Orange Sp/Adr

Good morning, everyone, and welcome to this presentation of our Q1 2020 results. I expect that you will certainly have some questions about the events that we are living through, but I will first present the main highlights of this Q1. Then, of course, ask Ramon to go through the business review in details. And I suggest we start with slide number four, which presents the key highlights of this quarter. So the first thing that I want to emphasize is that for this Q1 2020, we have revenue and EBITDA growing. And this despite two weeks of lockdown impact. So this is, I think, a very interesting, important, and positive news in the current situation. Middle Eastern Africa is clearly still a solid engine of revenue growth, but in the same time, France, Europe, and the enterprise are growing slightly at different paces, but are growing. We have, and this is a very positive elements accelerating retail services revenue growth in France. And we are quite proud since we have been ranked number one in net promoter score in France on the whole 2019, which is clearly a very important achievement for our teams after years of management focus on the quality of customer experience. We have not reached this number one ranking in NPS for more than 10 years. A few information about the COVID-19 crisis. To say that the first thing I would like to emphasize is that telecom services have become more crucial than ever. And we are continuing our business, our activity, and the networks are absorbing these amazing events and traffic very well. For example, in France, fixed traffic increased by 40%. Our high-quality network is a strong asset, and quality of service has been maintained. Customer care was also maintained, leveraging on increased digitization. This has been made possible because Orange is a company that has never stopped working, in fact, in this crisis period. We have today around 100,000 people working remotely in the group. We rely on their agility and capacity of adapting very quickly to those new constraints. We have very efficient technical tools and we've been able to switch to remote working very quickly. Another example is OBS, the enterprise business that has coped with the brutal and sudden increase in teleworking among teams throughout the world. To support our business, we can also rely on a solid balance sheet As you know, with a net debt below two times EBITDA at the end of 2019 and on 17 billion euros of cash position, including the 6 billion revolving credit facility. This is also the result of years of effort, discipline and good financial management. For sure, the telco sector will be one of the most resilient in these unprecedented circumstances, and Orange, I think, is very well positioned to deal with them, even though it would be, of course, impossible to totally withstand the impact of a crisis violently affecting the economy worldwide. Impacts already known are commercial dynamic slowdown, decrease in churn, which is nice, but also in SAC and SRC, which might be nice for the EBITDA and less for the revenue line. We will have a clearly slowdown in G&A costs, which is nice, but also a slowdown in the roaming revenue, which is less nice. Those are a few identified impacts. uh today due to this substantial drop in business activity many proposals and discussions in progress with customers have been suspended the same goes for many internal projects such as orange concession regarding our fiber in pin areas infrastructure which has been postponed of course there are risks and opportunities during every crisis, and B2B is a good example of that. It will be directly impacted by the economic slowdown, while at the same time emphasizing the crucial need for telco services, as well as security and cloud services. So it is too early, really, to assess the overall financial impact of the crisis for the group, but of course, as you can imagine, we are monitoring very closely those effects. With this evolution of the epidemic situation in mind, it is also time to prepare for life after the crisis, which will, of course, be very different, and also different from one country to another. To start with, this crisis has underlined how important digital inclusion has become, and we will give priority to that. Everything that contributes towards providing better connectivity to our clients fiber rollouts or mobile or round sharing. And more generally speaking, optimized infrastructure management will be our priority. Digitization together with simplification were already a priority, but it will be speeded up with regard to client relations or internal processes. Lastly, the crisis emphasized the place of home and family, totally aligned with our strategic choice to focus on home. Homeland has to be accelerated, for example. Let's switch to page six, which resumes the main achievement of this Q1. I think we can say that Q1 2020 was a successful quarter for Orange, and this despite the beginning of the impact of COVID-19 in our activities in the last two weeks of March. Let me give you a few illustrations of that. Firstly, we now connect 42 million very high broadband homes, making us the absolute FTTH leader in Europe with 39 million FTTH lines in Europe. We confirmed that as of December 2019, Orange is the leader in terms of customer experience in France, as I mentioned before. We've turned number one in the Net Promoter Score Indicator. And in 2019, we gained 7.5 NPS points, which is just huge, and reached this number one position. This turnaround has been made possible thanks to the strong decrease of customer pain points, such as network outages, lack of bandwidth, and up-to-date devices, reflecting