Orange SA (ORAN) 2022 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Orange First Half Year 2022 Results Conference Call. This call will be hosted by Ms. Christel Heydemann, CEO; and Mr. Ramon Fernandez, Delegate CEO, Executive Director of Finance, Performance and Development with others members of Orange Executive Committee for the Q&A session that will start after the presentation.

Thank you, and let me hand over to Ms. Christel Heydemann.

Thank you. Good morning, and welcome to our Q2 '22 financial results presentation. I will start with the key highlights of the year, and then I will, of course, leave the floor to Ramon to detail our results. So let's start directly on Slide 4 with the key achievements of the quarter.

First of all, EBITDAaL and EBITDAaL margin both improved in Q2 and as well as for the first half as a whole. So this is our second consecutive quarter of telecom EBITDA increase. Second, these improvements, combined with the significant decline in our CapEx has fueled the strong increase in first half organic cash flow, reaching EUR 1.4 billion, which underpins our full year target of at least EUR 2.9 billion.

Finally, we have taken a further step towards the creation of our joint venture with MásMóvil in Spain with the signing of the transaction that strengthened our positioning while generating significant synergies. The closing of the transaction is expected in about a year's time after the competition authorities have completed their review.

So last weekend, we announced the signing of the deal paving the way for the creation of a 50-50 joint venture that combines the forces of Orange and MásMóvil into a single, stronger operator for the benefit of customers and businesses in Spain.

This new company will continue investing in 5G and fiber, notably, thanks to potential synergies in excess of EUR 450 million per annum from the fourth year post closing. This 50-50 joint venture co-controlled by Orange and MásMóvil with equal governance rights include the right to trigger an IPO for both parties under certain conditions and after a defined period. With in such a scenario, an option for Orange to take control of the combined entity at IPO price.

The transaction is subject to approval from antitrust authorities and other relevant administrative authorities and it is expected to close during the second half of '23 at the latest. I strongly believe that the creation of this new company is of fundamental importance for the group, for the Spanish telecoms market and for our customers.

So now the financial results of the second quarter presented in Slide 6. They are penalized by the base effect of the particularly high co-financing proceeds received in Q2 '21. But excluding this effect, revenues growth was similar to Q1 at plus 0.7% and EBITDAaL grew strongly by plus 4.5%. This performance confirms our full year '22 EBITDAaL guidance as EBITDAaL growth will accelerate in H2, notably due to our cost efforts and the base effects such as the employee shareholding plan.

During this first semester, we also achieved a strong increase in organic cash flow of more than EUR 600 million year-on-year to reach EUR 1.4 billion driven by EBITDA growth, but above all by the significant decline in eCapEx. Finally, our very solid balance sheet is an asset in the current context with a stable net debt-to-EBITDA ratio of 1.91x.

At Orange, we believe that strong economic performance is not possible without social and environment leadership. On this slide, we outlined the key KPIs we use to track our progress towards a more sustainable, inclusive and responsible world by '25.

I will now hand over the floor to Ramon to go into details on our financial results.

Thank you, Christel. Good morning. So let's start with group revenues, which were stable over the first semester, reaching EUR 21.3 billion. In the second quarter, revenues at EUR 10.7 billion decreased slightly by 0.4% as they were negatively impacted by the base effect of the important co-financing proceeds received in 2021.

Excluding cofinancing proceeds, revenues that could be described as recurring grew by 0.7%, in line with Q1. Retail growth is greater than wholesale decline, thanks notably to data in Africa, Middle East, increasing strongly by more than 21%. Convergence up plus 3.2% and fixed broadband growing by 5.2%.

Looking at our segments, MEA remains our main growth driver, with revenues up by 7.2% this quarter. France reported minus 2.7%, but was stable, excluding co-financing, demonstrating our ability to offset the continued decline in wholesale, thanks to growth in retail. Europe improved to minus 0.9%, thanks to the solid performance of Poland, plus 3.4% and Belgium plus 4%, but also the ongoing recovery in Spain.

Enterprise was down by 1.1% due to a decline in voice and data, which was not offset by the growth in IT services and integration, the latter now representing 43% of OBS revenues.

Slide 10. Group EBITDAaL grew by 0.5% this quarter, reaching a plus 0.7% increase for H1. Excluding cofinancing proceeds, EBITDAaL grew by 3% over the semester. EBITDAaL margin from telecom activities continued to increase for the second consecutive quarter, with plus 31 basis points in Q2 or plus 17 basis points over H1.

MEA remains the main contributor to this performance with a double-digit growth of 11.6%, which compensates for the strong deterioration of enterprise at minus 25.3%. This segments hit by conjunctural pressures in the middle of its transformation phase is a top priority for the group, and we will come back to it.

France at minus 0.9%, grew by 3.6%, excluding cofinancing proceeds. Europe is up by 0.6%, including Spain, which pursues its recovery. Lastly, the EBITDAaL of International Carriers and Shared Services segment improved by EUR 56 million, notably thanks to cost reduction. As of the end of June, as part of the scale-up cost efficiency program, the group had achieved nearly EUR 450 million of net cumulated indirect cost savings compared to 2019, a pace consistent with our plan.

