerate in the field of new IT services. You see that cloud is growing by nearly 20%, whereas, security has grown by 26% year over year.

And last, but not least, regarding EE the underlying operating revenue excluding impact of regulation has improved by plus 0.8 -- is increasing by 0.8% with the continued high value postpaid growth. Operating revenue including the impact of regulatory cuts was minus 1.7% year over year.

EE saw a net increase of 214,000 postpaid customers and a net increase of 123,000 net adds of postpaid customers excluding machine to machine. It has continued to successfully attract 4G users with a net increase of 900,000 4G customers. And EE is expecting to reach the figure of 6m 4G customers by year end compared to 3m at the end of Q1.

EE 4G services now reach 72% of the population, covering 200 towns and cities and we'll continue to roll out 4G in an additional 600 towns. EE is the only UK operator to offer double-speed 4G, which is now available in the 20 largest cities in the UK and covering 25% of the population.

To conclude this presentation just with the last slide, which is number 22, which is exactly the same than the one we have presented to you on March 6. This is our full-year guidance which is confirmed and now with a precise date for the dividend.

Dividend to be paid at the -- dividend to -- balance to be paid -n June 2 and the interim dividend on dividend 2014 to be paid of EUR0.20 to be paid in December 2014.

We are now available to answer to your questions.

(Operator Instructions). Stephane Schlatter, Societe Generale.

Thanks very much. Good morning everyone. Three questions please. Did Bouygues Telecom's new broadband offers have a negative impact on Orange in March and in April?

Secondly, press reports suggest some African assets could be sold. Can you confirm this? And if so what would be the impact on consolidated EBITDA?

And finally would the French State agree to its stake being diluted to allow Orange to make an acquisition in shares, such as Jazztel, for example? Thank you.

(Inaudible) Delphine on the Bouygues impact on the --

So in March and April we still have a very good performance on gross adds. We are still number one in terms of gross adds with 30% of market share -- gross add market share.

So of course the Bouygues offer has an impact on the market, but we expect this impact to be much, much higher on the free side, or SFR side, than it is on us and, besides, our churn is still very, very, very low, very good on the broadband market.

Regarding our African footprint, two comments. One is that we have no intent to sell anything that is contributing to the EBITDA. There are a few question marks.

There are a few question marks which are one or two countries especially -- and the names I've been given I think these are two names that I have been -- already mentioned is Kenya, Uganda, where EBITDA is very low and with today, because of the number of players on the market if there is no consolidation in one way or the other, a difficulty to restore the profitability of those operations.

This is why we have been saying that we are open to discuss with the potential partners. And probably in the two cases, or at least in one of the cases, we might not be the one who will consolidate. This is more the scheme we have in mind.

So it's not a sale to sell. It's not to say this market needs repair, needs consolidation. We are ready to open the discussion on that -- to open the discussions on that.

And we are ready, in that case, if somebody takes the lead to lose control and maybe at the end to sell. But it's more the approach we have than the straight sale to whoever comes, because we think that this is more difficult than that.

The other point is that you have seen the total figures for Africa, Middle East; they are good. We are not publishing the EBITDA, but you can imagine that if the revenue is growing by 6% the EBITDA is not deteriorating. And maybe I can leave Marc to give one or two comments on the situation of Africa, Middle East.

Thank you. Thank you, Gervais. And just want to confirm that the global situation of our assets in Africa and the Middle East is very positive. The growth is there by 6%. And the EBITDA rate, even if we don't publish each separate segment, I can say that they are just slightly higher than the average of the EBITDA of the total Group.

So we have growth, unprofitable growth at the same time, with strong assets especially in Egypt, in Senegal, in Ivory Coast, in Mali, in Niger, in different countries, and we are happy with our first quarter.

For your last question, today we don't envisage a big acquisition that will require to issue capital, to issue shares. Now, if there is an operation that would make sense in terms of value creation we have never said we would never present it to our Board and then to the market.

Regarding the Spanish situation, I think we are not immediately in a hurry to make a decision on that. Why? Because with the move made by Vodafone on Ono this reduces the number of combinations on this market. And there is another point we have also to evaluate on the Spanish market.

This is whether we not only continue, which has been decided, but strengthen our co-operation with Vodafone, or whether we see other alternatives. But today we have a strong co-operation with Vodafone to build 3m fiber-to-the-home lines together and there are possibilities to extend to that.

Maybe, Jean-Marc, you can comment a little the prospect on the Spanish market for fixed lines. Jean-Marc Vignolles is with us in Paris.