in the reduction of number of complaints. but also speeding up the deployment of fiber and 4G, especially in rural areas, and proactive repositioning of our customers in more attractive offices with more data. We are gearing up to launch 5G in some of our European operations, but of course we need to think about it again in the light of two new issues. Firstly, the commercial launch in France and Poland will probably need to be postponed, because of delays in spectrum auctions, even though we have a lack of visibility in the agenda of those spectrum auctions. But more importantly, in perspective of COVID-19, most of operators and B2C or B2B customers have observed that existing 4G networks associated with FTTH fully satisfy the customer needs. And this raises this crucial question about the pace of 5G rollout, if you consider that the existing 4G networks did well the job. Those are very, of course, important topics that we will work about in the coming months. Secondly, this investment enabled us to post a solid commercial performance with more than 70 million 4G customers and 7.8 million FTTH customers, which is an increase of 20% year-on-year, thanks to France, which posted the highest first quarter for FTTH net ads ever, and Spain, which reached 80% FTTH penetration rate in its broadband customer base. Orange remains the number one convergence operator in Europe. with 10.8 million convergent B2C customers growing by 3%, and convergent revenue growing by 4.5% year-on-year in Q1 2020, representing 40.5% of the total retail service revenues in our European countries. Thirdly, we are successfully executing our strategy to become a leading multi-services operator. Orange Bank, which more than 580,000 customers in Q1 2020, thanks to an enriched portfolio of offers and the strong commercial performance in Spain since launch in Q4 2019. Our value approach is bearing fruits, with 50% of new customers in France this quarter having chosen a paying offer compared to less than 15% two years ago. In Romania, We reached 201,000 Orange Money customers, out of which 61,000 clients subscribed to a debit card after only one year launch of this product. Orange Money remains a major growth driver for our Africa and Middle East operations, and we continued reinforcing it with the launch of Orange Money in Morocco in March. We will also remain a major player in content aggregation, and distribution to consolidate our position as a leading multi-service operator. In Q1 2020, we had 10 million IPTV customers, adding 335,000 customers year-on-year, driven by France and Africa and the Middle East, while content revenues increased by 4.8% year-on-year. During the lockdown period in France, we saw our video on demand sales multiplied by two-fold. At this time of crisis, when telecom services to B2B has proven to be more crucial than ever before, OBS has successfully fulfilled the sudden and increasing connectivity needs of emergency medical service, hospitals and companies operating in strategic or sensitive areas, such as environment, energy, or transport, but also proposing tools to help them manage their emergency plans. In Q1 2020, in line with the ENGAGE 2025 plan, we signed a long-term electricity purchase contract with Iberdrola for a 328-megawatt solar power plant in Spain, covering almost 9% of Orange Spain's electricity consumption. This is just an example. On page number 7, you have our financial achievement for this Q1 2020. We posted Q1 revenues at 10.4 billion euros, growing by 1% year-on-year, driven by a positive trend in all countries except Spain. The group reached an EBITDA of 2.6 billion euros, improving by 0.5% year-on-year this quarter, of which 0.1% for telecom activities, whereas eCAPEX are slowing down by 3.1% compared to Q1 2019, reaching 1.6 billion euros at the end of March. This reduction is partly due to the COVID crisis, and relates to both fiber and mobile networks rollout. Thus, the group's EPDL minus eCAPEX reached €1 billion in Q1, significantly improving year-on-year by 6.8%. A few more elements on eCAPEX. To say that the acceleration of the fiber rollout in France led to an increase of 1.6 million new connectable homes in this Q1. It's a 2.5 time increase compared to Q1 a year ago. Overall, we reached a total of 41.6 million very high broadband connectable homes, of which 17.8 million FDTH connectable homes in France, 14.5 million in Spain, and 4.4 million in Poland. The group has kept consolidating its leadership position in 4G, reaching a coverage exceeding 96% of the population in all European countries and already commercialized in 15 Middle East and African countries. These continuous efforts were done in the back of a slightly decreasing telecom e-cap figure, down 3%, this quarter, that is Q1 2019, which came this quarter as the result of three main effects, the first also extending into the coming quarters and the two other more limited to Q1 2020. Firstly, the COVID crisis started in the second half of March to slow down the pace of running out both addressable and connectable lines and connecting end customers. Secondly, following COVID, an agreement signed by Orange and SFR in May 2018, by which Orange was to withdraw from 236 municipalities in the RME zone. We built SFR in Q1 for the remaining and larger part of these FTTH lines. Thirdly, following the sale announced in December 2019 of 1,500 non-strategic Spanish mobile sites to send next, we booked in Q1 the remaining part of the proceeds not booked in Q4 2019. After this overview of our achievement in Q1 2019, Q1 2020, sorry, let me now hand over the floor to Ramon to provide you more details about our operations. Ramon.