These savings come mainly from the ongoing transformation of our operational processes. The group is fully mobilized on the EUR 1 billion cumulated net savings objective by the end of 2023 compared to the end of 2019 in spite of a tough inflationary environment.

Turning to our investments. The group eCapEx decreased sharply by 8.7% in H1, mainly due to France as the peak of FTTH deployment has passed. This trend confirms our commitment to decrease eCapEx over the full year, even if the full year decrease will be much more moderate than in H1.

On Slide #12, you see that our net income landed at EUR 1.5 billion, with significant plus EUR 4.1 billion year-on-year increase can be attributed primarily to the counter effect of a goodwill impairment booked on Spain last year as well as significantly lower restructuring costs compared last year. Excluding the impairment base effect, net income is up by EUR 369 million.

In H1, our organic cash flow reached EUR 1,445 million, fully in line with our full year guidance, growing by EUR 605 million, thanks to eCapEx strong decrease after the catch-up in H1 2021. Organic cash flow generation will be relatively linear this year due to a smaller decrease in eCapEx over the full year than in H1 as well as an acceleration of EBITDAaL growth in H2, which will not be fully reflected in the organic cash flow, in particular, the employee shareholding plan granted in Q4 2021 had a negative impact on EBITDAaL of EUR 172 million, but no impact on organic cash flow since it was booked below this KPI in purchases of treasury shares.

Net debt reached EUR 24.4 billion at the end of June, slightly up this semester despite the growth in organic cash flow. This reflects, in particular, the payment of the final dividend for 2021 and the disbursement of licenses. The group's net debt-to-EBITDA ratio of 1.91x comfortably in line with our objectives of remaining around 2x over the medium term.

Let's turn to the business review with France, where revenues for the quarter were stable, excluding cofinancing proceeds. Retail service revenues pursued their side growth this quarter at 1.4% or plus 3.4%, excluding PSTN, reflecting our strong commercial dynamic. In Mobile, we achieved a solid performance with 173,000 net sales, driven mainly by the Orange brand and by the generalization of Airbox services to further enhance our broadband customers experience.

On the fixed side, the market is normalizing after the strong hype caused by the generalization of remote working during the first phase of the pandemia. This is reflected in our plus 26,000 broadband net adds, still driven by fiber volumes above pre-pandemic levels with 263,000 net adds, thanks to 5G and fiber price premium, all our ARPUs grew year-on-year with convergent ARPU reaching EUR 70.6.

This trend will continue to be fueled by our new high-end offer Livebox MAX launched in April, which already accounts for 15% of our broadband customer acquisitions. In addition, we further strengthened customer satisfaction this quarter, as illustrated by the Net Promoter Score increase and the decrease in all churns for mobile, fixed, B2C as well as B2B customers.

In the first half of the year, the EBITDAaL margin improved by 0.3 points, reflecting both the decline in wholesale revenues with low or no margins and our efforts on costs. The evolution of EBITDAaL over H1 of minus 0.9% or plus 3.6%, excluding cofinancing, strengthens our objective of approaching stability over the year. Also, eCapEx decreased significantly after having reached more than 90% of our own fiber deployment targets by 2023.

Finally, to conclude on France, we have submitted to ARCEP, our regulator, an agreement to extend the sunset period of national roaming with Iliad until 2025 and under similar commercial conditions to the previous contract. In financial terms, this agreement will represent for Orange an additional highly margin revenue that will allow us to secure our trajectory for France wholesale EBITDAaL, which will be a maximum loss of EUR 500 million between 2021 and 2025.

Let's now turn to Europe, where we once again delivered this quarter a very solid quarterly performance in Retail Services, growing for the first time since Q1 2019. Thanks to convergence, IT and IS in Poland and the recovery of customer roaming. Wholesale revenues continued to reflect the regulatory decrease in core termination rates and the decline in international traffic, both of which have a low impact on margins.

Good retail momentum, roaming recovery and the actions that we implemented to counter inflationary pressures have together enabled us to grow EBITDAaL this semester and improve the margin rate with a continued improvement in Spain and an ongoing strong performance from the other European countries.

In Spain, Slide 17, in the context of our operation with MásMóvil, our recovery plan continues to bear fruit with a further movement in retail revenues, driven by higher convergent ARPU and the resilience of our customer bases. In a stealth of competitive environment, we have continued to increase customer satisfaction this quarter, enabling us to decrease churn and improve convergent NPS, while pursuing a disciplined commercial strategy.

We have just announced a new service upgrade on Orange convergent offers applicable from early August and increased connectivity on Jazztel convergent and mobile offers at the same price. The continuous improvement of retail services was offset at the revenue level by the decrease of low-margin activities such as international traffic and equipment sales.

All in all, despite the inflation context, EBITDAaL continued its recovery by this semester supported by retail and cost efforts, which underpins our objective of a return to organic cash flow growth in 2022 and EBITDAaL growth in 2023. Let's move on to the Africa Middle East region, which enjoyed another excellent performance, fully in line with our ambitions.