Well, regarding our developments in very high broadband, as Gervais commented, we are definitely looking at the revision and the extension of the existing agreement with Vodafone and hope to make an announcement in the coming weeks. We're also reviewing other investment opportunities, including, obviously, the benefit of the evolution of the [NEBA whole] stream regulation.

Frederic Boulan, Nomura.

Hi, good morning, a couple of questions. Firstly, on network sharing, if you could talk a bit more about potential for deals like that across your footprint, particularly in France.

And to follow up on that market Stephane Richard was on the tape this morning saying the French market needed consolidation. So if you could expand a little bit more on your expectation there.

And then a follow-up on Spain. Do you think that the Vodafone-Ono transaction can actually open -- pave the way for a different strategy in terms of wholesale? So could you see -- and have you had discussions with Vodafone about using a broader Vodafone-Ono as a wholesale partner as well in addition to TEF, or getting better vertical access conditions with Telefonica is still the primary route for having FTTH wholesale access in Spain? Thank you.

Maybe to start with Spain, just to say that on Spain we will not comment what we are discussing with the different parties.

But as I said you have -- and you're right, Frederic, we have now two infrastructures in Spain. Because when you choose to do FTTH as a DSL operator you have to remain the partner of the incumbent who will be the main deployer of FTTH.

So -- and today I think the fact that Vodafone is buying Ono is fully opening those two options. But it's very premature to comment on that. We will have discussions with two parties -- with the two parties. So that's the -- that's okay.

Regarding the French market, I will leave Pierre and Delphine comment.

What I can just say for the Company itself and for us, and this is I think what Stephane has said this morning, we clearly consider that the market is not fully repaired by the SFR Numericable combination and that for [the] further consolidation might follow.

At which pace, under which form, that's probably still big question marks, which, by the way, do not depend on us and that doesn't mean that there is nothing to do in the interim period before big moves.

Pierre or Delphine, I don't know --

Just to add a couple of words on what Gervais just said, but mutualization and network sharing is one of the many ways in which companies look for efficiency. So consolidation is one of those ways. Decreasing your cost is another way. And mutualization is one of those directions in which you can go.

So today we're facing a situation in which SFR and Bouygues have signed an agreement. As to the best of our knowledge one of the two parties at least probably can be a little bit ill at ease today with this agreement, but cannot do anything against it as far as it stands.

We will be exploring all the possibilities with the other companies. We have the best network. I think it will be confirmed under Delphine's direction. And some people want to talk to us. We can explore the possibilities, but nothing to announce today.

Okay, thank you.

Jakob Bluestone, Credit Suisse.

Hi, good morning. I've got three questions please. Firstly, on the cost reduction you commented during the presentation that we shouldn't be extrapolating the reduction in indirect costs for the full year. Could you perhaps just explain a little bit the point you were making on the accounting for holidays?

Secondly, there've been comments in the press last week and Stephane's quoted on Bloomberg this morning as well talking about changes to the management team. Is there anything you can comment at this stage?

And then, finally, just in terms of the improvement in mobile growth in France could you maybe share with us what percent of your customer based has been re-priced in French mobile? Thank you.

Regarding the indirect cost what we are trying to explain is that there are a few, let's say, one-off items which explains the EUR114m achievement. And that -- we think that the -- we prefer -- and this is more to be cautious.

We prefer to -- for you to keep in mind the objective we have taken for the year at EUR250m, rather than multiply by four the first-quarter achievement. This is mainly what we have in mind.

With -- even on the labor OpEx, as I said, a full-year perspective which is not exactly four times what has been achieved because of some of the holiday accounting and a few one-offs. This is what we are trying to do, without being too precise.

We cannot -- the rule of the game is not to give you too-precise indications, but I think this is what we try to make clear for you. So we are very confident to achieve the EUR250m and to be above the EUR250m, but this is the -- let's consider the EUR250m as the minimum level we want to achieve.

Regarding the question on mobile in France and percentage of customers re-priced --

So 90% of our base is re-priced post free launched offers and 80% on 2013 offers, so it's quite a big re-price already done both on Origami, Open and Sosh offers.

Jonathan Dann, Barclays.

Hi, everybody, two questions. Can you just clarify the fiber agreement in Spain? So the plan is still to end up with 6m homes in some form of fiber/cable partnership with Vodafone.

And then, secondly, could you just -- could you explain the -- the numbers look great, the net debt target's all within the right -- can you just explain why the EE is proportionately included in the net debt/EBITDA range? I think even if you were to strip it out the numbers -- is that a -- is being close to 2, does it have some specific significance, or --?