Thank you. Thank you very much, Stefan, and good morning. So I will start on slide number 10 with France, where you can see that in Q1 total revenues increased by 0.5%. Thanks to an improvement in the trend in our retail service revenue for the second quarter in a row. Thanks also to an increase in our fiber-related revenues linked to the acceleration of our deployments, in particular in the PIN area this quarter the impact of a digital content offers is really very small with only 1 million euro of tailwind so let's see in order to assess the underlying performance as we do traditionally let's see our retail activities starting with retail services excluding pstn which has been increasing by 2.2 percent, an acceleration compared to Q4, where it was increasing by 1.7 percent. And even if you take into account the PST and impact, we were stable year on year in Q1. This is minus 0.1 percent compared to minus 0.6 in Q4 2019 and around 07, minus 07, 09 in the previous quarter. So it's really a nice improvement. The convergent ARPO grew by 2.3% to 68.6 euros in Q1 compared to plus 1.6% in Q4 2019. driven by bank book price increases in open mini effective from the end of Q4, driven also by the increase in the number of lines per convergent offer and by fiber penetration. The mobile-only ARPO decreased by a limited 0.5% to reach 16.6 euros, impacted by by the decrease in out-of-the-bundle international voice calls related to EU regulation and also by international roaming linked to COVID-19. In broadband only, price increases in the front book effective since Q4 2019 and the reduction of the level of promotions in broadband helped to nearly stabilize the broadband-only ARPO with a limited decrease of 0.5% to settle at 36.2 euros in Q1. Equipment saves decreased by 15.2%. This is minus 45 million euros in Q1 compared to a more limited decrease of 2.6% in Q4 2019. largely impacted by the impact of COVID-19 with the closing of our stores in France, as Stéphane explained, and also by a decrease in global market demand in Q1. Wholesale revenues grew by 2.6%, driven by FTTH, which offset the decline in unbundling and national roaming. Finally, The growth in other revenues of plus 29% in Q1 was driven by the start of the built-to-suit program in France, allowing Orange to accelerate the deployment and strengthen coverage of our mobile network in non-dense areas and also along transport routes while limiting investments. Turning to the next slide, slide 11, our commercial performance. We have delivered solid figures in broadband in this first quarter with a record Q1 in fiber. On fixed, we recorded plus 37,000 broadband net amps. with the high-end customer mix improving by 0.2 points. This solid performance is supported by a record first quarter in fiber with 192,000 FTTH net ads compared to 168,000 in Q1 2019. In Q1, 54% of FTTH net ads our new customers to orange, so this is still a very strong acquisition tool, consolidating our absolute leadership position with 3.5 million FTTH customers. On mobile, we observed in Q1 an encouraging price recovery movement initiated by Soch with the launch of a 15 euro Soch lifetime offer at the beginning of March. which was followed by two of our three competitors increasing their own prices from 12 to 14 euros. In the context of our value approach, we posted minus 58,000 net ads compared to a positive figure of 19,000 in Q1 2019. This Typical negative performance is mainly due to a specific SOCH cohort. These very price sensitive customers generated a peak of churn in SOCH in January and February when we decided not to renew a promotion after the 12 months promotional period. And this attempt of pricing traction turned out to be inefficient in the context of market aggressiveness with lifetime promotions. It's worth noting, though, that the launch of this 15 euro social lifetime offer at the beginning of March was successful, but the whole market slowed down significantly. with the eruption of the COVID crisis. We have also seen price aggressiveness back in April, but it's too early to draw any conclusions from this latest move. Despite this atypical churn event on SOCH, the mobile churn continued to drop by 0.6 points year-on-year, And it stood in Q1 at 11.7% compared to 13.3% in Q4, linked with the fall in the churn in the whole market, obviously accentuated by the COVID-19 effect in March and also by the progress we're making with convergence. Convergence remains a strong acquisition tool supporting our performance