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.

one of the most competitive markets in Europe. In this context, from a commercial point of view, we continue to post positive net ads in Convergence, Mobile Contracts, and FTTH. Regarding our financial performance, total revenues in Q2 at minus 2.7% have improved the trend compared to the previous quarters. supported by equipment revenues increasing by more than 35%. However, EBITDA at minus 16% in each one is impacted both by the repricing of our customer base performed last summer, generating an ARPO reduction, also impacted by a drag from roaming since IQ1 2020 was mostly a pre-COVID quota. and finally by the comparable basis effect linked to savings related to distribution costs during the first lockdown in Q2 last year. Despite a tough situation, we are moving ahead regarding the transformation of our operating model in Spain and we are implementing our recovery plan. Firstly, We have successfully transferred our customers from Republica Mobile towards Signeo, consolidating our low-cost brands in order to gain in agility. And this is the first move. There will be further steps that we will discuss in Q3. Second, considering the situation, we had to adapt our headcount structure for a voluntary departure plan that had been fully subscribed with 400 employees representing around 12% of the headquarter staff in Spain. And third, our focus on customer care pays off through the improvement of the NPS and the churn reduction on all segments, enabling us to stabilize our customer base. That being said, we expect EBITDA growth in 2023. Beyond 2023, the updated business plan which led to the impairment is in line with the analysts' consensus. Furthermore, the organic cash flow in Spain will grow starting in 2022. Lastly, I would also like to point out that there are some encouraging events on the Spanish market. where we expect the upcoming EU funds to help develop digitalization. And we can see that the government is fully aware and sensitive to the difficulties faced by the sector, as demonstrated by the extension of the recent 5G 700 MHz license from 20 to 40 years, and the project to suppress the so-called TB tax for telcos. Let me now turn to the continued excellent performance of Africa Middle East, which is characterized this quarter by a further acceleration of growth, with total revenues at plus 14.4% and EBITDA up by 17% this semester. Regarding revenue growth, Retail services grew by 16% this quarter, compared to close to 10% in Q1 2021, fueled by voice and all our growth engines. This quarter is also marked by an acceleration of profitability, thanks to our strict discipline allowing to improve the direct margin rate by 1.5 points. EBITDA is now growing rapidly. faster than revenues for six quarters in a row, and MEA organic cash flow is growing even faster than EBITDA. We will give you many more details on this performance and our perspectives in Africa Middle East tomorrow during a dedicated session. Let's now look at the enterprise. segment with revenues up by 2.3% in Q2, following the improving trend from the previous quarters thanks to double-digit growth of IT and IS, up by close to 11%, and mobile, supported by equipment revenues. Cloud, cybersecurity, digital and data, each growing by double digits in H1, confirmed the purpose of our strategy of increasing the IT and IS share in total revenues. Fix-only services down by 5.3% are impacted by a decrease in voice revenues linked to a comparable basis effect in Q2 2020 when our customer demand for voice services peaked during the first lockdown and by a decrease in data revenues. This performance drives a bit down at minus 0.5%, still impacted by roaming and the transformation in our business mix, but significantly improving the trend from last year, which was at minus 15%. As you know, here also, we will provide you with many more details on our ambitions for the enterprise segment tomorrow morning, also with a focus on cyber defense. Last, but not least, we fully reiterate all the elements of our 2021 guidance, as stated on the slide you can see on the screen. Now, I'm handing over the floor back to Stéphane, who will talk about our growth engines. Thank you, Ramne. Let me record first my guiding thread. Growth is key. Growth releases constraints for innovation and growth is the bedrock of our business sustainability. That's why my strategy for the group is built on several growth drivers that are now, for some of them, well and truly up and running and are starting paying off while others will deliver their full benefits in the near future. In addition to the crucial competitive advantages you already know about, namely our network leadership and our quality of service, I would like to highlight other growth and transformation drivers that will create lasting value for the group and which are sometimes overlooked or underestimated. First, Africa. Second, OBS. Third, cyber defense. Four, Europe. Five, Orange Bank. And six, our infrastructure. Firstly, our Africa and Middle East footprints, which we have built over the past 20 years, is now accelerating and bringing a strong contribution to the group performance thanks to a value-oriented asset management policy combined with rigorous operational management. It has immense potential to create value between now, 2023, and the following years. Orange, Middle East, and Africa's remarkable performance which regularly beats market estimates and GDP growth across our footprint, has its roots in our growth drivers and an efficient operating model that allows us to set ambitious and sustainable objectives, which we will describe in detail tomorrow. Bear in mind that in 2020, against the backdrop of a global pandemic, Orange Middle East and Africa increased revenues by more than 5%, and it's edged down by near twice that pace, to nearly 2 billion euros. I will just give you the figures for H1, a clear acceleration. This performance is based on four high potential drivers, data, fixed broadband, B2B, and orange money, where growth is set to bring revenues close to 1 billion euros by 2025. Note, too, that the region's performance is well-balanced, with half the countries posting double-digit growth, reflecting the grow or transform or sell strategy. Orange Middle East and Africa is set to deliver a 6% CAGR in the years to 2023, with EBITDA growing a double-digit and OCF faster than EBITDA. second engine, OBS, and Orange Cyber Defense that will continue their development with a successful transformation