Orange SA (ORAN) 2014 Q2 法說會逐字稿

Good morning to everyone. Bonjour a tous. Welcome to this presentation of our first-half results for 2014. I am today with Gervais Pellissier, our CFO, but also other ComEx members that would be available to answer your questions.

(Interpreted). I'll be making this introduction in English, as usual, translated into English, and we're starting on page 4 of the written presentation, which gives the key figures for the Group performance for H1 2014.

The first point to underscore here is that as we said we would, we've stabilized the EBITDA margin of the Group, standing now at 31.3%, and this is in line with our target of stabilizing the rate for the year. This result enables us to confirm our target for stabilizing the EBITDA margin over 2014. And let me just point out that for H1 2014 the EBITDA margin went up by 0.5% in France. This is something that we hadn't seen since 2008.

We've managed to stabilize the EBITDA margin mainly thanks to two major efforts which we've been undertaking. First of all, very clearly we've been continuing with our stringent management of costs across the Group, with a reduction in the indirect costs of EUR213m for H1. So we're well ahead of the target which we fixed of EUR250m. This is what we wanted for the whole year. And thanks to this good result, these good figures for H1, we're in fact increasing our guidance for the reduction of indirect costs to a standard EUR300m.

Moreover, and this is the second point which is important, we've also seen a reduction in revenue which is less than previously. For H1 we have a revenue figure of EUR19.6b. This is down 3.6%, which is to be compared with the figure of 4.5% in H1 2013. And the reduction which we saw in H2 last year is lower than that of H1. So we're seeing that there's an improvement in the top line and this improvement has been continuing for three consecutive quarters.

Most of the re-pricing which we saw with reductions in price across Europe, most of this is behind us now. And we're also seeing, as we said two years ago, we're also seeing the impact of regulatory effects, which are beginning to become less and less.

We've also managed to continue a high level of CapEx. We invested EUR2.5b of CapEx. This is an increase of 3.1% year on year. This high level of investment is driven in part by the fixed and mobile high-speed broadband. I'll come back to that later on.

And then a very important point is the financial structure of the Group, which has significantly improved over H1. Thanks to the issue of hybrid bonds which we made in January and the divestment of Orange in the Dominican Republic, we reduced the net debt by EUR3.3b, now standing at EUR27.4b. So this is the figure at the end of June 2014. And the ratio of net debt over EBITDA is coming closer to 2 for this year. The ratio has gone down by 2.37 to -- at the end of 2013, standing at 2.17 end of June 2014.

If we look at the mobile sector now, for H1 we had a good commercial performance across all the countries where we have bases. This was true for H1. This was true for H -- sorry, Q2 as well. We have 179m Orange customers now in the mobile sector at the end of June 2014. We've done very well in 4G in France in particular. We have 650,000 net sales in Q2 compared with 350,000 net sales in Q1, almost double. And we have 2m 4G customers in France, 1.4m in Spain. We have 2m in France, 4.2m in the UK.

In Africa and the Middle East our mobile customer base has hit the figure of 91.8m. And this is also driven by the successful performance of Orange Money. This is our banking system. And we now have 10.8m customer at the end of June, that is to say 900,000 more than the previous quarter.

So good performances in 4G, very largely driven by our investment in the networks, not just in 4G, however. For the fourth year running ARCEP has classified Orange Mobile in leading position in terms of quality of service. And today we are further ahead of our customers -- than our competitors than we have ever been.

In 4G we launched the 4G services in many European services, particularly in Poland, Belgium, Romania and more recently in Slovakia as well. And in Q2 in France we activated more 4G sites than all the other operators put together, which means that we finished the first half of the year with a level of coverage of the country roughly standing at 70%. And this means that we've really caught up on the lag which we had, which was due to the decisions of French regulators.

Let's talk very quickly about the fixed sector, and we'll see that this good momentum which we have in the mobile sector is also reflected in the fixed sector. We have very good results in the fixed very high broadband and generally speaking in convergence offers. On the fixed sector in France we've gone beyond the figure of 3m homes connectable and the target by the end of the year is to hit the figure of 3.7m homes connectable.

If we look at the rollout, we are speeding up as well. In France we have 800,000 homes connectable. This was at the end of Q1 -- H1. And we have just signed a new agreement with Vodafone in Spain. And Orange Spain intends to hit the figure of 7m homes connectable by 2017.

All the investments we've made in fiber are really key to being successful in convergent offers. And if we look at what we have in Europe, we're rapidly moving towards convergence, representing 41% of our base in France, 75% in Spain and 18% in Poland. So more than ever Europe is becoming more convergent, and this is why Orange and in all the countries where we are based we are already a major player in fixed and the very high broadband. And very quickly we're going to become one of the leaders in the convergence offers.

These are the key figures which I wanted to underscore. Let me pass the microphone to Gervais, who will talk about the financials.

Thank you Stephane. So good morning everybody. I will first provide you with an overview of Group results before moving onto countries' results, as usual. So let's start with Group revenues.

Our total revenue of EUR19.6b for first half 2014 confirms an improving trend, with a year-on-year evolution of minus 3.6% compared to the minus 3.6% we posted a year ago, and minus 4.5% in first half 2013. It is mainly driven by the good commercial performance we had in the second half of last year, but also to a lower regulatory impact, especially in France, only [EUR80m] of regulatory impact in first half 2014 compared to EUR314m in first half 2013. Excluding regulation, H1 2014 revenue has decreased by 2.6%.

We are not yet at the end of regulations through prices everywhere. But we are really in the major countries, especially France, very near on the end of the regulatory prices, especially termination rates.

Mobile services revenues decreased by 7.3% in the first half 2014 due to the ongoing re-pricing and to the shift to SIMO, which is rather quick, especially in Spain, and convergent offers of the customer base in Europe. Compared to first half 2013, the underlying trend, excluding the impact of the national roaming agreement with Iliad, is improving. Mobile service revenues are also helped by a steady 10.5% growth in Africa and Middle East and the stabilization of other mobile revenues.

