Orange S.A.
Q2 2015 Earnings Call Transcript

Published: 28 Jul 2015

[Operator:]

Good morning, ladies and gentlemen, and welcome to Orange's First Half 2015 Results Conference Call. The call will be hosted by Stephane Richard, CEO and Ramon Fernandez, Deputy CEO and Chief Financial and Strategy, with members of Orange executive committee for the Q&A session that will start after the presentation. Thank you and let me hand over to Stephane Richard.

[Stephane Richard:]

Good morning. Welcome to the presentation of first half result. I’ll first give you an overview of the key points of this first half and then of course I will ask Ramon Fernandez, our CFO to provide you with a full set of information and figures. And I will then take the floor to conclude before the Q&A session. We will ready to answer all your question. We are here with nearly the whole executive committee of Orange Group. Please note that these results do not take into account our recent operations, especially Jazztel which will be considered only from the second half but there are so many debt in Morocco. So I suggest we grow straightly to Slide 4, which presents the main results of the first half. Our turnover stands at EUR19.6 billion in the first half. It’s a very slight decline limited to 0.6%. It concerns the positive trends and improvement absorbed over each period now for several quarters. And if we exclude regulatory impacts, the turnover on the first half has been even stabilized. If we look at the second quarter of this year, we are in terms of turnovers slightly up by 0.4% excluding regulatory effects. This has to be compared with minus 0.3% in the first quarter. So this is to show how positive is the trend in terms of revenue. This improvement comes from all our big markets especially France, Belgium and other European countries while Africa and Middle East continues to growth steadily. This improved trend in turnover combined with a continued decline in indirect cost where we have been still very focused in terms of managements, we would decrease of a EUR156 million this half allows EBITDA to reach EUR5.6 billion which is a very limited decline once again to EUR73 million. This has to be compared with a year ago decline of EUR225 million, meaning that we have divided by 3 decline in EBITDA. And if we exclude once again regulatory impact, EBITDA is exactly stable in absolute number in the first half 2015. In the same time, we have continued our investment plan with even acceleration on the very high broadband, particularly FTTH in France. CapEx is up by 6.5% compared to the first half 2014. With 248.3 million customers, the Group’s customer base has grown by 4.1 million since the beginning of this year. This growth comes from the mobile base, up by 4.5 million. And the main driver of this growth in customer base is of course Africa and Middle East. Even if all our areas are progressing on customer contracts, up by 1.8 million. Let’s go now Slide 5 to show you sample of the very outstanding commercial performance of Orange in nearly all its operations. As a matter of fact, in the second quarter of this year, this overall performance have been very good in line or even in improvements with the good results of the previous quarter and we see this as a result of our targeted investments in very high broadband. For incidence, the Group’s 4G customer base stood at 12.1 million continuing its growth in all our European countries with significant acceleration in France, whose base grew by more than 1 million customers in the second quarter. In Africa and the Middle East, we have now four countries opened in 4G and all our countries are covered by 3G. The FTTH rollout has been very strong particularly in France rollout hence of course subscription where we have matched the second quarter, our record net sales of the last quarter of 2014. This excellent performance is also the results of the broadband conquered share which is estimated at 46% in the second quarter. This is a record high for years in France. We have reached 720,000 FTTH customers and we will fulfill our target of 1million customers by the end of this year in France. In Spain, the growth of the fixed broadband base continues driven by more than a 100,000 FTTH net sales since the beginning of the year and this has been which despite strikes by the convergent operators subcontractors whose effects on connections will be recovered in the third quarter. In Africa and Middle East, the mobile base reached 102 million customers and Orange Money. Our mobile banking service has now over 14 million active customers. On the enterprise segment, we continue our development in the areas of cloud and cyber security with growth over 20% in those two segments. Hence it is once again a satisfactory result in so far as those two services cloud and security are among the top priorities of our B2B division. Let’s move to Slide 6 to give you a few elements about our CapEx. As you can see, CapEx has been still at a high level in the whole first half especially in Q2 2015. This is fully in line with our Essentials2020 plan. And the CapEx to sales ratio is 13.7% in the first half and even 15% in Q2. In the fixed side, we increased our investments in fiber by 74% year-on-year and we have now 4.3 connectable households in France. This is up by 0.7 million over the period. Just notice that in France, we rollout 70% of the whole connectable homes in this country our sales Orange. We have 1 million of connectable households new in Spain and in prudence we are still running VDSL, very high broadband on copper with today 4.5 million households that are eligible for this technology. In the mobile, Orange is clear either in France in 4G with over 76% of coverage of the population. This is a growth of 7.5 points in one year. We have continued our deployments in Spain in 4G where we have reached 80% of coverage, but we are today at 79% in Poland and 95% in Belgium. In Romania and Slovakia, the coverage rates are respectively 67% and 54%. As I mentioned before, all our countries in Africa and the Middle East are now covered with 3G following the launch this year in Cameroon, GuineaBissau and Iraq. 4G was launched in Botswana, Jordan and Morocco joining Mauritius. Our Essentials2020 plans focuses equally on improving the customer experience and search for optimization through sharing infrastructures. And for incidence in France we have particularly improved indoor coverage through the use of low frequencies. The coverage of motorways, we have now six of the main motorways in France that are covered in 3G, up more than 90%. And we have implemented a new program for the coverage of wide areas. In Egypt, Mobinil singed tower remains in April with Eaton Tower concerning 2,000 towers. In Spain, we have extended our network sharing agreements with Vodafone in non-dense areas. And we have also launched our modernization program of our shops with the development of the Smartstore concept. The first shops will be opened in the next week in France, Spain, Romania and Slovakia. And finally, Orange continues to invest in submarine cables with in the first half the increase in the capacity of the SEA-ME-WE 4 cable connecting Europe to the Middle East and Africa and the connection of Benin and the Canary Islands to the ACE submarine cable. Let’s move to Slide number 7. We have in this first half activity managed our portfolio of assets in line with our development objectives. I just remind that the one of those objective is to create strong convergent operators in Europe, while in the same time trying to capture more growth in Africa and the Middle East. So in Europe as you know, we successfully completed the acquisition of Jazztel in Spain. This is a very exciting project. We are now able to combine the two most dynamic and success stories of the telecom markets in Spain, Orange and Jazztel and we are going to become the most dynamic convergent player in this market. In parallel, the EE sale process continues and we expect a final agreement to be concluded with the antitrust authorities in the first quarter of 2016. We have also completed the sale of 80% of Dailymotion and initiated the stake of Orange Armenia because this operation could not reach the critical size to become a convergence operator in this country. We are still developing in Africa and the Middle East. Recently we have exercised our option to increase our stake at Méditel in Morocco. We will consolidate fully this operation in the second half of 2015. And we have entered into exclusive negotiations with Bharti Airtel for a possible acquisition of four subsidiaries of this group Burkina Faso, Chad, Congo Brazzaville and Sierra Leone. Those four new potential countries would allow us to complete our networks based on regional cluster approach in this part of Africa where we have very sweet track record. I will now hand over to Ramon, who would provide you with multi dates of our finance performance.