into a network-native digital services company with IT and IS now accounting for 41% of total revenues and a continuing tight grip on cost. Overall, OBS will return to sustainable top-line growth with a CAGR of around 2% in 2022 and and return to EBITDA growth. We plan to continue our repositioning, which is an integral part of the group strategy. The OBS strategy is built on three main pillars. First, transform the telco business by promoting value-added services such as 5G, fiber, cloud connectivity, et cetera. Second, expand OBS. into strategic digital areas such as cloud, digital and data, IoT, and cybersecurity. And three, ADAPT, our operating model to become the leading network-native digital services company. In addition, Orange Cyber Defense, our rising star in a fast-growing market where competitors trade in multiples of more than 20, is a unanimously acknowledged benchmark in its market. having established itself as one of the European leaders in cybersecurity. Thanks to the carve-out we are now implementing, we will have the full power to seize new external growth opportunities as they arise. We are aiming for market-beating double-digit top-line growth and a medium-term margin aligned with that of the market and about twice today's. Number three, Europe. despite the temporary difficulties in Spain, is enjoying traction from the other six countries and is set for strong growth. Other European countries, or Europe excluding Spain, will remain a strong growth driver thanks to the success of convergent parcels and the rollout of very high-speed fixed broadband, with a revenue care of over 2% expected between 2020 and 2023. We are looking for steady growth in the convergent base with a CAGR of more than 9.5% that will take us to 31% above 2020 levels by 2023. Today, our subsidiaries all sell convergent offers, and we are stepping up our efforts to develop our own fiber networks in Poland through our FiberCo and Slovakia, for example. We are exploiting the potential of convergence in Belgium as well as in Poland, where we are consolidating our leadership, targeting a convergent-based CAGR of 6% and a growth by 20% in 2023 versus 2020. Lastly, in Romania, we are finalizing the acquisition of Telecom Romania, this deal which will accelerate our road to convergence with fuel, top line, and EBITDA growth. Regarding Spain, as already mentioned, the new management has a very clear roadmap, and all of the EBITDA will grow in 2023, and the organic cash flow will grow starting in 2022. To sum up, our objective is to increase EBITDA by around 150 million euros over the 2020-2023 period across all European countries, including Spain, meaning an EBITDA CAGR of roughly For the other European countries, we are aiming at an EBITDA CAGR in the mid-single digits. Number four, Orange Bank, has demonstrated our ability to diversify our activities, and we continue to build up this ambitious entrepreneurial project launched in 2017. We have already won the volume challenge, with a customer base in Europe and Africa now topping 2 million customers. B2C and B2B customers, despite a year of crisis that slowed customer acquisitions. We are now focusing on the value challenge, with paid offers accounting for over 90% of new customers in France and loans granted to more than 60% of customers in Africa, which sets us apart from most purely freemium neobank models. In practical terms, 2020 was a pivotal year, as Orange Bank's EBITDA is bottoming out. The improvement will continue going forward, allowing the bank to help drive the group's growth around end 2024 when it should reach break-even. Let's look now at our infrastructure. We have built first-class networks in Europe, both mobile and fiber, an achievement we are proud of. which would support B2C, B2B, and wholesale revenues alike. Our infrastructure assets, first and foremost fixed, are unrivaled in terms of both their coverage and the value they deliver. Our decision to pioneer investment in fiber was the right one and is now paying off. Our competitors have decided to follow our tracks, by the way, but Orange has built up a huge lead over all European competitors with more STTH-connectable homes than Telefonica, British Telecom, Deutsche Telekom, and Vodafone combined by the end of Q1 2021. Please note that some of our peers have based their fixed offers on other technologies, such as XDSL and cable, where performances fall well short of fiber. This leadership position is based on massive investments in Europe, with nearly 13 billion euros in gross FTTH capex over the last 10 years and a clear reduction in our fiber e-capex on the horizon from 2022. In addition, the investments in FTTH also enable us to position ourselves ahead of the rollout of the mobile network for the future, namely 5G. Notably, we are targeting more than two-thirds of the population covered in mid-term in Spain, Poland, Slovakia, and Moldova. This strategy positions us as a pioneer in Europe for the next network revolution, with softwareization making us more efficient and agile. We are the first European player to launch a fully automated and cloud-native 5G network, which we call the Zero-Touch Network. and which will also serve to develop the use of artificial intelligence to secure, optimize, and anticipate the behavior of this network of the future. All of these functionalities on which we are working with a set of partners in open-run architecture will be operational as of this year in Lannion, in our big R&D center, before the experimental network is extended from 2022. Our efforts in mobile and fixed have also made us the leader in convergence with more than 11 million customers. Let me now hand over to Ramon, who will explain how we are doing in monetizing fiber in retail and wholesale revenues. Thank you. Thank you, Stéphane. So in France, we have succeeded in extracting value from our infrastructure with a monetization rate which is set to rise by 10 points in 2025 from 62% in 2020, fueling a retail revenue CAGR of 2% to 4%, excluding PSTN, between 2020 and 2025, and allowing wholesale revenues to remain close to stable between 2024 and 2025. In the retail segment, our solid foundations make up France's benchmark fiber operator, allowing us to increase ARPO with a near plus five euro pricing differential and associated multi-service sales. This will be a source of growth in the retail market. As promised, we will also today provide some color one quarter sooner than originally promised for our wholesale business in France. Firstly, the fixed