The decrease in mobile services revenues is partially offset by the strong increase in mobile equipment sales, plus 22% in first half 2014, linked to the SIM-only model with installments, especially in Spain, where revenues from equipment sales have more than doubled, and in Poland.

Fixed service revenues are improving versus previous quarters, with nearly stable revenue, just 1% decrease, this is the best figure ever since the shift from traditional PSTN to broadband, versus minus 3% decrease in first half 2013. First half 2014 was driven by the performance in broadband services, plus 2% year over year, with a strong growth in Spain, plus 13%, and stable revenues in France, plus 0.7%, thanks to a 2% increase of the customer base.

Lastly, the relative improvement in the enterprise segment is the result of the lower level of pricing pressure, further helped by the strong growth of IT and integrational services around connectivity. Globally the slightly improved trend in first-half revenues is visible in most of our segments, as I will show you a bit later in the presentation.

On slide 8 you can see the improving trend of Group EBITDA. EBITDA margin for the first half 2014 is stable year over year at 30.1%. In value terms [origin] is limited to EUR221m, which is more than 2 times less what we had in first half 2013.

The graphic on the left of the slide shows a trend at Group level of indirect and direct cost for the last five semesters. The improvement in both direct and indirect cost is clearly visible. You can also see the change in regulatory and business environments which has influenced the mix of savings within direct costs. In first half 2013 only 21% of the direct cost savings were related to commercial and content cost. This contribution has reached 60% in first half 2014. This is mainly due to the increase in SIM-only offers across our footprint, but also to the streamlining of our indirect distribution, mainly in France and Belgium.

On the right hand of the slide you see some more details on the EBITDA evolution for the first semester. Firstly, revenues were down by EUR733m, which is a significant EUR234m better than a year ago. Secondly, direct cost decreased by EUR298m, which is more or less 6% decrease. Indirect cost decreased by EUR213m, minus 2.4%, significantly helped by the EUR130m decrease in labor cost. I will come back later on the labor cost on the next slide. For the remaining EUR83m of indirect cost savings, the underlying trend is closer to EUR61m because we have recorded a EUR22m gain from the disposal of our stake in Arkadin in first half 2014.

Within this, there are some diverging trends. Reduction in general expense minus 11%, customer relation management 8%, advertising and promotion minus 11%, which offset the increase of network and IT cost plus EUR14m, mainly coming from network extensions and upgrades with 4,200 new radio sites. Operational taxes, especially the new pylons tax in Belgium, EUR10m more, and the increased telecom tax in Ivory Coast, EUR14m.

Moving to the next slide on labor cost, you can see more detail on the EUR130m decrease in labor effects, a drop of 3%, which fairly reflects the underlying trends. The savings are driven by significant manpower decrease, both in France and Poland, offset by a moderate salary policy which covers what we do in most of the geographies. The graph on the right-hand side gives more detail on the manpower decrease. 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 plan and the voluntary departure plan in Poland are in operation.

In terms of salary policy, in France the salary policy increase is somewhat offset by the increase in the employee tax offset the CICE, credit d'impot competitivite emploi, resulting in 1.5 -- 1.9% increase overall. Internationally the average salary policy was 3.3% increase, impacted by the higher level of inflation in some of our emerging countries.

On next slide we show the evolution of our CapEx. First-half CapEx amounted to EUR2.5b, up 3.1% year over year and increasing by 0.8% as a percent of sales, showing an increasing investment effort despite pressure on revenues in order to advance our network differentiation. The fastest growing CapEx category was networks, growing 9% year over year and now amounting to 58% of our total CapEx versus 55% last year. Within networks, a continuous growing proportion of investment, 27%, was dedicated to very high broadband, fixed and mobile.

If you look at our country segments, CapEx grew mostly in Spain, plus 18.5% year over year, and in EMEA, plus 28%. In France we now cover 69% of the population with 4G, 11 percentage points above last quarter thanks to more than 6,500 active 4G sites. FTTH deployment program is progressing well, with nearly 0.5m new connectable homes over the semester. In Spain, 4G covers more than 50% of the population, around 55% today, with 3,000 nodes already deployed. We are also advancing our joint FTTH rollout program with Vodafone, as Stephane mentioned.

In Poland, 4G now covers 52% of population. Our 3G rights-sharing program with T-Mobile is almost completed. In Europe, LTE rollout programs were accelerated in Belgium, with population coverage growing from 16% to 65% at the end of H1, Romania and Slovakia.

In EMEA, one-third of the revenue growth has been dedicated to a CapEx increase, with investment in sharply growing �- in mobile networks, especially in Egypt, Cameroon and Jordan.

As regards are our net results, this half-year consolidated net income was down by EUR318m year over year at close to EUR900m, with a net income Group share around EUR750m. This is mostly the result of a declining reported EBITDA, EUR300m coming from the EBITDA in terms of operations, and EUR200m coming from exceptional restated elements, as you find on the slide. This is partly offset by lower impairments in first half 2013 compared to first half -- sorry, in first half 2014 compared to first half 2013. We have depreciated EUR229m for Mobistar. This is mainly linked with the introduction of the new pylon tax in Wallonia at the beginning of this year.

Regarding the debt, at the end of H1 2014 we have reduced our net debt by EUR3.3b at EUR27.4b versus EUR30.7b at the end of December 2013. This evolution is driven by deleveraging of around EUR600m plus the favorable impact of the hybrid issuance. As a reminder, hybrids are considered as equity under IFRS rules.

At the end of June our net-debt-to-EBITDA ratio is 2.17 times EBITDA compared to 2.37 at the end of 2013 and in line with our full-year guidance to get closer to 2 at the end of the year.

