Orange Sp/Adr

Good morning and welcome to our Q3 2021 results presentation. And we're going to jump to slide four, which presents the key highlights of the quarter. You can see that Africa Middle East is still the main growth engine for Groups Revenue with a double digit top line increase this quarter. You can see that in France, retail services kept accelerating at plus 3.7% excluding PSTN, and we have extended our 5G coverage reaching close to 700 municipalities. In Spain, a new milestone in the recovery action plan has been reached with the simplification of our portfolio from five to three brands, while one Spanish out of two has coverage with our 5G network. The other European countries pursued their solid commercial momentum, fueling retail service revenue growth at plus 5.7% this quarter, while completing two key strategic projects, namely the T-Car Air acquisition in Romania and the Polish FiberCo. Regarding the enterprise segment, we pursue the development of our growth relays with Orange Cyber Defense. obtaining one of the most demanding cybersecurity certifications in the market delivered by the French Information Systems Security Agency, ANSI, and with OBS, partnering with Siemens, to develop opportunities linked to the convergence of IT systems with operational technology systems to prepare the future of the industry. Last but not least, we now own 100% of Orange Banque, which reaches 1.6 million customers, while we keep our focus on value, with nearly all customers acquisition over the quarter in France done via a paid offer. Orange Bank Africa now counts 600,000 customers in Ivory Coast. A word on our infrastructure project, slide 5, just to confirm that everything is on track. Our Fiber Co., joint venture in Poland has been finalized this summer, and we will complete in the next weeks both Orange Concession and Totem. Regarding our financial achievements, we posted this quarter revenues at 10.5 billion euros, down by 0.4% due to a negative base effect on co-financing in France, and the slowdown of equipment sales after a peak in Q2 linked to the lockdown exit. Excluding co-financing, revenues would have grown this quarter by 1.3%, driven by Middle East Africa, other European countries, and an acceleration of retail services in France. The group EBITDA at 3.6 billion this quarter declined by 0.7%, impacted by co-financing. Excluding this impact, EBITDA strongly improved by 4.5%, thanks to a solid commercial momentum and cost-efficiency efforts. After a catch-up in H1 due to the context of the pandemic in 2020, Group E CapEx decreased by 1% this quarter to 1.7 billion, in line with our full-year guidance between 7.6 and 7.7 billion. Now, let's turn to our business review, starting with France. where the strong acceleration of retail service revenues excluding PSTN at plus 3.7% enables revenues to be almost stable excluding co-financing proceeds. If you take away this base effect of co-financing, revenues in France are at minus 0.4%, which is a very slight decline of 16 million euros, so basically stable for France. The back-to-school period was still competitive, but without reaching the low price points of the previous quarter, a trend that is still improving. In this context, we pursued our strong commercial momentum with 121,000 mobile net hands, while mobile ARPO increased and churn reached a particularly low level. Our volumes mainly came from Orange Brand convergent offers, and also reflected the continued growth of our B2B customer base. The solid commercial trend continued for the fixed broadband as well, with 80,000 net amps in Q3, fueled by 343,000 fiber net amps. As a reminder, more than half of our new fiber customers are new customers for the group. The main part of our fixed broadband customer base subscribes to a convergent offer for which ARPO improvement accelerated sequentially at plus 1.6% this quarter, which represents more than plus one euro. Leveraging both on the renewed traction on the orange brand, we reshuffled in early October our portfolio in order to strengthen the attractiveness of our core brand and accelerate migration to 5G, enhancing orange ARPO. In this context, we launched a new more-for-more offer following the three first actions of the year. Let's now turn to Europe, where we achieved a solid commercial performance with mobile net ads excluding M2M of 188,000 in Q3. and fixed broadband net ads of plus 66,000, out of which 122,000 in fiber. This uptrend in fixed broadband is supported by all countries posting positive net ads. Total Q3 revenues are down by 1.1% after a positive Q2, impacted by activities with low margins such as a decrease in fixed wholesale international traffic in Spain and Poland, and the slowdown in equipment sales compared to the catch-up during last quarter after the end of lockdowns. Excluding Spain, the other European countries, what we call Europe 6, revenue grew by 2%. Meanwhile, retail services are on a recovery trend at minus 1%, supported by a slightly improving trend in Spain. and an accelerated growth in the rest of the footprint at plus 5.7%. It's also worth mentioning that this quarter we closed the acquisition of the fixed business of Tecar in Romania, which will allow us to continue developing our convergent strategy. Let's move to Spain, where the recovery plan is on track with a positive commercial momentum. We continue to post positive net ads in convergence, mobile contracts, fixed broadband, including FTTH, with a decreasing churn on all these segments despite the back-to-school promotional period. Alongside the renewal of football for the current season, Orange increased its prices by 2 and 5 euros for its non-football and football offers respectively. Regarding our financial performance, there is a slight improvement in retail services compared to the previous quarters, but total revenues are impacted by low margin activities such as the slowdown in equipment sales and the fixed wholesale international traffic. Also, After the successful migration of Republica Mobile customers towards Simio, we have started migrating the customers from Amena towards our Orange brand. This move will allow us to pursue the simplification and transformation initiatives already underway by reducing our portfolio from 5 to 3 brands. We continue to differentiate the high-end services provided to our customers by launching a fiber commercial offer at 10 giga in the five largest cities. Let's now turn to the continued outstanding performance of Africa and Middle East, which delivered this quarter a plus 12% revenue growth, driven by strong retail services, especially fueled firstly by mobile data, thanks to a continued increase of our 4G customer base. Secondly, by the continued very solid momentum of fixed broadband and also the strong trend of B2B. All those drivers will remain in the coming years a strong source of growth thanks to the increase of demographic, smartphone and fixed broadband adoption. All countries grew this quarter with 10 out of 16 operations in double-digit range. Last, a word on Orange Monet that is facing a tougher competitive environment in a limited part of our footprint, for which initial actions are being deployed to provide a quick and efficient response. We will present you more details on our action plan during the full year results, but this is not the first time we have to face a new competitor in that footprint, and we have always successfully managed it. The key point I would add here is that this has no impact on our Africa Middle East guidance provided last July, as other drivers are growing faster than expected. The enterprise segments. recorded revenues up by 0.4% over the first nine months of the year despite a minus 1.4% decrease in Q3. The quarterly change mainly stems from the decrease in voice revenues, which is not compensated by the growth in mobile and IT and IS this quarter. The pace at which our clients are migrating to fully digital solutions has accelerated the decrease of the voice business. which now only accounts for 14% of the enterprise revenue. The growth of our IT and IS business is supported by cybersecurity, up by 14% in the nine first months of the year, as well as by both cloud and digital and data growing above 8%. Last but not least, slide 14, we fully reiterate all the elements of our 2021 guidance, as well as all our 2023 objectives. Now, with my EXCOMM colleagues, we will answer to your questions. Thank you.

