Orange SA (ORAN) 2015 Q2 法說會逐字稿

Good morning. Welcome to the presentation of our first-half results.

I will first give you an overview of the key points of this first half, and then, of course, I will ask Ramon Fernandez, our CFO, to provide you with a full set of information and figures. And I will then take the floor to conclude before the Q&A session. We will be ready to answer all your questions. We are here with nearly the whole Executive Committee of Orange Group.

Please note that these results do not take into account our recent operations, especially Jazztel, which will be consolidated only from the second half, but also Meditel in Morocco.

So I suggest we go straight to slide 4, which presents the main results of the first half. Our turnover stands at EUR19.6b in the first half. It's a very slight decline, limited to 0.6%. It confirms the positive trends and improvement observed over each period now for several quarters. And if we exclude regulatory impacts, the turnover on the first half has been even stabilized.

If we look at the second quarter of this year, we are in terms of turnover slightly up, by 0.4%, excluding regulatory effects. This has to be compared with minus 0.3% in the first quarter, so this is to show how positive is the trend in terms of revenue. This improvement comes from all our big markets, especially France, Belgium and other European countries, while Africa and Middle East continues to grow steadily.

This improved trend in turnover, combined with the continued decline in indirect costs, where we have been still very focused in terms of management with a decrease of EUR156m this half, allows EBITDA to reach EUR5.8b, which is a very limited decline, once again, to EUR73m. This has to be compared with a year ago a decline of EUR225m, meaning that we have divided by 3 the decline in EBITDA. And if we exclude, once again, regulatory impacts, EBITDA is exactly stable in absolute numbers in the first half 2015.

In the same time, we have continued our investment plan with even acceleration on very high broadband, particularly FTTH in France. CapEx is up by 6.5% compared to the first half 2014.

With 248.3m customers, the Group's customer base has grown by 4.1m since the beginning of this year. This growth comes from the mobile base, up by 4.5m. And the main driver of this growth in customer base is, of course, Africa and Middle East, even if all our areas are progressing on customer contracts, up by 1.8m.

Let's go now to slide 5, to show you a sample of the very outstanding commercial performance of Orange in nearly all its operations. As a matter of fact, in the second quarter of this year this overall performance has been very good, in line or even improvement with the good results of the previous quarters. And we see this as a result of our targeted investments in very high broadband.

For instance, the Group's 4G customer base stood at 12.1m, continuing its growth in all our European countries, with a significant acceleration in France, whose base grew by more than 1m customers in the second quarter. In Africa and the Middle East, we have now four countries open in 4G and all our countries are covered by 3G.

The FTTH rollout has been very strong, particularly in France, rollout and of course subscription, where we have matched this second quarter our record net sales of the last quarter of 2014. This excellent performance is also the result of broadband conquest share, which is estimated at 46% in the second quarter. This is a record high for years in France. We have reached 720,000 FTTH customers and we will fulfill our target of 1m customers by the end of this year in France.

In Spain, the growth of the fixed broadband base continues, driven by more than 100,000 FTTH net sales since the beginning of the year, and this has been reached despite strikes by the incumbent operators' sub-contractors, whose effects on connections will be recorded in the third quarter.

In Africa and Middle East, the mobile base reached 102m customers. And Orange Money, our mobile banking service, has now over 14m active customers.

On the enterprise segment, we continue our development in the areas of cloud and cyber security, with growth over 20% in those two segments. And it is once again a satisfactory result insofar as those two services, cloud and security, are among the top priorities of our B2B division.

Let's move to slide 6, to give you a few elements about our CapEx. As you can see, CapEx has been still at a high level in the whole first half, especially in Q2 2015. This is fully in line with our Essentials2020 plan. And the CapEx to sales ratio is 13.7% in the first half and even 15% in Q2.

In the fixed side, we increased our investments in fiber by 74% year on year, and we have now 4.3 (sic - see slide 6 "4.3m") connectable households in France. This is up by 0.7m over the period. Just notice that in France we roll out 70% of the whole connectable homes in this country ourselves, Orange. We have made 1m of connectable households new in Spain. And in Poland we are still rolling out VDSL, very high broadband on copper, with today 4.5m households that are eligible for this technology.

In mobile, Orange is a clear leader in France in 4G, with over 76% of coverage of the population. This is a growth of 7.5 points in one year. We have continued our deployment in Spain in 4G, where we have reached 80% of coverage, but we are today at 79% in Poland and 95% in Belgium. In Romania and Slovakia, the coverage rates is respectively 67% and 54%.

As I mentioned before, all our countries in Africa and the Middle East are now covered with 3G, following the launch this year in Cameroon, Guinea-Bissau and Iraq. 4G was launched in Botswana, Jordan and Morocco, joining Mauritius.

Our Essentials2020 plan focuses equally on improving the customer experience and the search for optimization through sharing infrastructures and, for instance, in France we have particularly improved indoor coverage through the use of low frequencies. The coverage of motorways, we have now six of the main motorways in France that are covered in 3G, up more than 90%, and we have implemented a new program for the coverage of white areas.

In Egypt, MobiNil signed a towerco agreement in April with Eaton Towers concerning 2,000 towers. In Spain, we have expanded our network sharing agreement with Vodafone in non-dense areas, and we have also launched our modernization program of our shops with the development of the smart store concept. The first shops will be opened in the next weeks in France, Spain, Romania and Slovakia.

And finally, Orange continues to invest in submarine cables, with in the first half the increase in the capacity of the Sea-Me-We 4 cable, connecting Europe to the Middle East and Africa, and the connection of Benin and the Canary Islands to the eighth submarine cable.

Let's move to slide number 7. We have in this first half actively managed our portfolio of assets, in line with our development objectives. I just remind that one of those objectives is to create strong convergent operators in Europe, while in the same time trying to capture more growth in Africa and the Middle East.

