Orange SA (ORAN) 2016 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to Orange's first quarter 2016 results conference call. This call will be hosted by Ramon Fernandez, Deputy CEO and Chief Financial and Strategy Officer, with members of Orange's executive committee for the Q&A session that will start after the presentation.

Thank you and let me now hand over to Ramon Fernandez. Please go ahead.

Good morning, thanks for joining our Q1 2016 results conference call. I'm going to present the main highlights from our Q1 performance and then, with my colleagues from the executive committee, we will go through the Q&A session.

So let's go to Slide 4 which presents the main results of the quarter. In this first quarter revenues grew for the third quarter in a row exceeding EUR10 billion, up 0.6%.

Restated EBITDA decreased by 1.6% year-on-year at EUR2.6 billion, however if we exclude the effect of the employee share plan which was launched in March, restated EBITDA increased by 0.3%. In addition to that, if we also exclude the effect of accounting timing differences related to the pylon tax and the IFRIC21 implementation in Belgium, group restated EBITDA was up 1.1%.

As regards investments, we continued our efforts in FTTH rollout, particular in France, which resulted in an increase in our CapEx in line with Essentials 2020. We moved forward with the operations announced at the end of 2015 with the closing off of the disposal of EE and of the acquisition of Cellcom Liberia and Tigo in the DRC.

We further reinforced our presence in Africa through the acquisition of a stake in Africa Internet Group, announced at the beginning of the month.

We also completed the acquisition of Lexsi, a European cyber security leader specializing in Threat Intelligence Services, positioning us as a major player in Europe.

And, last but not least, we signed last week an agreement to acquire a 65% stake in Groupama Banque which will become Orange Bank.

Turning to Slide 5, we continued to reap the benefits of our investments in high-quarter networks with solid commercial results driven by very high broadband and convergence. The Group 4G customer base reached 20 million at the end of Q1, a strong growth in all our European countries supported by ever-growing customer data appetite. 10 million 4G customers were added year-on-year.

The fiber base increased by 2.1 million, reaching 2.2 million customers. Spain was the second country after France to reach the 1 million customers milestone.

Our IPTV customer base increased by 10% at 8.2 million, driven by a strong growth in France and in Spain.

We have served a steady growth of the ratio of convergence customers of total fixed broadband customers in our major markets. This ratio increased by 4 points in France and in Spain and by 10 points in Poland, contributing to a decrease in churn on mobile services.

So this was a quarter of solid commercial performance leading to strong financial results.

Page 7. In Q1 Group revenues grew by EUR59 million year-on-year, thanks to an improving trend in France and growth in Spain, Africa & Middle East and in Enterprise. In France the operating trend continued to improve locally in fixed services with revenues down EUR34 million against minus EUR89 million in the first quarter of 2015.

Spain and Enterprise were back to growth with respectively plus 1.8% and plus 2.1%.

Last, Africa & Middle East continue to fuel Group growth with pus 4.4% in the first quarter mainly driven by Ivory Coast and Mali.

Looking at EBITDA, as usual the first quarter was subject to seasonality but the overall trend continued to improve. The better revenue trend contributed positively to the EBITDA for EUR59 million versus minus EUR90 million in Q1 2015, but this positive factor was offset by the cost of EUR50 million linked to the employee share plan. These additional costs were booked in Q1, excluding this affect EBITDA showed another quarter of growth at plus 0.3%.

Another negative factor was the impact of accounting timing differences related to the pylon tax and the implementation of IFRIC21 in Belgium, that's weighted for around EUR19 million in Q1. Excluding these effects and the employee share plan EBITDA was in line with the trends seen in the past two quarters growing by 1.1%.

Other costs increased by EUR32 million which mainly reflected EUR16 million linked to the Euro 2016 football championship, Orange is an official partner, as well as higher content costs, especially in Spain. Other costs remained stable reflecting our steady cost control focus.

Slide 9. We pursued investments in our networks and in particular very high broadband. As a result we had 5.5 million connectable homes in France, up by 39% compared to Q1 2015. In Spain we reached 7.4 million connectable homes with fiber, up by 85% and we confirm our target to reach 14 million households by 2020. In Poland we accelerated our fiber deployment plan with more than 800,000 connectable homes.

In France [ARCEP] recent benchmark confirms the superiority of fiber connection compared to other technologies. This is particularly true when it comes to indicators for upstream throughput which is crucial for applications that involve file sharing and data storage in the cloud, and also for latency which has a direct impact on customer experience.

The Group strengthened its leadership in mobile and in particular 4G coverage, like in Poland where we cover 89% of the population, up by 17 points year-on-year, or in Spain with 87% of 4G coverage, up by 13 points year-on-year.

In France we continued the modernization of our mobile network to improve the customer experience. The Paris-Lyon TGV line has been fully covered by 3G and 4G, as well as 71 ski resorts and eight highways. Therefore in line with similar studies which all demonstrate Orange leadership in mobile network, the last Rootmetrics survey made in Paris, Lyon and Marseilles, shows that Orange has the best network for reliability, speed, internet usage, calls and texts.

To support his performance investments reached EUR1.5 billion in Q1 with a CapEx to sales ratio of 14.6%.

Let's now look at our various segments. Looking first at France on Slide 11. The first quarter confirmed the improvement in operational trends with fixed services revenues back to growth for the first time since Q2 2014, of course driven by our fiber strategy.

Fixed broadband revenue growth accelerated with the pace picking up at plus 4.2% year-on-year. This strong momentum was mainly driven by volume growth in fiber as 1.1 million customers chose the Orange fiber.

