Orange Sp/Adr

Good morning, ladies and gentlemen, and welcome to Orange's first half year 2021 results conference call. The call will be hosted by Mr. Stefan Bichard, Chairman and CEO, and Mr. Ramon Fernandez, Deputy CEO, Finance Performance and Development, with other members of Orange's Executive Committee for the Q&A session that will start after the presentation. Thank you, and let me hand over to Mr. Stéphane Richard.

Good morning, and welcome to our Q2 and H1 2021 results presentation. Today, we will also talk about our growth engines that, associated with our transformational programs, will comfort our leadership as a top-tier telecom player and our 2023 guidance. Let's start with page four, where you have here the key messages of this semester. Number one is an excellent commercial performance overall, driven by strong equipment sales due to shops reopening and also the launch of 5G. Number two is an acceleration in our revenues driven by an outstanding performance in Middle East and Africa, but also other European countries and enterprise. Number three is a strong recovery on IT and IS, with close to 11% growth, driven by cloud, digital and data, and cyber defense. And number four is key milestones in infrastructure achieved with the recent development nomination of the management team of our European Tower Cool Totem. On the next page, you will have an overview of our key achievements for Q2 2021. As a result of our excellent commercial performance this quarter, we now serve close to 11.2 million convergent customers, and more than 10 million FTTH customers out of near 52 million connectable homes. We posted strong FTTH net ads, especially in France and Poland. In mobile, 5G offers are now available in six countries and near 1 million 5G customers. In Africa and Middle East, the EBITDA H1-21 grew 17%. This is the highest first semester ever. And fixed broadband, now one of the key engines of growth in MEA, posted a revenue growth in Q2 of 23% year-on-year. Finally, Orange Bank accelerated its consumer credit development as we just signed a strategic partnership with the FinTech United. Next page, you have here our financial achievements for H121. During this semester, we posted revenues at 20.9 billion euros, up 1.5% year-on-year, driven by MEA, Enterprise, and all the European countries except Spain. The group EBITDA decreased by 0.4% to 5.8 billion euros, mainly impacted by Spain at minus 16.2% and by co-financing in France. Group e-CAPEX increased by more than 22% to 3.8 billion in line with our guidance for 2021 between 7.6 and 7.7 billion euros after the slowdown experienced last year due to the pandemic. Furthermore, our organic cash flow of telecom activities increased year over year, reaching 840 million leads to the normalization in working capital related to last year's solidarity measures. Finally, the net debt ratio reached 1.99 times EBITDA in line with our midterm guidance. After this quick overview of our achievements, I am going now to hand over the floor to Ramon. Thank you. Thank you very much. Stéphane, good morning to all. So, we're going to start with revenues. In Q2, group revenues have been accelerating by 2.6%. This is compared to plus 0.5% in Q1. And this is thanks to the very solid trend in Africa, Middle East, in Europe, excluding Spain, in enterprise, which was partially offset by the decrease in Spain a market that remains difficult, and in France explained by the co-financing proceeds. From an activity perspective, this quarter was characterized by a rebound of equipment sales, an acceleration of mobile services fueled by Africa Middle East, convergent services bound to grow thanks to the good momentum in France, Poland, and Belgium, while wholesale, as expected, decreased this quarter, and fixed-only services declined in France and enterprise. Turning to EBITDA, we posted a very slight decline in H1 at minus 0.4%, which will contribute to the achievement of our folio guidance, which is flat minus. In terms of segments, African Middle East performance is quite remarkable at plus 17%, which more than offset the Spanish decline. Also, all the other European countries posted a solid growth. Enterprise continued its path to recovery at minus 0.5% after minus 15% in full year 2020. The decline in France by 2.2% is largely attributable to fewer co-financing proceeds. Spain where the macro situation is still very tough, posted minus 16%, and suffered from a challenging comparable basis, notably due to a repricing of our customer base last summer. Also worth mentioning that the EBITDA trend for mobile financial services starts improving, thanks notably to plus 19 million of net banking income growth. Our net income at the end of H1 landed at minus 2.6 billion due to the 3.7 billion euro accounting impairment that we brought on Spain Goodwill to reflect the local market environment which has still not recovered and uncertainties coming from the continuation of the sanitary crisis which will delay the economic rebound. Additionally, the impairment includes the foreseen impact on our Spain's margin transferred to Totem Spain. This impairment has no cash impact, and as you already know, a new management team, a new CEO, is in charge of the rigorous execution of our recovery plan, which includes pushing down our costs, rationalizing our brand portfolio and improving our end-to-end processes already setting us on the right path. I will give you more details on Spain in a few minutes. In H1, our organic cash flow reached 840 million euros and grew by 585 million thanks to to the normalization in working capital negatively impacted last year by solidarity measures to support our partners. In H1, our net debt to EBITDA ratio is in line with our guidance. The increase of net debt on the semester mainly reflects, besides the usual seasonality of the business, the payment of the remaining 2020 dividend and the buyback of minority shares in Orange Belgium. Last but not least, Before turning to our business review, let me highlight the decline of our average cost of debt and our strong liquidity position. Now, turning to France. In the second quarter, we have implemented an effective commercial strategy to attract customers, especially in the shops, which have all reopened. And this has fueled a very strong commercial performance. with mobile net ads at plus 142,000 thanks to both Sosh and Orange, and also thanks to a record over the last two years of net ads from our Soho and SME customers, despite the recent launches from our competitors. In broadband, there has been an ongoing very solid momentum of fiber with 353,000 net ads, enabling us to reach plus 68,000 total fixed net ends. Despite intermittent aggressive promotions launched by the same competitor to which we rapidly responded in order to prevent them from repeating, the overall level of price is still better than in the past, allowing us to pursue our value strategy reflected in the acceleration of both our mobile ARPO growing at 2.6% and our convergent ARPO growing by 0.7%. In addition, after the two successful bank book price increases done this year, we just launched a third one in June. These commercial actions will fuel our next semester results. As a result, our continuous Strong commercial performance enabled us to accelerate the growth of our retail services at plus 0.4% this quarter, or plus 2.6%, excluding PSTN. It is noteworthy that excluding co-financing proceeds, our total revenues would have grown this quarter. This also explains the main part of our EBITDA decline at minus 2.2%. We expect EBITDA trends to improve in the second half of this year, despite even more significant headwinds from co-financing that will be mostly offset by a steady improvement of our retail business and cost efforts. Let's now turn to Europe, where we achieved a solid commercial performance, a clear improvement year on year. with mobile net ads excluding M2M of plus 90,000 in Q2, this compares to minus 129,000 in Q2 2020, and fixed broadband net ads of plus 39,000, out of which 98,000 in fiber. Q2 revenues grew by 1.8%, driven by strong growth of equipment sales and service revenues that grew in all segments but Spain. Belgium, Romania, Poland accelerated services revenues posting close to 6%, 3.4%, 4.4% in Q2, respectively. EBITDA decreased by 5.9%, impacted by Spain. But excluding Spain, it grew by 4.7%, driven by a very strong Poland, Belgium, and Central Europe. Poland's margin was boosted by growth of core telecom services and IT and IS, and in Belgium, maybe that increased by 5.7%, mainly driven by higher retail service revenues and by cost efficiencies.

Let's move to Spain.