[Ramon Fernandez:]

Thank you, Stephane. Good morning. So I will give you some more details on the revenues, EBITDA and our balance sheet before commenting the performance of different segments. But first, one remark relating to our accounting methodology, in order to align with the standard practice, we have modified our IFRIC 21 accounting approach. And therefore the annual costs of some levies on our accounted when the obligation event occurs on January 1st instead of being equally shared over the year. This interpretation has no effect on annual financial statements nor on cash flows, the impact is only interim results in France. Second word also on Jazztel, you know we have just closed the voluntary tender offer, we have a spectacular success, we have a 94.75% acceptance of Jazztel shareholders. And we will once of this squeeze out process is completed own 100% of its shares by mid-August. Jazztel would be consolidated in our accounts starting from the first of July. And Jazztel published its results last Friday fully in line with expectations. So we will now focus on the successful operational integration of both companies. We will give you more details during Q3 results regarding the impact of Jazztel integration but also following the consolidation in our accounts of Méditel in Morocco which is effective from July 1st. So let’s now turn to our H1 revenues, Slide 9. You can see that the second quarter confirms the improved trend in revenues we could observe across 2014. We have a slight decrease of 0.2% in Q2 compared to a decrease of 2.5% for the full year of 2014. Excluding regulation of a group even posted positive growth of 0.4% for the first time since Q2 2011. The improving performance was supported especially by a recovery in France and in Europe. We have Africa and the Middle East maintaining that grew momentum. The main drivers of Group revenue trend improvement were the recovery in mobile services. Mobile services went down 1.6% in Q2 it was 2.8% in Q1. And these improvements can be seen especially in France and Spain. We also see an upturn of IT and integration services into the enterprise segment. Mobile equipment sales accelerated in the second quarter up 22% with growing installment seems in France. Fixed broadband services continued to gain momentum with revenues increasing by 3.1% in Q2, mainly driven by convergence services in Spain and fiber optic in France. So all in all this limited decrease in revenues contributed to preserve EBITDA generation as illustrated in the next slide. In H, EBITDA decrease was limited to 1.2% and even 0.4% in Q2 close to stabilization. Excluding regulation, EBITDA is even increasing by 0.9% in the second quarter. As in Q1, this good performance is the result of both a lower decrease in revenues, we have just seen this and also maintained efforts on cost cutting. A graph at the top right provides more details on the EBITDA evolution compared to the first semester 2014. You can see that first revenues decreased seven times less than in 2014 with minus EUR112 million to be compared with minus EUR733 million in H1 2015. Second, we maintained our efforts on costs, while sustaining the increase of our activity. Our direct cost is slightly up in line with our revenue evolution. Interconnection costs increase reflects the good performance of our international carriers business and also the use of bit steam FPGA transit in Spain. Hence its cost increased mainly in Poland following the launch of installment sales last year and in Romania in line with revenue growth. We continued our efforts on indirect distribution commissioning which decreased by close to 10%, minus 9.6%. Indirect costs decreased by EUR156 million, all costs are decreasing. Excluding exceptional items, labor costs decrease was 1.7% mostly driven by a 4% decrease in Group average full time equivalent. The actual labor costs decreased by 0.9%, this is the result of a few specific elements this quarter mostly the lower year-on-year impacts of a tax credit CICE, the new holiday pay provision and also salary increases which were active on 1st of January. Overall, these very robust results allow us to fully confirm our guidance of an EBITDA between EUR11.9 billion and EUR12.1 billion for 2015. Turning to our net income, Group net results stood at EUR1.3 billion for the first six months and net income Group share at EUR1.1 billion was multiplied by close to 2 billion compared to the first half of 2014. This improvement is mostly the result of less impairment than in H1 2015 where we depreciated EUR229 million in Belgium, a second site decrease in tax, due to a fact that in H1 loss share, we have to pay a significant tax for the disposal of Orange Dominicana. And lastly, the increase of net income from discontinued activities explained in H1 by dividend received by EE of where EUR364 million. Last point on our balance sheet situation before turning to our business review, this is half year, net debts remained broadly stable at EUR26.4 billion, which translates into a net debt to EBITDA ratio of 2.13 in line with our guidance of net debt-to-EBITDA around 2. Our liquidity position remained strong at EUR12.1 billion. And in H2, our net debt will be impacted by the consolidation of Jazztel and EUR3.4 million payment of the acquisition price but most of this impact will be offset by the release of 2.9 billion which was under escrow in 2014 for the VTO process. Overall, this would result in a temporary slight increase in our net debt-to-EBITDA ratio to around 2.2 at the end of the year but this is fully consistent with our guidance given the upcoming sale of EE in Q1 2015. Turning now to the business review of our activities and beginning with France on Slide 14. The second quarter confirms the improvement in revenues. Thanks to both an improvement in mobile services and an acceleration in fixed broadband. On mobile services, the ARPU revolution significantly improved confirming the recovery trend of 2014. Thanks to a well advance back book reprising level with 92% of mobile customers on post April 2014 tariffs plans, while the mix of premium customer continues to increase. Moreover the mobile equipment sales continued to accelerate growing by practically 50% in Q2, driven by the success of SIM-only installment plans. Fixed services revenues contracted by 1.8% in Q2 of the minus 1.1% in Q1. The inflection is mainly due to a slowdown of fixed wholesale activities growth in France, explained mainly by a comparable base effect due to a strong Q2 in 2014, where we recorded a strong unbundling activity and the speedup of fiber rollout activities. The performance in broadband services continues to gain momentum with an increase of revenues by 2.6% in Q2 of that plus 1.1% in Q1. Thanks to fiber success. H1 EBITDA went down 0.7%, this is minus EUR24 million, which is five times less than H1 of 2014 and allows to increase the EBITDA margin rate by 0.2 point to 35%. Excluding regulatory impact, the EBITDA has driven by EUR2 million in France. Direct costs slightly decreased, thanks to lower commercial costs resulting from the segmented approach to a market and restructuring of the indirect distribution channels. And indirect costs continue to fall, driven not only by labor costs but also by IT and network, property, G&A and other indirect costs optimization. As regard to commercial performance, let’s have a look first at mobile. The second quarter posted an improved level of contract net adds compared to Q2 2014 and a record level of 4G acquisitions with 1.1 million new customers bringing our 4G base at 5.6 million. In a very competitive market, the performance and the quality of our network continue to be recognized by our customers and allowed us to keep the level of contract churn at 14.4% more than 1 point compared to one year before. 