Revenues increased by 7.2% in Q2 and by 7.9% for the first half. This performance is driven by our growth drivers. As you can see here, data plus more than 21%, fixed broadband, close to 28%, B2B, more than 12%, supported by both a value effect and a volume effect with an increase of more than 20% in the customer base of 4G and fixed broadband.

The decline in Orange Money is decelerating thanks to our response plan, we have been able to weaken the competition and maintain our positions within the footprint while growing the Orange Money active customer base by close to 10% to reach close to 25 million customers and also Orange Money transaction values.

This half year, was also marked by strong growth in EBITDAaL, close to plus 12% and an increase in the margin rate of more than 1 percentage point. This performance was achieved despite the inflationary context, thanks to our strong discipline on indirect costs. As a result, EBITDAaL has been growing faster than revenues for 10 consecutive quarters, 9 of our 16 countries recorded double-digit EBITDAaL growth.

Let's now turn to the Enterprise segment, where the situation is more challenging. This half year was marked by a significant deterioration in EBITDAaL, and our main priority is to recover the profitability of this segment in the context of transformation that has already begun and that we are going to accelerate.

Revenues were down by 1.1% in the quarter, almost stable over the first half, minus 0.2%. Due to the decline in the legacy business, partly offset by growth in mobile and IT and integration services. As I already said, IT and IS now accounts for 43% of revenues with sustained growth in cybersecurity, plus 13%; cloud plus close to 15%; and digital and data more than 7% growth.

In a moment, I'll say a few words that illustrates the growth dynamic of Orange CyberDefense. However, EBITDAaL deteriorated significantly during the first half of the year at minus 25%, due to the accelerated and higher-than-anticipated decline in high-margin voice and data services insufficiently offset by our growth relays. This is due to both cyclical issues such as chipset shortage and management of salary inflation, but also to structural issues now addressed by the new management.

The faster adaptation of OBS to this accelerating transformation is our top priority. We have already taken several measures that will bear fruit in the second half of the year with the EBITDAaL decline expected to be halved compared to H1. This will be based on a plan implemented by [Elliot] and her team over the next 12 months. Our annual meeting, the OBS Summit scheduled next September will be the opportunity to provide an update.

If we now take a closer look to our CyberDefense business, we finalized in May the carve-out of OCD to take full advantage of the growth potential of this market, especially in managed services, which is our area of expertise. CyberDefense will remain federated within the UBS segment in order to fully benefit from the synergies with the group's other B2B activities.

As you can see, with a 13% growth in H1, above the market, we are on track to achieve our EUR 1 billion revenue ambition in 2023 with remarkable organic growth in many geographies. We are already the leader in 3 countries and aim to become the leader in cybersecurity in Europe within the next 5 years.

Lastly, before ending this business review, let's have a look to TOTEM, which revenues were up by 8.4% this quarter, leading to a double-digit growth over the semester, posting activities, which fuel EBITDAaL grew by 3.1% in the first half driven by the 6.7% growth in third-party revenues. The limited increase in EBITDAaL of 1.8% this semester includes the year's setup costs of the new organization.

The number of sites and tenancy ratio are still relatively stable, but our first commercial successes confirm on one hand, the appetite of our competitors for our hosting services in France and Spain. And on the other hand, our expertise in complex network architecture with highly constrained environments as in the case of the Grand Paris Metro line #15, which was won by TOTEM, and we'll get back to it before year-end.

Let me now turn back to Christel, who will conclude this presentation.

Thank you, Ramon. So before ending this presentation, I would like to reconfirm our objectives for '22 as well as for '23 and our focus on delivering our organic cash flow targets, the pillar of our commitment to the market. I look forward to sharing with you our new set of midterm objectives and strategy for the next decade in February '23. This timing will allow us to build on our achievements in '22.

Thanks a lot for your attention. We are now happy with all the management team to take your questions.

(Operator Instructions) We will take our first question. Nicolas Cote-Colisson from HSBC.

I've got two questions, please. First one, I'll start with the cost inflation in general and maybe more particularly energy and labor cost. So I guess the question is what capacity do you have to offset this at the EBITDAaL level to get to the guidance? In particular, I would refer to Orange Polska, which indicated yesterday, a 50% increase in energy costs, although I thought you were nicely hedged for 2022.

And there's also pressure on salaries in France. So any color on mitigating effect against inflation would be great? And my second question, Christel maybe directly to you, if I may, and maybe preempting a bit your February presentation. But after 3 months in the driving seat, have you identified some structural changes that would make sense?

Or if you could share with us how you see the ideal pyramid of Orange in the coming years because I noticed that CyberDefense is now carved out. Could it be an area where corporate action is able to bring more scale and could make sense?

Thank you for your question. So we were expecting your question on cost and the overall inflation environment. So I think we will reconfirm what we said, I think, when we published our Q1 results. So we do believe -- obviously, we are facing the same environment as everyone on energy, on salary inflation pressure.