In Europe, as you know, we successfully completed the acquisition of Jazztel in Spain. This is a very exciting project. We are now able to combine the two most dynamic and success stories of the telecom market in Spain, Orange and Jazztel, and we are going to become the most dynamic convergent player in this market.

In parallel, the EE sale process continues, and we expect a final agreement to be concluded with the antitrust authorities in the first quarter of 2016. We have also completed the sale of 80% of Dailymotion and initiated the sale of Orange Armenia, because this operation could not reach the critical size to become a convergent operator in this country.

We are still developing in Africa and the Middle East. Recently, we have exercised our option to increase our stake in Meditel in Morocco. We will consolidate fully this operation in the second half of 2015.

And we have entered into exclusive negotiations with Bharti Airtel for a possible acquisition of four subsidiaries of this group in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone. Clearly, those four new potential countries would allow us to complete our networks based on a regional cluster approach in this part of Africa where we have a very solid track record.

I will now hand over to Ramon, who will provide you with more details about our financial performance.

Thank you. Thank you, Stephane. Good morning.

So I will give you some more details on revenues, EBITDA and our balance sheet, before commenting the performance of the different segments. But first one remark relating to our accounting methodology.

In order to align with the standard practice, we have modified our IFRIC 21 accounting approach, and therefore the annual costs of some levies are now accounted when the obligation event occurs on January 1, instead of being equally shared over the year. This interpretation has no effect on annual financial statements nor on cash flows. The impact is only on interim results in France.

Second, a word also on Jazztel. You know that we have just closed the voluntary tender offer with a spectacular success, with the 94.75% acceptance of Jazztel shareholders. And we will, once the squeeze-out process is completed, own 100% of the shares by mid-August. Jazztel will be consolidated in our accounts starting from July 1 and Jazztel published its results last Friday, fully in line with expectations. So we will now focus on the successful operational integration of both companies.

We will give you more details during Q3 results regarding the impact of the Jazztel integration, but also following the consolidation in our accounts of Meditel in Morocco, which is effective from July 1.

So let's now turn to our H1 revenues, slide 9. You can see that the second quarter confirms the improved trend in revenues we could observe across 2014, with a slight decrease of 0.2% in Q2 compared to a decrease of 2.5% for the full year 2014. Excluding regulation, the Group even posted positive growth of 0.4% for the first time since Q2 2011.

The improving performance was supported especially by a recovery in France and in Europe, with Africa and the Middle East maintaining their growth momentum. The main drivers of Group revenue trend improvement were the recovery in mobile services. Mobile services went down 1.6% in Q2. It was 2.8% in Q1. And this improvement can be seen especially in France and Spain.

We also see an upturn of IT and integration services in the enterprise segment. Mobile equipment sales accelerated in the second quarter, up 22%, with growing installment sales in France. Fixed broadband services continued to gain momentum, with revenues increasing by 3.1% in Q2, mainly driven by convergent services in Spain and fiber take-up in France.

So, all in all, this limited decrease in revenues contributed to preserve EBITDA generation, as illustrated in the next slide. In H1, EBITDA decrease was limited to 1.2%, and even 0.4% in Q2, close to stabilization. Excluding regulation, EBITDA is even increasing by 0.9% in the second quarter. As in Q1, this good performance is the result of both a lower decrease in revenues, we have just seen this, and also maintained efforts on cost cutting.

The graphic at the top right provides more details on the EBITDA evolution compared to the first semester 2014. You can see that, first, revenues decreased 7 times less than in 2014, with minus EUR112m to be compared with minus EUR733m in H1 2014. Second, we maintained our efforts on costs, while sustaining the increase of our activity.

Our direct costs are slightly up, in line with our revenue evolution. Interconnection costs increase reflects the good performance of our international carriers business and also the use of bit-stream FTTH access in Spain. Handset costs increased mainly in Poland, following the launch of installment sales last year, and in Romania, in line with revenue growth.

We continued our efforts on indirect distribution commissioning, which decreased by close to 10%, minus 9.6%. Indirect costs decreased by EUR156m. All costs are decreasing.

Excluding exceptional items, labor costs decrease was 1.7%, mostly driven by a 4% decrease in Group average full-time equivalents. The actual labor costs decreased by 0.9%. This is the result of a few specific elements this quarter, mostly the lower year-on-year impact of the tax credit CICE, the new holiday pay provision and also salary increases retroactive on January 1.

Overall, these very robust results allow us to fully confirm our guidance of an EBITDA between EUR11.9b and EUR12.1b for 2015.

Turning to our net income, Group net result stood at EUR1.3b for the first six months, and net income Group share, at EUR1.1b, was multiplied by close to 2 compared to the first half of 2014. This improvement is mostly the result of less impairments than in H1 2014, where we depreciated EUR229m in Belgium; second, a slight decrease in tax due to the fact that in H1 last year we had to pay a significant tax for the disposal of Orange Dominicana; and lastly, the increase of net income from discontinued activities explained in H1 by the dividend received from EE of EUR364m.

Last point on our balance sheet situation, before turning to our business review. This half year, net debt remained broadly stable at EUR26.4b, which translates into a net debt to EBITDA ratio of 2.13, in line with our guidance of a net debt to EBITDA around 2.

Our liquidity position remains strong at EUR12.1b. And in H2 our net debt will be impacted by the consolidation of Jazztel and the EUR3.4b payment of the acquisition price, but most of this impact will be offset by the release of the EUR2.9b which was under escrow in 2014 for the PTO process.

Overall, this should result in a temporary slight increase in our net debt to EBITDA ratio to around 2.2 at the end of the year, but this is fully consistent with our guidance given the upcoming sale of EE in Q1 2016.

Turning now to the business review of our activities and beginning with France, on slide 14, the second quarter confirms the improvement in revenues, thanks to both an improvement in mobile services and an acceleration in fixed broadband.

