Orange Sp/Adr

Good morning, ladies and gentlemen, and welcome to Orange's first half 2024 results conference call. The call today will be hosted by Ms. Christelle Heydman, the CEO, and Mr. Laurent Martinez, chief financial officer, with other members of Orange's executive committee for the Q&A session that will start after the presentation. Thank you very much, and let me pass the floor over to Ms. Christelle Heydman. Please go ahead, ma'am.

Thank you. Good morning, and welcome to our 2024 first half results presentation. Two days before the start of the Olympic Games in Paris, we are very proud to be the official partner and to provide all the connectivity for the event. Our teams are very enthusiastic and committed to this flagship project to demonstrate our expertise. So let's now zoom and highlight a few points that I will detail in this presentation. Our Lead the Future plan is now at midterm and is progressing at full speed. H1 results are very strong with an organic cash flow growth of more than 17% year on year, and we are fully confirming our full year guidance. Before diving into our H1 financial results, I will also take the opportunity to comment on the French competitive environment. As the market leader, we pursue a disciplined pricing strategy while monitoring our volume value equation. This has again fueled our retail growth this quarter. In Spain, after three months with Mass Orange, we are happy to announce the agreement with Vodafone Spain to create a Fiber Co., a new illustration of our capacity to capitalize on our infrastructure leadership. Now let's move to slide six for a mid-term update on our Lead the Future plan. It's now almost a year and a half since our strategic plan was launched and we are focused on execution as illustrated by our strong cash generation over 18 months. Firstly, we are fully in line with the priority to monetize our core business. Our continued value strategy is illustrated by growing ARPOS, notably in France and Poland, where we also maintain the best-in-class term. We have been driving in-market consolidation in Belgium, Romania, and of course in Spain with the creation of MassOrange. We are now starting to benefit from the synergy potential of those operations. Secondly, with more than 53 million FTTH connectable homes in Europe, we've continued to capitalize on our infrastructure leadership, notably with an increase in fiber monetization rate, as an example in France of plus 3 points in 18 months. Totem is fully on track with its objective to increase its tenancy ratio. Regarding the third pillar of our strategic plan, we streamlined our portfolio with the ongoing closure of banking activities in Europe and the sale of OCS and Orange Studio earlier this year. Orange Business Transformation is fully on track with a continued EBITDA trend improvement since 2022 and a strong growth of Orange Cyber Defense. Finally, Africa and Middle East continues to deliver an outstanding double-digit growth both in revenues and EBITDA. These four pillars have contributed to a sharp cash generation since 2022, with 4.2 billion free cash flow all-in delivered in 18 months. we fully confirm our 24 and 2025 organic cash flow guidance. Now let's zoom in on France on slide eight. As a market leader, we continue to pursue our disciplined and rational pricing strategy to support our volume value equation. In France, the competitive pricing environment on fixed broadband has been roughly stable. However, the slowdown of the market has led to sustained price competition on the mobile entry market, particularly in June. Interestingly, in July, we observed more rational moves from our competitors with price increases both on front book and back book, illustrating the necessity for all players to defend value. In terms of market structure, we are definitely leading on the premium and mid-value segments, and maintain a solid position on entry segment with our B brand, Sosh. Overall, we are pleased by our commercial performance in Q2 with this trend continuing in July. So no significant impact related to the competitive environment. On the next slide, our discipline behavior is consistent with our volume value strategy, capitalizing on the strength of our brand, customer base, strong NPS, churn, and our best-in-class network. In practical terms, our commercial strategy is based on three pillars. First, a segmented commercial strategy to address all market