wholesale market has been evolving over the last two years as we observe a switch from copper to fiber accelerating with the health crisis, and second, a catch-up by our competitors with our infrastructure through co-financing. The broadband market is currently split around 50-50 in copper and fiber accesses, but proportions are set to tends towards around three quarters in fiber excesses in the mid-term. Secondly, concerning orange, this transition to fiber impacts our wholesale revenues trajectory with temporary and permanent streams of revenues. The temporary revenues, such as pin areas construction revenues, with limited EBITDA impact, are set to finish around end of 2025. As for co-financing, that is the source of monetization, our peers have purchased a total of around 3 billion euros at the end of H1, which is approximately 60% of the target we expect. All by temporary, revenues of hundreds of millions in co-financing are still expected beyond 2025. While the permanent streams of revenues are linked to fiber, of which local enterprise and infrastructure markets that I will develop later, those revenues will partially offset the inevitable decline in copper revenues. So this transition to fiber leaves us with two questions. How does the fixed wholesale revenue slope ahead of us look like? And second, what are the growth drivers that will help us to offset this decline? Well, first, the downward slope will be less pronounced beyond 2023 than originally expected because the high ambitions we have for our growth drivers will allow us to generate new revenues with a near stabilization of fixed wholesale revenues from 2024 onwards. Concerning our growth drivers, the slide above illustrates on the green part our new growth relays. We have adjusted our projections of further decline in fixed wholesale revenues over the 2021-2025 period to reflect a more limited downturn combining a significant fall in copper revenues, a slower pace of co-financing after the catch-up in 2020, and a big increase in recurring fiber revenues, almost doubling between 2021 and 2025. There will be double-digit growth in enterprise fiber revenues, with the launch of FTTE and aggregation offers, as well as FTTH-enabled SOHO offers, and in infrastructure and carrier-to-carrier revenues, which include recurring civil engineering revenues as well as hosting and collection revenues in the PIN area, including where Orange is not the local loop network operator. This dovetails with our mid-network operator strategy. Concerning the mobile, another key element of our wholesale business, we will manage to replace national roaming decline thanks to new mobile offers on 5G and IoT and potential new mobile wholesale contracts. To conclude, Orange will be able to near-stabilize mobile and fixed wholesale revenues after 2024 by leveraging its various growth drivers, including business offers and services and civil engineering, targeting SOHO and SME customers. Most importantly, when it comes to the financial equation, we expect a decline of wholesale revenues from 2021 to 2025, but two-thirds of this net revenue loss will have a very limited EBITDA impact, notably pin construction revenue and interconnection. Therefore, we expect a limited decrease in EBITDA of less than 500 million euros from 2021 to 2025. That said, this decrease would be mostly offset by the increase in retail services revenue over the period and on the cost side also offset by scale-up savings. The final element of our strategy to get the most out of our first-class infrastructure is a comprehensive review fine-tuned to match local circumstances. I would say that the common thread here is really a tactical, opportunistic, value-creative strategy applied country by country. Orange Concession, that you know in France, becomes a benchmark in Europe, embodying a new approach by selling our rights of use in the PIN area to several partners, making it possible to reveal the value of non-proprietary assets where each line was valued around 600 euros. In Poland, the partnership in a 50-50 joint venture with APG, which has valued our assets around 600 million euros, will enable us to extend our FTTH leadership with a convergent customer base set to grow by over 20%. In Spain, we chose a different approach. For a 3 million lines fiber rollout, we adopted an agile leasing approach, reducing capex impact while keeping ownership of the assets. And, of course, looking at the mobile infrastructure, with our tower core, Totem, we will be fully operational by the end of the year as planned. And Totem is designed as a highly agile tool for industrial growth, that targets multiple opportunities generating an accelerated Roche. Lastly, to accelerate these growth drivers, all the growth drivers that were described by Stéphane, and in order to seek strategic opportunities, the group, on top of its ability to raise additional debt benefiting from a healthy balance sheet, will be flexible regarding the capital of the entities concerned, arbitrating between a balance sheet financing and third-party equity funding, and this could include bringing in new investors, for instance, to Totem, to Orange Cyber Defense, or to Orange Middle East Africa, as we've done with our FibroCos, and this can be done also through IPOs or other ones. I now conclude today's by presenting two wrap-up slides. First, you can see here that these growth drivers will enable the group to step up the pace of revenue and EBITDA growth in a sustained manner, contributing to a total of near €2 billion in top-line growth and around €1 billion in EBITDA growth between 2020 and 2023. Incremental EBITDA is expected to comprise, for instance, over 700 million coming from MEA, but also from Europe, from OBS-OCD, from Orange Bank. Second, we will, and this is the last slide, combine our growth ambitions with the benefits of the scale-up cost efficiency program and as already said, the planned reduction in eCAPEX from 2022. In fact, with most FTTH rollouts completed in our three main markets, France, Spain, Poland, we confirm that we aim to achieve an eCAPEX to consolidate a revenue ratio of roughly 15% by the end of 2023. Using all these levers, we are therefore confident of reaching our organic cash flow target of between 3.5 billion and 4 billion in 2023. And so to wrap it up, before turning to your questions, our equity story is not only about transformation and cost discipline, which is evidently key, but it is also about our strong, solid, and sustainable growth engines. Thank you very much.