On mobile services, the ARPU evolution significantly improved, confirming the recovery trend of 2014, thanks to a well-advanced back book repricing level, with 92% of mobile customers on post April 2013 tariff plans, while the mix of premium customer continues to increase. Moreover, the mobile equipment sales continued to accelerate, growing by practically 50% in Q2, driven by the success of SIM-only offers in installment plans.

Fixed services revenues contracted by 1.8% in Q2, after minus 1.1% in Q1. The inflection is mainly due to a slowdown of fixed wholesale activities growth in France, explained mainly by a comparable base effect due to a strong Q2 in 2014, where we recorded a strong unbundling activity and the speed up of fiber rollout activities.

The performance in broadband services continues to gain momentum, with an increase of revenues by 2.6% in Q2 after plus 1.1% in Q1, thanks to fiber success.

H1 EBITDA went down by 0.7%. This is minus EUR24m, which is 5 times less than H1 of 2014 and allows us to increase the EBITDA margin rate by 0.2 points to 35%. Excluding regulatory impacts, the EBITDA has risen by EUR2m in France.

Direct costs slightly decreased, thanks to lower commercial costs resulting from the segmented approach to the market and restructuring of the indirect distribution channels. And indirect costs continued to fall, driven not only by labor costs but also by IT and network, property, G&A and other indirect costs optimization.

As regards commercial performance, let's have a look first at mobile. The second quarter posted an improved level of contract net adds compared to Q2 2014 and a record level of 4G acquisitions with 1.1m new customers, bringing our 4G base at 5.6m. In a very competitive market, the performance and the quality of our network continue to be recognized by our customers and allowed us to keep the level of contract churn at 14.4%, more than 1 point drop compared to one year before. 44% of our customers have migrated to SIM-only offers, and the mix of premium customers increased at 61%.

Turning to slide 16 and the fixed market in France, you can see that the net adds of the second quarter doubled compared to last year, fully supported by our fiber strategy, with 82,000 FTTH net adds, half of which are new Orange customers.

Globally, the broadband customer base increased by 3.2% year on year, with a record estimated conquest share of 46%. Convergence continues to drive our sales, as nearly half of our broadband customer base is now on a quad-play offer, leading to a decrease in the churn rate despite a strong pressure on prices on the market.

And as Stephane explained earlier, we continued the rollout of our fiber network, with 4.3m connectable homes. The number of fiber customers divided by the connectable homes increased by 0.5 point in one quarter to 16.7% end of the second quarter.

Turning now to Spain, in Q2 Orange achieved a strong commercial performance, driven by mobile and fixed very high broadband and by convergence. Our commercial performance was strong again in 4G, with 600,000 new customers in Q2. FTTH customer base was multiplied by 1.4 in the quarter, up to 159,000 customers. And our fixed broadband base grew by 11.5% despite adverse external conditions; I'm referring to the strike of Telefonica installers.

As regards revenues, the trend improved in Q2 versus Q1 with revenues declining by 2.5%. It was minus 5% in Q1. Mobile service revenues were driven by an improving ARPU trend, even if it remains under pressure. And fixed revenues kept growing at plus 8.3% in Q2, with convergent penetration reaching 81% of the base.

Once again, we will provide you with more details on the Spanish market and the integration of Jazztel in Q3.

Turning to Poland, slide 18, the underlying trends in mobile and fixed remain broadly unchanged. Mobile service revenues eroded by 3.9% excluding regulation this quarter. It was minus 3.8% in Q1. But this is on the back of an improved commercial performance in postpaid with plus 170,000 contract net adds, after plus 99,000 in Q2 2014 and plus 48,000 in Q1 2015.

Competition from cable kept a strong pressure on fixed revenues, down by 6.9% excluding regulation, after minus 7.9% in Q1. Our broadband base continued to suffer in regulated zones despite our efforts to migrate customers from ADSL to very high broadband, meaning VDSL and FTTH, but also to fixed LTE. Performance, however, was better in deregulated areas, with the first half broadband gross adds up plus 7% year on year.

Overall, we press ahead with our convergence strategy, with 29% of our broadband base now on open offers. And we are stepping up our efforts with new convergent tariff plans introduced just recently.

So, bottom line in Poland, first-half EBITDA was down 1.1%, but significant cost savings initiatives across all areas of business carried a plus 0.3 point of EBITDA margin improvement at 32.3%.

Let's turn to Belgium and Luxembourg, slide 19, where we see in the first quarter good news. It's the first time since Q2 2013 that we see consolidated revenues turning almost stable if you look excluding regulation, at minus 0.4% against minus 2.7% in the previous quarter. This is explained by our strong mobile commercial performance, improving sequentially in both B2C and B2B segments.

We successfully posted plus 12,000 postpaid net adds excluding M2M, versus minus 20,000 in Q2 2014 and minus 5,000 in Q1, so we are back in the positive net adds area, which is nice. And evolution in our annual contract ARPU turned positive, up 0.6%. And last but not least, the annual contract churn improved significantly versus the previous quarter, down by 5.5 points in B2C and by 1 point in B2B.

Mobistar continued to make steady progress on its 4G strategy, maintaining its leadership. We have a 95% outdoor coverage, 77% indoor, with 4G postpaid base being almost tripled, reaching approximately 1 out of 4 postpaid subscribers.

So with its commercial momentum restored, Mobistar is ready to take full advantage of the upcoming cable growth opportunity. And notwithstanding clear improvements, we believe that the current draft decision on cable wholesale tariffs can still be further improved to ensure a sustainable profitable framework for alternative operators in the context of the acquisition of BASE by Telenet.

In the other European countries, for the first quarter since Q2 2014, revenue growth turned positive this quarter at plus 1.8%, driven by Romania which represents close to 60% of this sub-segment. Romania is rising plus 6.4% versus an erosion of minus 3.7% last quarter. Churn is improving in three of our four countries.