segments. This has been illustrated by the launch of new targeted offers on the orange brand since the beginning of the year. But also some slight adjustments on SOCH. Second, we continue to defend value through cross-sell, leveraging our strong customer base and retail distribution channel with a wide range of offers, including our recent B2C cybersecurity offer at €7 per month. The commercial take-off of this new offer is very positive. And finally, we continue to upsell thanks to tactical price increases and the strong remaining potential linked to 5G and fiber migration with more than 1 million new fiber customers per year. All this will contribute to grow retail revenue excluding PSTN between plus 2% and plus 4% in coming quarters in line with our capital market day target. If we move to the next slide, this strategy is bearing fruit as demonstrated by the Q2 commercial performance both in terms of net ads and best-in-class churn in mobile and fixed. We succeeded in stabilizing fixed broadband net ads with a continued strong FTTH momentum. We also delivered an outstanding mobile performance with more than 100,000 net ads this quarter. Convergence, accounting for 30% of total France revenues and 6 million customers, is still an efficient way to increase value and increase customers' loyalty, as illustrated by a churn which is four points lower than fixed broadband churn and a significant ARPO growth at plus 5% year-on-year. In mobile, which only accounts for 13% of total France revenues, ARPO remains stable quarter on quarter and is slightly down year on year, reflecting the solid volumes on SOCH. Thanks to our volume value strategy, we delivered in Q2 a retail excluding PSTN revenue growth at plus 2.5% year on year, fully in line with our objective. Looking ahead, we will continue to execute our volume value strategy and we expect a similar retail excluding PSTN revenue trend in H2 that we had in Q2. Overall, we fully confirm our target of stable EBITDA in 2024 for Orange France. Let's now turn to Spain and more specifically, MassOrange cyber network strategy. Mass Orange announced this morning that we intend to set up a fiber core with Vodafone Spain to maximize and monetize the use of the Mass Orange and Vodafone fiber network in dense areas by creating the FTTH network with the best occupancy rate in Spain. On inception, the fiber core will have 11.5 million fiber lines with around 4 million connected households. We plan to crystallize the value of this fiber core by letting a financial investor enter the capital of the JV, leading to a targeted capital structure where Mass Orange will have 50% of the shares and receive a significant cash upstream that will accelerate the company's deleveraging. Now let's have a closer look at our main financial KPIs, excluding Spain. In the second quarter, the group delivered €10 billion of revenues, up by 0.9% thanks to retail and MEA growth. Our EBITDA performance improved and grew by plus 2.6% with orange business in line with plan, France flat, Europe and Middle East Africa posting outstanding growth. Our disciplined e-CAPEX, in line with our target of around 15% CAPEX to sales, together with the EBITDA strong growth, allowed organic cash flow to grow 17.4% and reach 1.55 billion euros, giving us full confidence in delivering at least 3.3 billion euros this year. Finally, our balance sheet remains very healthy with net debt to EBITDA ratio at 1.9 times, improving thanks to proceeds received at the Mass Orange closing. The execution of our ESG strategy through the three main claims presented in Lead the Future is equally on track. On environment, we are two years ahead of schedule in our objective to reduce COP 1 and 2 greenhouse gas emissions by 30% in 2025 compared to 2015. We are now focusing on our trajectories for 2030 a 45% reduction of greenhouse gas emission for all scopes versus 2020 that has been validated by SBTI in June. On digital inclusion, we have increased the number of people receiving our free training. The cumulative number since 2021 has increased to 2.2 million in line with our ambition. And as a trusted partner, We launched our B2C cybersecurity solutions in France in June with a very positive momentum. The group's human rights policy was also published in March. Our achievements are acknowledged by strong ESG ratings. I will now hand over the floor to Laurent for a more detailed review of H1 financial results.