Thank you. We're now available for your questions. In order to give time to everyone, please limit yourself to only one or two questions. To ask for the floor, please press the star or asterisk key followed by the digit 1 on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If we do not have time to take your question, then please contact our investor relations team after the call. If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 to ask a question. And please use the handset and not the phone speaker. Our first question today comes from Andrew Lee from Goldman Sachs. Please go ahead.

Yeah, good morning, everyone. I had two questions. The main one, though, was on wholesale visibility, and thanks for providing us with those slides. I think they're really helpful. It's great to get clarity on what your base case is and to kind of see how you think through the revenue and EBITDA impact. I guess the key question from us is, how much risk is there to that base case? I wonder if you could talk through the risk factors that could swing... the outcome differently to how you've laid out. And then the second question was just on the French competitive environment. We've had a lot of competition in mobile promotions over the last couple of quarters, but it actually looks like the key incremental change or pressure in France is on customer spin down and fixed. Just wondered if you could comment on the overall competitive intensity in the market and with a focus on the fixed line side of things. Thank you.

Thank you, Andrew. Oh, sorry. Thank you, Andrew. So on your first question about the risk analysis, let's say, in the wholesale trajectories, I'll ask Jérôme Barré, who's in charge of the wholesale business. And then on the second question, the French competitive market, of course, I will ask Fabien. Hello.

Good morning, everybody. So, no, it's not our best case, is the thing I would like to say. It's a trend we are very confident in. Yes, because you see, as said by Ramon, concerning our ambition on the recurring revenues, Of course, we have to offset the decline, the inevitable decline of copper. But on fiber, we have very ambitious levers, you see, one of the local loop for civil engineering and hosting in the 40% where Orange is not the operator. In the mid-network, you see, we are very confident in our capability to sell traffic collection and backhauling Last but not least, we have a strong ambition concerning the enterprise market. The consequence of that is that we consider that we can double the recurring revenues between 2021 and 2025. you see, with a double-digit growth on these new segments, civil engineering, infrastructure, enterprise, and so on. So when we consider the consequence in EBITDA, as I said, it's not a best case. We are very confident in the capability to reach this 500 million decrease ambition. If I may take an example, look at the interconnection activities. The interconnection activities will be impacted around 400 millions by the decrease due to regulations, the decrease of termination rates, but these 400 millions of decrease of revenues has absolutely no impact on EBITDA because it's fully symmetric. The decrease of our cost with be just about at the same level as the decrease that we have to our revenues. So if I take this only example, it shows that we are confident in our ambition to limit the decrease by 500 million on the EBITDA.

Thanks.

Can I just... Sorry?

Yeah, sorry. I was just going to ask how many of those elements that you went through in terms of local loop and hosting in the 40% where Orange doesn't have fibre How much of that have you actually signed up and have kind of your hands on today? Or is it that this isn't a highly confident ambition versus what you've actually signed up?

If I may answer again to your question. So in the doubling of our revenues and FIBA, we consider that there is 50-50. 50-50, which is mechanical, is the recurring revenue axis. And there is absolutely no risk about that. So our ambition is about the 50% on the infrastructure and enterprise market. But again, we consider that there is big potential on the market. And so we are confident in our way to reach this ambition.

Thank you.

If I may just add one word before handing over to Fabienne on the second question. When you look at the French market today, there is at least one thing that is indisputable and clear and absolutely obvious for now and for the future is that France is going to be a cyber-optic country. Everyone in France, customers, enterprises of any size, And, of course, all the sector will switch to fiber quickly. Probably France will be the most advanced country in Europe for FTTH. So for the operator that will run and manage more or less 60% of the fiber network in France, in the whole country, dense, mid-dense, and rural areas, it would clearly open huge opportunities for us to monetize both in retail but also wholesale markets this switch, very rapid switch of the country towards fiber. So this is basically the reason why we are very, very confident on our prospects on the wholesale part. Because, in fact, for our competitors, there is no alternative but to switch quickly to fiber. And for our customers, there is a momentum today in the French market that will accelerate this migration towards fiber. Fabienne.

Good morning. So in line with the previous quarter, we still observe an improvement of the French market. The four players keep playing the game of a kind of market repair, and they contribute to create a more constructive competition environment. Their decision, I don't know if you see that, but yesterday, to raise their price on the mobile, on the B brand, is really good news, because we are waiting for that, and this is going in the right direction. So, despite some... punctual aggressive promotion, both on mobile and cyber, around 10 euros, launched all the time by the same competitors. The overall level of price is still better, and they are well-oriented and in a better way than in the past. So in my point of view, the market is more peaceful, and this is a context very significant because that sustains and supports our value strategy. we were able to launch three back-book repricing in the beginning of the year, and it's exactly what you can observe and note in our commercial and financial performance, both on mobile and cyber. And despite more competition in cyber, we are still the leader, and we are able to win market share in all areas.

Thank you.

Thank you. We now move on to our next question from Nicolas Collison from HHSBC. Please go ahead.

Thank you. Good morning. Two quick questions, please. The first one is on Spain. It seems the turnaround is taking more time than expected. So you have a 16% drop in EBITDA in H1. Are you comfortable with a 10% decrease in the full year as in the consensus? And what kind of restructuring costs should we assume eventually? My second question is on the regulatory environment in France. Clearly, there is a lot of pressure on you to invest in fiber and copper, but also to open the B2B market to more competition. So can you tell us what are the key milestones to come regarding regulation in the B2B market? And also, how do you manage your copper maintenance capex given the government pressure at present?

Thank you.

Okay, thank you for those two excellent questions. Let me turn first to Jean-François Fallaschew, who is with us on the call, to answer the first one and try to take the second one. Jean-François.