This is true in France, but this is true in all our countries, in Europe and in Africa. But we do believe that we have strength to overcome this. First of all, our market positioning because in this environment, we are delivering our more for more strategy. So obviously, trying to maximize pricing capabilities in the market.

And this is due to our premium positioning, network quality, customer satisfaction, Net Promoter Scores, and that's obviously something that we monitor very carefully. So we don't have one answer because, obviously, from one country to another, we have different abilities to implement price increase in some countries we have in our contracts, the ability to do that.

In other countries, we do that very carefully. And in all cases, we want to make sure that we offer the best portfolio of offers to customers who can decide whether they want to go to a low range of offers low price, I would say, or to more premium options.

On the energy side, on the energy side, we are in -- can you hear us? We are indeed -- we have been covering our position. We have been covering our position, and so more than 90% of our energy needs in '22 were covered. And so this is obviously something that I don't have specifically in mind for Poland related to the question but at group level, more than 90% of our energy needs were covered, and this is obviously a strength in '22.

We are also covered for more than two third of our needs for '23. And we will continue to monitor this very carefully. So also that you know -- I mean, it's been already many years that Orange has been focused on reducing our energy consumption. We have pointed at group level of energy manager is working with all our companies in every country to make sure that we implement our energy efficiency levels.

So we are focusing on [BCG AG] consumption, while at the same time, having a very determined energy price management policy, so optimizing the ability that we have to be cover and anticipate for potential price increase.

On the pressure on salaries, so indeed, this is true in France, but this is true in every country. So we had local negotiations with our employee representatives. We are paying a lot of attention in particular to low salary employees. And this is something that we take into account.

As you know, in France, for instance, at the beginning of the year, we have implemented a plus 3% salary increase on average, so this is including many maybe different mechanism, but really favoring low salary revenues. And this is a dialogue that we have that we continue to have. But so noting the fact that in the past, in particular in France, we had some increased bond inflation.

So this year, indeed, we have below inflation, but this is always a negotiation with employee representatives or as well as taking advantage of measures implemented by government, which obviously are different from one country to another.

On your second question, so after 3 months and potential structural changes. So I won't give you any scope, I would say, on the announcement that we will make in a few months. But I think on cybersecurity, so the carve-out of our cybersecurity activity is something that was initiated by the previous governance.

And this is something that I've reviewed in detail, and I confirm that we should indeed implement as well as I'm spending a lot of time with, I would say, all our B2B teams to make sure that we are organized to capture market growth opportunities, profitable market growth opportunities. And cybersecurity is absolutely an opportunity for us. So I think as we presented this morning, we continue to grow and to overperform the market growth, and we have an ambition to reach EUR 1 billion revenues by '23, and we will indeed continue to invest in this domain.

We will take our next question from Roshan Ranjit from Deutsche Bank.

Two for me, please. Just looking at some of the trends in France a bit more in detail. And I noticed there was a slight slowdown. Nothing, I guess, concerning at this stage in the retail trend 1.4% versus the 1.7% there in Q1. And I guess this comes on the back of the, I guess, EUR 5 premium for Livebox 6, the back book price increases initiated last year.

So could you just run us through how we should think about that retail trend going forward if it's getting tougher to implement these price increases, I guess we are lapping some of the book price increase, but are we still kind of comfortable with that 2% to 4% retail (inaudible) on growth, please?

And secondly, on enterprise, you liked this tough environment for the last 2 quarters now. I think previously, you had suggested that we could see a return to EBITDAaL growth by FY '23. Can you update us there now given this sharp decline that you've reported in H1?

Thank you. So I will hand over to Fabienne to answer your question in France, so that she can go into detail, and then we'll take the enterprise question.

Thank you for the question. So you're right, we observed a slight slowdown, but I would like to highlight one point despite the economic context, the activity remains solid, but we observed a move between mobile and broadband. And this market momentum a little bit soft. It's not new.

We observe this phenomena, this move since November 2021. This is due to the acceleration we record in 2020 and 2021, just after the lockdown period where fiber was very attractive. And we recorded a very strong commercial momentum. So it was normal that in 2022, we observed this slight slowdown.

At the upper side, the mobile is very active and very dynamic. It's exactly what you can observe in the result we recall in Q1 and in Q2. So we are very comfortable that 2022 will be a different year than 2021, more oriented mobile than fiber due to the 5G penetration and the attractiveness of 5G offers and momentum but we are not worried by the 2022 dynamic, and we are very comfortable with the results.

The volumes are well oriented and very strong. The ARPU are very well oriented. We launched, as you said, a new Livebox called Livebox MAX with EUR 5 gap. So we are able to keep to keep on our premiumization strategy on mobile and on broadband with the new offer, higher in price.

This offer represents 16% of our sales when we expected 10%. So not worried about the market even if the market is changing and moving, but no impact for Orange, and we are very confident for 2022.