Amongst the main factors impacting the evolution of the net debt, we can highlight the operating cash flow generated in H1, at EUR3.6b, the working capital requirements and other operational items on H1 reflect at each year the seasonality of our business, purchase of [van sets] and equipment for EUR0.2b, CapEx acceleration of EUR0.4b. It also reflects the development of handset sales with instalments of EUR0.2b and the impact of employee profit sharing of EUR0.2b.

We have paid in June the balance of the 2013 dividend for EUR0.50, for a total of EUR1.3b. And finally, our net debt has been positively impacted by the sale of Orange Dominican Republic, EUR806m proceeds, and Wirtualna Polska, the portal of Orange Poland, EUR83m proceeds.

One word regarding liquidity. The Group has a strong liquidity position of EUR12.7b at end of June, out of which EUR6.2b of cash. Also Orange has best-in-class average maturity of net debt of 10 years.

A few comments on geographies, starting with France on slide 13. EBITDA margin improved by 0.5 points in H1, with a combination of revenue decrease slowing down and cost reduction, which now absorbs 75% of the revenue drop. Concerning revenues, the decrease by 4.6% reflected a better trend in both mobile and fixed revenues. I remind you that total revenues were still decreasing at 6.8% in first half 2013.

The trend in our mobile service revenues improved year over year, reflecting the reduced re-pricing impact after the last major price point decrease, which occurred in April 2013. 85% of the contract base is now on post-April 2013 offer, and this re-pricing is visible in the better trends of our mobile ARPU, which we expect to improve also in the second half and the mix evolution towards premium and convergent offers.

Fixed services decreased by 0.8% versus 4.1% decrease in first half 2013. The main driver is improvement -- of this improvement is the slowdown of PSTN revenues, which declined -- which have been declining by EUR170m in first half versus EUR236m decrease in first half 2013, thanks to the subscription price increase in June 2013 and the slowdown of the number of subscriptions.

Broadband revenues are slightly up by 0.7%, thanks to a 2% increase of the customer base. Increased penetration of convergent offers negatively impact the broadband ARPU by 2.2%, but fiber is improving positively the ARPU, with an increase thanks to FTTH of EUR3.

Wholesale revenues increase is mostly due to the unbundling access expansion, whereas the roaming agreement has been stable. Cost reductions related to both direct and indirect cost, we thank you to the value-centric components of our retention policy, enabling direct cost reduction without impacting of our commercial results. And we have continued to decrease the cost of indirect distribution. Indirect cost decrease were driven by the improvement of both customer and intervention processes.

A few comments now on the mobile and on the fixed business in France. Stephane has already mentioned it, but we will come again on the quality of our mobile network. We are proud and happy to be recognized for the fourth year as being the leader in terms of mobile network quality in France and quite far from our competitors, with the second lagging far behind. The same story is repeated in 4G. We activated more sites than all our competitors in Q2 and we are now serving 2m 4G customers at the end of June.

The quality was a key differentiator and drove the 146 contract net adds achieved in H1, back to levels not achieved since early 2011, where there was a change in the VAT rate. This shows that the relevant segmentation of our offer is proven to be successful, with the increase of share of premium sales, Origami and Open, which represent 60% of H1 gross adds. And a favorable contract churn trend back to the 2011 level we had, and even to 2010 on a quarterly basis.

Regarding fixed business, convergence and fiber have confirmed their role as value drivers. As Orange ahs the largest broadband customer base, the key factor for us is to control our churn, using two main levers. Lever number one is fiber, which is both a retention and acquisition tool. The continuous growth of fiber was again visible in Q2, with a new record of 50,000 FTTH net adds, reaching now 415,000 customers. 40% of fiber growth is fueled by acquisitions, while 60% comes from migration.

And the second level is quadruple play, our Open offer, which now counts 378,000 customers and represents 37% of our broadband base versus 29% last year. This brings a substantial benefit in terms of retention since Open churn stands 3 points below the average of broadband churn and is the lowest in the French market. Open is also a strong engine for fiber, since more than 40% of FTTH customers were Open fiber customers at end of June. Those two elements contribute to the increased share of premium offers in our sales mix since Play and Jet offers now represent more than 50% of sales in Q2.

Regarding Spain, this semester Spain revenues, excluding regulation, eroded slightly at 0.8% year over year, with the second quarter down 4.7% year over year after a first quarter up 3.2%. This comes mainly as a result of us swiftly adapting to a market-wide transition to SIM-only and convergent offers. It is worth highlighting that this transition is well underway in Orange Spain customer base as 75% of mobile base is already re-priced to new SIM-only tariffs, and 75% of our fixed base already re-priced to convergent tariffs. With the base of the re-pricing effect having already peaked in Q2, we expect improving year-on-year revenue trends in the remaining two quarters of 2014.

As regards the trading activity, we kept a good commercial momentum throughout H1, posting sustained mobile contract net adds of which 105,000 in Q2, supported by a 3.9-point improvement in contract churn. We can say that amongst the infrastructure players in Spain, among the incumbents, we are clearly the one with positive net adds. And a 21% year-over-year growth of our fixed broadband base, with 53,000 net adds in Q2, together with a 7.4-point year-on-year improvement in churn.

Our restated EBITDA margin improved by 0.8 points at 24%, thanks to increasing cost efficiency in the higher network communication marketing and customer-facing operation.

Regarding Poland, as in previous quarters, Poland showed sustained progress in turning round its operations, and this is again clearly visible in a continued good momentum in mobile and fixed and improving financial trends. As regards commercial performance, growth in mobile customers, excluding MVNOs, was stable in Q2 versus Q1 2014 at the 3.4% year over year, with 66,000 net adds this quarter, of which 99,000 contracts. We had a balanced mobile number portability performance this quarter, confirming the rebound seen from Q1 2014.