The convergent offers discount continued to slightly impact the broadband ARPU but it was largely compensated by the improvement in the retail customer mix, allowing a slowdown of the ARPU decrease at minus 0.4% year-on-year and even a stabilization on a sequential basis.

Fixed wholesale revenue increased by 1.5% year-on-year, thanks to growth in ADSL bitstream, greater backbone from special needs and increasing speed of copper network in less dense areas.

Fixed narrowband revenue decrease slowed down at minus 9.4%, thanks to an improving trend in customer base erosion and a tariff plan increase in March 2015.

Mobile service revenues decreased by 2.4%, in line with the full year of 2015, in 2015 it was minus 2.2%, and this was mainly impacted by a decrease in national roaming. Excluding this impact the trend improved against the fourth quarter of 2015, driven by an improvement in mobile ARPU trends, down only 0.7% against the minus 1.3% in the last quarter of 2015.

With regards to commercial performance let's have a look at mobile on Page 12. Despite a very competitive environment, our mobile customer base continued to grow with 41,000 net-adds supported by our convergent strategy, 49% of the consumer voice contracts were on Open offers.

We all know that the first quarter was a tough quarter with very aggressive promotions from our competitors. In March we upgraded our Sosh mobile offers and we did the same for Orange brand a month later, to reinforce our competitiveness while preserving customer value through a targeted and segmented approach of the market.

Promotions impacted mostly low-end segment performance, while our high-end offers continued to be very attractive. The share of retail high-end customers increased by 3 points in a year. As a result, Q1 showed further improvement in contract churn rate, now at 13%, the lowest level since 2010.

SIM-only offers continued to be predominant in our acquisitions, 55% of our customer base was on SIM-only offers at the end of Q1.

43% of our contract customers now benefits of our 4G network, this is 10 points more converts to Q1 2015 and we now have close to 9 million 4G clients.

On fixed broadband, once again a record quarter with 96,000 broadband net-adds, the best first quarter since 2011, fully supported by our fiber strategy with 115,000 fiber net-adds, of which more than half are new Orange customers. All-in-all the broadband customer base increased by plus 3.9% year-on-year with the FTTH adoption rate increasing to 20%, up 4 points year-on-year.

Thanks to the superiority of our fiber network, we were not only able to regain broadband market share, but also to improve our customer mix increasing by 4 points the share of premium customers.

As a result, fiber combined with convergence continued to be a strong tool to conquer and upsell customers. 74% of our new convergent customers were either new mobile and/or new fixed customers, an improvement of 4 points compared to the same quarter of 2015.

Let's now move to Spain. In Spain the financial and commercial performance of the first quarter was excellent, thanks to the very good dynamic of 4G and fiber, another confirmation of the benefits from the Jazztel acquisition.

Indeed revenues came back to growth after nine quarters of decrease, with an increase in revenues of 1.8%. Mobile service revenues increased by 4.4% thanks to service upgrade plans started end of 2015 and the fixed very high broadband revenues continued posting growth, plus 9%, driven by FTTH and TV offers.

In fiber we reached 1 million customers with the base multiplied by 3.2 in one year, 7.4 million homes are now eligible for fiber.

And we registered strong growth in our TV customer base, multiplied by almost three in one year, to reach 365,000 customers, driven by the success of football offers. On average, over 60% of pay TV sales are now related to football, as you know we participated in the auction process for the next three seasons of La Liga and we just signed an agreement with Mediapro to access the blocks they obtained. As a result we will be offering all football games to Orange customers in Spain for the next three seasons.

Regarding 4G, we multiplied our customer base by almost two in one year and maintained the leadership with 5.8 million customers. In terms of coverage we reached close to 90% of the population and we have bought additional spectrum for 4G and 5G in the future.

In Poland, overall revenue trend slightly improved at minus 4.2%, it was minus 5.1% in the last quarter, with broadly unchanged trends in mobile and fixed services, but growing mobile equipment sales due to the transition from subsidies to installments.

This quarter, again, the customer posted better net-adds compared to the first quarter of last year, thanks to commercial investment targeted on convergence, very high broadband and TV content.

Mobile service revenues eroded 2.1% compared to 1.9% last quarter. Meanwhile we had a very strong contract net-add, that's plus 214,000 growing 4.5 times compared to the first quarter of 2015.

Competition from cable kept a strong pressure on fixed revenues, down 8.7%. We pushed ahead first with our convergence strategy with a growing 38% of our broadband base now on convergent offers. And second, with our very high broadband strategy with 18% of our base now on VDSL or FTTH.

Out of a total footprint of 818,000 passed at the end of Q1 we had 27,000 fiber customers, of which around 70% were new customers and this represents an encouraging ramp-up with 10,000 fiber net-adds this quarter against 8,000 last quarter. In Q1 fiber net-adds already represent 20% of all very high broadband net-adds.

The last point in Poland, in Q1 other revenues were impacted by the completion of infrastructure projects already impacting the end of 2015. Excluding this effect Q1 overall revenues were down 3% year-on-year, 3.1%, versus the reported minus 4.2%.

In Belgium and Luxembourg we have consolidated revenues going up by 2.3%, this is the same rate as is the Q4 2015 and this quarter growth is driven by mobile service revenues increasing by 2.9% year-on-year.

Belgium posted a very solid contract net-add of plus 8,000 excluding M2M after minus 5,000 a year ago.

Another key factor in Belgium is the annual contract ARPU which is improving by 3.3% following the increase we had in the past two quarters, and this is partly due to an increasing proportion of subsidized sales.