And EBITDA margin in the first half of the year went down 2.6 points, impacted by an increase in direct costs, mostly in Romania, because of customer equipment. But this is partially compensated by a decrease in indirect costs, both in non-labor costs and in labor costs.

Turning to Africa and the Middle East, slide 21, you can see that this region continues to grow, both in revenues and EBITDA. Some details related to our listed subsidiaries cannot be provided today because these companies have not published their figures yet, but you can see here revenues growing by 5.6% in H1.

Q2 growth was slightly lower than Q1 due to some specific prepaid revenue recognition which had occurred last year in Mali, but very solid performance this quarter, driven mainly by Ivory Coast, Egypt, Congo, Guinea and Mali, with Jordan suffering from decreasing international traffic. We have in the region a mobile customer base going up by 4.5m customers, reaching 102m. This is 11% more than the end of June 2014.

In Africa and the Middle East, we have an EBITDA growing by 6.1% compared to last year, reaching 34% of revenues, so an EBITDA margin of 34% in Africa and Middle East. And the key reason is of course revenue growth, while this growth is impacted in costs, in network, property costs, as the number of regional sites increased by 11% to support customer and traffic increase.

As Stephane said, all African and Middle East countries now benefit from 3G, and we have successfully launched 4G in two more countries, Jordan and Morocco. Orange Money keeps growing, with more than 14m customers. And so all these results confirm our ambition to increase revenues by around 5% in 2015.

Slide 22, still on Africa and the Middle East, illustrates our conviction that this region is a territory of growth for Orange. We have now finalized the holding, gathering of all our participations in Africa and the Middle East, which will give us more agility for our future developments.

Our increase in the share capital of Meditel and the discussions that we have engaged with Bharti Airtel relating to four Airtel subsidiaries are fully aligned with our long-term value creation ambition in this region. Extending our footprint in these four countries would be obviously an opportunity for us to roll out the winning Orange operating model with opportunities for cross-border synergies. So I'm not going to mention them into details, but you can think about IT platforms, about networks, about roaming, about saving on sourcing, cross-border services such as Orange Money, etc.

So, if the discussions with Bharti are successful, and with the consolidation of Meditel, this jointly would increase by more than EUR1b our revenues in the region, which would then represent close to 14% of Group revenues. Now it's around 11%.

Last, turning to the enterprise segment on slide 23, you can see that the decreasing revenue trend of our legacy activities has been slowing down as the product mix shifted towards voice over IP solutions. Data services continued the slightly negative trend, supported by a volume increase, especially outside France, that helps to compensate the price pressure.

And in a market evolving towards more services, cloud and security are two strategic activities for OBS, with revenues growing respectively by 21% and 24% in the second quarter. Recent acquisitions like Atheos, Cloudwatt or Ocean have strengthened our positions as the leading player in the IT and integration services industry.

In this context, the EBITDA margin of the enterprise segment is stable in H1, as we compensated most of revenue decrease through an ongoing effort on cost optimization along with disposals effects.

I will now turn back to Stephane for the 2015 guidance.

Thank you. So, regarding the 2015 guidance, those results are clearly enabling us to confirm the whole guidance for this year, for 2015, that we announced in February.

So first we fully confirm our guidance regarding the EBITDA generation with the EUR11.9b to EUR12.2b (sic - see slide 25 "EUR12.1b") area. We are fully comfortable in our capacity to reach this target this year, especially thanks to the continued efforts on our cost structure. May I just remind you that this guidance does not yet include Jazztel; Jazztel will be consolidated in our accounts from the second half of 2015.

And for the rest of our guidance, there is no change. The net debt to EBITDA ratio around 2 in the medium term is clearly confirmed, as well as the dividend policy. And our Board has decided to -- have given an agreement to the payment of an interim dividend of EUR0.20 on December 9, 2015. And last, regarding the M&A policy, we want still to be very selective in this M&A policy. We want to focus on our existing footprint.

And so regarding all those big items there is no change. And to summarize, we are happy and satisfied about this set of results, which seems to us very positive and very strong and very encouraging regarding the strategy that we implement. I'm very confident in our capacity to reach the whole set of targets within our guidance.

Now we are ready to enter into the Q&A session. Thank you.

(Operator Instructions). Stephane Schlatter, Societe Generale.

Thank you. Good morning, everyone. I have three questions, please. First one, Mr. Sebastien Soriano said in June he will check if the roaming contracts between Orange and 3 Mobile have gone too far and whether progressive exit has to be planned. Could you please let us know your thoughts on this and also what the regulator can really do?

Second question, could you please give us an update about talks with Telefonica to provide Orange Spain with access to premium content of Telefonica following the acquisition of DTS?

And finally, a few weeks ago Mr. Emmanuel Macron held a meeting with French telcos. Could you please let us know main points discussed and any important items we should bear in mind for Orange France, please? Thank you.

All right. So I will first ask Pierre Louette to answer to your first question, and then maybe Gervais. We have also Jean-Marc Vignolles in the call for the second one, and I will take the third one. Pierre?

Okay. So hello, everyone. We had a first audition with the ARCEP recently. You have to remember, and you mentioned it, ARCEP decided that they would check the roaming contract and check if there was an extension which was organized or not by the parties to that contract.

So we have actually made it clear to ARCEP that we have introduced an extinction committee within the framework of the contract and that we had started discussing with Iliad the modalities and the ways in which we could walk out, all of us, from the contract when the contract regularly expires, which is on December 20, 2017.

ARCEP has made it clear to us that they were looking for a smooth extinction, not something too brutal, and that it had to be organized possibly through mutualization agreements. I think this is one of the central scenarios that they have in their minds.