Our convergent strategy confirmed its effectiveness, with 66,000 Open net adds, resulting in a 418,000 base of quadruple play customers. We had the highest every quality -- quarterly, sorry, uptake in mobile broadband, with 86,000 quarter on quarter. We also had continuing momentum in entry-level SIM-only offers, with 81 (sic - see presentation slide 19 "81,000") nju mobile net adds in Q2, up to 560,000 customers in total.

Our fixed broadband customer based was almost stable quarter over quarter at 2.281m customers, despite a continuing regulation asymmetry versus cable. As regards fixed voice lines, we continued to reduce the pace of quarterly losses, minus 45% year over year -- with minus 45% year over year and 7% quarter over quarter.

As regards financial performance, revenue, ex regulation erosion, was limited to 2.2%. And restated EBITDA margin improved by 32%.

H1 in the rest of the world, so other European countries in EMEA, saw revenue growth in emerging markets more than 9%, almost fully offset by the regulatory and re-pricing pressure in major European operations. Second-quarter revenues, which now exclude operations in the Dominican Republic, were flat, plus 0.2%, but grew by 2.5% excluding regulatory effects.

In Africa and the Middle East, revenues grew by, as said, more than 9% in second quarter after 5.7% growth in first quarter. This results in a 7.4% growth for H1, a level not reached since 2010. Our operations in Mali, Guinea, Ivory Coast were the main drivers of this growth.

In European countries, revenues were down by 10%, the same than in Q1. Re-pricing is still an issue. Also the pressure at Mobistar is easing, with more than 90% of the customer base now migrated on new tariffs. And re-pricing effects will now start to annualize. However, operations in Romania were hit by significant decrease in termination rates and some subsequent aggressive tariffs which we are now having to react to.

At the EBITDA level, strong efforts on cost control helped limit EBITDA erosion to 1%, with a quasi-stable EBITDA margin rate.

For enterprise, revenue trend improved in H1, minus 2% decrease versus 5% decrease a year ago, driven by the good performance of IT services from the end of 2013 as well as the lower price pressure, especially on large customers. Voice decreased at a reduced pace compared to previous quarters, minus 7% compared to 8% decrease a year ago, thanks to a generally improved trend in terms of line decrease on top of stable traffic and price levels.

Voice over IP revenues maintained current positive trend thanks to a stable activity in France and a boost in international operations. Data services revenues in H1 2013 still affected by legacy network disconnections and pressure on prices despite lower pricing renegotiation. Q2 confirms the positive trend in IT services, with revenue growth of 5.3%, supported by new services like security, cloud and video conferencing.

EBITDA margin remained flat at 16% despite revenue decline, supported by further cost reduction and a dynamic portfolio management.

EE has also published their results two days ago. EE improved its EBITDA margin performance, reaching 24.4% this semester, 1.2% increase compared to a year -- 1.2 points of revenue improvement versus a year ago. The Company has almost completed its network site decommissioning and is starting consolidation of back haul. EE has also progressed its retail consolidation and other partial integration program.

H1 operating revenues were stable at 0.1% year over year, excluding regulatory impact. And EE has seen in Q2 a net increase of 240,000 postpaid customers, including M2M, and a net increase of 165,000 postpaid customers, excluding M2M, further improving its customer value mix.

4G services now reach 73% of the population, covering 229 towns and cities. EE continued to successfully attract users to 4G, with a recorded net increase of about 1.3m 4G connections in Q2, our best quarter yet. With the total base of 4.2m 4G customers, this is considerably looking forward towards 6m 4G customers by the end of the year.

Now I hand over to Stephane for concluding.

(Interpreted). Thank you Gervais. Now these results are somewhat singular because this is the very last time that they're presented by Gervais as CFO. I'd like to take this opportunity to thank Gervais very warmly for four years, during which he worked at my side in the strategic capacity of CFO. Gervais shall of course remain Deputy Chief Executive Officer and he shall be in charge of the Europe zone now. As you have been given to understand, there are quite a few challenges to take up in Europe.

And Ramon Fernandez will be Chief Financial and Strategy Officer of Orange on September 1. I'm very happy to welcome him in that capacity. We shall also have Laurent Paillassot on September 1. Laurent was at Credit Lyonnais formerly. And he shall be in charge of customer experience in our 2020 plans. And improvement of customer experience is going to be a top-line priority of ours. And he'll also be in charge of mobile finance. Based on the success garnered in Africa and the Middle East, we wish to set up a business unit in mobile finance.

So we're going to close this presentation with some guidance for the full year as we can shed some light on the first half. And then we'll be glad to entertain your questions.

Actually things are quite simple. We are confirming all of the commitments made at the beginning of the year. First of all regarding EBITDA, with margin that is stabilizing and EBITDA that should be between EUR12b and EUR12.5b, that is the objective that we are confirming for the full year, EUR12b to EUR12.5b.

Regarding our financial structure, we are also confirming the Group's commitment to be at a ratio close to 2 -- I'm talking about net debt to EBITDA obviously -- and it should remain at around 2 in the medium term.

Regarding the dividend now, we are confirming a EUR0.60 dividend. And an interim dividend will be paid on December 9, 2014 and that shall be EUR0.20.

Regarding the Group's M&A policy now, we are still committed to being painstaking and selective. Of course if there are opportunities that crop up on European markets we shall examine them, but our M&A policy will be in strict compliance with the financial thoroughness that you've been accustomed to.

And as a matter of fact, I'd like to take this opportunity to come back to discussions that took place in France. We're convinced that market consolidation is advisable and may be unavoidable given what we're seeing in a number of large European countries. Orange has explored consolidation opportunities with Bouygues and Iliad but has found no solution that could create value for all of the Group stakeholders, notably its shareholders, and therefore I wish to terminate the discussions and announce that to the financial community as clearly as possible.

