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.

Thank you, Laurent. I would like to conclude this presentation simply by reaffirming that these solid first half results reinforce our confidence in achieving our full year guidance, which remains unchanged. Thank you for your attention. Laurent, the Orange COMEX, including we have with us the CEO of Mass Orange, and I are now ready for your questions.

Thank you. Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. If you have already raised the question at the start of the call, we see it on the queue. For everybody else, please press star 2 on your keypad. That's star 2 on the keypad for any additional questions. Our first question comes from Mr. Akhil Datani from JPMorgan. Please go ahead, sir. Your line is open.

Morning. Thanks for taking the questions. I've got two, please, the first on France and the second on Spain. Crystal, I was interested in your comments on the competitive environment and the improvements that you're seeing into July. I guess what I'm trying to understand when we look at the numbers is there's been a pretty marked improvement in your KPIs, but I guess the one area of softness is still the convergent base. So maybe you can comment on what you're looking to do to try and maybe improve the convergent trends. And I guess the bigger picture is that the retail revenue trends in France have slowed the last few quarters. Is that due to the comments you made on the market as a whole, the market slowing, or is there anything else? So just a real general update there on France, please. And then the second one on Spain, you commented on the JV that you've created. I'm assuming they're not wanting to give too much color just yet, but there were reports yesterday that this vehicle would be a 50-50 debt equity structure that and that Orange could get something close to $4 billion of cash out. I just wondered if there is any color you can give us just to help us understand what the numbers might be or how to think about it. And then how do we think about use of proceeds from anything you get? You did mention it could be quite substantial. If that's used to delever the Orange MAZ-JV, could that bring forward the decision around what you do with that asset? Thanks a lot.

Thank you, Akhil. So on the competitive environment in July, we've just observed the price move from the competition, and that's what we were commenting and including. I'm sure you've seen their moves both, as we said, on back book and front book. On the convergent trend, indeed, so there's actually – slightly negative net ads, but as you know, we've been driving aggressive value strategy in the past year, and we were very clear, and I think we said that quarter after quarter, that in the context of purchasing power pressure, we were also removing constraints for customers to make sure that customers who would want to arbitrate could move out of their conversion package and do some arbitration. And that explains, to some extent, the trend we've seen in the recent quarters. But at the same time, we are very, very pleased with the commercial performance on mobile and broadband. And as you know, I mean, we have a very solid and very low churn on the convergence, and the acquisition on mobile and broadband will fuel the convergent growth in the next quarter. We are very solid and very confident on our ability to continue to drive convergent growth. Churn level is low. You've seen the ARPO increase year over year on this convergent base, and this is massive, with a churn that's completely under control and, again, very low, four points lower than the broadband. So really, really confident on our trajectory. As you know, we've introduced a number of new offers in France in Q2. We had introduced last year a new package of offers including on convergence. So this is obviously a big priority for us. This is true in France. This is true across Europe. across Europe. On the retail services trend, we are very confident on our guidance, and as you know, we've been very clear that this business, excluding PSTN, should grow between plus 2% and plus 4%. Q1 benefited from the full price increase that we did last year in March, April. So we see a slight slowdown in Q2, but this was fully anticipated. And overall, we are very pleased with the Q2 performance, and we confirm that we expect in H2 a similar trend for retail services excluding PSTN than the one that we had in Q2. So really no slowdown on the retail services trajectory. On Spain, we don't comment on the leaks. First of all, it's just a term sheet, so we still need to go to the final binding agreement. But this is part of our strategy, as you know. Maximizing the use of our infrastructure is key. The target ownership would be for Mass Orange to own 50% of this fiber core. But we don't comment on the financial structure and the debt to equity ratio. But this will, of course, provide you more comments as we move forward in the negotiation. But again, the main objective for us is to bring on our infrastructure to combine with obviously Vodafone Spain infrastructure, but also to bring and to increase and to have the best, I would say, penetration ratio on our fiber infrastructure in Spain.

Great, thank you.

Okay, thank you very much. Our next question comes from Mr. Matthew Robillard from Barclays. Please go ahead, sir. Once again, the line is open for Mr. Mathieu Robillard from Barclays. Please go ahead, sir.