Thank you. We are now available for your questions. In order to give time to everyone, please ask only one or two questions. To ask for the floor, please press the star or asterisk key followed by 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. please press star one to ask a question, and please use the handset, not the phone speaker. Thank you. We'll take our first question from Nicholas, Code Coalition from HSBC. Please go ahead. Your line is open now.

Thank you. Hi. I've got two short questions. The first one is about fiber in France. You're building at a good pace. Can you just remind us the total number of premises in you are targeting and when do you expect to reach peak fiber capex in France? My second question is also on fiber and around the market share dynamics in the medium dense area. Obviously you had a peak of co-investment from competitors in 2020. So how does this translate on the ground from a retail market share point of view and maybe linked to this, what's the revenue trend for wholesale excluding co-investment? Thank you.

So Fabienne is going to take your questions, Nicolas.

So, yes, in France, we are still in a very strong momentum on fiber, as you can observe. Currently, we have 27.6 million connectable homes and 5.6 million customers on fiber. So we are in a strong pace, but this is the beginning of the slowdown of the rollout. And as we explained last year, 2021 will be the peak of CapEx for fiber, and we started this in Q2, the beginning of the slowdown of the rollout, because we are very near to finish the very dense area. In the middle dense area, we are around 80% of the – more than 80% of the rollout we have to do in the commitment we took with the government. And we have in front of us the end of the pin area, if you remember. In the middle dense area – You're right, there is more competition and a lot of players through the co-financing in 2020 are now in the middle dance area and they start to come in the pin area. So the competition is strong, but it doesn't impact the strategy we have and the results we have. I just maybe want to recall the strong performance we have in the Q3. 343,000 net hand, it's still a high performance following the momentum initiated with the lockdown period. So despite we have more competition, we are able with all the assets we have, the quality of network, quality of customer relationship, marketing strategy, services. We are really confident we can consolidate our leadership position.

Okay, thank you. And for what it is around wholesale revenue actually in co-investment, what's the trend, the underlying trend?

So, Jérôme Barré maybe will take the wholesale question just on fiber to confirm also what Fabien says. I mean, I think one of the real important characteristics of Orange, comparing ourselves to others, I mean, is really the fact that we have invested in the past heavily in fiber. In all Europe, 13 billion dollars. 13 billion in the past 10 years and so today if you take just france 60 of other households are connectable to to to fiber it would be 38 in europe in average and i would not name a few countries where the figure is below 10. so you see looking at at the future you are looking at orange with a country in france in spain in Poland, and in also some other European countries of our footprint, where the fiber challenge has been taken much before than most of our competitors, and it is going to be a differentiating factor for the future.