And that is a commitment that I'm making before you; when topics like that do come up, we shall be very clear regarding the beginning and the end of discussions, if any.

You can ask questions in your mother language, French or English. And I am today with the almost all the executive committee members to provide you with maximum information.

(Inaudible - microphone inaccessible).

Thank you. I'll ask Pierre Louette to answer your first question.

Yes. To answer regarding the progression of the wholesale revenues, it's mostly due to unbundling access growth. It's like 90% of the growth is due to that. So the market is still unbundling. Some of the players do that. And so it's the reason why those revenues have increased. Also we do not see any decrease in the revenues originating from the roaming agreement we have with Iliad.

So regarding your question on Netflix, apparently Netflix is going to launch its service in France mid September. There is no specific CapEx to be planned regarding the Netflix arrival. What I can say today is that we will probably not have the Netflix service on our boxes in France, which doesn't mean that we will not settle them in the future. But let's say that all the conditions to come to an agreement with them were not gathered so we decided to wait a little bit. And there is no particular expense or CapEx around Netflix arrival.

Regarding the Vodafone Spain situation, I'll ask Jean-Marc Vignolles, who is on the call, to answer.

(Technical difficulty) acquisition. The main (technical difficulty), meaning that we'll continue deploying FTTH network sharing, horizontal and vertical cabling, to reach together 2m. We've already connected 800,000. And then Vodafone will provide us with a wholesale fiber service using owned network in 1m households. So what is important in that in the revised agreement we have specified the scope of the future shared deployments on the basis of reciprocal offer of wholesale service.

And with the result, total number of additional share households will come on 50/50 basis from both the operators. And this is what had enabled us to confirm and also extend our ambition to effect 7m connected households by 2017.

Regarding mobile service price evolution, so one has to understand that the present mobile service revenue decrease comes from four factors of almost equal weight. One is the re-pricing related both to the migration to the SIMO model in the mobile offers. Other re-pricing comes from the migration of the customer base to convergent offers. A third effect is obviously the exclusion of handset equipment revenues from the mobile service revenue. And the fourth is regulation, MTR reduction which comes to an end by the end of June 2014.

So with the end of the regulatory effect and also around 75% of the customer base re-priced, as was mentioned earlier, we believe that trends will improve as of the second half of this year.

Okay. Next question.

Nicolas Cote-Colisson, HSBC.

I've got two questions please. Can we have an update on your longer term fiber rollout plans in France after we take into account the extension of VDSL coverage, but also the question mark on some of the co-investment plan with SFR?

And my second question is quite a general question regarding France, but we've seen that convergence led to a strong price pressure in Spain. I appreciate it was mainly driven by the incumbent though. But how can you prevent such pressure in France when Bouygues is clearly putting pressure on the fixed broadband prices.

Okay. On the fiber rollout plan and the technology mix with VDSL and the co-investment situation with SFR, I'll ask Delphine.

Yes, so on fiber, we are still rolling out fiber on those very, very dense areas as well as less dense areas. We are on track with 3m homes passed at the end of H1. And we don't see VDSL as a direct competitor to fiber. It's a complement for us in some areas where fiber is not still yet deployed. Of course we expect SFR not to be as effective on fiber as it was supposed to be when it was alone, but Bouygues and Free intend to deploy fiber so we see new co-investment from their part.

On the fixed market, yes, there's a new price point, a new Bouygues price point but our competitors didn't follow. Neither did we. It's more a promotion market and even if we are much less aggressive than our competitors, our net adds are still positive month after month. And we may say we did the exactly the opposite, launching new premium offers on broadband this spring, which is Livebox Jet. And this new offer, which is a premium offer, is very successful with 18% of our gross-adds and 30% of the fiber gross-adds.

So even if we know the market's going to be quite agitated, we don't see any of us, any of us, any of the Bouygues competitors following the price point on broadband. And so we are quite confident in our ability to keep up with positive and effective net adds on the broadband market.

If I may just follow-up on one comment that Stephane made earlier on Netflix saying that some of the conditions were not met, what kind of conditions are they? Are they more contribution-to-CapEx type of conditions or is that just margin or the way the profits can be shared?

Well, I will not enter into the detail of our discussion with Netflix. Let's say that we have had some discussions regarding the rev-share agreement but also the network connectivity part. It is not because of those results or discussions that we will not put the Netflix service on our boxes. I would say that it is more linked to the general environment of this arrival in France. We will see if other ISPs are doing it. I don't think so. So I think it's cautious to wait a little bit to see how also this new service will impact the market. But we will be fully ready to welcome this service on our box as soon as possible.

Okay. Great. Thank you.

Stephane Beyazian, Raymond James.

Yes, thank you. Couple of questions if I may. Can you just update us on your capitalistic plans for Everything Everywhere?

Second question, you know that Yoigo is up for sale again. You looked at it a year and a half ago. What are your plans and, I'll put it this way, where can you put the balance between what's valuable in your strategy between consolidating potentially the Spanish market and rolling out fiber?

And a third question, sorry, regarding French mobile ARPU. We haven't seen much improvement lately in the ARPU, plus we're also seeing a lot of destinations being added in contract ARPU. When do you expect to see some improvement in contract ARPU trends? Thank you.

So regarding you first question on Everything Everywhere, I can just confirm that we have no short-term agenda on EE. We are satisfied with the set of results of EE, both from an operational point of view but also financially. I think I can say that our German partners are also satisfied with the way EE is progressing and satisfied also with the way we are jointly managing this operation. So there is no short-term project regarding the capitalistic balance that we have at EE.

