Orange SA (ORAN) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Orange's third-quarter 2015 results conference call. For your information, this conference is being recorded. This call will be hosted by Ramon Fernandez, Deputy CEO and Chief Financial and Strategy, with members of Orange's executive committee for the question-and-answer session that will start after the presentation. Thank you, and let me hand over to Ramon Fernandez.

Thank you very much. Good morning and thanks for joining our Q3 results conference call. So I will present the main highlights and then, with my colleagues from the executive committee, we will go through the Q&A session.

Please note that these results include three months of Jazztel and Meditel. And let's go straight to slide number 4 which presents the main results of the quarter.

So, as you can see, in Q3 revenues and EBITDA have increased by plus 0.5% and plus 1.1% respectively. This is the first time revenues and EBITDA have grown since 2009, so it's clearly good news.

We achieved a turnover of EUR10.3b, the increase in revenues coming from the recovery of mobile services in all our geographies.

Our EBITDA reached EUR3.6b. And our EBITDA margin, which stood at 34.6%, also grew by 0.2 points.

With EUR1.6b in Q3, our investments represent 15.2% of revenues. They have grown by 7.6% compared to last year, reflecting the acceleration of our investments in very high broadband networks, and you know that this is at the core of our strategy.

Our customer base has risen to 263.3m customers. This is an increase of 11.6m in one year and reflects the good commercial performance in all our geographies.

Turning to slide number 5, the commercial performance of the third quarter was, once again, very good, in line with the results of the previous quarters, a consequence of our targeted investments in very high broadband. The Group's 4G customer base stood at 15m, continuing its growth in all our European countries, with a very good momentum in France and Spain.

The FTTH activity was also very strong, particularly in France, where we have once again a new record in the net sales despite a very promotional market. This excellent performance underpins the broadband conquest share estimated above 50% in the third quarter. In France we have 827,000 FTTH customers at the end of September, consistent with our goal of reaching 1m customers by the end of the year. In Spain, FTTH base has grown strongly, driven by the acceleration of cross-provisioning on Jazztel footprint.

In Africa and the Middle East, the mobile base reached close to 111m customers and Orange Money gathered over 15.5m customers.

Lastly, you can see that on the enterprise segment we continued our development in the areas of cloud and cyber security, which are benefiting from the performance of our networks and our operator expertise.

Turning now to slide number 6, you can see that the third quarter amplified the improving trend in revenues observed in preceding quarters, with positive growth of 0.5% compared to minus 0.2% in Q2. Excluding regulation, this is the second quarter in a row of positive revenue growth. And the improving performance was supported by continuously improving trends in France, Europe, enterprise, with Africa and the Middle East showing a very strong performance in Q3 at plus 6.8%.

If you look at it from the standpoint of product categories, the two main drivers of this improvement in Group revenue trend was the continuously improving trend in mobile services, which turned positive this quarter, plus 1.2%. It was minus 1.6% in Q2, minus 2.8% in Q1. And also ongoing growth of fixed broadband services, mostly in France and Spain.

This growth in revenues contributed to EBITDA growth as illustrated in the next slide. In Q3, EBITDA increased for the first time since 2009 and reached EUR3.6b. This very good performance is a result of revenue growth and also continuing efforts on our cost base.

The graphic at the top right provides more details on the EBITDA evolution compared to the third quarter of 2014. First, revenues increased by EUR54m. Second, we maintained our efforts on costs while sustaining the positive dynamic of our activity. Our direct costs were stabilized and we continued our efforts on indirect costs, especially driven by Group average full-time employees down again 4% year on year. And in France, indirect costs continued to decrease at the same pace as in the first half. Excluding Africa and Middle East, direct costs and indirect costs decreased respectively by EUR18m and EUR40m.

The cost base of the Africa and Middle East area increased in line with the growth of the activity. Direct costs increased by EUR17m, with higher interconnection costs. And indirect costs increased by EUR55m, mainly due to higher ITN costs, partly driven by sites volume, with close to more than 1,800 new sites, and also linked to higher operating tax linked to revenue growth, and also the institution of new taxes in several countries.

Overall these results, very robust, allow us to fully confirm our guidance of EBITDA, which is now restated to take into account the integration of Jazztel and Meditel. And I will comment that point later in the presentation.

Now turning to slide 8, looking at investment. In line with the trend of the first half and, of course, fully in line with our plan, Essentials2020, we continued to increase our investments in Q3. And for the first nine months of the year our investments reached EUR4.2b, which is a CapEx-to-sales ratio of 14.2%. We increased our investments by 6.9%, which represents an increase of EUR273m. And this investment effort came mainly from France and the acceleration of our investment in fiber.

We now have 4.6m connectable homes in France. This is up by 1m since the beginning of the year. In Spain, thanks to the acquisition of Jazztel, we now have 5.2m connectable homes with fiber and our target is to reach 10m households by the end of 2016. In Poland, 4.6m households are eligible for VDSL, which is an increase of 800,000 in one year. And we have multiplied by four the number of households connectable to fiber since the beginning of the year.

In mobile, Orange confirmed for the fifth year in a row its leadership in terms of quality of voice and data services according to the analysis of our regulator, ARCEP, in 2015. We also continued to be the leader in France in 4G with over 77% coverage of the population. This is plus 6 points in one year. Also in Spain with 82%, plus 16 points in one year. And we are continuing our deployment in Poland, in Belgium, in Romania, Slovakia, where we are achieving progress in terms of coverage of the population at a rapid pace.

In Africa and the Middle East, all our countries are now covered with 3G. And we have 4G in four countries, with the number of mobile sites increasing by 8% in one year.