And just maybe to be clear, the peak on the capex is behind us. It was in 2020, and as I understand, we started to decline and to slow down the rollout of fiber in 2021. So it's behind us.

Okay. Jérôme, on wholesale? Okay. So everybody, thanks for your questions. So concerning wholesale revenues in France, but also in Europe, you have to exclude two effects, in fact. Of course, the big one concerns the co-financing, because... As you know, we had a big one-off effect impact in July 2020, and so we have set this effect in 2021. There is a second cause, which is lower, but that I have to mention, is that we merged on the 1st of July to the new European termination rate, which is lower than before. So it has an impact of over and over, which is neutral on the BDA because, as you know, it's fully symmetrical. And when you take off these two effects, these two causes, we have a slight decrease on the wholesale revenues in France and in Europe as well. And it's fully current to what we announced in July when we commented our results and when we communicated our trends for the 2020-2025. So no surprise, fully aligned. And so we just can confirm what we said in July. Very clear. Thank you very much.

We'll take our next question from Roshan Ranjit from GoshBank. Your line is now open. Please go ahead.

Great. Thank you for the question this morning. Two for me, please, and maybe the first one just to follow up on the previous one. Now, you said co-investment is very lumpy, hard to predict, given it's driven by your competitors. How should we think about this just going into the year end? And also, you've now closed your Orange concessions deal. So surely we should see a pickup of the construction revenues, which you book from Orange concessions. So should that drive a slight recovery? I'm not saying full recovery, but slight recovery into FY22 on the construction component. That's my first question, please. And secondly, just on the retail trends, another acceleration this quarter. I think previously you've given this kind of mid-term guidance, I think 2% to 4% ex-PSTN. You're now at the kind of top end of that range. Is there an upside to that range now, given the pricing dynamics you're seeing? And, Ramon, you mentioned the upside into some of the 5G pads. Could we see that retail trend ex-PSTN move higher? Thank you.

On your second question, and Fabienne can complement this, of course, but we are really in the range, as you said, Rochelle, of what we said, which is, you know, retail excluding PSTN growing between two and four. So this is a strong quarter, and we will remain within this boundary, which is very solid. And given the state of the competition of the French market, you can see that it's a very strong performance, and We will also, needless to say, emphasize that the composition of the performance with the high end and the Orange brand being very strong is also a testimony with the four back book price increases we were able to perform in 2021. The best proof of the quality of the performance. I don't know, Fabienne, if you want to add something on this one.

Yes, we are really confident that in the future, and specifically in the Q4, we will be in the same trend, very solid performance, and we are able to pursue the level growth higher, a little bit, due to the marketing strategy we have. And the fourth... The four back-book repricing we made in 2021, it's a very significant move we made, if you remember the past, because the market is a little bit more rational. So we are really confident. And the retail trend and the acceleration is clearly, again, in front of us.

And on the – merci, Fabienne – on the first question, well – First point, Orange Concession, which is going to be closed next week, the closing of the transaction, will be fully embarked in our figures. And you will see the capex of Orange Concession off the balance sheet starting Q4. So this will be one of the impacts you will see. In terms of construction, yes, you will see an ongoing contribution of PIN construction in the next quarters, and we will see as it goes what is the contribution of this construction, but it's going to be ongoing. And as far as co-financing, nothing to add with what Jérôme said, but we are really very well on track with what we said before. We booked 60% of the total expected co-financing. You know, this famous bucket of around $5 billion with still around $2 billion to go and with still around $500 million to go following 2025. So in terms of predictability, as you said, it's hard to predict. Yes, because it partly depends or totally, in fact, depends on the choices of our competitors. But we've seen, you know, the catch-up last year of two of our competitors. We have a third competitor which is doing part of the catch-up in 2021. And so in the future, we will see what is the choice of these players in terms of arbitrage between renting and co-financing.

Okay, that's helpful. Thank you.

We'll take our next question from Matthew Robillard from Bulk, please. Please go ahead. Your line is now open.

Yes, good morning, all, and thank you. First, coming back to the retail market in France, so as you were explaining, strong performance this quarter. This comes despite more pronounced promotions, certainly at the lower end. So I was just curious to understand whether The back book price increases that you've done is something that you've seen also from other competitors. So it's generally actually a rational environment on that front. And generally, how has churn evolved despite the price increases on your back book? So that's the first question. And then the second question was about cost cutting. If you could give us a bit of an update on the trajectory of the cost cutting and And what are the next steps ahead in order to meet your guidance of 1 billion cutting for indirect costs? Thank you.