Belgium 4G user base increased by 84% year-on-year, reaching approximately 35% of total users.

And, last but not least, the annual contract churn kept on improving versus last year in both B2B and B2C segments.

Building on this very positive momentum, Mobistar unveiled last February and launched in March its convergent offer based on regulated access to cable. Starting beginning of May Mobistar will be rebranded into Orange, paving the way for the company being repositioned as a convergent operator in Belgium and Orange Belgium will then be ready to actively market its convergent offers.

Turning to the Central European countries sub segment, you also can see a fourth consecutive quarter of revenue growth, plus 2.8%. This is always driven by Romania which represents close to 60% of the total segment, Romania is growing by 6.5%, so still a very good performance.

Also in Romania following the signing of a fixed wholesale access contract with Telekom Romania in December, we are actively preparing to launch fixed services, this is voice, broadband and TV, using the fiber network of Telekom Romania in urban areas and the first wave of convergent offers will be launched in May in targeted areas.

Our Africa & Middle East operations continue to perform well with a revenue growth of 4.4%, mainly driven by Ivory Coast, Mali and Guinea, also by the surge in data usage. Data revenue increased by 42% year-on-year, driven by the increase of our 3G and 4G sites rollout. We now have commercially launched 4G within seven of our 20 Africa & Middle East countries.

Our mobile base went up close to 3%, reflecting significant net-adds in Ivory Coast and Cameroon.

In Q1, as I said previously, we also moved forward in terms of M&A with the closing of Cellcom in Liberia and Tigo in the DRC where we were already present. We reinforced our presence also through the acquisition of a stake in Africa Internet Group announced at the beginning of this month and this is going to give us the capacity to support and participate in the fast-growing ecommerce market in Africa, especially across the 12 countries where we have a joint presence.

Lastly, turning to Enterprise. Revenues were back to growth with 2.1% year-on-year against a negative figure of 0.4% in the fourth quarter of 2015. This good performance is supported by resilience in legacy business, strong growth of IT services and also a low Q1 2015 performance which is inducing a favorable base effect.

Voice revenues improved, not only thanks to the improving trends of legacy revenues, but also thanks to high growth of voice over IP services.

Data services trend continued on their good momentum on prices and volumes, mainly driven by strong international performance.

And IT and integration services were growing by 8.6% driven by contract deliveries mainly in the Americas and Asia-Pacific regions and also by cloud revenue with 20.9% growth.

So I will close with our guidance for 2016. Obviously with these solid results we confirm our 2016 guidance announced in February. We confirm our guidance, our objective of a restated EBITDA above 2015 on a comparable basis.

We will also maintain our net debt to EBITDA ratio around 2x in the medium term.

Regarding the dividend for 2016, we will propose to maintain a EUR0.60 level, paying a EUR0.20 interim dividend in December 2015. And on June 23 this year we will pay the balance of the 2015 dividend for EUR0.40.

Regarding our portfolio management policy, we will keep our selective approach focused on our existing footprint and on value creation for Orange and its shareholders.

Thank you for your attention, we are now all ready to answer your questions.

(Operator Instructions). Please be advised that today's call is being recorded. Stephane Beyazian, Raymond James.

Yes, thank you. Just, I have two questions if I may. The first one is I just want to come back on the 3G roaming agreement, I think we're starting to see some revenue erosion from this agreement. Do you stick to your indication that you could probably see some EUR150 million to EUR200 million, let's say, shortfall from the agreement compared to 2015 so far this year?

And my second question is to come back on banking. How is the Groupama joint venture, sorry acquisition, accelerating or changing your target of EUR400 million by 2018? And what sort of revenue margin per customer to do you target? Can you start to give us some details on your plans there?

And finally, just to come back on the agreement with Mediapro, is it possible to have some indication on the impact that this could have on the EBITDA for the Spanish division? Thank you very much.

Okay, so regarding your question on roaming, yes I think we can absolutely confirm the proportion of decrease in revenues coming from roaming. As you remember, it was supposed to decrease a year ago, it didn't, so now it's bound to decrease at one point or another, but this is completely integrated within the projections of our strategic plan, so absolutely in line with our expectations.

On Groupama, we are perfectly on track with what we had announced. We expect, so the closing of this deal, we have signed now, we have to go through the regulatory process with the competition authorities and the ACPR, the Prudential authority, so we are going to go through this process in the next months with the objective of launching our services in 2017.

It does not change our objective that has been set in Essentials 2020 to have on mobile finance as a whole around EUR400 million of revenues in 2018 and this is, as you know, both in Africa, Middle East with Orange Money and in Europe where we have started already in Poland. We are also launching Orange Money in Romania and then in 2017 in France before turning to other European countries, Spain and Belgium, so this is confirmed.

We are once again very well on track and we will disclose more details on the level of revenues expected on this specific Orange Bank project in France, we are not going to disclose more before we give you all the details when we launch the service. We want to keep some information for ourselves when we are preparing for this to be launched.

You had also a question on Mediapro and the football rights in Spain.

Yes we have, you know that, Gervais Pellissier speaking, that we have been working on different, the football rights in Spain are owned in three different groups, a big part is still owned by Telefonica, but the most interesting football matches are owned by Mediapro which is now a subsidiary of [beIN].

And with Vodafone we have been also winning a specific lot for bars and restaurants which means that in total the football rights will be split amongst the different players with the regulatory rules that are applying to Telefonica, which means that we will distribute that match that has been bought by Mediapro with a cost which is a cost determined by the regulatory authorities which applied last year on the Telefonica lots and this is what we have taken into account in our forecast for the future.