Lastly we are, as you know, modernizing our shops as announced in our plan Essentials2020 in several European countries. We have deployed this new smart stores concept in Poland, Romania, Moldova, Spain and of course France, where we opened in September our first smart store in Paris on the Champs-Elysees. And Romania also opened its second smart store in Bucharest.

I will now turn to the business review, looking into more details at our various segments. And, as usual, beginning with France on slide number 10, where you have a clear picture of the third quarter, confirming the improvement of revenues trend, thanks to the recovering of mobile services and also still a strong momentum in fixed broadband.

Mobile revenues including services and equipment increased by 0.7%, supported by an increase of our contract customer base and also a significant ARPU evolution improvement. You can see here on this chart that in the third quarter, and this is the first time since 2009, the 12-month rolling ARPU increased compared to the previous quarter.

Looking at fixed services, revenues contracted by 1.9% in Q3. Fixed wholesale activities slightly decreased. This is mainly due to a comparable base effect as we recorded an intense unbundling activity and the speed-up of fiber rollout activities in Q3 2014.

Second, performance in broadband services continued its momentum with an increase of revenues by 2.3% in Q3, after 1.9% in H1. This is thanks to the growth of our customer base, driven by fiber success and also a stable ARPU compared to the previous quarter. So ARPU is doing better both on mobile and broadband.

And lastly, the trend of fixed narrowband revenues decrease slowed down thanks to the price increase implemented in March 2015.

As regards commercial performance, let's have first a look at mobile on page 11, where you have a third quarter posting the strongest level of contract net-adds of the year, even higher compared to Q3 2014. This very good performance is certainly the result of a good level of gross sales, but also and especially of the increasing loyalty of our customers, as evidenced by the increasingly low level of contract churn rate. We are now at 13.5% in Q3. This is almost 2 points lower than a year ago.

SIM-only offers continued to be predominant in our gross sales. They account now for 48% of our customer base. And these SIM-only packages are offered over the whole range prices of our catalogue and allow us to recruit also high-end customers.

Our mix is improving. We have 61% of consumer voice contracts on premium offers, Origami and Open, and the Sosh customers represent now only 40% of the total SIM-only customer base. This is 11 points less in one year. So SIM-only is not a synonym of low-cost, on the contrary.

Turning to fixed, page 12, we have again a record quarter in terms of net adds, fully supported by our fiber strategy, with 108,000 fiber net adds, of which a significant 61% rate of new Orange customers.

FTTH penetration increased by 3 points in a year, at 18%, with a strong take-up of our customers. For example, I can underline the fact that four out of five of eligible Orange customers already migrated to fiber.

All in all, the broadband customer base increased by 3.5%, with a record estimated conquest share of 50%. Convergence continues to drive our sales as nearly half of our broadband customer base was on a quad-play offer, leading to a decrease in the churn rate despite a strong price pressure on the market.

Now looking at Spain, which is clearly the second country in the Group, you see in these numbers the impact of the consolidation of Jazztel since July 1. In Q3, revenues trend recovery was confirmed thanks to, first, mobile services improvement at minus 2.7% after minus 6.6% in Q2, driven by an improving ARPU trend; and second, while fixed broadband revenues maintained a positive growth at 6.6% in Q3, driven by fiber, with 142,000 net-adds in Q3 leveraging cross-provisioning on Jazztel footprint. So mobile and fixed are contributing to this good result. And in Q3 we had a solid commercial performance, still driven by 4G, FTTH and access to contents.

The new combined entity, Orange Spain Jazztel, took the leadership in terms of mobile portability balance and reinforced its 4G leadership thanks to a successful 4G plan for Jazztel customers. Our 4G base kept growing with plus 1m new customers in Q3.

Our fixed broadband base grew by 8.8% and is now at 3.7m customers, of which 563,000 FTTH customers. More than 81% of the broadband base is on convergent offers, and churn here also significantly decreased.

Looking at content, Orange TV has grown significantly and is becoming a critical element in our strategy in Spain, with a new football offer boosting growth. Indeed, in Spain, telco operators have become the only option for customers to have access to football. And in that context it was key for us to secure an access to football rights, which we did successfully. We have now an access to La Liga and La Copa del Rey through Telefonica wholesale offers. And we also got an access to the Champions League, for which Telefonica does not in fact have any rights for the moment.

Turning to page 14, still on Spain. Good to recall that in August we finalized the acquisition of Jazztel. And following the squeeze-out, we own 100% of the company. The integration process started during the summer and we can tell you that it's very well advanced. Orange and Jazztel integration is ahead of schedule, with the new organization already in place, synergies on track and expected run rate of synergies now higher than previously anticipated.

The acquisition of Jazztel allows us to extend and accelerate the connections to fiber. At the end of September, 5.2m households were connectable with fiber and the target is to reach 10m in 2016. In August we launched the fiber migration of Orange Spain customers to Jazztel network and also Jazztel migration to the 4G network.

Commercial coordination is driving a strong reduction of internal churn. And as a result, we anticipate a higher run rate of synergies. This is now more than EUR200m compared to the EUR160m initially planned. And this mainly comes from cross-provision of FTTH synergies above the previous plan, which is generating higher savings in access costs. And this will generate additional NPV. We will go from the initially expected EUR1.3b to EUR1.8b.

In Poland, page 15, commercial trends improved in mobile while there were better gross additions in fixed very high broadband. Mobile service revenues eroded by 2.7%. Excluding regulation this is an improvement over the minus 3.9% of Q2.

Competition from cable kept a strong pressure on fixed revenues, which are down by 7.6% in Q3. But our convergence strategy is moving forward with 31% of our broadband base now on convergent offers.