Thank you, Mathieu. So, Fabienne, on the retail market?

Yes. On the retail market, the performance is strong, both on mobile and on fiber. And it doesn't come from the low-end market, and it doesn't come from more promotion. And I think this is good news. Maybe two points. First of all, as I explained in the past, in Q3, and despite a sluggish back to school, we observe a market more and more rational and an improvement in the market with a better pricing, all the players contribute to create a better environment. And in Q4, maybe you observe it, but at the beginning of October, the lowest price we have on the mobile at 5 euros are gone. So I think it's good news. So the dynamic is really supported by not low hand, And I recall for the first time on the mobile, the performance, 121,000 net had, are supported by the high-end market and by Orange, more than 50%. So we are really confident in this move because I think it's a real turn in the French market. And it's exactly what we try to do, you know, as a leader in the past. In the same way, you're right, the churn is very well-oriented, both on broadband and on mobile. This is a record of low churn for both B2B and retail markets in Q3. This churn rate is very, very low, and this is due to, I think, a very particularly intensive Q2. and back to school a little bit more sluggish. This is due to the quality of our strategy, and we boost our range from the beginning of the year. This is due to the quality of network we propose, the quality of customer experience. We are still number one in NPS, so I think it's a strong performance, but thanks to fundamental assets.

Thank you, Fabienne. And, Matthew, on the cost-cutting trajectory, we are absolutely in line with what we said at the four-year communication, including in terms of sequence. The figure delivered last year in 2020 was around minus 100 million euros. And I can confirm that for 2021, the contribution from cost savings or cuttings or whatever you call them, will be between 200 and 250 million euros. And if you look at it at the end of Q3, on the basis we are looking at, the savings are 235 million. million euros on the 1 billion target which is to be delivered in 2023. So we are on track with the objective and we'll be talking more about it of course at the folio on all the elements that were described in our folio communication, all of them.

Thank you very much.

We'll take our next question from Sam from Exxon BNP Paribas. Your line is now open. Please go ahead.

Yeah, morning, guys. Two quick questions if I can. So just on the co-financing again, sorry. The $2 billion you mentioned for co-financing left to receive, can you just remind us if that includes an assumption that SFR does co-finance in the medium-dense areas where they have their cable network? So that's question one. And then secondly, you mentioned Totem is on track for the carve-out in this course coming. I think you said in the past you're open to participating in TAOCO consolidation. I just wondered if you've been proactive already, whether you're in any discussions. And also I saw that Celmex are now going to be required to divest sites in France as part of the hybrid deal. Is that the kind of M&A that Totem would be interested in pursuing as well? Thanks.

So I don't know if Jérôme will take the first question.

Yes, concerning co-financing, I must say that now every of our peers, big competitors, co-finance in different years. You see, two of them were in the co-finance in 2020, and there was a catch-up effect because they had to pay for all the plugs which were deployed before, since the beginning of deployment of fiber. And as Ramon said, the third one, so SFR, started to co-finance in 2021. So we are now in a situation where all our peers co-finance. Of course, there is a catch-up because, as I said, there were a lot of plugs which were built since the decision to co-finance. And Ramon mentioned, recalls that we have 30%, 40% of the co-financing in front of us, which represents still a huge amount of money. but there is less and less catch-up effect. It will be a regular, I would say, co-financing policy for the new plugs, which will be deployed by Orange.

Thank you, Jérôme. So I think the short story here is that those operators who were active on cable are switching to fiber as fast as they can. And the name of the game is FTTH. So it's true in France, but not only in France, in fact. On your totem question, so first point, yes, we are on track. And so the legal entity will be full speed working in the following weeks, starting with France and Spain. So we are absolutely on target. And we have now a management team which is working with a CEO, a CFO, a development team, etc., And we are also setting the teams in Totem France and Totem Spain. So very well on track here. And the team is working now on delivering, I would say, the organic growth targets. So, you know, tenancy ratios, optimizing costs, et cetera. So there are working Nicolas Roy and his team on this first very important issue. Now, looking at what's going to happen on the sector, we are actively, I would say, actively thinking of how and when we will be participating to the consolidation of the tower market in our countries and at a European level. And we always said that Totem would be walking on two legs, the organic leg and the inorganic leg. And you can, uh, be, uh, I mean, confident or, uh, clear about the fact that we are extremely, uh, you know, uh, active and proactive in being in a position to be an actor here, because there is no way that we would leave this part of the market to, let's say, the pure tower cause. As an MNO, we don't want to see this happening. And in terms of value creation, We are very much convinced, but not only us. We have some colleagues in the Telco, Towerco football field, which are also extremely keen to take our own part of this market. So this is high on our agenda. I will not be more specific, but this is what I would like to say to your question.