There isn't much more that I can really disclose at that stage. But what we can tell you is that the revenues from the contracts are extremely satisfactory as of today, that we do see in the future, of course, a slight decreased program, but maybe not as strong as we would have expected in the past. And this is also clear to ARCEP.

Okay. Thank you. May I ask Jean-Marc, maybe, Vignolles, if he is on the call, to take the second question? Jean-Marc?

Yes. Good morning. So regarding the situation around content distribution here in Spain, as you may know, the CNMC has published its decision regarding remedies in April, and so this is the framework within which we are acting at the moment. So, to recall, that we are not satisfied with CNMC's decision and that we are [recurring] this decision, in particular as far as the extent of premium exclusive content availability is concerned. Only half of Telefonica's exclusive content is made available to its competitors, also recurring again the formula used to calculate the amount to be paid by challengers regarding the distribution of football rights.

Overall, we are definitely unsatisfied with the proposed regulatory framework in a situation where Telefonica is now holding close to 80% of pay TV market share following its acquisition. Nevertheless, obviously we are participating in the various processes enabling our access to Telefonica's wholesale content offers, in particular football. But once again, the situation is definitely one of conflict with the decision that has been taken by the CNMC.

Thank you, Jean-Marc. Regarding the third question, in the round table that was organized by Emmanuel Macron, there were mainly three topics. The first one is about the coverage of remote areas in 3G network, and we have signed a new agreement between the four operators in order to accelerate and terminate the coverage of those white areas in 3G services, in which Orange will take, of course, the leading part.

The number two was about the 700-megahertz auction. As you know, the main point was to obtain that this auction is totally equal in terms of every participant and transparent and clear, and this has been obtained since there is no reserved part of the spectrum to anybody. So we are satisfied with what has been decided regarding this 700 auction.

And the third one was about the very high broadband rollout network in France, where the role of Orange, the role as clearly the frontrunner and the main provider of the new connectable homes in France, has been recognized by the authorities, both the minister, the regulator and the [savatoire], has been put in place regarding this topic. As I mentioned, Orange has provided nearly 70% of new connectable homes since the beginning of this year.

And so there was no specific new rules or decisions or anything else that came out of those meetings, except maybe the fact that the discussions between SFR-Numericable and ourselves after the -- and the autorite de la concurrence prescription a few weeks ago has been closed without any new agreement between us, meaning that we will pursue our rollout plan as it was planned before.

We are going to extend our footprint by taking back the more or less 700,000 homes that SFR had committed to do and will not do. So Orange will do this, meaning that we will even do more in terms of rolling out FTTH in France, which is good. And that's it, more or less, regarding those meetings.

Next question?

Nicolas Cote-Colisson, HSBC.

Thank you. I'll start, sorry, with Spain. You have a 9% EBITDA drop. Any one-offs linked to the acquisition of Jazztel or is there any other reasons for the counter-performance?

And then, on France, could you comment on the pricing environment given there's a high degree of promotions in the market, including at Orange? How sustainable is it, you think?

And last, on the fiber buildout, follow-up on the latest answer, longer term, what is the percentage of lines you think you will eventually build in the less dense area? Thank you.

Okay. First question, Spain, Jean-Marc?

So, regarding EBITDA, no, there is no one-off. Definitely the EBITDA decline is related to the revenue decline which we have been able to compensate partly, up to [20%], based on commercial cost contention. As you may see, our SAC has continuously decreased over the period, and also content of our OpEx, in particular network costs. The overall revenue trend is definitely related to the repricing of the base, so due to SIMO and convergence trends which are about to be completed.

Okay. Thank you. I'll ask Xavier Pichon, who is the CFO of Orange France, to take the second question.

Yes. Hello, everybody. So, as you know, the trend in revenue for Orange France is constantly improving. The mobile and the service operating revenue is also subject to a continual improvement. And as you say, we don't have any big use of promotions.

However, we need to remain cautious and the market is still very competitive and turbulent, as highlighted by the increase of promotions. But of course, in the trend for Orange France, we don't need, as you can see in our commercial results, to use those sorts of massive promotions to sustain our very good performance in H1.

Thank you. Now, regarding the third question about FTTH in less dense areas, as you know, France has been divided in three segments. The first are dense areas where there is competition between all sorts of technologies, but as far as we are concerned we will provide 100% of FTTH. Then of course you have the medium, let's say, dense areas where you will have mainly FTTH. And then you will have less dense areas, let's say rural environment, where in fact the rollout will be provided through PPPs between local communities, authorities, departements and so on, and operators. So this -- and it is more or less three equal, in terms of homes, parts of the country.

In this third segment, we will still have FTTH, of course, but in a much lower proportion than in the two others. Difficult to provide you with a figure, but clearly in those areas you will have also VDSL on copper. You will have satellites. You will have maybe, at one point, 4G or even 5G access. But let's keep in mind that in France, compared to other big European countries, the main technology that has been chosen to provide very high broadband access is still fiber.

So in my view you will have a majority of those homes in the [VIP] areas that will be equipped with FTTH. And as far as Orange is concerned, we will be part of this, either being the operator of a number of those public networks, small networks, or being customers also of those networks. And we have planned to put a little bit of money in order to play alongside with the local authorities that will provide public financing to be present. So as a whole, I would say that in France we will have certainly over 80%, between 80% and 90% of FTTH by 2022, 2025.

And can I just ask, what is the level of co-investment your competitors are currently committing? Is that 5%, 10%? What kind of levels are they asking for at this stage?

Xavier?

So, Nicolas, at the end of H1 the cash co-financement represents 25% of our gross CapEx, and this rate will increase from 40% to 50% at the end of 2022.

Okay. That's very clear. Thank you.

Frederic Boulan, Bank of America Merrill Lynch.

Hi. Good morning, everyone. Thanks for taking the question. Couple of questions. Firstly, on your balance sheet structure, if you could discuss what you think is the adequate level of leverage, and in particular discuss [potential use] in EE?