Yes, hello, everyone. So concerning Spain, so you know that Spain The current situation is clearly linked to the decision we took last year to realign some of our prices to the market. So these are the consequences on our financial accounts that you see today. So what we're announcing clearly today is a return to growth and a turnaround that will happen in 2023. There will be a change of trend, obviously, next year. We are really, as you have seen, taking a number of actions and executing on a strategy that we have designed in the second semester of last year, amongst which I would like to stress a few elements that we have been already executing that were reminded by Ramon in the introduction, so simplification of our processes and brands. We have already suppressed one of our local brands, The reason why we are doing that is obviously to be able to focus more and to be more attractive and more pushy towards the market in this part of the market, in the low cost. You have seen that we have negotiated with the union a plan to have the departure of more than 12% of our staff. That plan has been fully subscribed during the month of July. So clearly, The transformation is undergoing on the way. You have seen that for the fourth quarter in a row, our net ads on mobiles are positive. Our fiber net ads are very positive. As Ramon already stated as well, the churn in the second quarter has been the lowest since many years. So we see some of the key KPIs starting to move and to start to move in the right direction in space. What I want to stress as well is that our entire B2B division, including a large account, SOHO and SME, is back to growth revenue-wise. And obviously, we are very strict and very cautious in delivering the scale of plan of the group at the pace of progress. the target set by group, so I'm confident that we will deliver on this turnaround. We just need to be patient, but what we are doing already is going to deliver for sure.

Okay, thank you, Jean-François. Maybe we will come back later on the Spanish situation. Regarding our regulatory environment in France, And to try to summarize the situation, I would say that we have a regulatory agenda, which is dense, with important steps in front of us. And I would say that there are three major topics with the regulator. The first one is around fiber rollout, and I would say the last one step of the fiber rollout in France. And just to give you our view on that point, we are very much confident in our capacity to complete and to fulfill our commitments in terms of fiber rollout, even though the sanitary crisis, of course, has had an impact on the calendar. but we're very confident in our capacity to reach an agreement sort of deal with the regulator regarding the conditions of the end of the fiber rollout plan in France. So no, I would say no big risk around this point. The second is about copper. With the quality of service, of course, topic. but also, more generally speaking, about the decommissioning plan and prospect that we have now to prepare and to submit to the regulator and to public authorities for the next decade, in fact. So, regarding maintenance costs on copper network, as you probably know, we spend a range of 500 million euros every year for the maintenance of the copper network. this amount is stable. And in fact, in the recent weeks, we have announced some actions, try to restore in some very specific areas that have been more impacted by weather conditions or punctual events. We have announced some actions, but it's mainly about recruiting a few additional people, technicians, and it's in the range of 10 million additional expenditures. So let's bear in mind that this cost of 500 million euros will be more or less stable now, this year, and probably in the next two or three years. So there is no, I would say, specific financial pressure to fear regarding what we are doing in terms of copper maintenance. It's more about an organization and priorities maybe of our technical teams and this has been done because it is very important for Orange also to show our customers in rural areas if we want to be successful in the migration towards fiber also, but also in front of local authorities that we do not abandon the carbon network. Now, as I said to you, this is more one element in a larger issue, topic, challenge, which is the decommissioning of the carbon network. That will take a decade, and that will have, of course, to be very closely monitored, technically but also financially. We have started to exchange with the regulator, but also with public authorities, and one of the financial parameters that will play a key role in the management of this big decommissioning plan will be the unbundling tariff. This is clearly a lever in the hands of the regulator. they have made public that they are reviewing the unbundling tariff. So we have submitted to the regulator our views on the evolution of this unbundling tariff. As you know, it's a tariff which is set every year. So I think we will have the first event regarding unbundling prices in next January. And that will also... give a clue on the way the regulator is going to accompany this decommissioning plan, which will be one of the big challenges for us in the next decade. So to summarize, I would say no specific pressure coming from the regulator or public authorities on maintenance costs on copper, and our plan has been accepted by authorities. and a discussion that will take place in the next weeks regarding unbundling. And the third big topic is about the B2B market. On the B2B market, everything that the regulator has asked Orange to do has been done. So this is a very important point to stress. We have today no conflict with the regulator regarding commercial practices, regarding wholesale market in the B2B market. We have played the game that was expected from us. We have respected the rules of the game. Now, this is a market where, as a matter of fact, we have a strong position. because the enterprises, and especially the small and medium enterprises, have a very strong relationship with our teams on the ground, that we are everywhere on the ground, that we provide a quality of service and a reliability of our services, which is considerably higher than those of any competitors. This is a fact, and you know at the end of the game, of course the regulator has an important role to play, but the customers decide to choose an operator or another one. And so far, they have been choosing constantly, well, for a large part of them, orange. And of course, we are working very hard to maintain this level of quality of service and the quality of this commercial relationship with our B2B customers. To summarize, in terms of regulation, there is no specific threat or action from the regulator on the B2B market. And there is no sanction or things like that that we could have because we have been good citizens, I would say, and we have respected what was asked of us on the B2B market. And then, clearly, what we want to do is to keep our customers and to provide the best possible quality of service, which is recognized, by the way, by the net promoter score in the B2B market, which is at the highest ever.

Thank you.

Thank you. We now move on to a question from Rojan Ranjit from Deutsche Bank. Please go ahead.