And last but not least, you know that we had in Poland recent 4G auctions. We now have two blocks of 5 megahertz in the 800 megahertz band, three blocks of 5 megahertz in the 2.6 gigahertz band. And this very favorable outcome of the auction for us gives us a share of 22% of the 4G available spectrum in Poland. And this is a key to consolidate our long-term position in the market.

Turning to Belgium and Luxembourg. For the first quarter since Q4 2012, consolidated revenues went back to growth in Q3 with plus 0.6%. This is to be compared to the minus 2.5% we had in the last quarter. This is partly explained by our contract net adds performance, which is sustained in B2C, also improving sequentially in B2B. And so altogether Belgium successfully posted plus 8,000 contract net adds after plus 1,000 in Q3.

Another key factor for this improvement is the fact that the annual contract ARPU kept on improving in absolute terms and sequentially, up plus 3.6%. And last but not least, annual contract churn kept on improving versus the previous quarter.

So with this commercial momentum restored, we are preparing to take advantage of the upcoming cable growth opportunity. And notwithstanding clear improvement, we still believe that the current draft decision on cable wholesale tariffs should be further improved to assure a sustainable profitable framework for alternative operators in the context of the acquisition of BASE by Telenet, which is, as you know, now in phase two revenue by the EC.

Looking at Central European countries, you are aware that we have sold our share of 100% in Orange Armenia to Ucom, an Armenia Internet service provider. This deal was closed in early September. And so this segment consists of Romania, Slovakia and Moldova, with a revenue growth confirmed this quarter and further improving at plus 3.2%. This is again driven by Romania, which is 57% of this segment and which is growing by 7%. Churn also is improving in all three countries. This is a general pattern in all our geographies, which is obviously very encouraging.

Africa, Page 18. You can see here that our operations have seen a high level of growth, close to 7% in Q3. And this solid performance is driven by a number of countries, among which are Ivory Coast, Egypt, Mali, DRC and a few others.

We also started to consolidate Meditel in Morocco on July 1, which represents an additional EUR132m of revenues in Q3.

And our mobile customer base went up by 0.7m customers in Q3. We now have 111m customers in this region, which is quite impressive, I think.

And lastly, as announced during the summer, the due diligence process for the acquisition of four assets of Bharti is ongoing, so we will have a chance to discuss this further later this year.

Turning to the enterprise segment and before concluding on our guidance, you see here that we also have a positive figure for the Q3. Revenues are increasing by 0.5%. This is thanks to a strong growth of IT services, with good deal deliveries in the quarter. Data services continued their improvement trend. And in a market evolving towards more services, cloud and security continued to be a driver for our Orange Business Services operations, with very strong revenue increase of 19% on cloud and 40% on security.

I will go now to page 21, our guidance for 2015. You will not be surprised that with these solid results we aim to reach a restated EBITDA of at least EUR12.3b in 2015. This takes into account the integration of Jazztel and Meditel. And it also means that we will be in the higher end of the previous EUR11.9b to EUR12.1b range for the old perimeter. We also maintain our objective to keep our net-debt-to-EBITDA ratio around 2 in the medium term.

Regarding the dividend for 2015, we confirm our proposal to maintain its level of EUR0.60 and pay an interim dividend of EUR0.20 on December 9.

Regarding our portfolio management policy, the projects previously announced reflect our pragmatism for the sake of maximizing shareholder value.

Well I think I will stop here. I thank you for your attention. And we are now all ready to answer your questions.

(Operator Instructions). Jakob Bluestone, Credit Suisse.

Hi. Good morning. I was hoping you could perhaps make a comment just on how you've seen the competitive environment evolve during the quarter in both French fixed and French mobile. There was obviously quite a bit of promotional activity in both during the quarter. But obviously you've posted a pretty resilient performance. So just any color you can share on how you've seen the competition evolve. Thank you.

Yes. I will turn to Fabienne Dulac who's heading our French activities in a second. But I just want to highlight that despite this highly competitive environment, you can see that the performance is very good. So we have seen some aggressivity on prices, on fixed, on mobile. And despite this we are doing very well. We have record sales in mobile and fiber and we did not follow this kind of a rush to the bottom of some of our peers.

So it's a very competitive environment. But the fact that we have the best network is clearly -- and this is the basic of our strategy, to invest and build on the quality of the network, this is convincing our clients because they are coming to us even if, on some aspects, they have to pay from time to time a bit more than with others.

So I will now give the floor to Fabienne.

Good morning. So September especially was a very strong and competitive market. We have a lot of promotion, especially on the mobile and the broadband ADSL. We have a lot of promotion, very, very strong and aggressive that we have never seen before. But we are confident in our strategy. We decided to maintain 10 to 15 premium on price compared to our peers and not [abuse] to a discount period, and it was a good result for us. So we decided to maintain, to remain this position and stay cautious. We have net sales good and we intend to increase our share of market in the next months.

Thank you.

Nicolas Cote-Colisson, HSBC.

Hi. Thank you. I've got three short questions. Just one follow-up on the previous question. So are you saying that your strong commercial performance is not associated with the higher direct costs in France; it's mostly driven by best network?

My second question is on Spain. I was wondering if you could share some indication on the timing and the outcome, potential outcome for the regulatory review on the wholesale fiber prices.

And the last one is on Africa. If we can have an update on the holding structure plan after you've changed the management team for the region. Thank you.

In terms of for the first question, direct costs in France are flat and even going slightly downwards. We can give you some precise figures, but we are more on the downward side. And so maybe we can give more details if you wish on this point.