Thank you very much.

We'll take our next question from Thomas Cowdery from Brian Gunyer. Your line is now open. Please go ahead. Hi, Thomas. Your line is now open. Please go ahead. Thomas, if you unmute button, please unmute yourself. Your line is now open. Please go ahead. We'll take our next question from Jacob Bluestone from Credit Suisse. Your line is now open. Please go ahead. Hi, good morning.

Thanks for taking the question. I just had one question just regarding Orange Bank. You announced earlier in the month that you were buying out Groupama There have been some previous press reports that you might look at a partner. I'm just interested in understanding your thinking behind that move. What was the reason for deciding to go for full control rather than getting a new partner in? Thank you.

I'm going to give a first answer, but we'll also take the opportunity of having Paul Deleuze with us to maybe say a word on the bank and on this question. But just on my side, I would say that We had a partner, Groupama, which was willing to exit for reasons which were belonging to Groupama, given their own objectives, etc. And so it was, I think, wise on our side to see if another partner would be willing to come in the game. We had some discussions, and the reality is that we were not ready to, you know, just give up the control of what is going to be a strong supportive for the group in the years ahead in conditions which were not met today so basically we preferred to put a stop to these discussions for the time being we see in the future what can happen and we decided that we would be in a better position to control the strategy and the development of the bank with 100% control, which is going also to help supporting developing synergies with the telco. And so this is why we are now in this position with a very good dynamic of the bank that maybe Paul can, in a few words, describe.

Yes, thank you, Ramon. Two words on Orange Bank. First, as it was said by Ramon, we are... We are facing a very huge acceleration in the development of Orange Bank. Just to give you a few figures, we have reached 1.6 million customers. Our loan origination will be beyond 850 million euros compared to our less than 500 million euros last year. And our NBI, which is our revenues... is growing by 37% since last year, which obviously our losses are reducing quite quickly as well. So we are accelerating the growth of Orange Bank. We're reducing the losses, as it was said, over the last quarter by Orange. We are bottoming up, and that's good news. And in terms of partners, yes, we had some discussion with banks, The truth is, as said by Ramon, we're not ready to lose control on one side. On the other side, what we have found is that to fuel our growth, as I said, is quite steady right now. We prefer to partner with fintechs because we find that we have more, let's say, off-the-shelf solution which we can implement. That's why we have major acquisition of Anytime. That's why we signed a partnership with United, which is a leading French fintech on consumer loan. That's why also we are discussing with several insurtechs to do the same as we did with United. And obviously these fintechs are much more efficient to provide us with some digital solution compared to traditional banks. That's why we have chosen this path.

If I can just ask a follow-up, and thank you for that. Obviously, as you said, it wasn't the right time to bring someone else in. But do you think you might look to monetize the bank at some point or at least a part of it? Is that part of your thinking?

For the time being, we are developing the bank and we will be taking this issue at a later stage. For the time being, this is positively growing, positively contributing to the figures of the group, by the way, because as we said, we reached the bottom last year, so now it's going to be a positive contribution to a year-on-year evolution of profitability of the group. Got it.

Thank you very much.

We'll take our next question from Andrew Lee from Goldman Sachs. Your line is now open. Please go ahead.

Yeah, good morning, Yvonne. I just had one question on enterprise. You picked out that the revenues were down, impacted by a decrease in voice revenues. I just wondered if you'd talk about whether that's a temporary phenomenon or that's something that you think will be sustained, you know, continued in the coming quarters and kind of any update on your views on the ability for enterprises to retain kind of flat to growing revenues over the coming years would be great. Thank you.

Thank you, Andrew. So, Helmut is going to take a question.

Thank you, Andrew, for the question. First of all, we consider it There is an underlying structural phenomenon, which is the digital workspace that is evolving, of which we take part in that game of our offerings. We see a strong increase, for example, in the substitution of fixed historic voice via mobile volume growth on our side. You see this as well in the numbers. On the other hand, let's not forget, this historical voice is about 14% of our revenues, and it has accelerated. Unfortunately, it's declined. That's why you see a quarterly decline of 1.4%. By the way, this 1.4% represents 26 million. Just to give you a feeling, the pure amount of voice in there is already more than 30 million. So it shows you that this is the major driver. On the other hand, it should be noted that with our digital workspace offerings, we have done also some price adaptation over the summer. We believe that this should be helpful to convert further historic voice into voice over IP. And if you look to the new trends, you know, you've seen over the summer also that on SD1, software-defined networks, we have now become number one, not only in France, but also across the globe. And that's why it's going to be, I think, a structural element in there. And a second reason that I would like just to mention is the chipset crisis impacts our managed lands rollout across the globe with some delays. So that's a second reason that why there has been a slower growth this year. But overall, we are confident to do our numbers as we have indicated to you.