Great morning. Thank you for the question. Two for me, please. And again, going back to wholesale, thanks for the detail. Very useful. I guess my question is regarding the pin areas and how we should think about the lines outside of concessions. And I think previously you said there are three models which you could follow, which is orange builds up the lines. Concessions could do this, or there could be a third, party vehicle so my question is how should we think about impacting your capex and should there be any slight trend up in the capex or will we still see this overall trending down from any potential co-investment and secondly again sticking with Holto but in Spain in your kind of guidance of returning to EBITDA growth in FY23 now what assumptions have you made around the wholesale contribution given the developments in Mastermobile and New Scotel? Is there any detail you could provide us there? Because I think there are some potential break clauses in there. Thank you.

Thanks for your question. So we'll start with Spain, if you agree. And so I turn to Jean-Francois.

Yes, concerning the wholesale contribution into our P&L, I remind that this is close to 18%, so more than 80% of the business of the company is obviously retail-driven. So clearly, we are expecting, following up the potential merge that should happen within the at the back to school between MassMobile and Scalpel, some movements on these contracts. There isn't much we can say now. These contracts are long-term contracts, all of them. There are penalties attached. Obviously, I cannot reveal more of the details of these contracts which are linked by confidentiality agreements with these competitors and partners. But clearly, we've been preparing ourselves and we're going to see what's going to happen in the third quarter of this year around these conflicts.

Okay, thank you, Jean-Francois. For the second question, which is a large and important question, I will ask Renaud maybe to provide you the framework and then maybe a word from Fabienne and from Joël. Yes, thank you, Rochambe. So on how we access to third-party networks in the PIN area, here you have, well, first it's fully included, of course, in our guidance in terms of, you know, reducing capex starting in 2022. So this is fully embarked. I would say that here we have started to mobilize some, let's say, financing schemes in order to lower the cost of renting, accessing third-party networks. So we have set a vehicle with a major bank with a lease contract, which helps to lower the cost of renting, but I'm afraid we don't disclose all these details. These are our little secrets, but we have started to optimize the cost to access to one part of the network which has been built by one of these operators, one of the constructing operators which are active in the PIN area, and we may extend this to a larger scope in order to continue to lower the cost of renting. So this is basically what we can do. We can either co-finance we can rent on a, let's say, traditional basis, or we can do it through some dedicated schemes which help to lower the cost of taxes. So we are mobilizing all these different schemes, and there will be some further steps, in fact, in the near future, but we will, you know, I'm not sure we will be disclosing all our little secrets from time to time. It's good to keep some element of... but it's really optimized, this is what I can say.

Maybe I can just highlight the Internet Access Provider Policy, and specifically in the PIN area, we are not the builder. We make the choice to use a line rental, and through Scorefit, Scorefit is an SPD created by a bank, and that allows Orange to lead at a very advantageous rate. So this is the best solution for Orange to deliver, to be time to market in a very significant area. We have a very strong market share in the PIN area, you know that. And it's the solution we have to deliver a strong commercial performance. It's exactly what you can observe in the figure we delivered today. And to take into account the financial equation. This strategy is very clear, and the leading and the strategy leading were embedded in our strategic plan, and it had been taken account in our guidance. So that doesn't change our trajectory, despite if there is an acceleration, it's embedded, so it's really clear.

Maybe. Yes, and so for Orange Confessions, we're also part of the PNR, we're around the operator of the network, so... In a few words, I must say that all rights are green. First, we got the agreement of all local authorities, which means that the 24 orange pins will merge to Orange Concession, so it's a sort of grand slam. And we also note a great addition of our employees. With 90% of them, we decided to join the new entity. And last but not least, the antitrust process is in progress without any warning at that stage. So it means the consequence of that means that we maintain our ambition, objective of a closing in the beginning of Q4 2020. So everything is okay for Orange Concession.

Great, that's super helpful. Just to conclude and without going into too much of the secret, it's basically a third-party vehicle which Orange is leasing their lines on in the pin areas. That's what you're doing?

Yes, yes.

Perfect, thank you.

Thank you. We now move on to a question from Stefan Bayazian from Seafield. Please go ahead.

Yes, thank you. The first one, can you update on the preparation and the phasing of the cost plan over 2022-2023? I'm trying to understand whether it can be visible as an impact in 2022 or very much back-end loaded to 2023. A second question on the outlook, is the APGA target, the new one, the one billion increase, actually higher? than when you initially set the free cash flow guidance. I think the ABD guidance is above consensus expectations, and I'm just wondering whether you're seeing extra flexibility on your free cash flow guidance, but perhaps you've also found some incremental headwinds elsewhere in the cash flows or in capex. And just a quick one, if that's possible, on the tower. I think you mentioned some appetite for pan-European tower consolidation. I'm just wondering whether you've seen any similar appetite in discussion with possible partners. Thank you.