On Spain, I will turn to Gervais. Maybe one word on Africa. The holding structure has been put in place. We now have all our assets under the holding company. You have seen that the management of our operations will evolve next spring and then we will see what are the opportunities which could trigger potential evolutions.

But for the time being, we are very much concentrating in managing our operations, which are doing very well, once again a 7% increase in revenues in Africa/Middle East this quarter. We don't give EBITDA margins on the quarterly results, but you know that, and this is not changing, the average profitability of our African operations is higher than the average of the Group, roughly a bit more or around, let's say, 3 points above the average of the Group. So this is, for us, very important. We now have around 12% of Group revenues in Africa and the Middle East.

Turning to Spain, Gervais?

So the proposal has been made already for a few months by the telecom regulator. We expect a decision, I would say, early 2016. And we don't think that the elections might change that because the proposal of today is already done in political circumstances where there is good support for Telefonica, so I'm not sure that the result after the election will give exactly the same political landscape. So we should have a decision for early 2016.

However, a point important is that in our plans we are putting ourselves in the situation where we will depend even less on Telefonica wholesale capacity than what we had initially thought. We will build more lines than what we initially thought a year ago. So the dependency on Telefonica will be low.

Okay. Thank you.

San Dhillon, Royal Bank of Canada.

Hi, guys. A couple of questions, if I may. Just firstly on your French fiber net adds, how many of those net adds are coming from the Livebox Zen offer of EUR20 for 12 months, and how much of is on an Open quad-play type of tariff?

And second, given the success you're having in fiber, is there any temptation to accelerate investment as part of your Essentials2020? I think you guide to around 16% CapEx to sales or 16% or 17%. Would you be tempted to increase that?

Hello. The most part of net adds come from Open.

Okay. And is it the Open Mini or the Zen? It would be interesting to know.

Open largely, global.

Hello. So as has been said, the most part are coming from Open. You know perfectly that it's one of the good success offers we had just during the past quarters. And we will continue to reinforce this position with a high intensity on CapEx, but also segmented and a localized segmented approach. You know perfectly that our target is to reach 100% of the cable area. We are now at 43% and we will continue to do that during the coming quarters.

Okay. Thank you very much.

And in terms of investments, as you have seen in the figures, we are having a clear increase in the CapEx effort at Group level in our various geographies, especially in France due to fiber. Honestly it's complicated to do more. You need to have the people to roll out the fiber, and it's already going at a very rapid pace. You have seen the figures.

It's -- we still have the objective of having 1m customers at the end of the year. So this is tough work. And it's very encouraging to see that the rate of connectable to connected homes is increasing on a regular basis. We now have reached 18%. It was 16.7% at the end of the second quarter. We aim to reach 25% of conversion rate in 2018 and we are fully on track.

So the fiber plan in France is really working very well. It's providing revenues. You know that we have an increased ARPU on fiber of EUR5 in average, with the aim of going to EUR7 in 2018. This is something you have already heard, but it's good to just recall the fact that we are very well on track and the plan is working perfectly well. So we are very happy with what's going on in fiber in France.

Also in Spain, where Jazztel is really a great operation. I think we have done -- and I'm a bit repeating myself, but from time to time repetition is good, the integration is working very well. And it is not so often that you are in a position to revise upwards the synergies that you have presented to the markets. And this is what we are doing in Spain because the team is working very successfully. So fiber is a winning game.

Thanks once again.

Stephane Beyazian, Raymond James.

Yes. Thank you. Three questions, if I may. The first one is I'd like to come back to the low point for EBITDA in 2015, how firm you stay on that since you may earn more from the roaming deal this year than you initially expected. But isn't there a risk of a larger, let's say, accumulated loss next year, so potentially putting more pressure for a low point in 2016 rather than in 2015? And I'm having in mind that the regulatory pressure I think is mounting to gradually stop the deal.

My second question is have you started to see some revenues pulled away SFR-Numericable, or actually do you believe you're net positive versus the company? Meaning that we've seen a couple of local authorities, like Lille Metropole, for instance, or corporate, quite irritated by Numericable's strategy. So do you actually believe that you may be winning some non-residential customers back to you?

And my third question, I just would like to come back on where the discussions stand with the EU regarding the single telecoms market, its implication and what are the possible next steps going forward. Thank you.

Thank you. So I will turn to Pierre Louette for most of the questions, but I will take the first one. Are we confident that we will reach the low point in EBITDA in 2015? The answer is yes. The answer is clearly yes. This is what we said in March that we had the ambition to reach the low point in 2015. And I'm absolutely confident that this will be the case. We have a very good dynamic which is seen in the figures you have seen in the first three quarters of the year. And we are going to build on this positive momentum. So it's a clear yes.

Now I'm turning to Pierre.

Okay. So for -- your second point was addressing the situation in Lille, for instance. But above all we have a different landscape now because, as you know, SFR-Numericable is taking new decisions today which are very different from the previous SFR. So first of all, they're not going to rollout FTTH in the areas where they already have cable. And that's one important decision they apparently have made, which means that they're going to free, in a way, or liberate the commitments that the previous SFR had taken for 900,000 homes in less dense areas. And, of course, we might consider taking over those projects and doing what they're not going to do.

But also in other areas of the country, they're just not apparently completely following the indicated plans, which means also that they're disappointing some of the local communities. And we have completely followed our commitment. So we're rolling FTTH where it was meant to be rolled out. And the local communities can really make the difference between the ones who have taken a commitment and respect it and the ones who are not respecting their commitments.

So it's a different attitude today. And I think everybody makes the clear difference between the real fiber and cable and between the ones rolling out and the ones making promises but not keeping them. So that's one point for, I think, Numericable.