both in fixed and mobile, with 30,000 net ads in mobile, reaching 1.68 lines per convergent offer, which is an increase of 2% year-on-year. Let's now turn to Spain on slide number 12. In Spain, the market is clearly polarizing. a development that can be seen when looking at segmentation based on price points. The low-cost convergent segment, which is below 45 euros, boosted an acquisition share at 30%, up by 10 points year-on-year. And all operators now in Spain now have an entry price point below 40 euros. while on the other side, value proposals strengthened in the high-end segment above €70. Our commercial performance here reflects this trend and also our strategy, which has been focused on value over volumes. On the high-end segment, the launch of our Love Unlimited offers on the orange brand Targeting customers with an ARPO higher than 80 euros in February was a clear success with more than 1 million subscribers. And our more for more moves and our football offers resulted in a convergent ARPO increase by 20 cents year on year to achieve 58.3 euros and even plus 1 euro year on year. If you look at specifically the orange brand B2C Convergent Arpo, the trade-off was a volume downtrend with fixed broadband and mobile net ads negative in Q1, respectively at minus 59,000 and minus 127,000. Mid-March, As part of the government measures regarding the COVID crisis, portability and aggressive commercial campaigns were banned. The effect of this policy remains low in Q1, but should be a bit more visible in Q2 until the end of the lockdown, even though the portability on mobile has now partly reopened. As announced during the Capital Market Day and when we talked about the full year results, our target in Spain is to increase our market share in the low-end segment. We have managed Amena volumes to ramp up progressively, but with still sizable potential to capture. Before the implementation of convergence on our low-cost brands, within the next few months. And the launch of these convergent low-cost brands has been slightly delayed due to the current portability limitation. As a result, our revenues decreased by 2.4% in Q1, in line with Q4. with retail service revenue falling further still at minus 4.6% compared to minus 3.4% in Q4. And as you know, 2020 is a year of transition for all in Spain, and the current crisis is putting some additional pressure on our margin performance. On the positive side, our wholesale business is more than ever a source of strength, providing a powerful hedge against the current economic volatility. Let's turn to our Europe 6 countries segment on slide 13. where retail services grew by 4.3% this quarter, compared to 2.4% in Q4, with 35% of this growth coming from connectivity, namely convergence, fixed-only and mobile-only, and 65% from IT and integration services. Our performance in connectivity reflects our ongoing focus on convergence with revenues from convergence, which today represent 19% of retail services. So convergence maintains a resilient plus 25% growth this quarter compared to plus 28.5 in Q4. And our focus on convergence was also visible in our commercial performance with stronger mobile contract net ads at plus 28,000, and the resilient fixed broadband net ads at plus 51,000, with a stable or improving share of convergent contracts in our customer base. After the last four quarters, which were declining, wholesale services are now back to positive growth at plus 0.6%, thanks to better MVNO trends, compensating some losses from a mobile termination rate cut and the ending of national roaming deals. This quarter for this Euro 6 segment also saw the decline of equipment sales, minus 8.3%, mostly because of the health crisis. and of other revenues at minus 30% due to lower originality sales in Poland. Although their impact on EBITDA was minimal, these two effects drove down the overall revenue growth in the Europe segment to plus 0.3% compared to plus 1.7% in Q4. From the country perspective, we are reporting a seventh consecutive quarter of revenue growth in Poland at plus 0.9%, driven by plus 5.1% growth in services compared to minus 0.2% over the full year 2019. This result is a consequence of the more-for-more strategy initiated by Orange Polska in 2019, now filtering through to our results. It's also the result of a stronger performance in IT and integration services at plus 58%, of which 32% come excluding the Bluesoft integration. You know, we acquired this company, Bluesoft, in 2019. And