44% of our customers have migrated to SIM-only offers and the major premium customers increased at 61%. Turning to Slide 16 and fixed market in France. You can see that the net adds of the second quarter doubled compared to last year fully supported by our fiber strategy. We’ve 82,000 FTTH net adds half of which are new Orange customers. Globally the broadband customer is increased by 3.2% year-on-years with a record estimated conquest share of 46%. Convergence continues to drive our sales as nearly half of our broadband customer base is now on the quad play offer leading to a decrease in the churn rate despite a strong pressure on the prices on the market. And as Stephane explained earlier, we continued the rollout of our fiber network with 4.3 million connectable homes. The number of fiber customers divided by the connectable homes increased by 12.5% to 16.7% end of the second quarter. Turning now to Spain, in Q2, Orange achieved a strong commercial performance driven by mobile and fixed very high broadband and by convergence. Our commercial performance was strong again in 4G with 600,000 new customers in Q2. FTTH customer base was multiplied by 1.4 in the quarter up to 159,000 customers. And our fixed broadband base grew by 11.5% despite adverse external conditions on referring to the strike of Telefonica installers. As regards to revenues, the trend improved in Q2 versus Q1 with revenues declining by 2.5%, it was minus 5% in Q1. Mobile service revenues were driven by an improving ARPU trend even if it remains under pressure and fixed revenues kept growing at plus 8.3% in Q2 with a convergent penetration reaching 81% of the base. Once again, we will provide you with more details on the Spanish market and the integration of Jazztel in Q3. Turning to Poland, Slide 18. The underlying trends in mobile and fixed remained broadly unchanged. Mobile service revenues eroded by 3.9% excluding regulation with quarter, it was minus 3.8% in Q1, but this is one of the bank of an improved commercial performance in postpaid with plus 170,000 contract net adds of the plus 99,000 in Q2 2014 and plus 48,000 in Q1 2015. Competition from cable kept a strong pressure on fixed revenues down 6.9% excluding regulation of the minus 7.9% in Q1. Our broadband base continued to suffer in regulated zones, despite our efforts to migrate customers from ADSL to very high broadband, meaning VDSL and FTTH but also to fixed LTE. Performance however was better in the regulated areas with half first half the broadband growth adds up plus 7% year-on-year. Overall, we across our head with all convergence strategy with 29% of our broadband base now on open offers. And we are stepping up our efforts with new convergent tariff plans introduced just recently. So bottom line in Poland, first half EBITDA was down 1.1% but significant cost savings initiatives across all areas of business carried a plus 0.3 point of EBITDA margin improvement at 32.3%. Let’s turn to Belgium and Luxembourg, Slide 19, where we see in the first quarter, a good news it’s a first time since like Q2 2014 that we see consolidated revenues turning almost stable. And if you look excluding regulation at minus 0.4% against minus 2.7% into the previous quarter, this is explained by our strong mobile commercial performance improving sequentially in both B2C and B2B segments. We successfully posted plus 12,000 postpaid net adds excluding M2M versus minus 20,000 in Q2 2014 and minus 5,000 in Q1 through we are back into a positive net ends area which is nice and evolution in our annual constraint churn to turn positive, up 0.6%. And last but not least, the annual constraint churn improved significantly versus the previous quarter, down by 5.5 point in B2C and by 1 point in B2B. Mobistar continued to make steady progress on its 4G strategy, maintaining its leadership. We have a 95% outdoor coverage, 77% indoor where 4G base being almost tripled reaching approximately one out of four postpaid subscribers. So with its commercial momentum restored, Mobistar is ready to take full advantage of the upcoming cable growth opportunity. And withstanding clear improvements, we believe that the current draft decision on cable wholesales tariffs can still be further improved to ensure a sustainable profitable framework for alternative operators into the context of the acquisition of Base by Telenet. Into the other European countries for the first quarter since Q2 2014 revenue growth turned positive this quarter at plus 1.8% driven by Romania which represents close to 60% of this sub-segment. Romania is rising plus 6.4% versus an erosion of minus 3.7% last quarter. Churn is improving in three of all four countries and EBITDA margin into the first half of the year went down 2.6 points impacted by an increase in direct costs mostly in Romania because of customer’s equipment, but this is partially compensated by a decrease in indirect cost both in non-labor and in labor costs. Turn to Africa and the Middle East, Slide 21. You can see that which region continues to grow both in revenues and EBITDA. Some details related to our listed subsidiaries cannot be provided today because these companies have not published their figure yet. But you can see here, revenues growing by 5.6% in H1. Q2 growth was slightly lower than Q1 due to some specific prepaid revenue recognition which had occurred last year in Mali, but very tight performance with quarter driven mainly by Ivory Coast, Egypt, Congo, Guinea and Mali with Jordanian suffering from decreasing international traffic. We have into the region mobile customer base going up by 4.5 million customers reaching 102 million, this 11% more than the end of June 2014. In Africa and the Middle East, we have an EBITDA growing by 6.1% compared to last year reaching 34% of revenues. So an EBITDA margin 34% in Africa Middle East. And the key reason is of course revenue growth, while this growth is impacted in costs in network, property costs as the number of sties increased by 11% to support customer traffic increase. As Stephane said, all African and Middle East countries now benefit from 3G and we have successfully launched 4G in two more countries Jordan and Morocco. Orange Money keeps growing with more than 14 million customers and so all these results confirm our ambition to increase revenues by around 5% in 2015. Slide 22, still on Africa and the Middle East illustrates our convection of region is a territory of growth for Orange. We have now finalized, we holding gathering of participation - full our participation is Africa in the Middle East, which will give us more agility for our future developments. Our increase into the share capital of Méditel and the discussions that we have engaged with Bharti Airtel relating for four Airtel subsidiaries are fully aligned with our long term value creating ambition in this region. Extending our footprint in these four countries would be obviously an opportunity for us to rollout the wining of our operating model with opportunities for cross border synergies, so I am not going to mention them into details but you can think about IT platforms, about networks, about roaming, about saving on sourcing, cross boarder services such as Orange Money and Jazztel. So if the discussions with Bharti as successful and with the consolidation of Méditel, this jointly would increase by more than EUR1 billion our revenues in the region which would then represent close to 14% of Group revenues, now it’s around 11%. Last, turning to the enterprise segment on Slide 23, you can see that the decreasing revenue trend of our legacy activities has been slowing down as the products makes shifted towards voice over IP solutions that our services continued the slightly negative trend supported by value increase, especially outside France event help to compensate for price pressure and in a market evolving towards more services, cloud and security our two strategic activities for OBS with revenues growing respectively by 21% and 24% in the second quarter. Recent acquisitions like Cityvox, Cloudwatt or [indiscernible] have strengthened our positions as a leading player in IT and integration services industry. In this context, the EBITDA margin of the enterprise segment is stabling each one as we compensated most of revenue decrease through an ongoing effort on costs optimization along with disposals affects. I will now turn back to Stephane for the 2015 guidance.