So regarding the European community and the new project of single -- digital single market, the DSM, there are two things which are clear. They're not going to address again what was covered previously by the TSM, which is the net neutrality regulation. What has been reached as a sort of common ground, common understanding between the parliament and the commission is fairly okay for us. We can live with it so it's not the worst-case scenario and that's good news for us. But we're not saying it too loud because if we say too loud that we're happy, it could be considered as bad news for others. So we're saying it's okay. So that's one thing.

And regarding the investment programs, you know that European Commission, Herr Juncker has made clear that they would have monies available for people to invest. Until now we haven't made a lot of use of those funds because actually we could find money internally or on the markets at even better prices. But I think it goes in a good direction too. So overall the commitment to creating an environment that is favorable to investment is there and I think we have a better, slightly better approach than the previous Commission had.

Okay. Thank you.

Andrew Lee, Goldman Sachs.

Yes. Good morning, everyone. Just on France firstly, I guess a question that tallies with a lot of other questions earlier. You've shown improving trends since raising your quad-play price in July. The market appears more rational broadly. Prices are amongst the lower in Europe. You're improving your premium position. And you appear to have weathered the back-to-school promotional period reasonably well, as has been pointed out. So could you just comment on whether you see the market continuing the recent inflationary trend? And could you give an update on your ability to increase your premium price position? I think you mentioned the 10 to 15 premium. Could that rise over time? And what's the key risk to this improved environment?

And then secondly, just on cost cutting. Your underlying indirect cost reduction of EUR40m was a little lower than previous quarters. Are you still confident on your big cost cutting target set at the CMD? And could you give some color about the underlying efficiency opportunities you still face? Thank you.

I will come back to the costs issue. Maybe, Fabienne, on the French market?

Yes. Our excellent net result sales and the ongoing improvement of our customer mix has to be fairly optimistic about our ability to reach a stable total revenue in absolute in Q4 year to year, if we are in the same market and if we are in the same price condition.

For the direct cost, I just want to precise, the direct costs are still decreasing. The result of the market segmentation strategy we decide, and I think it's a good one. And it's the stop of subsidies on low [hang] market we decide to, and I think it's a good decision, a good statement too.

Ramon, you want to pursue?

Yes. Thank you. Thank you, Fabienne. In terms of costs, we are absolutely committed to continue the efforts we have engaged in. You know that we have announced and we are engaged into a second Chrysalid program, which is our operational efficiency cost program. Maybe Pierre will also want to add something on this.

But if you look at the quarter, you have to look at what is behind the evolution of direct or indirect costs. In fact, most of the costs that you are looking at when they increase are going with increased revenues, especially in Africa, where there is this -- in fact, if you look outside of Africa, direct costs and indirect costs decrease, go down. Why do we have a slight increase in indirect costs in the third quarter? It's a EUR15m increase. Because we have in Africa an increase of EUR55m, which is once again essentially due to network costs.

But this goes with more sites. We have more traffic, we have 1,800 new sites. We also have some higher operating taxes. But this goes with revenues. The 7% increase we see in revenues in Africa are also generating part of these costs. So we have to look at it in this environment.

Looking at France, you had -- one of you had this question on France also. If you look at France, we are continuing the same trend of indirect cost decrease. And we -- in fact in the third quarter in France, for instance, we have the same figure as in the first quarter of the year. It's slightly over EUR40m of indirect cost decrease. This is driven by labor costs, but also general expenses. And so there is -- once again, we are working on this. Revenues are much better, but it does not mean that we are going to be less focused on cost efficiency.

Now regarding the Chrysalid approach, we have, as you know, produced a first plan in which we went well beyond the expected targets in terms of cost avoidance and cost-cutting, if you want. We had originally targeted EUR2.5b and we reached EUR3.5b. So this was well beyond the expected target.

And now we have launched another plan. We are building up the inventory actually, so a lot of initiatives are coming from all the parts of the Group, from the countries, from the divisions. And so we're building up this inventory. We have no doubt that we can produce the same kind of performance.

And I just would like to stress two points that I think Ramon has touched also. There is sometimes good news in not cutting your indirect cost too quickly because it means that you're growing fast, and that's exactly what's happening in Africa. So we have growth. We have new networks produced. We have energy spending, okay, because we have growth and we have more networks than in the past, so that's not so bad. But we're working on it obviously.

And the second really, really good news is that France has had a very strong performance in terms of cost avoidance cost cutting, with no social reluctance, if I may put it that way. And we can completely count on France to continuously produce an incredible performance in terms of transforming the way it operates and the way it spends and doesn't spend.

Thank you. Can I just follow up just on the pricing comments at the start of your answers? You raised prices once on a single core-play product. Is there an opportunity to do that or do you see -- or do you expect to raise prices over the coming 12 months in any of your products? Thank you.

Okay. The market is more intense, more turbulent and we have more competitive promotion from our competitors. We decide to pursue our strategy, the market segmented strategy and hold the statement we have. I think and I am confident in the decisions we took and we are confident in the future.

Thank you.

Wassil El Hebil, Berenberg.

Hi. Good morning. Wassil El Hebil from Berenberg. Thanks for taking my questions. I have two about your guidance. So the first one, the new guidance of at least EUR12.3b EBITDA restated seems a little bit too conservative, in my view, given that it implies an EBITDA decline of roughly minus 2.7% in Q4, while you started growing your business in Q3 and stabilization in Q2. So can you explain this very conservative scenario and what's your base case to deliver an EBITDA of [12.7]?