finally, it's also the result of a higher mobile wholesale revenue because of the health crisis. Our revenue performance at Orange Belgium is also worth noting, up 1.9% this quarter. This was driven by a solid growth in retail services, plus 4.6%, itself driven by plus 36% growth in convergent sales, mitigating lower equipment sales and other revenues. Let's now turn to Africa and Middle East, slide 14, the main contributor to the group growth, with revenue increasing by 6.2% in Q1 and no significant impact from COVID in Q1. The revenue performance was driven here by a very solid growth of retail services at plus 9%. fueled by three robust drivers that you know well now. First, data, with 26.5 million 4G customers growing by 51%, and revenues associated growing by 27%. Second, Orange Money, with an active customer base of 18.6 million customers, up 20%. and revenue growing by 22%. And third, fake broadband with over 1.3 million customers, up 21% year-on-year, with revenue growing by 22%. Looking at the commercial KPIs in Africa and the Middle East, the mobile customer base increased by 4.8%, up to 123 million customers, including the impact of the exit from Niger. The customer base quality keeps improving, as reflected by an increase of plus one point in the charged base rate and the reduction of two points in mobile prepaid churn. From a geographical perspective, the top contributors to total revenue continued to deliver solid growth in Q1. Egypt grew at 10.6% thanks to retail services and sustained by data and by a massive also equipment sale. Ivory Coast cluster grew at nearly 10%, 9.9%, sustained by data development and market repair. And the Sonatel cluster keeps a good trend thanks to data and orange money with Senegal which has regained strongly its leadership in mobile net ads after a very competitive fourth quarter. Turning to the enterprise segment on slide 15, you can see that enterprise OBS posted a revenue growth for the sixth consecutive quarter at plus 0.8%. driven by ongoing network leadership and solid performance of IT and integration services, notably cloud and cybersecurity. IT and integration services revenue growth reached 6.9% this quarter, and they now represent 38% of the total revenue of the enterprise segment. This is an increasing proportion of plus two points year on year. Besides, the group obtained several market recognitions this quarter, confirming our status of major player in our growth areas, in particular cloud and cyber defense. And it's also worth noting that following up our latest acquisitions in cybersecurity, well, less than one year post acquisition, SecureLink and SecureData have been fully integrated and rebranded under Orange Cyber Defense. So we are now fully set up for capturing value. Data network services, still resilient, hosted a revenue growth at plus 0.5%, driven by our leadership in fiber and software-defined networks. These performance more than compensate for the decrease of voice at minus 6.5% this quarter. Structurally impacted by the decline in France and also for the drop in mobile to minus 5.8% in Q1, mainly due to a fall of roaming revenues in relation with the COVID crisis. Let me also remind you that the enterprise segment is going through a transformation. and that we do not plan to be back to Abidal Grove before the end of 2021, as we said, in December and in February. Regarding the commercial activity, Orange has been chosen by Abu Dhabi for its smart city tailored solutions and by Axo Nobel to provide a range of services for global connectivity transformation, including SD-WAN, SD-LAN, and security solutions. Last but not least, I would like to emphasize that in the context of this unprecedented crisis, Orange Business Services teams activated our worldwide business continuity plan, which demonstrated to be crisis-proof, as commented extremely positively by numerous customers in France and around the world. Let me now hand over back the floor to Stéphane to conclude this presentation. Thank you, Ramon.

So before going to Q&A, and as said during our April 17 call, I want to confirm that based on the information available today, we do not expect a significant deviation from our 2020 objectives, but we are closely monitoring the situation and its developments. We will consider an update of our 2020 financial guidance along with Q2 results once we have improved visibility on the effects of the COVID-19 crisis. This concludes this presentation and we are now ready for the Q&A session.