[Stephane Richard:]

Thank you. So regarding the 2015 guidance, those results us are clearly enabling to confirm the whole guidance for this year for 2015 that we announced in February. So first we fully confirm our guidance our guidance regarding the EBITDA generation with the EUR11.92 billion, EUR12.2 billion area. WE are fully comfortable in our capacity to reach this target this year, especially thanks to the continued efforts on our cost structure. May I just remind you that this guidance does not yet include Jazztel, Jazztel will be consolidate in our accounts from the second half of 2015. And for the rest of our guidance there is no change. The net debt-to-EBITDA ratio around two in the medium term is clearly confirmed as well as the dividend policy. And our Boards has decided to - has given an agreement, the payment of an interim dividend of 20 cents on December 9th 2015. And last regarding the M&A policy, we want still to be very selective in this M&A policy. We want to focus on our existing footprints. And so regarding all those big items there is no change. And to summarize, we are happy and satisfactory, satisfied about this set of results which seems to us very positive and very strong and very encouraging regarding the strategy that we implement and very confident in our capacity to reach to the whole sets of target within our guidance. Now we are ready to enter into the Q&A session. Thank you.

[Operator:]

Thank you. We are now available for your questions. [Operator Instructions] We will now take the first question from Stephane Schlatter from Societe Generale. Please go ahead.

[Stephane Schlatter:]

Thank you and good morning everyone. I have three questions please. First one Mr. Pellissier, so then you said in June you would share key for the roaming contract between Orange and T-Mobile has gone too far and whether progressive exit has to be planned. Could you please let us know you thoughts on these and also what the regulator take and they really do? Second question, could you please give us an update about talks with Telefonica to provide Spain with access to premium content of Telefonica following the acquisition of DTS? And finally, a few weeks ago, Mr. Ramon during the call held a meeting with the French Telco and could you please let us know main points discussed and any important items we should bear in mind for launch, please? Thank you.

[Stephane Richard:]

So I would just ask Pierre Louette to answer to your first question and then by the way we have Marc in the call for the second one and I would take the third one. Pierre?

[Pierre Louette:]

Okay, so hello everyone. We had the first audition with the ARCEP recently. You have to remember and you mentioned it, and ARCEP decided that they would check the roaming contract and check if there was an extension which was organized or not by the parties to that contract. So we have actually made it clear to ARCEP that we had introduced an extension committee within the framework of the contract and that we had started discussing with it and the modalities and the ways in which we could walk out all of us from the contract when the contract regularly expires which is on the 20th of December, 2017. ARCEP has made it clear to that they one, they were looking for a kind of a smooth extension not something to Brussels and that it had to be organized possibly through mutual decision agreements. I think this is one of the central scenarios that they have in their minds. There isn’t much more that I can really disclose at that stage, but what we can tell you is that the revenues from the contract extremely satisfactory as of today that we do see in the future of course a slight decrease in program, but maybe not as strong as we would have expected in the past and this is also clear to ARCEP.