We think that when we look at the profile of the next years, that we will have clearly an increase of our football costs, the rights are more expensive in total that the initial projections, but we think that on the other hand every player will incorporate those extra costs into the price of their broadband access and we have seen, by-the-way a first decrease of the price of the broadband access in Spain since the beginning of the year.

Thank you.

Nicolas Cote-Colisson, HSBC.

Thank you, good morning. I'd like an update on co-investment in France. I was wondering if the CapEx hike we have seen in Q1 is driven by a lack of participation from your competitors, and if it is the case is that an issue for Orange? Don't you fear that building alone for too long could get the regulatory revisiting the conditions for wholesale fiber?

And my second question is on also the French market, how do you account for the promotions in France? Is that through lower sales or lower EBITDA or a mix of both?

And if you could share your view about the pricing environment, not just in mobile but also in fiber where your prices are currently very low. Thanks.

So I will share the answer with Pierre Louette and Fabienne Dulac. Just one word before turning to Pierre. The increase in investment you are seeing in the first quarter is perfectly in line with what we have said and the investment effort which is going to be done by the Group in all its geographies, especially in France and also in Spain where we are rolling out our fiber plans, also in Poland.

So on these grounds there is absolutely no surprise and we have in this first quarter of the year the co-financing we were expecting from our competitors to accompany our efforts in fiber. Pierre.

Yes, so regarding co-financing, Ramon was mentioning it last year was a bit of a deception when it comes to what our competitors invested, but now they seem to be in line. They'd better be in line in a way because if they really intend to do what they announced several years ago, for some of them it's really time to start. For the ones who announced nothing they stuck to that position and they kind of suffer from it today, Bouygues for instance. For those who started even before us, like Iliad, that made wrong technological choices which they now completely accept, they are stuck also behind. And for us, we announced intentions and we realized them so we are completely in line with what we did.

It's a world, in the very dense areas it's a world of competition based on the infrastructures. Everybody is absolutely free to invest and was in the position to decide to invest. This regulatory framework will not change, it will not change, it's one of the key principles on which everything relies and I think that the ARCEP regulator has in mind that it would be extremely detrimental for the overall efficiency of the fiber deployment in France to change that framework now.

So you will have the competition-based investment in the very dense areas, investment based on co-funding in the less dense areas. SFR-Numericable has now probably a year or two years of lagging behind in terms of what they had announced and what they have not done, and I think Iliad now has stronger intentions to come to that co-funding.

When you look at some of the announcements that our competitors have made regarding what they intend to pay to us in local loop unbundling in several years, like in 2020, again they really should start now doing something because it doesn't look like they will decrease this payment to us, if they stick to the very low and slow proportion of investment in fiber that they have today.

Good morning, Fabienne Dulac speaking. As you can see the French mobile market is and has been and is always very competitive and turbulent in the middle of 2015 and especially in this first quarter may be influenced by the period in the context of negotiation.

During this quarter we made a choice to preserve value with no recourse to promotion, even on Sosh offers, so there's no impact on the EBITDA.

I just want to remind you that sometimes we can use promotion, Sosh has been designed to address low end customers, these customers are targeted by the promotion of our competitors so we reserve the right to adapt our strategy and sometimes to use promotion, sales, special sales if we need, if the market requires it because we need to stay in the course all the time.

Yes, sorry if I may just follow-up, because on fiber there are currently some very high level of promotions, so is that just something to stay for a month as it is on the website or is that something that could be pursued in order to get more subscribers in the course of the year?

On the fiber, your question is on the fiber, yes?

Yes, yes.

On the fiber, we use promotion as an (inaudible) product and we need that because we want to address the fiber on all markets, to access the markets, to the premium markets especially in very dense areas where we are in reconquest. So we use the promotions as [Apple] products.

I just want to explain you one point. When we made a promotion at around EUR20, 52% of our sales are materialized on premium offers, Jet and Play, so in the same way promotion can be an [Apple] product to realize our strategy, value strategy and keep customers acquired through promotion.

Okay, that's clear. Thank you.

Jakob Bluestone, Credit Suisse.

Hi, good morning, just a couple of questions. Just maybe staying on French fixed line. We've obviously seen some price increases from your competitors, from Bouygues and SFR, do you see room for putting through price increases on some of your offerings as well?

And then just secondly on Spain, obviously a big acceleration in mobile service revenue growth, can you maybe talk through whether you see that as sustainable? Thank you.

Yes, so Gervais Pellissier speaking. Regarding Spain, we see mobile service revenue increasing for two reasons. One is still our ability to have net-adds, when I look at the profile of the Spanish market the dynamic between Orange Spain and Jazztel is still contributing to a huge increase of net-adds. And the second reason is that prices have slightly increased. We have revised our subscriptions by between EUR1 and EUR2, with an increase of the data capacity. And this has transferred into an improvement in ARPU.

We will not repeat it. And I think the market will not repeat it, price increase quarter after quarter. That's not. But at least probably step by step, maybe once a year, I don't know how the market will evolve, but we can consider that this will continue.

For France, we have seen increase in tariff from our competitors, as you can see, presented as a consort of additional or improved service. We remind you that we already increased the price of our bestseller Open Play by EUR3 in July 2015. And that we already send fiber Open and B2B Open offers with a gap of EUR5 compared to ADSL. So we still have a premium compared to our competitors. And we want to stay in this strategy.