Thank you. We'll take our next question from Alexander Rossier from Bank of America. Your line is now open. Please go ahead.

Hi, guys. Thanks for the question. Just one quickly on Agilept where I saw on the news show yesterday or a few days ago that you had a new plan of $300 million into the region. I was just wondering how much of that plan was just for next year or in the following year. What was it about? And if you were thinking about financing more of your investment in Africa by eventually more tariff sale there, as we've had, like, more agreements and combination of African tariffs recently and even, like, a strong or, well, a big IPO into that market, if you could do something similar that you've done with Totem in Europe. Thank you.

Thank you, Alexander. So, Alune, head of Orange Medalist Africa, is with us today. Alune?

Yes, I'm here, Herman, thank you. Would you like me to answer?

Yes, please, Alun, go ahead, on Egypt.

Yes, so we, as you know, we are in constitution in Egypt with our three elders and co. And we have the one with the largest coverage of the population, So any opportunity that could enable us to catch up with the competitors is welcome. We are studying all these opportunities, but we have not decided for the moment exactly how we're going to do it. But we're open to partner with Egyptian investors to do so.

This is what I could say. Thank you very much, Aline. And on towers, do you want to complement?

On towers in Egypt? I'm sorry.

No, in Africa, generally speaking. In Africa, generally speaking.

In Africa, yes. Thank you. Thank you very much. In Africa, our position is we are not actually willing to sell our tools. In many of our geographies, We really have a very strong position, and we have also a competitive edge regarding the number of towers. So we are not willing to sell the towers, but it could make sense to have that kind of approach we have had in France and Spain. It could make sense if we do it at the cluster level. for instance the Sonanta Equestria with five countries or it could make sense to have a tower code and then have some investors without needing the control of the tower code. This is our position and the approach we are willing to have in the region.

Thank you. So you see, Alexander, that the European approach is also potentially reaching the south of the Mediterranean. We will be talking more about this later also.

All right. Perfect. Thank you, guys.

We'll take our next question from Jerry Delis from Jefferies. Your line is now open. Please go ahead.

Yes, good morning. Thank you for taking my questions. First question just on inflation in the wider economy and how that's impacting your business in terms of your pricing power towards consumers and what upward pressure on costs is being experienced at this stage. And then secondly, coming back to the French retail activity, I suppose the back book repricing that you implemented in February, in April, and in June is having a positive impact on retail revenue trends. Would it be fair to estimate that the year-on-year benefit to France retail service revenues from the back book repricing would be of the order of 30 to 40 million euros on a quarterly basis. And do you believe that there is runway to continue to raise prices on back book customers at the same pace in the next 12 months?

Thank you. Thank you, Jerry. So on inflation, which is a big question in... our economies, not just for our sector, obviously. I would say first that our guidance is unchanged in spite of the current levels of inflation. So this is point one. If you look at the top line, I would say that the pricing levels, in fact, are mostly driven by the competition on our markets. We'll turn to the French question, but it's also true in other countries. The capacity to drive price increases depends much more on the level of competition than from anything else. But obviously, one question mark will be our capacity to continue to These price increases you've seen in France, in Spain, in Poland, in the current environment. We've been able to do so in the past 12 months. And obviously, if prices around us continue to increase... we should also be in a position to adapt our own pricing policy, as in all other industries. There is no industry where this does not happen. So we will be working on this. And on the cost and capex side, I would say that our buying power, and particularly through buy-in, our purchasing joint venture with Deutsche Telekom, grants us access to the lowest possible prices. So we've been anticipating also a link to the supply chain crisis, our procurement policy, and so we should be in a position to face this situation, which is also true, by the way, looking at energy costs, where in our main countries we have covered 20-22% already with a number of contracts. On the French retail, I will turn to Fabien, but maybe just two figures because obviously the bank book price increases are an important feature of our economics in France. I would say that what has been done up to now will contribute around 30 million euros additional net euros in 2021, and that on a run rate 12-month basis, this positive impact should be more than double. So these are very important moves, and we will be trying to continue, as we've done in the past years, where Orange France was able to take some buckets of, let's say, around 1 million customers time at a time, moving them to more generous bundles with better prices and with close to zero churn. And so there is a pricing power which has been demonstrated, and that is going to be pursued in the future.