Thank you, Fabienne. So regarding your question on the enterprise pressure on margin and the ability to recover, so indeed, the H1 EBITDAaL decrease is due both to the acceleration of the decline of our high-margin legacy business, which is not yet offset by our growth relays which have a lower margin.

But it's also due to economic difficulties such as the war in Ukraine, the chipset shortages or salary levels in our growth activities. So adapting OBS to the deep transformation of the market is a priority project. And we have already taken several measures which will bear fruit from the H2 during which the decline in EBITDAaL should be half compared to H1.

So on your question regarding recovery in '23, I would say, yes, indeed, it may take a bit more time to recover, but we are determined and already starting in H2, you will see an improvement.

We'll take our next question, Stéphane Beyazian from ODDO.

Two questions, if I can, one on CapEx and a follow-up on pricing in France. Regarding CapEx, I was just wondering whether you could elaborate on the very strong decline in the first half exactly what's happening in France to explain a reduction so fast? I mean, is it just that you've done most of the fiber.

And when we're looking at the initial guidance, which was to be around EUR 7.4 billion or slightly lower, I was just wondering whether you could comment if you're actually well on track to be largely below that level or not or we should expect definitely a much, much higher CapEx level in the second half?

Regarding pricing in France. I was just wondering, I mean, you did mention, obviously, the Livebox and the gap where you're doing well. To identify the actions that could be done on some of your packages. Do you think the competitive environment is allowing you to take some price actions in the future?

So on CapEx, Ramon, do you want to take this one?

Yes. Thank you, Stéphane, for the question on CapEx. So the decline in H1, which is quite strong, as you said, with close to minus 9% is not to be seen as replicable in H2. And you should expect that what is seen by the market, by consensus on the full year evolution of CapEx is what we expect to do.

So second half, you will have more CapEx because there is some cyclicity around in a number of areas. And so bottom line, what we are doing is what we said, which is basically when the peak of CapEx at group level has been reached, that now we are going from now on in 2022 to reduce the overall CapEx figure of the group, but we are not going to have the figure of H1 in H2. In H2, we will have a growing CapEx figure.

And so the yearly figure will be what we said, maximum 7.4%, and we will stick to this. If -- I mean, I can elaborate further, but it's better to take more questions. But the reason why we are able to start to decrease, it's very well in all our European countries, the fiber rollout has been very well advanced.

And as I said initially, we are at 90% of the overall target of deploying FTTH homes in France. The target we have for 2023. So this is going to be also turning also to the first question on inflation. One of our great assets compared to others, the networks in Orange as a group, are very well deployed today. And so in terms of the impact of inflation on CapEx, we will be more protected than others.

Thank you, Ramon. And so your question on the ability to price in France and the competitive environment, I will let Fabienne answer directly.

Yes. Thank you. So yes, even if the market is -- used to be a little soft, as I said, and the economic context is more tense, I think the most important in France is the market repair. And the market repair is still ongoing. It's good news because we need that to maintain our strategy.

All competitors and all players keep creating a better competitive environment and all raise their price or organize some back book repricing as we started in 2019 now. So I am really confident that even if the context is a little bit complicated more than we expected, we are able to maintain our premium strategy at the other. We need to raise the price specifically in the inflation context we know. So I am not worried about this point.

All the competitors have a limited recourse to promotion, as you can observe. All competitors try to push back book repricing when opportunity is there, and we will do the same in the future. And we are able to launch new offers, two new offers, more premium. So we will play with this game, and we are very confident that we can do that.

And maybe another point very important to highlight, it's we observe a strong rationalization on the MVNO brand. And this process is very significant because it's a kind of consolidation specifically on the mobile and that contribute to create a better environment also. So we can pursue the strategy we have decided in the past.

Our next question Jakob Bluestone from Credit Suisse.

Two quick questions. Firstly, just on the economy itself, you've obviously talked about the sort of macro headwinds in the OBS side. I was just wondering if you could share with us if you're seeing anything else in the other segments, I mean, in France, I think, Fabienne, you did mention some economic strain starting to appear is food price inflation impacting Africa and so on. So if you can maybe just comment on any other sort of signs of slowdown in other parts of the business.

And then just secondly, I think you mentioned that 2/3 of your energy costs were already hedged for '23. Can you maybe just share with us what would be the increase in your energy costs, how many hundreds of millions of euros, what's the step-up in 2023 energy OpEx, please?

So on the overall economy, obviously, we -- I mean, we are observing like everyone, the impact of the Ukraine crisis, we are still in an environment where COVID -- so the health environment is what it is and supply chains are massively disrupted. So there's a lot of questions on what's ahead.

But I mean Fabienne already answered for the environment in France. We are observing -- everyone is asking questions, but it's very difficult to detect early signs. And maybe I will let Fabienne add a few more points on the context in France before we talk about energy costs.

Yes, I just want to recall that the slowdown that we observed is only on the fiber market, not on the mobile. So we have a very dynamic and activity on the mobile. So don't make a mistake about this point. And maybe to talk about another segment, we can talk about the SOHO and SME market because this is very active we observe a very good performance on the SOHO and SME market segment, with more than a stable trend year-on-year.