And then a follow-up on Nicolas' question on pricing, if you could share your thoughts on pricing development. We've seen both some underlying price increases from [those] and others, but also still heavy promotions. So at this stage, do you expect pricing power to come back or is this a bit premature?

And then I've got a question on looking at your EBITDA development. So we talked about Spain briefly, which is a big underperformer. If you could share maybe some more thoughts on how you plan to fix this, ignoring the acquisition of Jazztel, but really on an underlying basis.

And then looking at other assets, France, AME enterprise is doing pretty well, but you still have very big underperformers in other European countries. So what's the plan there? Is this to fix them or potentially going out -- closing of some of those assets? Thank you very much.

Okay. On the balance sheet management, Ramon?

So at the end of the semester we have, as I said, an EBITDA ratio of 2.13. We have EUR300m more debt than in December 2014. But we will be at around 2.2 at the end of the year, because we will have paid EUR3.4b for 100% of the capital of Jazztel and then we will get, by March 2016, the revenues from the EE sale.

So our expectation is to go back to around a ratio of 2 during the course of 2016, post the sale of EE and including the potential acquisition of the African assets that we are discussing with Bharti Airtel. So our intention is really to keep our leverage at around the levels of 2. This is our guidance in the medium run, and we will stick to this objective.

Regarding the pricing development in France, I have a few comments and maybe Xavier will be able to add. In my view, if you look at the broadband market first, the situation is that you have one of the players who clearly is losing customers, which is SFR-Numericable, and the three others that are gaining net adds with different strategies.

Bouygues is still trying to focus on the low-price DSL broadband offer with relative success, I would say. If you look at the number of new customers that they have in this offer, it's steadily declining quarter after quarter. So I think that the strategy of being aggressive in the DSL market is not totally relevant in a market which is clearly driven by FTTH or cable today.

And then, in the mobile market you have -- this has been mentioned, but it is also true in the broadband market, a lot of promotions, one-off promotions, especially coming from 3, with (inaudible). This provides big volumes but in a few days, and I think it's a way for us to keep up with the rhythm of acquisitions that they have in their plan.

Now, if we look at the absolute level of prices in France, this has been more or less stable for now nearly 18 months. As far as we are concerned, Orange, we have a premium on every kind of segment, mobile and fixed and broadband. And despite this premium, which is in our view justified by the quality -- service quality of network, we have a very strong momentum.

So no-one can really speculate about what will happen in terms of pricing environment, but the only thing that I would like to remind is that we have low prices in France. Obviously I just could mention the recent study made by the Belgian regulator, who watched 700 different offers in the European Union, showing that the lowest prices for both mobile and fixed services are in France.

So I keep on thinking that the current level of prices in France lets a very limited margin to enter into a new phase of price war and that is now, of course, what we think is that 4G, FTTH and the segmentation of our marketing offers, marketing policies in France are strong enough today and relevant enough in the market to stay on track in terms of commercial momentum.

Xavier, do you want to add something?

If I may just add that, as you said, we have very, very strong commercial performance in spite of having a clear and well known 10 to 15 price premium in each offer, each segment. And of course we've just increased the bestseller offer we have on broadband by EUR3 amount. And as Stephane said, we think that we could continue to, I would say, improve significantly the trend of the decrease of the ARPU in 2015, just to compare to 2014.

Yes, Spain. Gervais?

Yes. Just on Spain, two or three things. One is that when you look at the sale performance for the period, we have kept a very strong sales performance, especially first on broadband, where we lead, and not only Jazztel. When you add the performance of Jazztel, and we have been publishing Jazztel performance and the Orange Spain performance, you see that in terms of net adds but also revenue performance, this is a strong performance.

The second point is that when you look at the trend in terms of mobile revenue, the trend is improving. We have a better Q2. Keeping also into consideration the fact that on first half we have still a strong regulatory impact in Spain, which should decrease also in second half. When we take those two situations, we expect a revenue recovery in third quarter, and even we hope to be better even in fourth quarter of the year.

Also, and as this has been explained by Jean-Marc just a moment ago, the cost structure of Spain is relatively small, which means that even if we adjust costs compared to some other geographies in the Group, especially the incumbent, the margin of maneuver to reduce indirect costs is not that big to adjust versus the revenue. We are more flexible, but with less capacity to reduce costs in those situations. But even without taking into account Jazztel, we should see a revenue recovery and then a better EBITDA performance in the second half of the year.

And your last question was about the countries that are performing less well and where we are focusing. So I'll ask Gervais maybe to mention Poland.

Yes. In Europe, when you look at the overall performance, the situation is still difficult in Poland, even if we have seen some improvement in terms of mobile activity in second quarter. What remains to be considered as a concern in Poland is the broadband and fixed line situation, where, by the way, the strategy of France to go quickly to FTTH proves to be successful, especially when your competitors, especially cable, are developing very high broadband on other lines. And by the way, in Poland we will present probably before the end of the year our investment plans for FTTH, which is part of the solution to recover on the fixed line market.

And for the rest, Frederic, sorry to disappoint you but we are doing well more or less everywhere. And in the big European markets like Belgium, we are clearly in a very spectacular recovery trend, but also in Romania and Slovakia. And in Africa and the Middle East, in the big markets like Egypt or Senegal we are performing well.

Okay. Thank you very much.

Andrew Lee, Goldman Sachs.

Yes. Good morning, everyone. A couple of questions. Firstly, on your underlying cost cutting delivery, your indirect cost reduction in Q2 I think was EUR85m and clearly is improved from the EUR71m in Q1. Is this greater cost cutting or is it lower reinvestment into Africa? And could you give us some guidance on how this indirect cost cutting delivery and reinvestment should trend into H2?