Jean-Marc regarding Spain.

So, as was already publicly communicated, we confirm the target of 3m households connected by Q3 2015, which was the agreement we had with Vodafone. And was -- as was also commented before we are definitely exploring ways of expanding this target.

Regarding EE, this is the practice we have agreed upon with our German colleagues and with the rating agencies. Why? Because since we don't consolidate EE the only cash proceed we get is the dividend and we don't account for in our EBITDA the EBITDA.

And since EE is not leveraged at the same levels than its two mother companies, its two parents, this is why this has been an agreement with the rating agencies to consider that we could take 50% of EE debt and of EE EBITDA into the way we measure our debt ratio. But this is clearly an agreement with the rating agencies.

And there's no -- if you were to publish net debt/EBITDA without EE that wouldn't breach any financial commitments?

(Multiple speakers) -- by the way, we publish also the ratio. We calculate and publish the ratio without EE when we do our full-year publication. You see that we publish the two figures.

Okay, thank you. Thank you.

Simon Weeden, Citi.

Good morning. Thank you for taking the question. I've got two, if I may. Firstly, I wondered as regards your MVNO income from Iliad whether the pickup in cell site activations that they've achieved in the last few months, according to public data, impacts your expectation for that revenue source to remain approximately flat for you year over year in 2014.

And the second question is returning to EE and the UK market. I wondered if you could comment on why the service revenue deteriorated -- the service revenue growth deteriorated versus fourth quarter, both headline and underlying for the mobile side, given the pace of 4G net additions that you're putting through. Thank you.

Pierre maybe on the revenue with Iliad.

Yes, two things on the revenues from Iliad. We expect those revenues to be flat this year, in line with last year's performance for us.

And also I wanted to add with regard to a previous question also, we strongly intend to remain and by far number one in wholesale -- in the wholesale business in France for the coming years. And the figures we have in front of us confirm that ambition.

Regarding EE, two comments on that. First, we will see what are the figures for the total market, so I think -- I'm not sure that we are so different from the market. Maybe two comments -- additional comments regarding EE.

One, if you remember, we have adjusted slightly down our 4G tariffs whilst increasing our 3G tariffs. We are trying -- you remember the move we are trying to do in the UK.

This is to push probably within the next 12 months most of the postpaid base on 4G services. I say most, which means we are trying to near the 3G price and pricing in the 3 -- in the 4G pricing, so there has been slight decrease of 4G.

And there is another point, which is that we have also still a strong erosion of the prepaid base which impacts the mobile service revenue. So this is the two main trends.

And there is a slight additional trend which is taking off in the UK. This is the SIM only. There is also -- even if the UK has been rather late on this model, we see some uptake of SIM only on the UK market which explains part of the ARPU question.

Thank you very much.

Vincent Maulay, Oddo.

Yes, good morning. Two questions, the first one on the mobile ARPU in France after the encouraging minus 10% in Q1. Is it fair to say that the ARPU in France in 2014 could be down by only minus 10.5% to minus 11% versus expectations closer to minus 11% to minus 12% three months ago?

And a question [regarding] network sharing with Bouygues. I suppose it's tricky to be too explicit, but if you could elaborate a little bit on is it manageable for Bouygues to cut its contracts with SFR? And is it manageable vis a vis the watchdog competition to sign a deal with Bouygues?

On mobile ARPU in France we expect our mobile ARPU to be -- to decrease in -- with figures that are better than what we had in 2013. But we don't want to disclose any more precise figures on that stake.

Pierre on (multiple speakers).

Gervais, just a very short answer on the mutualization with Bouygues. It is not considered today. Bouygues has an agreement with SFR and they have to live with it.

Dimitri Kallianiotis, Redburn.

Good morning. Thank you. I just wanted to ask you on fixed in France. You're performing extremely well in fiber and there's yet not that much segmentation in terms of pricing. There's not much premium in terms of fiber.

Is it something you would consider, so to basically charge more for fiber and maybe less for ADSL, where you're actually struggling a little bit more in terms of net add, especially as Bouygues has cut prices recently?

My second question was on the performance in terms of OpEx savings, which, as you mentioned, has been very good in Q1. And you -- if I understood correctly, you were expecting that to double, so maybe EUR150m of OpEx savings for this year.

I want to ask you in terms of cash savings what would be the impact, because you've obviously got some costs -- some cash payments for the senior part-time plan. So if you could give us an indication on cash savings in terms of labor cost that would be very useful. Thank you.