Regarding Yoigo in Spain, we are not especially interested in acquiring this asset if by any chance it was on sale again. Actually we think that the situation in Spain is very different from what we see in France, especially because in Spain the most aggressive players in the mobile market are cable or fixed service providers and clearly not Yoigo. And in fact the consolidation is mainly an issue between fixed and mobile players more than within the mobile market itself, so probably Yoigo is not a priority in terms of strategic opportunities in the Spanish market.

I am not sure to have fully understood your third question, but Delphine did so Delphine is going to answer.

So on the mobile ARPU, I guess that on the mobile ARPU so the decrease is slowing down thanks to a limited regulatory impact. We see that there's a sort of stabilization in the re-price. You pointed out the roaming. We know that roaming is not clearly -- including roaming is ARPUs is not clearly an issue because it's going to, the roaming prices are going to be really reduced so we quite anticipate the impact on the roaming. Besides, the re-price is going to be stabilized because 91% of our base are on [post-free] launch tariffs, of which 35% are on 2013 offers. So our base re-price is really slowing down

So we are quite optimistic on the fact that we are going to continue to slowdown the ARPU decrease but still cautious because we see still a quite agitated market with even promotion on the low-end market, on the low cost offers.

Thank you.

Jakob Bluestone, Credit Suisse.

Hi. Good morning. First of all, just wanted to say thank you to Gervais for your work as CFO and best of luck for the new role. I've got two questions. Firstly on the margin, you had a slightly rising EBITDA margin year-on-year in the first half of the year, would you describe your guidance as flat margins for the full year as conservative?

And then secondly, you had quite a big step-up in the number of fiber homes connectable in France so could you comment a little bit on the outlook for CapEx in France? Thank you.

Okay. I'm sorry, but I think we have a little problem with the quality of the audio link so we are trying to understand exactly what was within your, at least first question, and the second one was not clear. Sorry about that, but could you repeat maybe slowly your two questions because we have a bad reception -- I don't know why � please?

Sure. I'll try and speak slower now. So firstly on the margin, would you describe your guidance as conservative given that you've had a slight increase in margin in Q2?

And then secondly, could you comment on the outlook for fiber CapEx given the big step-up in the number of fiber homes connectable? Hopefully you could hear that.

Okay. Regarding the guidance on the margin, Gervais can answer.

(Technical difficulty). We can confirm today that we will be clearly above EUR300m indirect cost decrease and then this should have at the end probably a positive impact on the EBITDA for the full year, keeping in mind however that as regards revenue things are not so easy everywhere. We have had the positive impact of much less regulation, we have a relatively good trend in France. You have seen some of the difficulties, for instance, of Spain, even if Spain should be slightly better in the second half.

So all this being said, this is why we confirm today the guidance. So clearly stabilization of the EBITDA rate and this is the really achievable target, but also at the same time we remain in our range for the EBITDA between EUR12b, EUR12.5b. I think this is where we will be. Sorry not to be more open to that, on that, but we see that's reasonable and that's sustainable.

Okay. On the second question Delphine.

Yes, so today, end of H1, we are at 3m connectable houses and we intend to be at 3.7m by the end of the year so we are quite accelerating. Just as reminder, comparing to last year it's almost plus 1m homes connectable and we intend to continue to accelerate thanks to our ability to control our EBITDA.

Thank you. Next question.

Tim Boddy, Goldman Sachs.

Good morning and thanks for taking my question. I hope you can hear it properly. I just had a follow-up question on your French M&A comments. You've made it clear that you think the French market needs consolidation and clearly has terminated talks to date. What involvement can you have going forward to make sure consolidation happens?

And then just secondly, on your indirect cost reductions I just wondered what you visibility you have further out than the end of the year, basically do you think you can continue your indirect cost-cutting success over the next two to three years? Thank you.

Okay. Regarding the situation in the French market, ,yes I think that there is a need for a form of consolidation in the French market because I think that in front of the investments that are needed, especially in the fixed networks, it will be difficult, if not unsustainable, to keep this in the sector for global players.

Now of course it will depend on the strategies of those players. We have seen several attempts. They have not been successful so far, but things can change, around the situation of Bouygues, around the situation of Iliad especially, and I think noone can exclude something in the next month or maybe the next two or three years. There is no certainty about that, but in my view still, it's still likely to see a form of consolidation.

When I say a form of consolidation it is not necessarily a merge. It can be something a little different. But I do think that there is no economic space for maintaining four healthy players in the French market.

Regarding the indirect cost prospects, can I ask maybe Gervais?

Maybe a first answer on labor, forecast in terms of manpower reduction. For the next three years for the two main geographies, France and Poland, are planning -- are giving manpower reduction quarter over quarter and this will executed, and this is about half of what we expect in terms of indirect cost reduction for the Group. So the programs are there, the senior part-time plan in France to accelerate the natural attrition, the voluntary departure plan in Poland. I'll just remind you that Poland is going from 22,000 employees to less than 15,000 in 2017. And those plans will be half of the contribution to indirect cost reduction.

For the rest we have our Chrysalid program and maybe Pierre can comment the main drivers we have for our business processes.

Yes, you remember the original targets we had for Chrysalid was EUR2.5b change in the cost structure of the group. We've been able to raise that ambition. I think we mentioned this previously and we do not completely disclose the ambition now, but it's more than EUR1b above what was originally planned.

So the whole Group has really deeply searched and looked for, and found ways to decrease the indirect cost structure. We're not mentioning the direct costs this time. Gervais described very rightly the labor OpEx contribution, but there are many other contributions coming from real estate, coming from network also which -- with mutualization and several programs.

Also I want to stress shortly the fact that every single geography has launched programs. AMEA has a booster program which is a Chrysalid-based structure around 12 streams. Orange Poland, Navigator. Orange Spain has an acceleration program. And of course Orange France has launched an also acceleration program which has heavily delivered.

Thank you. That's very helpful. Can I just as a follow-up, does that mean you think you can sustain similar indirect cost reductions into 2015?