Yes, you're right, because in 2021, we have an acceleration of the back book repricing, as you mentioned. It's not three, but four repricing. back book repricing will launch in 2021, in February, April, June and October, it will fuel the Q4. And it's important to understand that the back book repricing is consistent with the strategy we have and value strategy, but it's possible because we have a market repair at the same time. We have an appetite for fiber and for mobile after the end of the lockdown period. So all these points support the strategy we have to launch different back-book repricing on mobile, on broadband, on convergence. And we are really confident that we can maintain this strategy in the future due to the 5G launch It's exactly what we did in October when we have revamped our office, maintaining a 5G premium but at the same time a strategy where we give more for more. So yes, we are able and we are confident that we maintain this strategy in the future, supported by a market more rational where all competitors raise their price.

Thank you very much. Could I just confirm the numbers that Ramon gave? So it's €30 million of service revenue benefit in 2021, and then the 12-month run rate more than double that based on the full price increases so far. Yes. Yes. That's it. Thank you. Thank you very much.

We'll take our next question from Emmett Kelly from Morgan Stanley. Your line is now open. Please go ahead.

Yes. Good morning, everybody. Thank you for taking my questions. The first question is just coming back to the inflation question. Can you maybe just say a few words and give us a few details on French labor expenses in particular, please, and what has been agreed with trade unions in terms of average pay increases for the next couple of years and whether this can be offset by declining numbers of full-time employees, please. And then the second question, Ramon, just relates to a post I saw you putting up on LinkedIn, I think about two weeks ago, three weeks ago, where you were looking for a kind of a fairer playing ground between Toko's and the tech world in Europe. Can you maybe just say a few words about that post in terms of what expectations you're looking for? Do you believe that telcos should be paid by over-the-top providers, for example, for delivering content through to customers? Thank you.

Thank you. Thank you, Emet. On the labor costs, Gervais is going to take your question.

Yes, good morning. Regarding labour costs for 2021, we have a general increase, average increase, sorry, for the salary in our French operations has been negotiated to 1.8%, which is below the inflation we observed this year. Regarding next year, we have not started the negotiations yet for two reasons. The first one is that According to certain economists, even if it's not fully verified yet, inflation might slow down maybe early next year, we'll see, to be confirmed. And secondly, this is a manual process. We cannot negotiate a multi-year. According to the French law, the negotiation is a yearly negotiation to be undertaken every year. So we cannot enter into a three or four years process. So we'll start this negotiation early next year, having in mind that when we look at what has been done in some of the big French groups, we are now with figures that are above 2% for the average increase for the year. Regarding the manpower evolution, I think Ramon and the team have mentioned at several occasions that within our scale of plan, we are undertaking a process under which we might ease early retirement departures on the French operations, more or less like we did in Spain in the beginning of the year. And this plan is currently discussed with the unions and could enter into force early next year, so easing the departures at the level we planned in our scale-up plan.

Merci, Gervais. And, Ahmed, thank you for reading the post on LinkedIn. It was also on Twitter. And it was, you know, following a day in Brussels to meet representatives of the EU Commission, of the Parliament, and having a roundtable with colleagues of various parties. Basically, the message was, a lot is being asked from the telcos. There are big public policy ambitions, including 5G for all by 2030. There is a huge agenda which is put on the table by Thierry Breton, former head of France Télécom Orange, that you well know. And I think there is a growing awareness that the rules of the game should be a bit better balanced. If you want to have connectivity for all, if you want to have a digital decade, you have to get public policy a bit more supportive for telco. This was the message. There are a number of issues which were put on the table, including the one you just alluded to, which basically says that there is room, there is space to have a more balanced contribution to network costs. And if, you know, big text, were contributing a bit more to network costs when you know that four of them are representing 50% of global worldwide Internet traffic and 10 platforms are representing 80% of the world's international Internet traffic. This could be... a bit more balanced. So, yes, we have some expectations in the telco world, not only in Orange, obviously. And we will see where this goes. There will be a big discussion in Europe about the Digital Market Act. And I think we need to be a bit more outspoken about these issues because there is an issue of level playing field, basically.

Thank you very much.

We'll take our next question from Thomas from Brian. Your line is now open. Please go ahead.

Yes, thank you very much for taking my question. Sorry about the mic issue before. I have two, please, in France. One, I think, Fabien, you were mentioning the resumption of the offer in October. During this resounding, you actually brought closer in a way the orange mobile only offers to the social offers. You have no commitment anymore, and I think the prices were lowered for some of them. How should we look at this move? Isn't it contradictory with the premium approach that you're putting forward? And as a leader, as a market leader, Also, is this a consistent market move? That's my first question. And my second question is, could you please update us on how the discussions are going with the asset on copper decommissioning? When should we expect news about your plans here? And should we still expect copper network to be decommissioned around 2030? Thank you very much.