On fiber, two answers, the first one is that, first of all, the up from three each for Open fiber offers is plus EUR5, so the price is different on Open.

And, besides, even if on classical broadband offers, the price exactly -- the up from three exactly the same on ADSL and fiber, still we have a better ARPU on fiber because fiber customers use more, buy more pay TV, for instance. But still we intend to have a more segmented approach, but we think that today is a little bit too soon to increase fiber prices.

So regarding the impact -- the cash impact of cost savings, difficult to completely measure. You're right. There are a few savings that are the result of what you have been providing for, including the senior part-time plan, but these are real savings once the people have left. We should never forget that.

So even if it's not a cash saving for today, it's a cash saving for the future. But taking those -- all this into account probably we could consider that of the total cost reduction more than half have a cash-positive impact.

Thank you, that's very useful.

Hannes Wittig, JPMorgan.

Yes, good morning. I have two questions, one related to the domestic fixed-line performance. You have lost slightly more customers in the line -- line customers in the first quarter than in the previous quarters. Can you maybe comment on that?

And also in the domestic wholesale revenue performance there's quite a significant sequential step up, so I was wondering whether this is motivated or is benefiting from any material upfront payments related to co-investment schemes and if there was a chance for you to maybe quantify that. Thank you.

On the fixed line just a reminder of the fact that the first quarter is always a very low quarter because gross adds are quite low on the first quarter, both on mobile and fixed, by the way. So each year the first quarter is quite low. It was 18% of net adds' market share last year. It's around 14% this year, so it's quite a usual trend for the first quarter of the year.

So we have -- regarding the wholesale question, we were checking if we had understood your question right, but there's an increase. There's a growth of wholesale revenues overall.

Within those revenues the unbundling revenues still are growing, so unbundling is something that continues its progression. And, as I mentioned, we have a stable prospect on the revenues from the Iliad roaming agreement.

Nicolas Cote-Colisson, HSBC.

Thank you. Just a follow-up on fiber. Can you tell us more about where you are in terms of a co-investment in fiber in France and what are your partners actually currently spending?

And also is it a cause of concern that many local authorities are now building their own fiber access network? Does it create some issues in the long run for you? Thanks.

So just a few words on the co-funding issues, because those are the issues you are addressing. This issue is mostly linked to SFR's attitude. And SFR attitude in the future is difficult to describe for us.

We can -- we base ourselves on several statements or hints given by Numericable, the new owner of the company, or the future owner of the company. They seem to intend to confirm their co-funding investments. What we know is that co-funding by SFR has started later than it was supposed to start.

So they started actually a year later than they had announced previously. And it's a relatively limited amount today in the areas of 10s of millions of euros. So nothing much more we can say today. We'll be looking very closely to that issue in the future and also monitoring what the commitments made by Mr. Drahi will be in the future.

But -- sorry. Sorry to follow up, but does it jeopardize your plans or the speed at which you can invest? Do you have to wait for them, or do you just --

No.

-- can you just ignore them?

Luckily we never waited for them, otherwise we would be late actually. So we started off investing and we had witnessed some co-fundings from their side, some also from Iliad, also with a limited number.

And, no, we're rolling out our plan. We have, as you have mentioned previously, a great conquest share in that activity, so we feel we should continue rolling out fiber in the country. No, it is a help if they co-fund, it is something that we'll benefit from, but it's not something we're counting on.

Okay. And maybe just to come back on the retail market, do you still think that fiber is a way to regain market share eventually, or not just a way to stabilize the customer base, as we can see in Q1?

No, no, it's definitely a way to regain market share. And we can see it in very dense areas where fiber, homes passed and connectable are -- the ratios are quite high it's -- we regain market share. So it's really efficient for that.

Okay, thank you.

Antoine Pradayrol, Exane.

Yes, good morning, everyone. I just have one question left please on commercial costs. If I'm not mistaken, they were down EUR100m year on year in Q1, so EUR100m. So can you give use an indication of what you expect for the full year? Is it a sustainable trend for the next quarters? Any initiatives one way or the other on commercial costs?

Today difficult to give -- this is why, by the way, we didn't give any guidance on the direct costs. We were quite cautious at the beginning of the year.

What we can say is that if the market remains structured as it is with the SIM-only trend we see in some markets, with the value trend we see in France, with the stake taken by Origami we think it's sustainable.

