Orange SA (ORAN) 2023 Q2 法說會逐字稿

A very warm welcome to Christel Heydemann, Chief Executive Officer of Orange. You've just presented the Orange Group's Q2 2023 results, which have again stood out just like they did in the first quarter.

Would you first like to comment briefly on the main highlights of the second quarter?

Hello, Tom. First, I would like to express my satisfaction with the second quarter, which represents a real acceleration in the group's overall performance in terms of the main financial KPIs. Firstly, turnover, which increased by 2.6% or twice the level seen in the first quarter, our best Q2 growth in 15 years, then EBITDAaL, which increased by plus 1%, again twice what we saw in the first quarter.

Next, how we managed our CapEx, which fell by more than 6% after already falling by almost 5% in the first quarter. Finally, and certainly the most important, growth in our organic cash flow of more than 2% over the half year.

All in all, you could say the first half produced a good vintage. But besides the figures, to which we will return, I would like to emphasize the main point, which is our focus on execution. You can see this in the remarkable performance of our retail activities in France and Europe, and notably, is a result of our focused policy in price increases. On top of this, we continued our efforts in the quarter aimed at cost reduction, which have already brought us to nearly 30% of the EUR 600 million targeted by 2025.

In terms of external growth, we have completed the acquisition of VOO in Belgium, and we have announced our intention to withdraw from banking activities in Europe where work is underway. So if we take stock of what has happened since the announcements that I made at the Capital Markets Day earlier this year, I will say that we have made good progress.

Let's come back to your figures, which do indeed show a nice overall acceleration. Nevertheless, not all your countries have made the same good progress. This quarter seems to be characterized by some very mixed performances. So can you give us your analysis?

You're absolutely right. There are differences in performance, and I will split these into 2 large blocks. First, we have 2 main growth drivers that have maintained their momentum quarter after quarter. On the one hand, we have Africa and the Middle East, which generated a plus 12% increase in turnover, and an increase in EBITDAaL of plus 12% over the half year. This area is firing on all engines, whether it is data and fixed broadband, both up 17%, our Orange Money back to 25% growth.

On the other hand, we have Europe, which is supported now also by Spain, with a turnover increase close to 3% and for the half year, an EBITDAaL growth of more than 7%, delivering nearly a whole percentage point margin gain. In this context, the spectacular ongoing turnaround in Spain, where EBITDAaL grew by 11% over the half year, is extremely welcome news.

And then, there are 2 business areas, which are more challenging, France and Enterprise. In France, where EBITDAaL fell by minus 5.1% over the first half, we saw a Q2 acceleration in the growth of retail services, excluding PSTN, to plus 3.4% after plus 2.1% in the first quarter, a significant jump. Similarly, it should be noted that our value-oriented strategy can be seen in all ARPUs, which have been increasing year-on-year, whether convergence, fixed-only or mobile-only. I should add that this has all been happening in a market that has become more challenging this quarter, especially within the Mobile segment with promotions from at least 2 players that were even more aggressive than in the first quarter.

Finally, the Enterprise segment, which is showing a plus 2.4% growth in turnover over Q2. But by contrast, over H1, it's EBITDAaL fell by nearly minus 17%, although this is completely in line with our budget forecast, and it is improving compared to H1 '22 when it decreased minus 25%.

It should be noted that the action plan unveiled at our Capital Market Day is proceeding according to plan. A voluntary redundancy plan should be put in place by the end of 2023, the review and rationalization of our range of commercial offers continues and our ambitious action plan to upskill our employees' abilities to reflect requirements of tomorrow's job has started.

Let's come back to France. Why was first half EBITDAaL, a bit of a surprise, and bearing that in mind, how do you see the rest of the year?

The weak EBITDAaL performance of France is quite easy to explain, and that's why we are not worried. The decline in EBITDAaL is indeed slightly more than EUR 150 million during the first half, but 2/3 of this decline comes from the impact of energy price inflation, while the benefit of the price increases announced in the first quarter has not yet been fully seen in H1. We will see the full effects in the second half of the year, and this makes us very confident in an improved second half EBITDAaL performance.

Moreover, ongoing cost-saving initiatives will also feed into the margin as we move rapidly forward against our road map, thanks in particular to the success of our senior part time plan and the headcount reduction of more than 6% in France in the first half.

The last important point to highlight for France is the significant increase in operating cash flow, EBITDAaL less CapEx, which is up plus 5% this half as well as a decline in CapEx of almost minus 14%, highlighting once again the application of our strict discipline.

Moving to Orange Bank and MASMOVIL, where are we exactly?

On Orange Bank first, we announced at the end of June, our intention to gradually withdraw Orange Bank from the retail banking market in France and in Spain. We have therefore entered exclusive negotiations with BNP Paribas to define a referral partnership concerning Orange Bank's portfolio in France, but also the terms of the acquisition of Orange Bank's activities in Spain. I would, of course, like to remind you that Orange Bank's activities in Africa are not affected.

It is important to note that this transaction does not in any way change the group's financial trajectory over the period 2023 to 2025. Regarding the joint venture with MASMOVIL, we have entered Phase 2 of the European Commission's investigation. This was not surprising. We are confident of an agreement and expect to finalize this transaction by the end of 2023.

In terms of progress on the scale-up plan to overhaul the group's cost structure, what can you see there?

This is another major project that we also announced at the 2023 Capital Market Day with a new target of a EUR 600 million reduction on a cost basis of EUR 11.8 billion over the period 2022 to 2025. We said at the time that more than 60% would come from France and about 30% from Enterprise. To date, we can say that we have made fair progress since we have already achieved close to 30% of the EUR 600 million target, demonstrating our effectiveness in executing this plan. So this is a good start, but it is crucial in the current inflationary environment to maintain this momentum.

And just a few words on your full year 2023 guidance. That hasn't changed, has it?

Indeed, as you will have seen, we are on track despite the environment in France being more competitive in the second quarter than at the beginning of the year. The impact of the energy costs weighing on the current financial year and the enterprise segment just now beginning its transformation. In the second half, our strength will be more fully felt with Africa in great shape, you are benefiting from the full turnaround in Spain and France experiencing a significant improvement in its EBITDAaL.

And last but not least, we will continue to manage our capital expenditure with strict discipline. All this makes us fully confident in achieving our 2023 objectives, which we have confirmed as we keep a particular eye on cash management and make sure we create value with every action undertaken.

I haven't mentioned it so far, but value creation, along with execution is a second central pillar of the lead the future action plan, which continues to 2025.

Any final concluding words?

Overall, we achieved a very nice performance in the first half of 2023, which demonstrates the positive effects of disciplined execution, discipline ensuring the right pricing policy, discipline in executing our cost savings plan, discipline in investment decision processes. I am particularly proud of this result as it comes from the commitment of all our employees who, through their actions each and every day demonstrate that Orange has immense potential still to be exploited. And regarding the future, I have already said it once and we'll say it again. My priority is focused on the execution of our lead the future strategic plan. It is the key to sustainable growth across all our main financial KPIs, which include a strong organic cash flow growth trajectory and a clear improvement in value creation.

Christel Heydemann, CEO of the Orange Group. Thank you.

Thank you.