[Stephane Richard:]

Okay, thank you. May up to you Marc, maybe if he is on the call to take the second question. Marc?

[Marc Rennard:]

Yes, good morning. So regarding the situation around content distribution here in Spain and as you may know, the CNMC has published its decision regarding remedies in April and so the framework within which we are acting at the moment. So to recall that we are not satisfied with CNMC’s decision and that we are recurring this decision in particular as the extend of premium excluding content availability is concerned, only half of Telefonica’s exclusive content is made available to its competitors. And so recurring again the formula used to calculate the amount to be paid by challengers regarding the distribution of right. Overall so we are definitely unsatisfied with the proposal regulatory framework in the situation where Telefonica is now holding close to 80% of Pay TV following its acquisition. Nevertheless obviously, we are participating in the various processes enabling our excess to Telefonica’s wholesale content offers, in particular that once again the situation is definitely one of country with the decision that has taken by the CNMC.

[Stephane Richard:]

Thank you, Marc. Now regarding the third question, in the round table that was organized by Emmanuel Macron, there were mainly three topics. The first one is about the coverage of remote areas in 3G network and we have signed new agreements between the four operators in order to accelerate and terminate the coverage of those white areas in 3G services in which Orange will take of course the leading parts. The number was above the 700 megahertz auction. As you know the main point was to obtain this auction is totally equal in terms of every participants and transparence and clear. And this has been obtained since there is no reserved thoughts of the spectrum to anybody. So we are satisfied with what has been decided regarding this 700 auction. And then third one was about the very high broadband rollouts the networking fronts, where the roll of Orange, the role as today the front frontier and the main provider of the new connectable homes in France has been recognized by the authorities goes to the Minister, the regulator that has been put in place regarding this topic. As I mentioned Sosh has provided nearly 70% of new connectable homes since the beginning of this year. And so there was no specific new rules or decisions or anything else that came out of those meeting accept maybe the fact the discussions between SFR, Numericable and ourselves with both prescription a few weeks ago has been closed without any new agreement between us meaning that we will pursue our rollouts plan as it was planned before. We are going to improve - to expand extend our footprint by taking back the more like 700,000 homes that SFR had committed to do and will not do. So Orange will do meaning that we will even do more in terms of running FTTH in France which is good. And that’s it’s more or less regarding those meetings. Next question.

[Operator:]

Thank you. We will now take the next question from Nicolas Cote-Colisson from HSBC. Please go ahead.

[Nicolas Cote-Colisson:]

Thank you. Start - sorry with Spain, you have 9% EBITDA drop, anyone of link to the acquisition of Jazztel or is there any other reasons for the counter performance? And then on France, could you comment on the pricing environment given there is a high degree of promotions in the market including at Orange, how sustainable is it you think? And last on the fiber build out follow-up on the latest answer, longer term, what is a percentage of lines you think would eventually beat in the less dense area? Thank you.

[Stephane Richard:]

Okay, first question, Marc.

[Marc Rennard:]

So regarding EBITDA, there is no one off, definitely the EBITDA decline is related to the revenue decline which has been able to compensate roughly up to 30% based on commercial cost contention as you may see our stock has continuously decreased over the period and also content of our effects in particular [indiscernible] The overall revenue trends is going definitely related to the reprising of the base build to see and convergence trends which order to be completed.

[Stephane Richard:]

Okay, thank you. I’ll ask [indiscernible] CFO of Foreign Trends to take the second question.

[Unidentified Company Representative:]

Yes, hello everybody. So as you know the trend in revenue foreign trends is constantly improving. The mobile and the service operating revenues is also subject to a consumer improvements. And as you say, we don’t have any big use or promotions. However we need to remain conscious and the market is still very competitive and turbulence as highlighted by the increase of promotion. But of course in the trend foreign trends, we don’t need as you can see in our commercial results to use those sort of massive promotions to sustain our very good performance in H1.

[Stephane Richard:]

Thank you. Now regarding the third question about FTTH in the less dense areas, as you know France has been divided in three segments, the first are dense areas where there is competition between all sort of technologies but I thought soon we would provide 100% of FTTH. Then of course you have the medium let’s dense areas where you will have FTTH and then you have than serial, let’s say we will - where in fact the rollout will be provided through PPS between local communities authorities department and so on and operators. So this - and it is more or less the three equal in terms of homes parts of the country. In this third segment, we will still have FTTH of course but in the much lower proportion than in the two others difficult to provide with a figure, but clearly in those areas you will have also VSN, on copper you will have satellites, you will have maybe at one point 4G or even 5G access. But let’s keep in mind that in France compared to other urban countries, the main technology that has been chosen to provide very high broadband access is still fiber. So in my view, you will have majority of those homes is the rip areas but that will be a quite way the FTTH. And as far as the range is concerned, we will be part of this either being the operator of number of those public networks, small networks or being customers or so of those networks and we have plan to put a little bit of money in order to play alongside with the local authorities that we provide public financing to be present. So as a whole I would say that in France, we would have certainly over 80%, between 80% and 90% of FTTH by 2022 to 2025.

[Nicolas Cote-Colisson:]

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

[Stephane Richard:]

Laurent?

[Laurent Paillassot:]

So Nicolas, at the end of H1, the cash cost finance are represent 25% of our gross CapEx and despite with an increase from 40% to 50% at the end of 2022.

[Nicolas Cote-Colisson:]

Okay, that’s helpful. Thank you.