We have a very strong performance, better sales than last year despite a very strong competition. And we are even doing better net adds compared to last year with the ARPU increasing.

So there is slowdown, yes, on the fiber, but that's all. And the mix is well oriented. So the volume on the fiber is a little bit less than we knew and I explain why this is due to the acceleration in the past. But at the same time, the ARPU are all increasing with a very significant move, EUR 70 for the convergence, it's a very good performance. So volume and value are (inaudible) on the B2C and the B2B, if we look at the SME and SOHO market. So I don't think we have to be only on a slowdown market appreciation.

And I think to complement that, what we observe is an acceleration since, I would say, COVID, of I mean online shopping, as we mentioned, enterprise accelerating their transition to digital solutions. So indeed, we see customer visits in physical point of sales have indeed decreased and they have moved more to online.

And we mentioned already the enterprise acceleration on digital collaboration solutions. The working from home policies also have an impact. So but this is not due to the overall economic environment. This is acceleration of market trends. Regarding your question on energy cost, I will let Ramon take it.

And on the general environment, of course, there are some headwinds, but there are also some positive elements we see roaming, for instance, is bank -- largely bank and in many European countries, in fact, back to 2019 levels.

So of course, we have also some positive news around. Overall, our total roaming revenues are just now at group level, 15% below the 2019 level, which is a very encouraging rebound. And I don't know if [Jerome] for Africa, Christel will want to say a word on what's happening in Africa. But in one word, I would say that we do not see any impact of the overall environment yet on the level of growth that we can see in Africa.

But we will go to Jerome just after a very quick answer on your energy question, which is that just to recall, and Christel gave the figures, but you know that total energy costs are slightly above 2% of total OpEx.

And I would say the good thing is that we had largely hedged our energy costs before the market price increase.

And so the 19% coverage in Europe and other 2/3 for '22 is largely done at a very acceptable price, including for 2023. So we are quite well protected. And the overall increase is quite limited and is fully absorbed by all the cost efficiency programs, the cost reduction programs we have.

It's, of course, fully embarked in the guidance that we gave for '22 -- for '23 when we say that we confirm the organic cash target for '23, it is with the impact of the increase in energy price. So this is very clear. And I don't think we will give a more specific, more specific figures. But if you take the inflationary impact and you add the price increases that we have already in the books plus the cost reduction programs, we largely offset the impact of inflation, including energy.

Yes. Thank you, Ramon, Jerome speaking as a complement for Orange Middle East and Africa. So as you said, today, there is no sign of deceleration of our growth of the impact of the inflation that we start facing in some countries on the demand. On the contrary, we continue our strong growth, as mentioned, with a 7.2% growth on our revenues because the appetite for both fixed and mobile data is still there on the one hand.

And on the other hand, in most of our countries, the inflation is -- and the impact of inflation on both energy and consumption products are mitigated by the states, which regulate the price of energy in half of countries in particular. But it encourages us to speed up on our renewable energy policy with lots of initiatives from solar farm to data center solarization.

So we are pushing hard to make sure that we will have more and more solar and mastering of our own energy production in our countries. And last but not least, energy cost is less than 5% of our total production costs on the region. So it's still mitigated and as you said, fully mitigated by the growth in the revenues and the very good performance on the mastering of indirect costs.

We'll take our next question from Mathieu Robilliard from Barclays.

I had two questions. First, in terms of the EBITDA, as you flagged, underlying EBITDA grew more than the reported one, and you reiterated the full year guidance. But if you could give us a little bit more details in terms of the plus and minuses that would help reach the guidance? And specifically, I think you mentioned that you expect the enterprise EBITDA declined to half.

And I was wondering what would drive that? So that's the first question. With regards to the second question, it's about Africa. There was a report in the press recently that you may be interested in investing in Nigeria. So I don't know if you had any comments around that? And more specifically, if you could remind us how do you see the inorganic expansion in Africa.

So on the EBITDAaL trend and plus and minuses for '22, I will let Ramon take the question and maybe we will hand over as well to [Elliot] so that we can zoom on enterprise. And then we'll come back to your question regarding Nigeria.

Thank you, Christel. Thank you, Mathieu, for the questions. On EBITDAaL, so in order to get to the around 2.5% growth we aim at in 2022. The different big blocks are basically France, as we said, thanks to the very solid performance, which is reported this morning on H1 is helping us to more than confirm, I would say, strengthen and this is the word I used, in fact, strengthened our objective to be very close, very, very close to stability of EBITDAaL in 2022, which I must say was not so obvious when we started the year.

So the dynamic on many accounts with churn, with ARPU, with volumes, et cetera, in France is really very solid. So this is an important part, of course, of the overall performance when you have MEA. And you just heard], the new CEO of (inaudible). This double-digit growth in EBITDAaL is extremely solid.

And the business in this region is extremely resilient and delivering regular fast growth. So you can book this in your expectations. You also know that Europe is also growing, and this is new because six countries of the Europe segment, starting with Poland, Belgium, et cetera, Romania also are delivering very nice growth, and Mari-Noelle is also with us this morning.