The second question is just regarding the bottom-out in 2015 regarding EBITDA. So in Bloomberg there are some headlines saying that EBITDA will improve in 2016. I just want to make it clear if it's related to reported EBITDA or is it comparable basis EBITDA, including the Jazztel and Meditel [consolidation]?

And then the third and last question is regarding France and the mobile ARPU. Is it fair to say that the ARPU network services, excluding Iliad roaming revenues, M2M and MVNO, is growing in Q3? And if so, has this increase has been driven by a positive impact in your mobile back book due to 4G? And are you seeing an upgrade -- and improvement in the customer mix? And actually if you can give a statistic about this number and just say how many customers take offers with over 3 gigabytes today compared one year ago. Thank you.

Okay. So on the guidance, I'm going to repeat what I have said and then you will make your own calculations. In fact, I'm not sure it's so conservative. The guidance for 2015 in the new perimeter is at least, I'm trying to put the tone, you see, at least EUR12.3b, right? And this is consistent with being in the higher end of the previous range. Now I don't want at this stage to be more precise than this. I think with this you can look ahead with confidence, as we do.

What about 2016? Well, in 2016 we will have a performance regarding EBITDA which will be higher than in 2015, because, as I said, we are absolutely confident that the low point in EBITDA will be reached in 2015. And this of course is related on a comparable basis. So what I'm saying about the at least EUR12.3b will be the reference for doing better in 2016. I hope this is clear enough.

Looking at the mobile ARPU in France, I will turn the floor to Fabienne. But once again, you have seen the chart, you have seen that it is the first time since 2009 that we have 12 months' rolling ARPU on mobile which is increasing compared to the previous quarter, which is an encouraging signal of how the market is performing.

So there is two points. For the first, the premium offers increased to 61.5% compared to 60% in Q2. It's linked to our segmented offers and our segmented marketing strategy. We want to pursue this policy in the cautious approach on our subsidies. It's very important for us and for the EBITDA.

For the point about the mobile ARPU, I would like to note the annual rolling blended ARPU amounts to EUR22.6. The annual rolling blended ARPU decrease is still slowing down. It's very important for us. For the forecast, the 2015 annual rolling mobile ARPU decrease will be strongly reduced compared to last year.

Dimitri Kallianiotis, Redburn.

Good morning. It's Dimitri Kallianiotis from Redburn. Just three quick questions, please. Just regarding your commercial performance in Q3, that was very strong. I understand that for fiber, because you're pretty much the only one investing, but DSL net adds also a positive, but you haven't done a lot of promotion or it doesn't seem you've done a lot of promotion. So why was the DSL performance also quite strong in Q3, please?

My second question is regarding wholesale revenues in France. They were slightly down in Q3. The comps are quite tough compared to last year. But I was more thinking about the coming years. Should we expect wholesale revenues to grow in France thanks to fiber? Or will they come down because of lower unbundling revenues?

And my last question is regarding Bharti, which you've mentioned. You're clearly -- you're obviously in talks. I was just wondering, is it taking longer than expected? Or I thought you would probably have already a decision now, or is it just the normal time it takes to negotiate those things? Thank you.

Okay. I will start with the last question and Pierre will take the wholesale question and Fabienne the fiber question.

So on Bharti, no. Things are going quite normally. We have engaged into these discussions during the summer. You know that August is generally not a time when you can accelerate work, especially if you have to go on the field, discuss with the people, have the good counterparts, etc. So things are going -- we are perfectly on track with what we had expected. And we hope to be in a position to decide what will be finally done by end November/early December. But things are on track as far as the timing we had in mind is concerned.

Pierre, on wholesale?

Regarding wholesale, you have different parameters that you need to take in consideration. Looking at next year, we can reasonably expect the couple loop price not to go down and even to go slightly up. This is our expectation for next year. So that's the first paradigm, which is not bad for us.

The second thing is France is still a country in which people unbundle, so there is more good news to come from unbundling revenues. So that still will happen and has happened this year, will happen again next year.

The third thing is we're finding new revenues on the B2B market, new clients, new products also. So that's on the positive side.

Then on another side, if you want to compare with last year actually, we've had fewer in this semester, fewer unbundling -- not unbundling but co-funding, I'm sorry, from certain customers. So actually this could, if it continues to slow down a little bit, the revenue from the wholesale side, but it would also mean that we will have more revenues on the retail side, because if they co-fund less, they have less rights, they commercialize less, so we make more revenues on the retail side. So that's not typically such a bad news.

And then the last point is the roaming agreement. And this year we're not witnessing the decrease that we had expected actually to see. So we're pushing this potential decrease forward. And actually I think 3 is also pushing forward the moment when they will spend less with us.

For the question about the fiber, the market is turbulent and competitive. It's right. In this context we use both fiber and ADSL in function the local context and the local competitive in our territory. We adapt our commercial strategy. But I want to say fiber is still priority. And I just want to note that almost 61% of fiber net sales came from new customers in third quarter. So it's very important to find this point in here.

Simon Weeden, Citigroup.

Thank you very much. One of my questions you've touched on, and that's regarding Spain. And I see you've got strong net adds on fiber to the home at 142,000. I just wondered if you could elaborate a little bit on how we should interpret that number, in particular what sort of migration you're seeing from Orange DSL over to fiber and from -- and the Telefonica wholesale FTTH over to the Jazztel network, whether or not that is netted off in your FTTH customer count or not.

And the second question was regarding the cable wholesale opportunity in Belgium and whether or not you see this regulatory intervention on cable as being something that could extend to other markets and potentially, at some point in the future, all the way across the European Union? Thank you.