[Operator:]

Thank you. And the next question is from Frederic Boulan from Bank of America Merrill Lynch. Please go ahead.

[Frederic Boulan:]

Hi good morning, everyone. Thanks for taking the question. Couple of questions, firstly on the balance sheet structure, if you could discuss what you think is the adequate level of leverage and particularly discuss when should - EE. And then the follow-up on the Nicolas questions, pricing, if you could share your thoughts on pricing development, we think both some on the line price increases from else and others and also still heavy promotions at this stage expect by some tower or is this a bit premature? And then I’ve got a question on the looking at actually be that development, so we talked about Spain briefly which it is a bit being in the performer, if you could share any some source on that how you plan fix this ignoring the acquisition of Jazztel really of a underlying basis? And then looking at other assets France AME Enterprises going pretty well, but you still have very big underperformance in other European country, so what’s the plan there, is it to fix them or potentially going up to closing up some of the assets? Thank you very much.

[Stephane Richard:]

Okay, on the balance sheet management, Ramon.

[Ramon Fernandez:]

So at the end of the semester, we have as I said an EBITDA ratio of 2.13. We have 300 million more debts than in December 2014, but we would be to around 2.2 at the end of a year because we will have a paid fee of EUR3.4 billion for 100% of capital of Jazztel and then we will get by March 2016 via revenues from the EE sale. So our expectation is to go back to around a ratio of 2 during over the course of 2016, but the sale of EE and including potential acquisition of the African assets that we are discussing with Bharti Airtel. So our intention is really to keep our leverage at around the levels of two versus our guidance in the medium run and we will stick to this objective.

[Stephane Richard:]

Regarding the pricing developments in France, I made a few comments and vis-à-vis we are able to add. In my view, if you look at the broadband market first, the situation is that you have one of the player who clearly is losing customers which is SFR and Numericable and the three others that are gaining net adds. With different strategies, is still trying to focus on the let’s say low price DSL broadband offer with relative success. I would say if you look at the number of new customers that they have in this offer, it’s steadily declining quarters after quarters, so I think that the strategy of begin aggressive in the DSL market is not totally relevant in the market which is clearly driven by FTTH or cable today. And then in the mobile market, you have - this has been mentioned but it is also true in the broadband market a lot of promotions one-off promotions especially coming from fleet with long term telecom. This provides big volumes but in a few days and I think it’s a way for us to keep with the rhythm of acquisitions that they have in their plan. Now if we look at the absolute level of prices in France, this has been more or less stable for now nearly 18 months. As far as we are concerned a range we have a premium on every kind of segments mobile and fixed and broadband and despite this premium which is in our view justifying by the quality of service quality of network, we have a very strong momentum. So no one can really speculate about what will happen in terms of pricing environment but the only thing that I would like to remind is that we have low prices in France obviously I just could mention the written study made by the Belgium regulatory who watched like 700 different offers in the European Union showing that’s the lowest prices for both mobile and fixed services on France. So I keep on thinking that the current level of prices in France let the very limited margin to enter into a newer phase price work. And that’s it now of course what we think is that 4G, FTTH and the segmentation of our marketing offering marketing policies in France will - are strong enough today and relevant enough in the market to stay on track in terms of commercial momentum. Louette, you want to ask something.

[Pierre Louette:]

See I may just had that, as you said we have a very, very strong commercial performance in spite of having clear and well known 10 to 15 price premium in each offers, each segment. Hence of course we just increase the best seller offer we have them brought down 3 euro and as Stephane said, we think that we could continue to I would say improve significantly the trend of the decrease of the ARPU in 2015 just to compare to 2014.

[Stephane Richard:]

Yes, Spain, Laurent.

[Laurent Paillassot:]

Yes, just on Spain, two things, one is that when you look at the sales performance of the period, we have kept a very strong sales performance especially first on broadband where we lead and not only Jazztel when you add the performance of Jazztel and we have been publishing Jazztel performance and the Orange Spain performance. You see that in terms of net adds but also revenue performance, this is a strong performance. The second point is that when you look at the trend in terms of revenue, the trends is improving. We have a bit Q2 keeping your swing to considerations effects that on first half, we still have strong regulatory impact in Spain which should decrease also in second half. When we take those two situations, we expect a revenue recovery in third quarter and even we hope to be a better event in first quarter of the year also and as we said and explained by Louette just a moment ago, the cost structure of Spain is relatively small which means that even if we are just discussed compared to some of that you are refer in the group as to feed the income, the amount to reduce as discussed is not that big to adjust versus revenue. We are not flexible but with less capacity to reduce cost either situations but even without taking into account Jazztel, we should see a revenue recovery and then a better EBITDA performance in the second half of the year.

[Stephane Richard:]

And you last question was about the countries that are performing less well let’s say and where we are focusing, so I’ll ask Thierry to mention Poland.

[Thierry Bonhomme:]

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

[Stephane Richard:]

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

[Frederic Boulan:]

Okay, thank you very much.

[Operator:]

Thank you. And we will now take the next question from Andrew Lee from Goldman Sachs. Please go ahead.

[Andrew Lee:]

Yeah, Good morning, everyone. And a couple of questions, firstly on your underlying cost cutting delivery, your indirect cost reduction in Q2 I think was EUR85 million clearly is improved from the EUR71 million in Q1. Is this quiet a cost cutting or is it low reinvestment into Africa? And could you give us some guidance on how this indirect cost cutting delivery and reinvestment should trend into each two? And then just secondly, Stephane showed some comments into your consolidation this morning, I mean you said at the Capital Markets Day this opportunity was not there given the lack of network or fixed network technology for at least three to five years. I mean is that been changed in your thinking on timing here? Thank you.

[Stephane Richard:]

Okay, thank you. Ramon for the indirect cost cutting delivery.