Yes, maybe for the next -- for the future, you know we will launch a new box in a few weeks with this all-new features and innovation. And we will follow this strategy or offer quality of services and in the same time the price premium that we can offer.

Exactly. Thank you for that.

Mandeep Singh, Redburn.

Hello. Sorry, you said Dimitri and Mandeep; we're both from Redburn. So apologies. Some sort of confusion there. I just really had a quick question following up on Spain. And Jakob asked partly about that already. Overall in terms of the revenue growth, you've mentioned strong net adds. But across fixed and mobile, how much would you say this is you outperforming the market or how much would you say the market is in a much healthier place?

And if you could maybe distinguish between some of the dynamics in both the fixed service revenue and the mobile service revenue. Thanks.

Yes. For the time being we think that we are outperforming the market. Maybe we are not alone to outperform the market. It's a sense that when we look at the market dynamics, my view is that when we look at the net adds, it is probably that Vodafone Ono is also on an acquisition track. So which means that on mobile service revenue, we will see how people publish and it's not so easy to follow and understand. But we shall have probably two players with increase.

Regarding fixed or not, we are clearly continuing to outperform the market when we look at the trend in terms of acquisition, plus something which is good for us, which is the uptake of the TV services, which also increase the ARPU of broadband. And we think that with the new football season that should start in summer, we should have a further uptick of TV service probably in the course of summer, let's say Q3. Q3 shall be good. We think Q2 will be less favorable because we are at the end of the season. But Q3 we should see an uptick again.

Thank you.

Daniel Morris, Barclays.

Yes. Morning. Thanks for taking the questions. The first is just a clarification on the co-financing question that was asked earlier. Can you confirm that you are now actually seeing two competitors co-financing in the mid-dense areas each at a 5% rate or are we still waiting to get to that point?

Second question is on your listed subsidiaries. Mobistar's cable opportunity certainly looks very interesting. And I just wondered, what are your thoughts on the listed subsidiaries? Could you be interested in taking out the minorities there? Or conversely, you've talked about a potential minority listing in Spain so any update on that? Thank you.

So to clarify on co-financing, we have seen, since the system started, one competitor, SFR, which was then SFR before it was acquired by Numericable, they started with a year of delay co-funding. And they did a little less than they were supposed to do, but they did some co-funding. And now we see more of Iliad obviously. So yes, I think we can say that there are now two main competitors co-funding. They've done a little less than expected. And now they seem to be a little more, let's say 5% more than expected for this first trimester. In [less than serious]. We are talking about [less than serious].

Sure.

So in terms of listing subsidiaries or minority shareholders, I think the current situation of the Group and of its subsidiaries does not request any change in reality just now. So in Belgium there is no ground to change the situation as it is. In Spain, we are extremely successful and we have no plan short term to list the Company. We are full speed, as you have just heard, in terms of regaining market share, going back to growth and no plan to list.

I don't know if you had other geographies also in your mind, but I would have the same answer as regards our Africa and Middle East holding company. You know that in Africa we have some companies which are listed, especially Sonatel Mobinil, which is now Orange Egypt and also Jordan. But there is no plan of listing the holding company now. We are working on integrating the four new operations that we are in the process of acquiring. So we have closed Liberia and DRC. We are working on the closing of the two Airtel companies we are acquiring in Burkina Faso and Sierra Leone. And this is going to be our priority for the year ahead.

But the Group has a very solid balance sheet. You heard that we are sticking to our leverage ratio of around 2. And so there is no particular need at this stage to imagine further initiatives in terms of the structure of the Group. We will see if, at some point, there is any good reason to change this.

That's helpful. Thank you.

Frederic Boulan, Bank of America.

Hi. Good morning. So Fred Boulan from Bank of America-Merrill Lynch. Congratulations firstly on a solid Q1. A quick question on the cost side. Considering you've now delivered I think around three quarters of top-line growth in a row, to what degree can we expect your EUR3 billion cost cutting plan you have by 2018 to impact EBITDA this year and in the coming year? So if you could talk a little bit about the main programs and the phasing of the impact.

And secondly, on the M&A side, I just wanted to ask whether you would consider taking a stake in another European incumbent in the coming years and come back and explain what that would bring to the Group or if, on the contrary, you could actually deliver a lot without any financial stakes. Thank you.

On costs -- this is Ramon and then I will turn to Pierre, who is in charge of leading our cost efficiency program called Chrysalid and now Explore 2020. Just to recall that we have given a very clear guidance or indication in the context of our strategic plan, Essentials 2020. And this guidance is to say that in the next years we are going to see some upward pressure on direct costs, which will be accompanying the growth in revenues. We are seeing this, for instance, in terms of content. We are spending a bit more on content. But this is fueling revenues in Spain, for instance, but not only. But we are going to keep this obviously under strict control.

And in terms of indirect costs, we are going to deliver a reduction on the ratio of indirect costs to revenues by 2 points by 2018 compared to 2014. So there is an ongoing work which is being sustained in the Group. We know that going back to growth is not going to allow us to reduce our efforts on costs. At the same time, there are good costs, if I may say so, which are supporting the return to growth. And this is illustrated by the Explore 2020 program that Pierre is going to talk about.

Yes. So Explore 2020 is the new name actually or the name of the new program that we are launching now regarding cost cutting or, if you want, cost avoidance, transformation of the way we operate. You remember that the previous one was called Chrysalid. And we had announced the EUR2.5 billion target that we actually overcame by EUR1 billion. So we did way more than we expected. The times were hard also so we had to push hard on those cost avoidance program.