Thank you. Maybe Jean-Marc Vignolles, who's heading our Spanish operations, is online and will take your question on Spain and Gervais will come back on Belgium.

Yes. Good morning. So regarding our fiber performance, clearly there is an impact, as has been commented, of our ability to provision our Orange customers on the Jazztel footprint. I mean that as of August we've been able to -- we've had excess to 5m connected households instead of 1m previously. So definitely part of the performance is explained by the migration of our ADSL or FTTH wholesale customers to our own network, be it Orange and Jazztel. But -- and I would underline we've also, I think, a strong performance in terms of fiber sales, meaning acquisition of new customers, and this both under the Orange and Jazztel brands.

Regarding Belgium -- so Gervais Pellissier speaking. Regarding Belgium, first, the Belgian situation is quite specific compared to some other European countries. I just remind you that this is one of the European countries where cable penetration is very high, and even for sure far above very high broadband penetration deployed by the incumbent. This is a specific situation.

However, we think that the decision already made by the Belgian regulators, even if they are not fully finalized, are interesting -- might be interesting for some other countries, but also might be interesting, in my view, in the balance on the European continent between the cablecos and traditional telcos. Traditional telcos, especially those having a fixed infrastructure have been highly regulated for the last two decades, whereas cablecos were without regulation. So we think that it is a first sign of change in my view. How -- with what extent, we don't know yet. But for me this is a sign of change in terms of relationship and balance of power, including maybe in the future valuations.

Understood. Thank you very much

Jerry Dellis, Jefferies.

Yes. Good morning. Thank you for taking my questions. Firstly a question on France. You mentioned that in the quarter you saw lower wholesale revenue from fiber co-funding. But I wonder generally, as you look forward to the pipeline for co-funding activity over the next couple of quarters, do you see competitor activity there generally increasing or on the wane? I think at the last quarter Iliad talked about now co-funding on an industrial scale. That doesn't appear to be evidenced in the numbers so far at least.

And then on Spain, I'd be interested in what your overall fixed broadband net adds were in the Spanish market for Orange and Jazztel combined, just to understand whether there had been any underlying slowdown in momentum there in the last quarter.

And in addition to that, we obviously observed that you were promoting very heavily bundled products that included football, including the Mediapro content. And I'd be interested in what the take-up of those sorts of football bundles was, please, in the quarter. Thank you.

So on the first question regarding the wholesale revenues and the co-funding, I think we need to make this really clear. There is one player on the market which has made a commitment and which delivers on those commitments. It's Orange. Okay. And delivering has also helped us take in a very nice market share in the FTTH market and it has helped us increasing our revenues and ARPU. It works from our point of view in a good direction for us. That's us.

The other players, yes, I think Iliad is announcing their intention to do more. I don't know. It's probably because they're suffering, they're hurting. Whenever FTTH comes by, their own ADSL sales suffers. So maybe they will do it. I don't know. It's their problem. They need to transform this intention into a real decision.

Meanwhile, on the retail side, we're doing well. On FTTH we're doing well. So it's really something that is up to them. And if we have a little bit less co-funding from them, I think it's vastly compensated on the retail side. So that's exactly our situation.

Jean-Marc, can you take the questions on fixed broadband and bundles?

Yes. Regarding the fixed broadband, we've had a performance in Q3 with 44,000 net adds, which is very comparable to the one in Q2, which is plus 50,000. And this is a reflection on the one hand, of course, of massive migration towards fiber and decrease of ADSL base, but also of the commercial coordination between Orange and Jazztel which we've been able to put in place, and where obviously the net adds of Jazztel and Orange of the past coming from Jazztel and Orange customers have significantly decreased, so a sign obviously of the success of our synergies.

But this being said, and regarding the TV offer, we believe, as you see in the increase of the number of our TV customers who are basically convergent customers, a lot of them being new customers that our option to acquire for the first time and to participate in the acquisition process of the football distribution rights has turned into a commercial success. And we believe that this policy to enlarge and improve the portfolio of our premium content is definitely the right strategy in an environment where it has been mentioned that the telcos are now the only pay TV platforms on the market.

Thank you. The fact that the Mediapro wholesale deal seems to have a very large fixed cost element to it, does that make it natural that you will continue to discount there being a sport product in your channels?

The promotion of there being a sport channel is related to the competitive advantage we have, since Telefonica, who, as you know, is not at the moment -- has not reached an agreement with Mediapro, is not offering to its customers the Champions League, which I believe is clearly a commercial disadvantage.

And regarding the conditions, to be honest, for us the conditions set by Mediapro are fairer than the ones which have been imposed by the CNMC in the allocation of the football rights regarding Liga. And so there is no issue in our case regarding the conditions set by Mediapro.

Thank you very much.

Frederic Boulan, Merrill Lynch.

Hi. Good morning, everyone. Three questions, please. Firstly on your M&A strategy in Africa, if you can [help us to] understand the rationale for increasing your exposure and how you reflect the risk in your cost of capital evaluation assumptions. We've seen a couple of failures, like Kenya and Uganda. We've seen the value on your books of Meditel or Korek down by about 40% in two years. So does it point to tougher-than-expected ability for you to create value in these regions? And how do you reflect that into the [actual] multiples when you look at an asset, like the full Bharti asset, for instance?

Secondly, on the broader picture in terms of balance sheet and written policy, is your view still that you should be in a position to raise the dividend once EBITDA is back to growth?

And thirdly, to follow up on previous discussions on fiber, you have a very strong momentum here commercially. When do you think it's about the right time to reduce the level of promotions in fiber and try to actually price fiber at a premium versus DSL? Thank you very much.