[Ramon Fernandez:]

So in terms of cost cutting in H1, we have delivered on indirect cost minus 156 million and we are going to you know continue of course these efforts in the second part of the year even if it will be a bit low probably when in the first half but we should achieve somewhere around EUR250 million probably for the whole year. And it’s an effort which is across the board. In Europe, we are making this effort in indirect costs across our board. In Africa and Middle East the picture is a bit different because you have a number of elements which are putting some pressure on indirect cost, but these are also going with increases in revenue. So you have some inflation, you have some investments we are investing quiet a lot, you have also some taxes which are there. But all in all you have seen that the EBITDA margin is increasing. You have an increasing EBITDA margin in Africa which is showing that we are able to compensate this pressure on indirect costs, maybe there would be some sort of comments from Marc Rennard on this end on direct costs. We are maintaining obviously our efforts. In H1 direct cost, we have seen this in the presentation are increasing by a bit less than 120 million. The second half of the year should be more looking at more stable figure, because we will have much less direct costs especially in France compared to the second half of 2014. We've less commercial costs. So the global picture for the full year will be maintained efforts on costs. Despite the thing that we will accompany the more positive trend in revenues and activities with some efforts on commercial investment.

[Stephane Richard:]

Thank you. Marc for some additional comments on the area, direct cost.

[Marc Rennard:]

Okay, we got the cost in the EMEA region, we're region performing very well regarding the direct cost. Regarding the indirect cost, the increase is linked to the inflation. And most specifically regarding the sites and we have more sites and the cost of the site are linked to the inflation, that’s why we increase slightly the cost of the renting, but we are working on just topic on the more specially from the sharing of the passive investment.

[Stephane Richard:]

Thank you. Now regarding the Pan-European consolidation, in my view, this will be driven by first regulatory inflections or moves and especially the single market which is now clearly a prospect in Europe with a strong political momentum. So this will take a few years to be implemented, but in my view a single unified space in terms of telecom industry is something that we will see in Europe, meaning that we will have one antitrust authority for the whole European Union, one spectrum allocation policy could see in Europe and this will be clearly a big driver for a form of consolidation in Europe. Then there is the network optimization in fixed networks very high broadband rollout. That is something which can be strong maybe more to replicate what has been successful income countries. And to that extend I think that the French situation is interesting because France is probably among the big European market maybe France and Spain, the market where there is the most let's say dynamic policy coming from public authorities and operators to rollout as quickly as possible super-fast fixed assets which makes a difference with some other let's say markets in Europe. So there is probably like best practice that I mentioned in what we could see in Europe. We have also from more technological point of view the move to all IP and virtual subdivision designed networks that is something which we see everywhere in Europe and that will certainly trigger also Pan European or at least across boarder optimization in terms of our fixed network. And then I would say that there is the critical size aspect in terms of sourcing by chasing and also commercial approach content policy and so on. That is something that will have to take into account. So this is in my view that the main parameters for next step in Pan European consolidation. And I’m not talking about in market consolidation in especially in the mobile segment where we have now a lot of this ahead and this is something that in my view, we should see again in future. Now in terms of timing, this we are not talking about short term opportunities in my view, it's probably more in the medium term. So three to five years is maybe a relevant timing that we should keep in mind that of course we can have also some events regarding such of such company or shareholders or opportunity that could trigger something earlier. But the big drivers of Pan European consolidation in my view are more the mid to long term.

[Andrew Lee:]

Okay, thank you, that was very clear.

[Operator:]

Thank you. We will now take the next question from Sam Dillon from Royal Bank of Canada. Please go ahead.

[Sam Dillon:]

Hi guys two questions if I may. Firstly on your French mobile ARPU, if you were to exclude the impact of the Iliad revenues, how close are you seeing a stabilization in the underlying a French ARPU mobile ARPU that if? And in Africa if you are successful with your par detail, would that fully satisfy your African footprint needs or are there other countries in the African continent that you believe would benefit from Orange operating model? And I guess align to that on M&A in general for the perfect asset, how high would you allow your average to increase if there was a pause dig in the average back down to two times in the medium term? Thank you.

[Stephane Richard:]

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

[Thierry Bonhomme:]

Yes, so please note that we don’t include roaming ARPU inside our ARPU calculation. So just to be back on that point, the annual roaming postpaid ARPU amounts now to EUR27 at the end of two with the smallest decrease we have ever seen since 2012. On the blended view, the annual running ARPU decrease is still slowing down minus 4.5% versus minus 6.5% versus Q1 2015 and minus 9.3% in Q2 2014. Now the reprise effect is very limited as Stephane said, we have now 92% of mobile customers based on our 1 April, 2012 tariff plan which is 10 point gross year-on-year. We think that is ongoing slowing down is explaining by lower replacing environment of customer mix within each range of portfolios and lower migration impact between high range of offers and low range. As we said, we think that 2015 full year ARPU decrease should be significantly better compared to 2014 decrease.

[Stephane Richard:]

Thank you. So regarding Africa and the Middle East, we are keeping on looking for opportunities to expand our footprint in such country. It’s a country-by-country approach. And to be clear, we have no plan to try to enter into the two largest markets of Africa, Nigeria and South Africa because we see that there is no opportunity and this would be a very large investment that we do not plan. So our strategy in Africa is more to extend our coverage especially in the western part of Africa and the central part of Africa to have really comprehensive clusters to optimize our presence and also our network management. So yes we are happy with the potential about the acquisition and maybe we will try to expense slightly this by looking at further opportunities but at a very reasonable size. In terms of balance sheet, we are strongly committed to stay around to in the mid-term, mid-terms of ratio net debt-to-EBITDA because we think that it is the relevance level. If you take into account all the parameters, the rating, the situation of the financial markets that are maybe now easily accessible in terms of debt but this could change. And so we think that for our situation and in our industry it is the right level. So we do not plan to move significantly from these two régime I would say. Of course, I am not talking about 2.1, 2.2, 2.3 but we want to stay around a ratio of 2.