Explore 2020 goes alongside different lines. We expect EUR3 billion of cost avoidance and cost diminution. It will address the same pillars, if you want, which are of course typically indirect and direct cost. On the direct cost side, it's a bit different. It's a different period actually. We have more growth, which is good. In certain regions of the world we have a strong growth. But it's also a growth that comes with certain cost. So it's a different situation than the previous one.

It will thus call for different actions. We will re-interrogate all the ways in which we operate. What I repeatedly tell to the teams is that once you've done a transformation program, then you can start again. For instance, we looked, and Fabienne was very heavily involved in that in the past, we looked at the customer intervention, for instance in France, and we asked the team how they operate, how they could operate by spending less. They programmed their transformation. They did it. And let's do it again now.

If we look at networks, we buy the same configurations today 35%, 40% less than we did five years ago, four years ago. So we're going to start again and we're going to use the power of procurement of buying to do this.

So overall, we will re-ask all the lines of our cost. We will look again at the customer relationship side also, introduce more and more e-relationship programs. All of those things, actually nothing, I would say, completely impossible to imagine. We look at what we've done and we do it again and we save again.

Very important also to stress is the fact that our EUR3 billion goal in OpEx and CapEx does not include the synergies from the Jazztel integration in Spain. So the figure we have announced does not include very good news that are going to be coming from Spain. So we will probably be helped by those figures also in making more savings and cost avoidance than we have announced.

On M&A in Europe, maybe a few words and Gervais may add something. I think the real priority in Europe we have is to be convergent in all our operations. And so we have talked about Spain. We have said a few words on Poland during the initial presentation. In Romania, as I said, we have now an agreement with the subsidiary of Deutsche Telekom, Telekom Romania, which is going to give us access to the fixed market.

In Belgium, 2016 is also the year where we become convergent with Orange Belgique, which is going to access the fixed market through cable regulation. So in fact, in 2016, Orange in Europe is going to be convergent in all its countries. Slovakia is already convergent. The only one which is not yet convergent is Moldova. But there may be a project here which will also give us access to the fixed market. So this is really our top priority, to be successful and convergent where we stand.

Now looking at M&A opportunities, the starting point for us is to see our current landscape, which is highly fragmented with, as we all know, 28 regulators, 28 different systems. And so there is no single European market today in terms of spectrum, in terms of networks, in terms of Internet. So it's very difficult to make projections of this kind.

As far as we are concerned, we are not working today on any project regarding any incumbent. So this is the straight answer to your question. There's absolutely no project we would be working on now regarding any incumbent in Europe.

Excellent. Thank you very much.

Giovanni Montalti, UBS.

Hello. Good morning. Can you hear me?

Yes.

Sorry, I'm on the mobile so the quality may not be great. Just a couple of questions. Can you provide us some color on the discussions with Iliad and ARCEP for the phase out of the agreement?

And also looking at Spain and France, do you think -- when do you think the rate of convergence in France or the penetration of convergence in France may approach the levels that you are seeing in Spain? Thank you.

Pierre will take the ARCEP/Iliad question. On convergence on France and Spain, we are around 45%, 50% of convergence in France compared to more than 80% in Spain. We think we should go around, let's say, around 60% in the next two years in France.

So we are progressively catching up. And it is indeed a very strong tool for us when we fight against our competitors on both the mobile and fixed market because we are in fact the best solution for anybody who wants to have the best bundle offer, getting access to the best mobile network, the best fixed and broadband network with TV services, which are of top quality.

So this is why we are very much supporting this move, which is a European move towards convergence. And this is why I was saying that our first priority in all our European countries is to deliver these services that our clients want to get.

Pierre?

Yes. Regarding the extinction of roaming, a couple of things that we can stress today. The first thing is that there will be an extinction of roaming. This is very, very clear. It's been reaffirmed by the regulator. It's also more or less programmed in legal frameworks which have been outlined by the government. So this is extremely clear.

The second thing is the following. Whilst we were working on the consolidation play in France, a lot of the consultations publicized ARCEP were suspended. They have started again now. So we are now in the new phase. We have made our comments to the ARCEP regarding their proposed extinction plan. And as of today, the perspective is still the same. The 3G roaming will turn out between end of 2018 and end of 2020. And it's between -- for the 2G it's between 2020 and 2022. So this is the framework.

And ARCEP has asked the two parties to start negotiating again until summer, let's say, find an agreement, which will be somewhere between the two brackets that have been outlined. So the conversations have started again and they're going, I think, in a right direction. Everybody's conscious that we need to find an agreement. And at any rate, there will be an agreement and there will be an extinction.

Okay. Thank you.

Andrew Lee, Goldman Sachs.

Yes. Thanks for taking my question. Just a couple, please. Firstly on the indirect cost cutting. Could you just give us what your indirect cost cutting was this quarter? I know you're saying you're continuing to push for it. But I think usually you provide a slide that shows what the indirect cost was. And if you could give us any kind of guide as to what that indirect cost cutting should be for the full year, that would be great.

And then just second on consolidation, acknowledging the fact you're probably sick of answering questions on it. Reuters is reporting that that the EU would block UK consolidation. You were clearly really close to doing French consolidation. And Orange in particular did a great job of bringing everyone to the table. Could you talk about any time restrictions that would make you want to try and resurrect a deal sooner rather than later? Thank you.

Well, on your second question, we're not working on the resurrection. We are working on being successful with our operations in France. We have a quality network. We have a commercial success. We have the financial means to continue on this path. So honestly, we are not going to speculate on going back to the table of negotiating a deal which obviously was too complicated to deliver. It will come back probably or maybe at some point in life.