Yes. For the first question, and I think we need to explain again what we did. It's clearly a move to boost high-end markets. And I maybe take time to explain this. First of all, when we revamp our offers in October and through the new design, it will boost the high-end market and the orange brand. Because We want to be more attractive compared to Soch on mobile only, thanks to the non-binding offers and the reduction in the price gap between Soch and Orange. But we still have 20 euros gap between Soch and Orange Grand. In the past, it was around 30 euros. And we have 30 euros gap between Orange and the other competitors. So it was too broad, you know. The objective is for us to conquest and to convert new customers. It's exactly what we did and it's exactly what we observe in October and that fuel the airport at the same way. The second point in this revamped offers, it's we want to reinforce the 5G attractiveness. Why maintaining a premium? We maintain a 5G premium with a pricing gap between 3 to 6 euros according to this offer. So, yes, you're right. We decide to price down, but only to price down for two offers. These two offers represent less than 5% of our sales. So, there's no volume behind these two offers. So, really... It's a premiumization strategy, and it's exactly what you will observe in the ARPO in Q4, because ARPO should increase, and we observed this at the beginning of October. But at the end, the objective we have is to boost the high-end market and the orange bond as we did in the past, and it's a successful strategy as reflected in our results. And maybe, oh, sorry, you have a second question about copper. So in copper, we are just at the beginning of the discussion with the asset, and officially we didn't start them. So I think it's too early to announce anything. We have, first of all, to present our action plan. And in the second time, there will be a public consultation. with the other player. The aim we have in the corporate is to find the right balance between the commissioning and the cost. The discussion will address the operational process and the conditions for successful closure plan, but for Orange, the objective is to control the balance of cost and revenue. between wholesale and retail, between corporate and fiber. So I want to recall one point very important. The discussion about the program and the action plan is in the end from Orange, and it will be, because it's very important. It's not only a technical issue. It's, above all, a customer issue, a financial issue, and maybe an environmental issue, too.

And 2030 is the target date.

Yes, 2030 is the target, so it will take a long time. It's a really long-term process.

Thank you very much.

Take our next question from Abhilash Mohatrata from Barenburg. Your line is now open. Please go ahead.

Yes, good morning, everyone, and thanks for taking my question. Just a broader question on the balance sheet, given your comments around Pan-European Towers consolidation, I guess. I mean, the balance sheet is pretty strong, it's around two terms net debt to EBITDA. In that context, would you be open to maybe sort of taking that higher in a scenario where Maybe you have to make a payment to be part of a sort of bigger pan-European tax group, or is that not on the table, and would you only sort of look at other means of financing?

Thank you, Avilash. Well, you know, I think, as you said, one of the characteristics of Orange is that we did make some payments both bets on FTTH 10 years ago, and I think this will be contributing strongly to the future of the group. And at the same time, we were able to manage and preserve a very strong balance sheet, which is quite a performance, by the way. To have invested so heavily in the past and at the same time reducing net debt significantly in the past 10 years to be at 25 billion net now, and this leverage below two is putting us in a position where we have some room for maneuver, basically. So we don't have an absolute religion forever of a ratio of two. I mean, it doesn't make sense. I think we are, I would say, prudent investors. in the sense that we know, all of us from history, that financial markets can suddenly turn ugly. So all those who think that money is going to remain cheap forever and markets open forever one day may wake up with a big headache. This will not happen to us. And at the same time, if there are strategic opportunities, In the TowerCo business or in some other areas, if these are value-creative, we know that we have the capacity also to mobilize the balance sheet. So I would say it's good to be safe, but this also puts us in a position where we can be agile and we can move if, once again, there is a value-creative opportunity, and this is how we will look at your questions.

Thank you, that's very clear. Our speakers, no more questions in the queue. I'll hand over back to you.

Well, thank you, thank you very much. I would like to thank everybody for the questions. Maybe one comment. Please look at the fundamental performance. I see some disappointment around on France basically always looking at the same issue of co-financing, etc. But look at the underlying performance, which is very good. Don't look only at headline numbers, which bear the impact of a comparison to a very high Q3 in 2020 in terms of co-financing. And so if you look at the figures without this co-financing impact, you have, you know, 1.3% growth in revenues and 4.5% growth in EBITDA. So this is something you should not... I think it's important. And the very good commercial performance you are seeing everywhere in the group is going to support the performance, including the headline performance, in the future quarters. So 2021 is rock solid in terms of the guidance, and we are extremely confident that we will reach our objectives for 2021, and we are also very confident that we will reach the targets set for 2023. So this is the only point I wanted to add, thanking you once again for your questions, your interest, and we will be continuing the dialogue with all of you in the next days and weeks and even on later time horizon. Thank you very much. Everybody here is thanking you for your questions. Bye bye.