Thank you, Christelle. Let's start with the group revenues. In the second quarter, the group delivered 10 billion euros in revenues up 0.9% year-on-year in organic and 1.6% in reported numbers. This was driven by, as you see, solid retail services up 2.4%, more than compensating expected wholesale decline. From a segment perspective, Middle East and Africa contributed most to group revenue growth with double-digit growth, and France slightly up again this quarter, while orange business remained slightly negative. Europe revenue slide decrease was due to low margin activities while retail is up by more than 1%. Moving on to EBITDA with a positive 2.5% performance in the first half consistent with our low single digit guidance for the year. France has stabilized its EBITDA as per target. Europe also delivered a solid performance in line with our expectation. And MEA firmly stays in the double-digit growth territories. Orange Business delivered as well on its targeted trajectories. Finally, ICSS EBITDA was impacted this semester by some cost phasing, one-off, and a base effect related to a submarine cable sale last year. Moving to net income, which is flat at 1.1 billion euros with improvement in EBITDA and financial results offset by income tax increase consistent with the taxable profit improvement in France. Moving on to ICAPEX, we kept our discipline by staying at close to 15% ICAPEX to sales ratio while we continue to invest in our high-growth business in Africa and Middle East. Moving to cash, we are particularly pleased, as indicated by Chriselle, on our positive performance of cash generation in this half year, with organic cash flow reaching close to €1.6 billion, fully in line with our full year guidance of at least €3.3 billion. Strong cash generation improved by more than 17% year-on-year, driven by our operating cash flow and lower tax income in line with the tax results in France last year. Free cash flow all in, our new indicators reach 1.26 billion euros, up by more than 200 million euros versus last year. Moving to debt, on the following page, the debt reduced by almost 4 billion euros in H1, driven by the 4.3 billion euros net proceeds received from the creation of Masse Orange. leading to a leverage ratio at 1.9 at the end of June, very much in line with our guidance, and reflecting our very strong balance sheet. Let's review now the review by segment, starting by France on the following page. In France, positive performance in the second quarters with revenue up again and a continued good retail trend sustained by a solid commercial performance as commented by Chris L. After a strong Q1, the retail XPSTN growth is at a robust 2.5%. Our volume value strategy and specifically the measures taken since the beginning of the year will continue to fuel this growth. Wholesale follows the same trend as in the first quarters, benefiting from the increase of unbundling and civil work tariff. As a result, as you see, EBITDA improved in H1 and reached plus 0.3% on a year-on-year basis. These good H1 results confirm the upward trend in EBITDA since last year, and we do confirm our target to deliver a stable EBITDA in 2024. Turning to Europe, which results now excluding Spain, in line with our Q1 numbers, revenues were down 2% this quarter with solid performance on retail at plus 1% and decrease on low margin activities such as equipment sales, IT and IS, and wholesale as expected, impacted by the new regulatory decrease of termination rate. On the retail side, the growth in the quarters has been driven by our volume value strategy with record mobile net ads, churn improvement, and convergence services with a very solid momentum at plus 7% up year on year. Overall, Europe received a very strong 4% EBITDA growth thanks to price increase, efficiency, first effect as well of the in-market consolidation in Belgium, with a very positive 14% EBITDA growth this half year. Based on this positive momentum, we upgrade our outlook and now expect Europe to deliver the low to mid-single-digit EBITDA growth in 2024. Moving to MEA, with again a very strong performance this half year, demonstrating once more our very positive momentum on the continent. Second quarter's revenues is up double digits for the fifth consecutive quarter, fueled by our four strong engines of revenues uplift. Clear illustration is the growth in mobile revenues, driven by balance, volume, and value. MEA overall is up by an outstanding 15% EBITDA growth this half-year. Despite anticipated Egyptian pound devaluation, MEA reported strong growth as well on reported numbers, with 8% on revenues, 13% on EBITDA, and 20% on operating cash flow. Looking ahead, we are upgrading our ambition to double-digit EBITDA growth for MEA. Turning now to Orange Business with a top line benefiting from growth in IT and IS, specifically on cyber defense, still at double digit over the last six months. In terms of innovation, we are very proud to have launched a few weeks ago our solution Orange Cyber Secure, unique B2C cybersecurity in France with great commercial traction as we speak. And we continue to transform Orange business with an action plan which continues to pay off. Departures on the voluntary plan have started, while the reskilling and the upskilling of our employees from our legacy business is continuing. In terms of profitability, we further reduce the trend from inevitable to minus 11% in the first half, and we are definitively confident to meet our 2024 targets and return to EBITDA growth in 2025. Turning to MassOrange, as a reminder, MassOrange is recorded in our financial statements under the equity method since the second quarter, while in the first quarter, Orange Spain net result is recorded as discontinued activities. And in this slide, we present you the H1 proforma MassOrange KPI. In the challenging market environment, Masorange retains its leadership on growth ads and value management with a strong convergence ARPU up year on year. Total revenues are stable while retail growth offset by wholesale decline on low margin business. Looking at the integration process, remedies are executed as planned and we are pleased to confirm that the run rate synergies will reach at least 500 million euros from year four post-closing. Mass Orange is targeting only for 2024 to reach around 100 million euros of synergies in 2024. Looking ahead, the outlook for H2 will be globally consistent with H1. Now back to you, Christelle, for the conclusion.