But the page has been turned. Now we are back to work with our own tools, our own strength. And we are very comfortable that, as we had said at the beginning, we were the operator which needed this the least, even if we felt it would have been good for everybody, including us. But it's not going to happen just now. So let's concentrate on our own priorities, our own projects, including with the diversification in the banking industry, etc.

On indirect costs, well, you have seen that there has been some increase in this first quarter, but this is in fact essentially due to exceptional personal human resources costs. There is the impact of the share plan for employees, which is generating a EUR50 million cost. And there has been an exceptional (spoken in French) -- I don't know how you say (spoken in French) in English, I must say. An employee benefit sharing, says Gervais, so this must be correct. And this has incurred a cost of EUR40 million -- an additional EUR40 million.

So you have in this first quarter [EUR19 million], which is kind of special employee costs, which is concentrated on the first quarter. At the same time, the number of employees are decreasing in France by close to 5%. So you will see at the end of the year obviously the positive impact of this ongoing effort, which is well known by all of you.

You also have, in terms of indirect costs, a slight increase of network and IT cost, which is especially in Africa and the Middle East, linked to the increase in our network capacity and the extension of our coverage. We have in Africa, for instance, increased by 1,200 sites our coverage in our different countries.

Also in France you had a slightly higher number of interventions due to weather conditions. And if you compare other posts, you would see that in terms of advertisement, you are stable. You are decreasing in general costs. And so the general effect you have seen in the past is going to come back.

You also had, in this quarter, some specific issues with Euro Football Championship sponsorship and the rebranding that we are seeing this year in Egypt. It was last month. In Belgium it's going to be next month. And at the end of the year in Morocco will also be contributing to some short-term pressure on the reduction. But we will reduce indirect costs during the year. I'm not going to give any figure. But we are continuing our efforts on this area.

Thanks very much. That's very clear.

Jerry Dellis, Jefferies.

Yes. Good morning, everybody. It's Jerry Dellis from Jefferies. A couple of questions, please. Within French mobile, if we look into your contract net adds, we see that the Orange-branded base looked like it was down about 43,000 in the first quarter of 2016. Are you confident that you can restore that to growth from the second quarter onwards? And what will be the initiatives that drive that?

And then a second question relating to your cost momentum. Obviously as you go into the second half of this year, some of the Group employee share plan costs obviously drop away. But you certainly carry a much higher weight of Spanish football content cost into the second half because of the Media Pro deal and because your deal with Vodafone on distribution in bars and restaurants starts to kick in. So are you confident that on an underlying basis that you can really sustain Group EBITDA growth into the second half?

And then my final question is just really around the dividend. Given the relatively low level of leverage for the Group now post the EE transaction and with the strong visibility on cost cutting that you've already talked about, what do you need to see? What are the conditions that need to be fulfilled before management would consider actually raising dividend per share? Thank you.

So as you see, the level of net adds on -- is good in France in this first quarter. The key success is the different points. The first is the quality of service we offer and the quality of the network. I think it's the best we can offer on the market now. And we have a good momentum. A lot of customers made the quality before the price in their choice.

You have the strategy on the subsidiary we decide, and we maintain on high-held markets. And the quality of the customer experience, [an asset] of Orange, and we want to follow in this strategy. The retail, the shop we redesign currently everywhere in France. So all these points made the difference between the competitors and maybe made the difference with all promotion we can see on the market.

So I think it's -- I have said everything.

Merci, Fabienne. On your question on costs perspectives for EBITDA growth and dividend, I think you know that there is a seasonality. There is a phasing in in the fueling of EBITDA in the Group. And so there is first quarter, which is traditionally weaker and then the second half of the year. And more generally speaking, there is a second half which is better than the first half.

This is for a number of reasons, including this year some specific elements which are what we just discussed about employee costs and also by what I have just said on rebranding costs, which are concentrated on the first half on these two countries which are becoming Orange in early 2016, Egypt and Belgium, before Morocco once again at the very end of the year. There is also the Euro 2016 Championships.

So there is a seasonality. And you will see this in 2016.

You are seeing part of it in the first quarter. But there is seasonality with a second part of the year which is clearly higher than the first half. There is no surprise. This is exactly what we have expected. And this is why we are perfectly clear when we confirm our guidance that we would have an EBITDA -- restated EBITDA in 2016 which is going to be higher than the EBITDA in 2015 on a comparable basis. We are extremely clear on this point.

On the dividend, well, we have said that we would maintain a level of EUR0.60 during the period of our strategic plan, Essentials 2020. And we had said in early 2015, when we launched the plan, that we did not exclude to increase the dividend depending on the results of the Group.

So clearly 2015 has been a good year, even in advance compared to our plan because we had already a slight increase in EBITDA in 2015. This was better than what we had announced. And the perspective of the return to growth is also there. We have three quarters of increase in revenues. So I think you should be confident and patient, or patient and confident, put it as you want.

We will review the situation once we will have several quarters of growth. And so we will review the situation based on the 2016 results.

Thank you very much for that. Could I just come back on the first question, please? My question around the French momentum was really based on the numbers, which seem to show that Orange-branded contract net adds actually turned quite strongly negative in the first half -- in the first quarter of 2016.

So obviously accepting all the quality advantages that the Orange brand would seem to have relative to the competition doesn't appear to have shown through in the first quarter. So the question was really around what can be done between Q1 and the rest of the year to really exert a little bit of momentum back into the Orange brand as opposed to the Sosh brand, which seems to have been doing extremely well in the first part of the year.