Now, if for any reason there was some acceleration, for instance, of the subsidies on some markets, including in France -- by the way, if Iliad enters really the subsidized market, which they have not done yet, it might change that trend.

But today we think it should continue the same trend, especially because the third-party spending on middle-men distribution, on resellers, will continue to decrease. This trend will be confirmed with the decrease of commissions on third-party [resellers].

Okay, thank you.

On subsidies we think that if the business remains and continues on the trend it has today this is a sustainable trend. If there is any change on one of the big markets by, let's say, a reacceleration of subsidies then it could change the trend.

Okay, thanks.

Jerry Dellis, Jefferies.

Yes, good morning. I've got two questions please. Firstly, on the French market I just wondered how confident you are that the market is perhaps entering a more resilient phase, particularly when you look through to the 2013 re-pricing working fully through the base.

And perhaps, specifically in mobile, if I may, now that 4G penetration is almost 10% of your contract base at what stage do you think we'll see that translated into the sort of ARPU improvements that EE was talking about yesterday?

And then secondly, on commercial costs and how it relates to EBITDA guidance, I think the year-on-year comps on commercial costs get a little bit tougher towards the end of this year.

If in the meantime we were to see competitors invest more aggressively in their own commercial offers where is there area for you to make up for that whilst still adhering to the EUR12b to EUR12.5b EBITDA target? Thank you.

Maybe one general comment before we answer on France. I think we have to be very careful in the future with the ARPU figures. We have now a mix within the SIM cards of SIM cards at zero euro, SIM cards at EUR2, EUR5, and the value customers that are still affecting the French tariff at EUR160 a month, but with several SIM cards, because this is [the multi-SIM] offers.

So you have to be very careful on the traditional measure of ARPU, which is today not ARPU, but ARPES. This is an average revenue per SIM. It's not -- we don't calculate yet a real average revenue per user, because it's very difficult to measure that into the IT system.

So, again, I think this is why we are very cautious into giving you ARPU figures. And I think within your own models you have also to think -- and we are ready to discuss that with you, to try to define with you the right way to see and to get some indication in the future. But that's not as easy as it was in the past. So this is why we are very careful on our ARPU comments and on the impact.

Maybe a few comments on the French market, Delphine.

So on the French market it's -- you're right to say that I feel quite confident in the fact that the market is going to cool down. First of all, on the mobile side the price points have been quite stable for more than one year; the price point EUR9, EUR20 are really very stable.

On the broadband market we see the Bouygues is trying to make a move with minus EUR10 on the broadband price point, so that could be a threat. But we think it's not sustainable and that's why we don't react to that price point. And further consolidation or even a more rational attitude on the market make me think that there will be an end to this war on the fixed market.

And regarding the consequences of consolidation maybe two main comments. One, when you see -- when there is consolidation you generally have the consolidation of somebody with either a fixed -- a big fixed base or a big mobile base.

If I take Spain, Vodafone has still a big mobile base, but they don't want to be fully negatively re-priced by the strategy of Jazztel or Ono. So we can consider that probably, maybe not immediately, but the merge between Vodafone and Ono will reduce the price pressure on mobile.

Whereas, in France our feeling is that the consolidation SFR/Numericable, Numericable needs to have good value on fixed line. Numericable cannot afford to have discount prices on the fixed-line offer, and more or less the same for SFR on its mobile.

So we think that this first move, when it will be executed, will also decrease some of the pressure on the prices of the market. That's not enough, but these are the first steps of indication we see of probably less price pressure.

We might have, however, still two other weapons used on our market. One is clearly the promotions. So general tariff decrease will probably stop or be much more limited than they were in the past. Now we cannot consider there will be no promotions.

And we see probably that there might be either local promotions, a few weeks' promotions etc., so a temporary decrease of prices will continue. That's one of the weapons that has been strongly used, by the way, by SFR for the last two years on the French market.

Secondly, another point is we see with 4G and all the rest some appetite of the market and some uptake of the value offers. So maybe competition will come again on [how do we] reach the value offers. We might come again to a more classical competition like what we had in the past on the mobile market. We'll see how it comes, how it works.

But probably we are coming back to more traditional weapons in terms of competition, which is also one of the outputs of consolidation where there is less disruption into the practices and more, I would say, traditional means of competing on our telecom markets.

I think this was the last question, so thank you very much. Just -- maybe I just made a confusion on the payment of the balance -- dividend balance. So the dividend balance payment date is on June 5. I've said being on June 2. Sorry for my confusion.

And we see you in one quarter for the next first-half announcement. Thank you very much.

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