Well, it is probably too early to commit on those issues, but let's say that driven by two main levers that are labor cost linked with the natural attrition especially in France, and the second which is real estate and all the expenses around real estate, I think that, yes, we will be able to keep the same rhythm of indirect cost reduction at least in the next two years.

Thank you very much.

Vincent Maulay, Oddo.

Yes, good morning. Three quick questions. So the first one on the, if you could give us some color on the fixed ARPU in France in H2 due to discount to absorb Bouygues Telecom's aggressiveness.

The second on the commercial costs, could we expect further improvements in indirect distribution in H2 or iPhone 6 subsidies will completely offset any further improvement?

And a quick follow-up on M&A in France. You mentioned that maybe it's not through a merger so does it mean network sharing with Bouygues could be in your agenda?

So on the fixed marketing and commercial strategy in France, Delphine?

Yes, so we expect Bouygues to be still very aggressive on H2 but I want to highlight the fact that our level of churn is really low. And considering Open, which is growing and growing every day, we have even a better churn, the best churn of the market. So we are quite confident considering that we are going also to make some promotion -- not many but some promotion -- to be able to keep up both with value creation and positive net-adds market share. And I also want to point out the fact that more than 50% of our gross adds are -- on the broadband market, are on premium offer, Livebox Play, Livebox Jet, Open Jet, Open Play, so it's really encouraging.

The second point is on commercial costs, yes, we're going to keep up with reducing commercial costs on commissions for party dealers. And, yes, we expect the iPhone 6 to be a real success but we've anticipated the launch of the iPhone 6 so we are quite confident with our ability to control our commercial costs in H2 as we did in H1.

For the Group as a whole regarding the direct costs, so three trends. One, much less -- connection cost decrease, with lower regulatory weights on our revenues. There is also a lower impact in terms of wholesale price of connectivity with others, so this is the second point. But, as Delphine mentioned, we have lower commissions in France but also in other European countries, especially Belgium. And we have a strong shift to SIM-only in some geographies, Spain, so much lower handset subsidies. And including in some other geographies, I would just like to mention Belgium, where we reduced the price of subsidy per [act].

So there is also, these are the three moves which explain how we decrease the direct costs, so natural movement with the change of business model plus what we can do on top of it.

Regarding the network sharing issue in France, I first want to remind that we are 100% free, if I may so, of our decisions. We have no particularly constraints. We are not involved in any kind of agreement today. So we are fully independent and we don't need from the network point of view to do this.

As you know, Bouygues has signed a network-sharing agreement with SFR. We still don't know what will be the situation regarding this network-sharing agreement, if it will really come to application or not. What I can say is that we are available to discuss with any partner and especially with Bouygues if there is an opportunity because I think it would make sense for Bouygues and for us to explore a network-sharing project, but this is not in the agenda in the short-term.

Giovanni Montalti, UBS.

Hello. Good morning. Thank you for taking the question. Just one question from my side about your telephone line (technical difficulty). They were stable in line with Q1. I was just wondering if you think you may improve this trend going forward.

And second if you can give us any detail about your plan in relation to the re-farming of the 1,800 MHz. Thank you.

Okay, so regarding the fixed and PSTN trends in France, maybe Delphine, and I will ask also Benoit maybe to provide you with some information regarding other big European countries, especially Poland.

Yes. So on fixed line in France the trend is improving despite the fact that we increased the prices last year and it has no impact in fact on the, no negative impact on the trend, which is still slowing down. Someday at some point we're going to accelerate in order to migrate massively our fixed-line users towards ADSL or fiber. Someday, but today we are still working on slowing down the trend and it's successful.

On the re-farming plan, we are always working on spectrum of course. Considering the fact that 2G is going to decrease, 3G is still a real challenge because we have still a lot of customers, we're going to keep a lot of customers on 3G. And so, yes, we are going to work on our re-farming both on 18 and also 900 spectrum, which is key for us to have a very good coverage, 4G/3G coverage.

Benoit on Poland.

Yes, just one word about Poland, just to confirm you that we see a very clear improvement about our fixed line business in Poland with a 45% decrease year over year of our PSTN drop. So we clearly see an improvement of our drop in customer base and that is due to our focus on convergence. We have a high focus on improving our convergence customer base and we see our convergence customer base improving and growing and that is a result of that. So clear improvement in Poland and we expect also that improvement to continue in the future.

Thank you.

Jerry Dellis, Jefferies.

Yes good morning. Thank you for taking my questions. First question is on mobile service revenue trends in France, I'm just wondering whether you have any visibility on the rate of revenue decline diminishing in the second half, what you think might drive that and what the risks are around a potential further price rebalancing within the French mobile market?

And then secondly, on your domestic enterprise business I just wondered what preparations you might be making for the integration of SFR and Numericable given that they have indicated that they see enterprise as an opportunity? Thank you.

Okay. Delphine on the first question.

Yes, so we expect our revenue -- ARPU, rolling ARPU, to be down to minus 8% by the end of the year, so still slowing down the ARPU decrease. Of course there's always a potential risk on a new price war, but I just want to point out the fact that the price points in the mobile market have been unchanging since almost now two years. So there may be a price war, I don't know. Not from our part, that I can tell you. But we are quite confident in the fact that we are going to stabilize or to decrease, to slowdown the ARPU decrease.

And by the way, with the new launch, the iPhone 6, it's always a good opportunity for Orange to make new premium customers and as long as we are quite effective on the premium market, with more than 60% of our sales which are on premium offers, we expect H2 to be a good H2.

Thank you Delphine and I'll ask Thierry who is in charge of OBS to answer the second question on the B2B market in France.

Thank you Stephane. For the B2B in France, I would not say there is one market. There are markets when it comes to enterprise in France, small offices, home offices, SMEs enterprise, big accounts, MNCs, and we have in this country a very strong position with the offers for accompanying all the customers into their digital journey.