In this first quarter, the net adds are driven by [high-hand] offers, not by Sosh. Sosh has been very attacked by the aggressivity (sic) of the promotions. It's normal. It's the offers we have very competitive and very targeted by the promotion of our competitors. But I would like to specify that the volume of net add we realize are on [high-hand] market. So it's why we will pursue and following the strategy of the value.

Okay. Thank you very much.

Jacques de Greling, Natixis.

Thank you. My first question is regarding Spain. Just clarification. Now that you have this agreement with Media Pro, do you believe that you're roughly on par with what the competitors can offer?

Second question. Have you hedged your share in BT equity in case of Brexit?

And last, an accounting question, just to clarify. Regarding the IFRIC 21 effect, does it relate only to Belgium or to the whole Group? Thank you.

So IFRIC 21 has been applied in the Group in France especially last year. So we had the impact last year. And we have it in Belgium this year. So this is your third question.

On the shares of BT, we are hedging towards the currency. We don't have a hedge on the BT share price because this was not foreseen in the agreements. But we have a hedge on the British pound.

On Spain?

On Spain, I think now that we are clearly at par as regards sports. This is the situation of today. For other rights, I think we have done our best, taking into account the regulation as it is, where in fact Telefonica has an obligation only to resell 50% of what they have acquired through Digital Plus.

So which means that each time there will be international rights to be redistributed or resold, we check where they go, how we can negotiate, whether we have -- you know that in France we are directly dealing with HBO. In Spain we'll see. We understand that there might be discussions or even finalization of discussions between Vodafone and HBO. We'll see whether there is possibility to be part of a resale agreement.

So the fact on the other rights, especially for cinema and series, will be a permanent fight to have access to content, like in some other countries. But for sport, we are clearly at par.

Okay.

Dimitri Kallianiotis, Redburn.

Hi. Just a quick follow-up on just regarding content actually, but more specifically on France. One of your competitors, (inaudible), Numericable, SFR, is obviously pushing quite hard in terms of content. And I just wanted to ask you if you have a bit of a rethink in terms of your content strategy in France, if you think it makes sense for you to basically go a little bit more aggressive, spend a bit more money, as you are in Spain, potentially buying football rights on an exclusive basis or more content in general?

And my second question was just regarding enterprise. Your performance is improving as [meant] has been a lot stronger than some of your peers in Europe in general. I just wanted to ask you, do you see that performance as sustainable or should we expect a little bit more pressure from legacy services in enterprise? Thank you.

Well maybe we will start with the second question. So Thierry Bonhomme, who is heading this business, is going to answer.

Thank you. Yes. It's so to say that when it comes to the B2B business, we are back to growth with the 2.1% year-on-year growth versus the 0.4% posted in Q4 2015. It is supported. Yes, it is supported by strong resilience within our legacy business.

But it is as well supported by a strong growth and good perspective when it comes to international business outside of France and IT services. So what we anticipate is more or less what we have been facing for quite a few years now. It's still strong competition and pressure on the legacy business, particularly in France, offsetted by our growth within the international and IT services business.

Is it sustainable? Yes, we think it is sustainable thanks to all the efforts which were launched within the cost management for when it comes to B2B, plans for labor cost management in the US and Europe two years ago, planned on renegotiation on cost of networks around the globe, plans of optimization of our service factory. You probably are not aware it's offshored in low-cost countries and we are still improving.

And of course still plans to develop our businesses thanks to organic growth and new acquisitions, typically what Ramon mentioned with our acquisition of LexSi, which is a 200-people company we've exploited within remediation when it comes to site management, which gives us, as Ramon explained, a very strong position in this business. So that's very well embodying the global strategy of our B2B operations around the globe.

Maybe on content turning -- and I will turn to Fabienne because your question was specifically addressing France, but generally speaking in terms of content, our strategy is to be a distributor of content and an aggregator. And so our essential aim is to give to all our customers the best access to a very large choice of content. And so if you are an Orange customer, you can -- you have a very broad area of content you can access.

And we have OCS with specific agreements with HBO, Sony Pictures. We have Orange Studio which is contributing to producing content. We are spending more when it is needed, and this is the case in Spain, where the evolution, as it was explained also by Gervais, has driven us to buy content. And so we're investing more in Spain clearly. But this situation is not the same in all the countries, where we're also adapting to the different situations in different countries.

As specified by Ramon, we have a strategy to offer the largest content we can find. It's why we are in a position to make a lot of partnerships with the best content we can find, Canal Plus, OCS, Netflix, and we will follow on this strategy.

We want to offer in the same way the different solutions we can find, VoD, SVoD. And it's the strategy we will follow. 3 million of customers benefit of hub [sale] TV currently. So it's a success strategy we have no necessary to change.

Thank you.

Yes. So in France, you know that since 2012 we have significantly decreased our content costs and we didn't see any loss of customers. So once again, we are adapting in different countries to different situations. And we are absolutely not convinced that there is a case which should drive us to invest more in a vertical way as some of our competitors do.

Thank you.

As there are no further questions at this time, I would like to now turn the call back to Mr. Ramon Fernandez for any additional or closing remarks.

No, the additional remark is to thank you all for participating. I think you will see that these results are extremely encouraging, that the strategy is working and that despite tough competition on the French market especially, we have the tools to fight back. And when you will give a very close look also to all the figures you have in representation, you will see that on fixed we are clearly leading the race. And on mobile we are doing better than only resisting. Look closely at the figures and you will see that it's a very good performance.

So thank you very much. And see you soon probably.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation today. You may now disconnect.