[Sam Dillon:]

Okay, thanks guys.

[Operator:]

Thank you. And the next question is from Stephane Beyazian from Raymond James. Please go ahead.

[Stephane Beyazian:]

Yes, thank you. Two questions if I may. I just love to come back on Africa just to understand the financial criteria in your decision making. You mentioned some synergies on one of your flight, could you come back, give some color ideally quantify the sort of OpEx or CapEx synergies that you think are achievable cross bordered in your Free can operation when you are making a new acquisition. And these mobile banking part of the equation or this is still a very much too small to be taking into account? And my second question is to come back on some of the earlier comments on media in Spain, clearly we're seeing some of your peers in France, outside France making more investments in media, you did in the past ten years still on Orange Cinema, so are you tempted today to sort of build again a little more in this field and how would you assess the sort of potential or the threat if you don’t do it by the investment that are made by your peers? Thank you.

[Stephane Richard:]

So I ask Marc maybe to take the first question.

[Marc Rennard:]

Yes, thank you. Regarding the synergy on your specific question regarding mobile money, first of all mobile banking is at the earth of our strategy, it's going significantly. And secondly regarding the synergy, it’s a good example of what we can manage in term of synergy because, regarding Orange Money, we have a unique platform that is based in France. We run this platform from roaming that by the way. And each we are the new country, we reduce request by sharing this platform. So it’s a very good example of what we can do from this and business wise because it provide new businesses and it's a strong growth and on cost saving.

[Stephane Richard:]

And then if I may add something, I think that in Africa and Middle East what is important is also to acquire a critical size in the whole continent. You know it's absolutely different to be in Africa into free countries all to be in 25 or 30 countries. In terms of providing to our investors and exposure to African economy, African growth, African development, it's very importance for us to progressively expense our presence in Africa of course in the countries that we have chosen. And it is a fact that today Orange with MTN the only Pan African Telco, really Pan African. And in my view, this is a value creation in the long term for our group and our shareholders. Regarding your second question, we have a very clear view on this media Telco issue. We don’t believe in direct investment in media industry or contents industry is so far STV or Pay TV is concerned, because it is a different business, it requires different skills and no one has never really proven that there is a significant synergy in terms of revenue creation and value creation between the access business and the content business itself. This is the first point. Second, of course what we have to do is to secure our access to the main contents for our customers, because clearly it is a key element in our marketing approach and for our customers to access to the main up to the most attractive content .So what we will do is, is to manage very carefully our access to those contents either by being part of some projects if we see any interest for instance project in France or by being very active in front of antitrust authorities when we see that there is a problem, which is today for incidence the case in Spain. And to be honest, I think that what we see in Spain would certainly be totally impossible in France because we don’t have obviously the same regulatory well frame or people. And just remember what happened when Orange decided to invest in football rights a few years ago based on form of exclusivity, we had to change dramatically this review. And so what seems to be possible in Spain would not be possible in France, which might be good news for France and maybe a bad news for Spain, but we will fight really and we are not alone by the way in this country. So as a result of this, I personally do not believe in strategy based on heavy investments in contents rights or TV or Pay TV activities. I just remind you that OCS which is our Pay TV channel is more or less in a breakeven situation this year. And the total budget of OCS is EUR90 million a year, this has to compared with EUR40 billion of revenue. So it’s a marginal aspect and we have no plan to increase our investments in content side, even though we will be very careful once again in securing our access to the main contents.

[Stephane Beyazian:]

That’s very clear. Thank you.

[Operator:]

Thank you. We will take the last question from Nawar Cristini from Nomura. Please go ahead.

[Nawar Cristini:]

Good Morning. I have two questions please. So firstly on French M&,A last month the French market has seen another failed consolidation attempt as it would be useful to, if you could share your thoughts on this with us as well as your views on the prospect of consolidation in France going forward? My second question is on the business-to-business market, it seemed to be scrutinize closely Orange dominance in this market in France, could you please talk a bit about this and perhaps flag any regulatory actions that you might expect in the space? Thank you very much.

[Stephane Richard:]

Alright, so regarding French consolidation, we think that Orange is among the four players, the one that’s really doesn’t need any kind of consolidation. We are number one in the market both fixed and mobile. We have the best network, we have the best distribution channel. We are gaining a steady customer both in FTTH in fiber and in mobile. So Orange in France has no specific problem to fix in any kinds of dimension. And we are happy with the current situation. When you are looking to another player, it might be a little difference in terms of that situation. I will not develop very much because I don’t want to speak on behalf of the others, but clearly if you look at commercial figures for one at financial figures for the second and at let’s say network aspect for the third, no one can really see in this situation a stable and sustainable situation. So in my view, we won’t see anything happening before the 700 auction. That’s in my view it’s still possible to see a new rounds of discussions after the auction, so beginning of 2016. Now regarding the question on B2B I’ll ask Thierry Bonhomme, the Head of Business to provide you the answer.

[Thierry Bonhomme:]

On the B2B market, it’s true to say that we had very strong market share and that’s very , very marshaling to this trends of our sales organization with probably the best the sales power in the country both on season mobile market. Nevertheless, the antitrust authority has been conducting an investigation on our position mainly about tariffs, customer loyalty and the discounts. They have issued compliance and some injections which will be reviewed by the members of the authority by the end of this year 2015. We are not waiting for any official position, we are still examining their both compliance and injunctions. We’ve decided to implement the solutions or remedies for and shrink those injunctions.

[Nawar Cristini:]

Okay, very helpful. Thank you very much.

[Stephane Richard:]

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

[Operator:]

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