And then just secondly, Stephane, I saw some comments in your entry on pan-European consolidation this morning. You said at the capital markets day that this opportunity was not there given the lack of ubiquitous network or fixed network technology for at least three to five years. Has anything changed in your thinking on timing here? Thank you.

Okay. Thank you. Ramon for the indirect cost cutting delivery.

So, in terms of cost cutting in H1, we have delivered on indirect costs minus EUR156m. And we are going to continue, of course, this effort in the second part of the year, even if it will be a bit lower probably than in the first half, but we should achieve somewhere around EUR250m probably for the whole year. And it's an effort which is across the board. In Europe, we are making this effort in indirect costs across the board.

In Africa and the Middle East, the picture is a bit different because you have a number of elements which are putting some pressure on indirect costs, but these are also going with increases in revenues. So you have some inflation. You have some investments. We are investing quite a lot. You have also some taxes which are there. But all in all, you have seen that the EBITDA margin is increasing. You have an increasing EBITDA margin in Africa, which is showing that we are able to compensate this pressure on indirect costs. Maybe there will be some further comments from Marc Rennard on this.

And on direct costs, we are maintaining obviously our efforts. In H1 direct costs, we have seen this in the presentation, are increasing by a bit less than EUR120m. The second half of the year should be more looking at a more stable figure because we will have much less direct costs, especially in France, compared to the second half of 2014, with less commercial costs.

So the global picture for the full year will be a maintained effort on costs, despite the fact that we will accompany the more positive trend in revenues and activities with some efforts on commercial investment.

Thank you. Maybe Marc for some additional comments on the AMEA area direct costs.

Okay. Regarding the costs in the AMEA region, we are performing very well regarding the direct costs. Regarding the indirect costs, the increase is linked to the inflation, more specifically regarding the sites. We have more sites and the cost of the sites are linked to the inflation. That's why we increased slightly the cost of the renting. But we are working on this topic, and more specially on the sharing of the passive infrastructure.

Thank you. Now, regarding the pan-European consolidation, in my view this will be driven by, first, regulatory inflections or moves, and especially the single market which is now clearly a prospect in Europe, with a strong political momentum. So clearly this will take a few years to be implemented, but in my view a single unified space in terms of telecom industry is something that we will see in Europe, meaning that we will have one antitrust authority for the whole European Union, one spectrum allocation policy in Europe, and this will be clearly a big driver for a form of consolidation in Europe.

Then there is the network optimization in fixed networks with the very high broadband rollout. That is something which can be strong, maybe more to replicate what has been successful in some countries. And to that extent I think that the French situation is interesting, because France is probably among the big European markets, maybe France and Spain, the market where there is the most dynamic policy coming from public authorities and operators to roll out as quickly as possible superfast fixed access, which makes a difference with some other markets in Europe. So there is probably a best practice dimension in what we could see in Europe.

We have also, from a more technological point of view, the move to all IP and virtual soft defined networks. That is something that we see everywhere in Europe and that will certainly trigger also pan-European or at least cross-border optimization in terms of fixed networks. And then I would say that there is the critical size aspect in terms of sourcing, purchasing and also commercial approach, content policy and so on. That is something that will still have to be taken into account.

So this is, in my view, the main parameters for a next step in European -- in pan-European consolidation. I'm not talking about in-market consolidation in -- especially in the mobile segment, where we have now a lot of deals ahead. And this is something that in my view we should see again in the future.

Now, in terms of timing, we are not talking about short-term opportunities. In my view, it's probably more in the medium term. So three to five years is maybe a relevant timing that we should keep in mind. But of course, we can have also some events regarding such or such company or shareholders or opportunity that could trigger something earlier. But the big drivers of pan-European consolidation, in my view, are more in the mid to long term.

Okay. Thank you. That was very clear.

Sanvir Dhillon, Royal Bank of Canada.

Hi, guys. Two questions, if I may. Firstly, on your French mobile ARPU, if you were to exclude the impact of the Iliad revenues, how close are you to seeing a stabilization in that underlying French ARPU? Mobile ARPU, that is.

And in Africa, if you are successful with your Bharti deal, would that fully satisfy your African footprint needs, or are there other countries in the African continent that you believe would benefit from the Orange operating model?

And I guess aligned to that, on M&A in general, for the perfect asset, how high would you allow your leverage to increase if there was a path to getting that leverage back down to 2 times in the medium term? Thank you.

Thank you. So, regarding the mobile ARPU in France, Xavier?

Yes. So please note that we don't include any roaming ARPU inside our ARPU calculation. So just to be back on that point, the annual roaming postpaid ARPU amounts now to EUR27 at the end of Q2, with the smallest decrease we have ever seen since 2012. On the blended view, the annual running ARPU decrease is still slowing down, minus 4.5% versus minus 6.5% in Q1 2015 and minus 9.3% in Q2 2014.

Now, the reprice effect is very limited. As Ramon -- Stephane said, we have now 92% of mobile customers based on our post April 2012 (sic - see slide 15 "2013") tariff plan, which is 10 point growth year on year. We think that this ongoing slowing then is explained by a lower reprice impact environment of customer mix within each range of offers and a lower migration impact between high range of offers and low range. As we said, we think that 2015 full-year ARPU decrease should be significantly better compared to 2014 decrease.

Thank you. Regarding Africa and the Middle East, we are keeping on looking for opportunities to expand our footprint in such or such a country. It's a country-by-country approach. And to be clear, we have no plan to try to enter into the two largest markets of Africa, Nigeria and South Africa, because we see that there is no opportunity and this would be a very large investment that we do not plan.

So our strategy in Africa is more to expand our coverage especially in the western part of Africa and the central part of Africa, to have really comprehensive clusters to optimize our presence and also our network management. So, yes, we are happy with the potential Bharti acquisition, and maybe we will try to expand slightly this by looking at further opportunities, but at a very reasonable size.