And Spain is doing much better even if still decreasing. So the overall Europe contribution is going to be positive to EBITDAaL growth in 2022. Then on enterprise we'll turn to [Elliot] but as we said, second half will be much better than H1. And as Christel also recalled, the pace of decrease should be halved in H2.

Let's say that the Mobile Finance and TOTEM segments are positively also contributing to this overall evolution. And then you have a central contribution of ECSS, which is contributing importantly to this overall performance. So we are extremely confident that we will reach the target of EBITDAaL growth for 2022.

And for the second half, once again, you know that there are some base effects, which are not playing in H2. There is the cost of the employee share plan last year, which is not going to be there. It had an impact of EUR 172 million last year. And there is no counter effect also of fiber cofinancing, which is having an impact in H1.

So these are the moving blocks, Mathieu, I hope it helps. But once again, we are quite confident that we will deliver the guidance this year. And then maybe Elliot to give a focus on OBS.

Yes. Thank you, Ramon. So a few words on the OBS business. So as you saw, our profitability is sharply decreasing in H1, there are three main reasons for that. The first one we talked about it is the erosion and the transformation of our core business. We see, for instance, on fixed voice the acceleration of the transformation of the customers' usage driven by COVID has really changed the landscape in an accelerated way versus what we were expecting.

The second reason is that we have strong IT growth and our IT and integration revenue is growing, but this is not fully translating into EBITDA growth at the moment. And the reason is that we don't have yet the required agility and critical mass to be at the market benchmark.

Although we are now the third IT company in France, for instance. And also, we had clearly a lack of discipline in the past 12 months on our cloud line of business. We had a lack of anticipation and monitoring of our cost base in context of inflation of both salary inflation and also hardware inflation.

And the third reason, after erosion of -- and transformation of the core business and the IT integration area, the third reason of our profitability challenges is that we have quite a complex organization today, which is limiting our ability to provide simple and customer-centric solutions and it prevents us as a consequence to efficiently adapt to this new market demand for more integrated and more end-to-end and more outcome-driven digital solutions.

So starting from this diagnosis, of course, we have built an action plan. We are also, at the moment, driving a comprehensive strategic and portfolio review for Orange Business Services together with Christel. I will not share the conclusions today. What I can tell you is that we will simplify our operating model, and I will trigger a reorganization process of Orange Business Services in September in order to decrease our SG&A and to facilitate the transformation of our core business towards more integration and also to facilitate our financial and sales discipline in IT domains.

But short term, because as we said, the EBITDA decline will be halved in H2. We have a solid action plan to, what I would say, refocus on our operational basics. So it's about better managing our -- the inflation situation. It's about workforce management, activity monitoring, sales pipe monitoring.

And to give you maybe two concrete illustrations, we have now a structured action plan around inflation to make sure that we have legal closes meant to adjust inflation in all our contracts, which was not the case in the past, to make sure that we adjust our quotation tools that we apply the existing closes in all our contracts as well that we adjust our sourcing strategy. So we have a comprehensive and structured plan on inflation management.

And the second illustration I can share with you is around cloud because as I mentioned, we were -- we had some challenges on the cloud in the recent past. And we have an action plan in place that is starting to deliver first results in June. We've increased our labor unit prices.

We've also, again, added inflation clauses in all our contracts. We have a very tight labor management in place, and we are also restructuring our portfolio and legal entities on the cloud area to improve our fixed costs. So that's the overall landscape. Again, short-term action plan and also more long-term strategic review.

Sorry, I just want to finalize on that. So the improvement in H2 will be driven by an acceleration of better trends in revenues, combined with cost cutting. That's how in the short term it works, yes?

Yes, that's the picture.

Regarding Nigeria, so there is no specific project. So this is very clear. However, to be clear, and you've seen the excellent performance of our Africa and Middle East region. So we are indeed always looking at potential opportunities.

We'll take our next question, Alex Roncier from Bank of America.

One, if I may, is just if you could give a little bit more color on the ICSS loss reduction and where those are coming from and what's the plan in place there? And then maybe just a follow-up actually on that question. What's the strategy regarding OCS?

I think we've seen in the press that you might consider at some point divesting from this entity. We equally also had relatively weak IPO of Visa, which I think you've got a very tiny stake in still left. So if you could elaborate perhaps on your larger content/media strategy and how you see the space evolving, it would be very interesting.

Yes. I will let Ramon take the ICSS question.

So on the ICSS part, you have among a number of elements contributing to this positive contribution. You have the share plan of last year, which had an impact on part of the central cost. You have the new senior part time program, (inaudible) which was agreed on in last December and which is bringing, of course, an important contribution in 2022, which will be also contributing to 2023 because part of this voluntary departure plan will have an impact in '22 and also in 2023.

These are two of the important blocks. And then you have also the positive impact of the recovery in international mobile services plus some other smaller elements, for instance, Orange Marine, submarine cable laying activity. So you have a number of pieces contributing to this. And overall, this is a significant growth contributing to the EBITDAaL overall growth performance for the year.