Okay. On your first question and Africa, I think you have to look at it in a broader view, which is basically that our strategy regarding international expansion is to be in Europe and in Africa. In Europe the strategy clearly is to be convergent. And this is what we aim to be in all our geographies. This is crystal clear. If we see we cannot make it in good conditions, well we prefer not to be there. And this is why we have exited Armenia. So this is very clear.

When you turn to Africa, which is today roughly 12% of Group revenues, with around 33% EBITDA margins, we are, first of all, looking at managing our assets before looking at M&A. So the first priority is to have tight management of our operations, being very active, investing on mobile networks, investing in developing on mobile finance. Orange money is having great performances. And you may have seen that we have other projects there, for instance, opening in early 2016 a corridor between France and these countries which will make it much easier, much cheaper to transfer money from France to Africa or from Africa to France. So a lot of things are going on.

When you look at M&A, we are extremely selective looking at M&A operations. We are focusing on the areas where we understand the environment best. And this is why the assets of Bharti that we are looking at are in West Africa. Three out of four are in an area the French know very well, because this is the Zone Franc, in Congo, in Chad, in Burkina. There is no exchange rate risk. The legal framework is well known, etc. And Sierra Leone, in the Anglophone part, is close to Senegal, and we know this country well also.

In these areas we have maximum chances of developing synergies. There can be a scale effect. We are also going to base ourselves on our operations there, not -- it's premature to go into such details, but, for instance, when you look at Sierra Leone, which is close to Senegal, our operations in Senegal, Sonatel, which is performing very well, will be extremely active in managing the operations there. And you can replicate this looking at some of the other countries that I have listed; I'm thinking especially of Burkina Faso, which is very close to Cote d'Ivoire.

So we are also in a position there to build on clusters, to work on network and IT optimization, on a scale effect which will increase our negotiating power vis-a-vis procurement, interconnection rates, etc., etc.

So we are extremely focused on paying the right price. We have intensive discussions in this area. The assets we are looking at have today EBITDA margins around 25%, which is in average 10 times -- 10 points less than our own operations. And our goal is clearly to improve the performance of these assets.

So this will create value for the Group. And we will remain extremely focused and we will not go for assets which would not be worth it, where we think we cannot make the difference or which we think would be too expensive. So this is our plan in terms of going ahead in Africa but only one small part of the story.

About the dividend then, what is the perspective regarding the dividend? Well, once again, I can only repeat what we have said consistently since March, which is that we have a very strong commitment, a very strong commitment, which is to stick to EUR0.60 per share as a minimum. And this is our commitment for the next years.

And as we said, and I can confirm this, we do not exclude to augment the dividend depending on the performance of the Company. And you have seen and you have heard this morning that we are doing well. So we will see what's next. But you can be at least comfortable with the fact that the current policy is going to be sustained. And then if the performance is good enough, we will think about our shareholders, as we do every morning.

There was maybe one last question you had on fiber, turning back to Fabienne.

So as I said, we pursue our marketing and commercial strategy. It has been and it is today a successful strategy. So for the future we will see. For [whole move], it depends on the market conditions and the market context. As I said just before, we are very confident at this moment in our strategy, and I want to recall the ARPU on fiber is currently EUR5 above the ARPU of ADSL. So it's a priority in this way.

Right. Thank you very much.

Giovanni Montalti, UBS.

Hello. Good morning. Thanks for the question. Just following up on Spain. Considering the fact you were saying you want to be as independent as possible from Telefonica, would you consider further M&A in that market? Thanks very much.

No. I think the -- today the Spanish market is quite well structured. And you have seen some of the reactions of the European Commission on other deals in other countries. We think we have achieved a point where we are, at least this is the position of Orange, we have seen the right level of consolidation. There are three big players and still potential smaller players who could organize between themselves. But that's not an objective for us.

Thanks. Sorry, if I may follow up on France. You were referring many times to the turbulence in the broadband market. I understand you are pretty convinced of your strategy and it's working pretty well. I was just wondering if you would consider further acceleration of commercial push on your convergent product on Open if this turbulence on the broadband market especially should continue. Thanks.

As I said, we pursue in the same way, in the same strategy. I've nothing else to say.

Thank you.

Thank you.

Jacques de Greling, Natixis.

Thank you. My question relates to the decision from the Conseil d'Etat to change the rights, the way the roaming contracts are undergone in France. When do you expect any change regarding that? And what kind of change could we expect? I think there is already a working group on that. Could I have some understanding? Thank you.

So regarding this decision, it has different aspects. The first aspect is the fact that the Conseil d'Etat says -- states that the -- ARCEP, the regulator, had the right to really intervene and look into those contracts. That's the first part.

The other -- the consequences of that are twofold. ARCEP is going to explore the two actually, the two roaming agreements that France knows today. One is the very well known and very profitable contract that we have with Iliad. And the other one is the roaming agreement that Bouygues and SFR have given each other in their mutualization agreement. So it's very interesting for us too because this is something highly disputable, and ARCEP will look into that. So this is one consequence.

Regarding our own contract, we have created a year ago an extinction committee that has started working on preparing the extinction of this roaming agreement. And there is -- there are parts of that committee coming from Iliad and others coming from our side. So we're exploring the different ways to finish this contract, which ends on December 20, 2017. Various options have been considered. Some of them rely on geographical extinction, others on a diminution of the intensity of access that we give to our partners. At any rate, 3 will have to produce a stronger, a more complete and a more efficient coverage of the landscape. And they are working on this, I think.

Thank you.

Okay. Well thanks very much for participating to this conference. And we will be happy to talk again in the next weeks. Bye-bye.

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