In terms of balance sheet, we are strongly committed to stay around 2 in the midterm in terms of ratio net debt to EBITDA, because we think that it is the relevant level if you take into account all the parameters, the rating, the situation of the financial markets that are maybe now easily accessible in terms of debt but this could change. And so we think that for our situation and our industry, it is the right level. So we do not plan to move significantly from this 2 region, I would say. Of course, I am not talking about 2.1, 2.2, 2.3, but we want to stay around a ratio of 2.

Okay. Thanks, guys.

Stephane Beyazian, Raymond James.

Yes. Thank you. Two questions, if I may. I just would like to come back on Africa, just to understand the financial criteria in your decision making. You mentioned some synergies on one of your slides. Could you come back or give some color or ideally quantify the sort of OpEx or CapEx synergies that you think are achievable cross border in your African operation when you're making a new acquisition? And is mobile banking part of the equation, or this is still very much too small to be taken into account?

And my second question is to come back on some of the earlier comments on media in Spain. Clearly we're seeing some of your peers in France or outside France making more investments in media. You did in the past and you still own Orange Cinema Series. So are you tempted today to build again a little more in this field? And how do you assess the potential or the threat if you don't do it by the investments that are made by your peers? Thank you.

So I'll ask Marc maybe to take the first question.

Yes. Thank you. Regarding the synergy and your specific question regarding mobile money, first of all, mobile banking is at the heart of our strategy. It's growing significantly.

And secondly, regarding synergy, it's a good example of what we can manage in terms of synergy because regarding Orange Money we have a unique platform that is based in France, in Lyon. We run this platform from Romania, by the way. And each time we add new countries, we reduce the cost by sharing this platform. So it's a very good example of what we can do on the one hand business wise, because it provides new businesses and it's a strong growth, and on the other hand on cost saving.

And then if I may add something, I think that in Africa and the Middle East, what is important is also to acquire a critical size in the whole continent. It's absolutely different to be in Africa in two or three countries or to be in 25 or 30 countries. In terms of providing to our investors an exposure to African economy, African growth, African developments, it's very important for us to progressively expand our presence in Africa, of course in the countries that we have chosen. And it is a fact that today Orange is, with MTN, the only pan-African telco, really pan-African. And in my view this is a value creation in the long term for our Group and our shareholders.

Regarding your second question, we have, I think, a very clear view on this media telco issue. We don't believe in a direct investment in media industry or content industry insofar as TV or pay TV is concerned, because it is a different business. It requires different skills. And no-one has never really proven that there is a significant synergy in terms of revenue creation and value creation between the access business and the content business itself. This is the first point.

Second, of course what we have to do is to secure our access to the main content for our customers, because clearly it is a key element in our marketing approach and for our customers to access to the main or the most attractive content. So what we will do is to manage very carefully our access to those contents, either by being part of some projects if we see any interest, for instance in SVOD project in France, or by being very active in front of antitrust authorities when we see that there is a problem, which is today, for instance, the case in Spain.

And to be honest, I think that what we see in Spain would certainly be totally impossible in France, because we don't have obviously the same regulatory, well, frame or people. And just remember what happened when Orange decided to invest in football rights a few years ago, based on a form of exclusivity. We had to change dramatically this view. And so what is -- what seems to be possible in Spain would not be possible in France, which might be a good news for France and maybe a bad news for Spain. But we will fight, and we are not alone, by the way, in this country.

So as a result of this, I personally do not believe in a strategy based on heavy investment in content rights or TV -- or pay TV activities. I just remind you that OCS, which is our pay TV channel, is more or less in a breakeven situation this year, and the total budget of OCS is EUR90m a year. This has to be compared with [EUR40m] of revenues. So it's a marginal aspect and we have no plan to increase our investment in the content side, even though we will be very careful, once again, in securing our access to the main content.

That's very clear. Thank you.

Nawar Cristini, Nomura.

Good morning. I have two questions, please. So, firstly on French M&A, last month the French market has seen another failed consolidation attempt. So it would be useful to -- if you could share your thoughts on this with us, as well as your views on the prospect of consolidation in France going forward.

My second question is on the business-to-business market. The regulators seem to scrutinize closely Orange's dominance in this market in France. Could you please talk a bit about this and perhaps flag any regulatory actions that you might expect in this space? Thank you very much.

All right. So regarding French consolidation, we think that Orange is, among the four players, the one that really doesn't need any kind of consolidation. We are number one in the market, both fixed and mobile. We have the best network. We have the best distribution channel. We are gaining steadily customers, both in FTTH, in fiber and in mobile. So Orange in France has no specific problem to fix in any kind of dimension and we are happy with the current situation.

When you are looking to the other players, it might be a little different in terms of their situation. I will not develop very much because I don't want to speak on behalf of the others. But clearly, if you look at commercial figures for one, at financial figures for the second and add, let's say, network aspect for the third, no-one can really see in this situation a stable and sustainable situation.

So in my view, we won't see anything happening before the 700 auction, but in my view it's still possible to see a new round of discussions after the auction, so beginning of 2016.

Now, regarding the question on B2B, I'll ask Thierry Bonhomme, the Head of OBS, to provide you the answer.

On the B2B market, it's true to say that we have very strong market share and that's very, very much linked to the strength of our sales organization, with probably the best sales power in the country, both on fixed and mobile market.

Nevertheless, the antitrust authority has been conducting an investigation on our position, mainly about tariffs, customer loyalty and the discounts. They have issued complaints and some injunctions, which will be reviewed by the members of the authority by the end of this year, 2015. Without waiting for any official position, we are still examining the -- both complaints and injunctions, we've decided to implement the solutions or remedies for answering those injunctions.

Very helpful. Thank you very much.

So thank you, everyone. This is the end of our Q&A session. Have a nice day. Thank you.

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