Thank you, Ramon. So on OCS, first of all, I mean, OCS is a success with almost 3 million customers. And -- but it's true that since we created OCS almost 15 years ago, there is obviously a massive changes in the content and streaming market. So we are looking at -- and we have been already announcing, I think, 1 year ago, that we are looking at potential scenarios to ensure continued success for OCS and for our customers. So we don't have any specific comment to make. But indeed, this is a review that started already some time ago.

We will take our next question, Thomas Coudry from Bryan Garnier.

I have two, please. First one is a follow-up coming back on OBS. You didn't mention competition as an issue. What are you seeing on that front? Is it competition intensifying? We've seen a number of consolidation moves on the B2B market lately in France?

And especially on new voice services such as unified communication or SD-WAN, replacing MPLS, don't you see increasing competition and risk of losing market shares here? And then my second question, please, is on MásMóvil. Could you please tell us again what -- why you are confident that the the deal should go through the competition authorities given that you could have in the target configuration, a dominant position in mobile or even in fixed?

Thank you. I will hand over to [Elliott] and maybe Fabienne to give more colors on the competition environment in France.

Yes. So I will leave it to Fabienne specifically on the French market and especially on the SME and so market. But generally speaking, what we see on the B2B market is that the COVID crisis has intensified the digital transformation of enterprises. And this has disrupted the positioning of B2B operators on the market because what has happened concretely is that COVID accelerated some pre-existing transformation that were already there, but such as the transformation to a software and cloud-defied world.

And this is opening the door to new competitors. Very completely, I mentioned, for instance, earlier, the fact that with all the lockdowns during the COVID period and the overall move to homeworking, we see that the fixed lines that were on the desk of the employees in enterprises.

They are progressively disappearing. They are transformed into collaboration software tools that completely means that the high-margin telco voice business that B2B operators were having is now progressively replaced by collaboration solutions, and the competitors are not at all the same.

The game is not at all the same. We are entering into much more deeper partnerships and also into more integration business. What we've seen as well, and you mentioned this in your question is that, again, the lockdown homeworking had a big impact on the way enterprises manage their networks.

They used to have big sites with many people leveraging the MPLS networks of telcos, especially in critical locations, big sites, headquarters. And now with new hybrid ways of working, we see enterprises accelerating their shift to Internet connectivity associated with flexible routing solutions, what we call SD-WAN, for instance, you mentioned it.

And again, this is opening the door to new competitors. So on this core business segment, that's where we are challenged, but that's where as well, we have wonderful assets to get this fight into this new competitive environment because thanks to the integration capabilities we have, infrastructure integration capabilities, thanks to the cybersecurity assets we have, thanks to the cloud assets.

We are very well positioned to play into this new game of infrastructure integration and to defend the value of our core business. I remind you that on SD-WAN, for instance, we are considered by Gartner as being in the top 2 worldwide ranking. So we have those assets.

And then more specifically in the IT environment, there, we are competing head-to-head with more traditional IT companies. And as we mentioned earlier, we are now ranked as the third IT company in France. And specifically on the IT segments, we have growth rates that are more or less at the benchmark versus competition. Maybe Fabienne, you want to say a few words.

Yes. Thank you, [Elliot]. Yes, on the SOHO and SME market, you're right, we have to face more competition. It's not new information. Some new players came on this market 1 year ago. But despite this competition, more intense, we don't see any impact on the market share for Orange. I think this is due to two pillars we have, our brand, very strong brand Orange in France and the loyalty of our customers are very strong.

So I think it's a strong asset. And the second part is the strategy we decide to pursue and enrich our offers to make the difference with the other competitors. We launched, for example, two new services in -- at the end of 2021 linked to Cybersecurity. These two offers are very successful. They are very unique in the market and sustain all the strategy we have. As I said a few minutes ago, the results obtained in 2022 are better than in 2021 despite more competition.

Thank you, Fabienne and [Elliot]. Coming back to your question on the MásMóvil transaction and the very important next step with the European authorities. So first of all, let me remind you that there are today 5 mobile operators in in Spain. And we are confident that the creation of the JV will enable more competition than a pure stand-alone scenario on the infrastructure side, thanks to strong synergies that we would generate from the joint venture.

So actually, the joint venture will not reduce the intensity of competition in the Spanish telecom market which will remain fueled by a well-developed and competitive wholesale market.

This is the end of questions. And now I will hand over the floor to Christel Heydemann.

Thank you. So before ending the session, I would like to stress again the key takeaways from our Q2 results, which are underlying top line, excluding cofinancing similar to Q1, up plus 0.7%. EBITDAaL strongly up plus 4.5%, again, excluding cofinancing. EBITDAaL margin improving and H1 organic cash flow up more than 70%. So this performance let us reconfirm our full year '22 EBITDAaL and organic cash flow guidance and also paves the way towards our '23 targets. I really look forward to talking again. And for now, I hope you all have an enjoyable summer break.