Thank you for your question. So, Ramon is going to take the first two questions and I'm going to try to provide elements on the third question. Thank you, Stephen. Thank you both, Stephen. So, On the cost plan, yeah, we are really, and you have many COMEX members around this table who are, you know, mobilized on the scale-up program, the $1 billion cost-cutting program. We have decreased and delivered $150 million out of the billion, of which a bit more than 40 in H1, in, you know, an environment with some adverse conditions, but it's well on track. All the objectives have been confirmed, including, you know, the details we gave on what is expected from labor costs, which is half of the $1 billion. Real estate, we have been, you know, changing a number of metrics in the real estate programs, accelerating restructuring, et cetera. I guess what we can do in Q3 is come back with additional details on this. The trend that we have been expecting, which is looking at 200 to 250 million cost reduction impact in 2021 and then 300 to 350 in 2022, is still what we are looking at. And so there is nothing to, you know, nothing really more to say on this. Everybody is mobilized. We have, you know, people leading real estate, energy, et cetera, et cetera, to deliver what has been disclosed in our objectives. In your second question on the outlook for, you know, Abidal, we've been giving you a number of elements on specific engines, especially Africa, the bank, OBS OCD. Tomorrow, for those interested, it's just to make some additional teasing because we would love to see you tomorrow morning. But you will have many more information on these two big segments for the group. But At this stage, I think what's best to say is that we are absolutely confident, you know, on the organic cash flow target for 2023. And this is, I guess, the most important point at the end of the day to make sure that we will be there at least at 3.5 with this target of 3.5 to 4. And what we have been delivering up to now And what we are looking forward to is exactly matching the target of organic cash. So we will be there on time. Thank you. Regarding European consolidation of the Tarako area, I'd like to tell you that I am very convinced that we will see some form of consolidation in the taro coal market in Europe. And let me try to explain why I think so. In fact, as you know, most big European players have created taro coals or they have sold their assets. And they have done so basically for three reasons. The first is improving the technical and financial management of those assets, especially by creating dedicated teams in charge of those assets, and also, of course, looking for more revenues on those assets. The second target is value extraction, I would say, or revealing the value of those assets that are today not reflected in the value of operators, especially in the stock price of operators. And the third goal is monetization. The monetization, the easiest solution for monetization is to sell to investors. pure players like Cenex or other companies. But for the operators that have decided not to sell those assets because they are considering those assets as strategic for their future development and also as an element on which, a brick on which they could build a new business with growth and with value creation. For those players, The monetization means maybe consolidation means bringing new partners, equity partners, maybe IPO, but certainly not selling assets. And in that part of the sector, you will find, as you know, Deutsche Telekom, you will find Vodafone, and you will find Orange. So, Yes, I am very much convinced that we will see some form of consolidation because there is a common interest to create or to reach a critical size in the market. There are a common interest to accelerate in improving the management, the quality of the management of those assets. And And then, last point, which is very important, there are less regulatory and antitrust obstacles in the way, in the path to consolidation than, of course, when it comes to full operators. So I think that the path is relatively clear and that there is a high probability that we will see this. And maybe the last point to say that Besides the large players, like those that I mentioned, you have the second-tier players, local big players, that don't want to sell purely their assets to Tawakos, and that, on the contrary, will be very interested in... joining an operator's controlled model in the tower business. There are plenty of them, there are plenty of them. So that is the reason why in this tower pool segment, I would say, in my view, in the near future, you will see pure players like CELNEX and maybe other ones, but you will see also players you have today, like Vantage, for instance, but you will see larger players on an alternative model, which is an operators-controlled model. And that's why it was so important for us to create Totem and to be one of the, I would say, prominent players in the game that is going to take place now. Thank you.

Thank you. Thank you.

Thank you. We now move on to a question from Jacob Bluestone from Credit Suisse. Please go ahead.

Hi, good morning. Thanks for taking the question. There's obviously quite a lot of detail that you provided, which is very helpful in terms of the various moving parts, in terms of things that are going up and things that are going down. I just had a point of clarification around how much you're currently how much of your free cash flow is currently coming from co-financing. Ramon, I think you said that you'd received $3 billion cumulatively from co-financing receipts so far. In your Q3 presentation, you said that number was $2.4 billion. So that would suggest that you received about $600 million over the last nine months or a run rating about something like $800 million of co-financing receipts. which is almost half your group equity-free cash flow. Can you just confirm that? Is that a correct understanding of how big the co-financing receipts currently are within your overall free cash flow mix, or is it something I'm missing there? Thank you.

Hello, Jacob. No, it's correct. It's absolutely correct, so nothing to change.

Okay, thank you.

Thank you. We now move on to a question from Mathieu Robillard from Berkeley. Please go ahead.

Good morning and thank you. I had a question in terms of the competitive environment again in France, just trying to get a little bit more color. So obviously we've had a few initiatives on the B2B side since the beginning of the year, I think at the previous results you highlighted that it hadn't made any big difference, but I wanted to know if that was still the case. Also, if maybe you could share your thoughts on one of your competitors moving into the handset market, if you were seeing already some impact from that. So that was the first question on competition in France. And then in terms of cost cutting, clearly, making big efforts in terms of cutting the indirect costs. And you just highlighted that you're on track with your targets. But I guess I wanted to take a step back and look at all the cost base, because if my math is correct, it seems that overall the cost base is growing, even if you exclude Africa and the enterprise business. And I was wondering if that was a reflection of the fact that despite a reduction in indirect costs, you had to spend more maybe to get clients, and that was commercial costs, or it was more to do with a change in the revenue mix, which maybe will be offset by also lower EBITDA. But maybe if you could give us a broader picture on the cost trajectory, that would be very helpful. Thank you.

Thank you for your question. So maybe Fabienne for the first question, and Amu for the second.