We think that there is already competition in those markets so we are -- we have been facing for quite a long time this competition. There will be one additional player in the playground/field and it will take time for us to compete and be able to provide the same service level we are providing in the market. So we are quite confident and it will take time.

Thank you.

Nawar Cristini, Nomura.

Good morning. Nawar Cristini at Nomura. Thank you very much for taking my questions. Firstly on Spain, following Jazztel's announcement of the increase of its fiber target to 7m, could you talk a bit about any potential implications from that on your organic but also inorganic strategy in Spain?

And related to that, would you have enough flexibility to lead consolidation both in France and Spain?

And lastly, just a follow-up question on Delphine's answer on the ARPU, 8% decrease for 2014. Would you be able to share any data points with us for 2015? Thank you very much.

Okay, on the question on Spain may I ask Jean-Marc?

Well, regarding Jazztel's announcement, you may consider that it just follows ours and so basically here there is a certain competition in communication.

Regarding effects, in terms of fixed broadband our performance consistently over the last quarters has been better than Jazztel. And as a matter of fact so far we have led fixed broadband net acquisition over the past year and a half, including in this quarter, which shows that, let's say, the uptake of the market for fiber and leaving aside the item of Telefonica's convergence offer, is not such that it upsets the growth which we are still observing on ADSL thanks to convergence.

So we do not see the fiber announcement so far as, let's say, short-term threat on our organic growth, although obviously mid term and long term it's very important to have the assurance of being able to compete in terms of our fiber footprint. And we believe that with the agreement we've just confirmed with Vodafone and maybe further agreements we should be able to sustain our organic growth.

Okay. Thank you Jean-Marc. Gervais for the flexibility.

So we think that consolidation and operations are, when we look at them, are more quickly accretive than any other type of M&A, which means that in terms of debt ratios they contribute quicker, they deliver quicker EBITDA improvement, which means that we see that if operations are reasonable both in Spain and France, we don't see any major issue to encompass that within our existing financial ratios. On top of that we think that we can always work through other means to reinforce the equity part of the Company, including listing of some operations that we have already been speaking about if it were needed.

On mobile ARPU, minus 8% is our best estimate for the end of the year. And it will depend on the market of course and it's clearly too soon to give any indication for next year.

Okay. Thank you very much.

Dimitri Kallianiotis, Redburn.

Good morning. Thanks for taking the questions. I have three questions on France. Just coming back on the growth in wholesale in France, I mean it keeps growing faster and faster now, 8% in Q2. I know you said part of it is driven by unbundling, but I was wondering if you could give us the, how much revenues are now generating by wholesale fiber, if possible at all just to see the growth coming from fiber?

And my second question is on the broadband market, where you're doing very well in fiber but not well in ADSL. Your market share is probably going to go below 40% and I was just wondering if that was an issue for you or you are just really focused on the higher end of the market, in particular with fiber.

And my last question is regarding Sosh. You launched some new offers, new quad-play offers. I was wondering if you could give us any indication, I know it's quite soon, but how well they are progressing because Sosh was used mostly for mobile?

And exactly what are you intending to do with Sosh in particular in quad-play and if you see any risk of cannibalization compared to Open? Thank you.

Okay. On the wholesale revenues coming from fiber, Pierre?

Well, Dimitri, sorry to disappoint you, but there are few revenues coming from fiber very clearly so I just can confirm what I said previously. We've been witnessing a progression of 8% in the number of unbundled lines over the last year. It's a little bit less than 4% in the last six months. So France still is a very unbundling country. It's a growing unbundling market and you know, for instance, which players continuously do unbundle. So that's the reason why those revenues progress, but it's not really linked to fiber.

Thank you. Delphine for the two other questions.

Yes, so you pointed out the fact that our net-adds on the ADSL are not as good as you expected, in fact we have a strategy to migrate most of our ADSL customers which are on a fiber area towards fiber. So we are focused on the broadband market share rather than on ADSL and fiber market share.

On Sosh, in fact we, thanks to this quadruple-play offer in Sosh we can compete on the low-end market. But still we keep it as a weapon but we don't want to use it yet because we bet, in some way we bet that the price war on the broadband market is not going to last very long if an M&A is going to occur. So we don't want to be too aggressive on the broadband low-end market today. So we have the weapons. We are using it of course on the low-end but we don't want to have a too aggressive offer on the quadruple-play Sosh.

Okay. One last question please.

Wassil El Hebil, Berenberg.

Hi Good morning. Thanks for taking my questions. I have two on the French mobile segment. The first one is about the mobile termination rate. Could you share with us the glide path that we should expect in France? We've seen further cuts in the UK. Should it be the same the France?

And the second question is about the SIM-only customers. I'm wondering if you can share with us the proportion of SIM-only subscribers out of your contract base, and including both Origami customers and Sosh, and if you're expecting further migration of the SIM-only customers in 2014 compared to 2013. Thank you.

Alright. Delphine.

So no further decrease in termination rates expected in France.

And on the SIM-only market, it represents 40% of our gross adds and 29% of our base today, including Origami SIM-only offers. And when I say base, it's contract base of course.

And, sorry, can you share with us how this compares with last year?

Yes, so on our contract base it was last year 20% and up 29% end of H1. And on the gross adds I think we do better now because 60% of our gross adds are on premium offers and it was 53% last year. So we have a better commercial performance on premium offers this year than it was last year.

Perfect. Pretty clear. Thank you.

Alright. And maybe a final answer on the mobile termination rate.

Well, yes, the mobile glide path is final actually so there is no more glide path in France. The level is so low actually that the regulator, if he really decided to create a new glide path would have trouble measuring the infinitely small. So it's not an issue anymore.

Okay. Thanks everyone. Have a nice day.

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.