Okay, thank you. So we have been monitoring very closely all the moves and changes in the B2B market during this first semester, but we don't observe any impact, despite the arrival of new competitors as India, but not only one. no impact. And I have to say that the opposite is not true. In Q2, we observed a particularly very good trend in our commercial activities, and especially in the mobile segment and on the fiber. So the figure we disclosed shows a very strong performance in the so an ecme segment both mobile and fiber due to the relationship we have with our customers the ability will have to be in proximity as explained by stefan a few minutes ago so no impact but we remain cautious because i don't think the battle is finished and we will pursue our cautious strategy and our anticipation for the future. And you have a second question about onset market. So after a very difficult year in 2020, 2021 is well-oriented for the onset. And we record a very strong growth of equipment revenue in Q2, driven by the reopening of our shop, first of all, but also by the 5G launch context. If you remember, at the beginning of the year, 40% of handset sales were 5G-compatible. In Q2, it's 50%. Appetite for 5G month after month is growing and support a good commercial momentum and we don't observe any impact from discussion you can see in the newspaper about subsidiary. So we are really confident that the equipment for 2021 is well-oriented with the hand of the lockdown period we live in the past.

Thank you, Fabienne. Maybe if I could add, in terms of the handset market, I was also looking for maybe a comment already from you with regards to the moves by some of your competitors that are being a bit more aggressive or probably present in the bundle subsidized. or not subsidized, but handset plus service revenues. Obviously, I'm referring to Iliad here. Maybe it's too early days.

Yeah. I'm not worried because, you know, the part of around in handset market made by the operator are so huge. It's not a question. It's not an issue.

So on the cost question, there is first, you know, a big impact. We were talking about handsets and equipment. And when you look at the a bit more than 200 million euro direct cost increase in H1, you have a close to 300 million cost increase due to equipment costs. So these are, of course, generating revenues, but they are generating costs. And if I may say so, these are good costs because they are very much coming with the take-up in 5G handset sales. And this is preparing the ground for the increase in the 5G customer base. We now have close to 1 million customers. 5G customers but obviously we have much more 5G handsets which are now being sold more than one out of two handset smartphones sold today in France is a 5G smartphone and it's the same in many of our European countries if you take Poland for instance it's taking off extremely rapidly so there is One element of the direct cost increase, which is coming from equipment. There is another one, which is connectivity costs, which is not at all of the same magnitude, of course, but which comes with the evolution of the model and one point we discussed previously, which is accessing third-party networks. And then the other important element is, of course, that part of these This time, indirect or direct costs come also with the fast-growing engines such as OMEA, with the performance you can see in terms of profitability, which is growing extremely rapidly. You will continue to see this very strong focus on cost discipline. I'm not going to go down through every line. If you want to come back to this on a separate call, but it's also true when you look at the indirect costs where we are really putting this under extremely close watch in order to secure the performance of the group. Thank you very much. I think we have time for one last question, and then I will make a quick conclusion.

Okay, thank you. So our last question today comes from Abhilash Mohapatra from Burenburg. Please go ahead.

Yes, hi. Good morning, everyone, and thanks for taking my questions. Hopefully, two quick clarifications. Just around the 500 million EBITDA impact figure that you gave us for wholesale, just wanted to understand what does that mean in revenue terms, please? Looks like consensus has wholesale revenues coming down by 600 million over 21 to 25. We thought it could be more like sort of north of 1 billion. Just be interested to hear you know, what it looks like in revenue terms. And then secondly, just a clarification on what this means for French EBITDA overall. Am I right in thinking that you said earlier on that you think that growth in retail services and cost cutting can just about offset this impact? So does this mean you now expect French EBITDA to be flat, declining over 21 to 25? Thank you very much.

Thank you, Abhilash. I think your maths are right. If you look at the wholesale slide, we say that roughly two-thirds of the revenue decline are very low EBITDA contributors. So if you take slightly less than 500 million euro impact in terms of EBITDA, your 1 billion something must be right because it's a mathematic conclusion. And so this is really the important outcome of what we see today, which is that... There is a revenue impact on one side, but I think Jerome was very clear, for instance, on his termination rate example of $400 million, which is close to zero EBITDA. I mean, this is a general equation. And second, on the French EBITDA, when you take the wholesale, retail, cost control, et cetera, let's say you are around flat. Okay? Around flat. And then we will see what is around in the next years. Okay. Got it. Thank you. Thank you. So if I may, and before saying goodbye, I would like to just very quickly wrap up what are the key messages from us on this call. The number one is about Spain. What we want to tell you is that Spain is today under in-depth transformation. Spain is on the way of a commercial recovery. And Spain is, from an accounting point of view, now totally cleaned up. So Spain is on the good way. So clearly the situation in Spain is challenging, but I think we have the right team, we have the right plan, we have the right strategy. It will take a little more time than maybe we thought one year ago, but I am very confident in our still capacity to recover in Spain. Number two is about wholesale. And this is very simple, and this has been recalled by Armand just a minute ago. Of course, we will have an impact in the wholesale revenues due to this historical migration from copper to fiber. But this impact will be limited in terms of EBITDA. It will be limited below 500 million euros by 2025. So this is a very important, I think, point that everyone should now work on and keep in mind. the retail market in France is well-oriented, I would say even strongly oriented, and we are quite confident that the second part of this year will show accelerated trends with strong net ads attracting growth in retail revenues. Number four, and this might be the most important for you, we are today confirming clearly and confidently all our guidances, especially, of course, the 2021 guidances. They are unchanged. They are confirmed. But, and more importantly, the 2023 guidance, especially regarding the organic cash flow production by the company. So we will reach between 3.5 and 4 billion euros of organic free cash flow by 2023 and I wanted to still repeat this and the degree of confidence that we have in our capacity to reach this target. So thanks for being with us and I wish you with the whole team a good day and a good summer.

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