Yes, hello. Sorry for that. Good morning, and thank you for the presentation. I had a follow-up question on the Spanish JED. You indicated in your mass orange slides that you had around 2.8 million customers on fiber. I think VOD had around 1.6 at the end of Q1. So that suggests that there's a big chunk of customers that are on the third-party network. And my question is, do you think that these off-network customers can be migrated over time to your own platform? Is there some complementarity on the platform? If you could size that, that would be great. The second question was around AI. Christelle, you mentioned in a recent press interview that the company was working on optimizing the network for the use of AI and notably generative AI. And I was wondering what that entailed. Do you think that can generate more revenues opportunities? Could it also mean more capex? Any color would be very helpful. And then lastly, on OBS, the revenue in IT services was a bit lower. And I was wondering if that was the result of the restructuring process, and we should continue to see a slightly lower growth on ITS, or it was just phasing and it could recover? Thank you.

Thank you, Mathieu. On Spain, I mean, the line was not good, but your question was on the intention and whether we would be able to move to the network the cable customers from Vodafone Spain. Is that correct?

Well, I was reacting to that. I think Mass Orange has 6.8 million FTTH customers, and you mentioned in your press release that that the JV initially would only have 4 million FTTH customers. So I was wondering if some of the missing customers were on third-party networks, other operators, and whether you could migrate them over time into that JV penetration.

It's perimeter difference, but...

Good morning, Matthias. Thank you, Christelle. Just to clarify, the 4 million that were announced as clients of the potential future NETCO with Vodafone are the clients from both parties. So it includes also current Vodafone clients. The 6.8 million FIBA lines in total of Mass Orange refer to the total footprint in the Spanish market. Owned FIBA network above 17 million homes. and the remaining networks that we share with other parties, like Telefonica. So these are different scopes. 6.8 is the total number of clients, and 4 million is the number of clients expected to be part of the netcode.

I guess my question is, do you think you can migrate some of the clients that are at Telefonica today into this new JD of some of the clients of Vodafone that are also somewhere else, not in their own footprint of the JD?

Yes. I mean, that's not the main focus. The main, the rationale of the NETCO is different. We are not planning a significant greenfield deployment, additional deployment of fiber in Spain currently. Our strategy is based on network sharing in this aspect. Maybe to give you a bit more hints on the rationale of the net coal, Spain is a very competitive market not only in retail but also in networks. So we have a lot of fiber coals and mass orange. and wants to be in the forefront of a possible consultation in this market, so playing an active role. We reduce, with the NETCODE, the risk of overlaps or, said in other words, the devaluation of assets that are strategic for Mass Orange. We secure at the same time a long-term usage of these assets. and assure also a crystallization of value, maintaining the control on the strategic assets. And as Christel mentioned before, it may allow to accelerate the leveraging. So this is all in all a very positive project for us.

Thank you, Manny. On your next question regarding the IT and IS services within Orange Business, so indeed, there's a slight slowdown at plus 5% in Q2 compared to Q1, after 8% in Q1. But this slowdown is mostly due to portfolio pruning. We stopped a number of very low margin solutions. And the performance, the growth performance is fueled by the growth of cyber defense and our digital services as well, growing at 7.2% after 5.1% in Q1. So no significant... I would say trend, even though in Poland, for instance, we see a slowdown of the IT services, which is due to market uncertainty and B2B decisions, but really no really portfolio pruning, and this is as per plan. On the AI question, so this is... This is, of course, a long-term and something we started many years ago to implement AI in our marketing and network processes. Now, obviously, on GenAI, we've launched many, many initiatives, and we have actually a lot of use cases internally. Our focus is, of course, on prioritizing and scaling the ones that bring most benefit. Now on your question whether it's going to drive CapEx or revenues, of course we are very focused on the revenue opportunity when it comes to our B2B business. And we are also, but this is more mid to long term, trying to understand what would be the impact for us, not just us, but the telco industry. if some of the use cases we see from handset suppliers or big tech on Gen-AI would scale massively, but it's too early to say. So the short term in terms of revenue opportunity, it's really orange business and some of the offers we've launched in Q1, including we've made this announcement with Liton in France to deliver AI services mostly for midsize enterprise who want a package solution to get started. And on the CAPEX, we don't see a decision. We are very cautious and we are not making irrational decision to invest massively, I would say, on compute in a market that still highly uncertain, so at this stage, really too early to say, but this is more a mid to long-term discussion on whether or not some of the use cases you can think about, like real-time translation or things like that, whether there would be need for computing the handsets in the core of the networks or I mean, in the hyperscalers network or eventually at the edge of our networks, but this is a broader debate. This is also linked to the fair share debate, so really too early to make concrete comments on this.

Great. Thank you very much. Apologies for the bad sound.

Thank you very much. Our next question comes from Mr. Andrei Tebeshek from UBS. Please go ahead, sir.

Hi, and thank you for the presentation. I have two questions as well. Both may be more of a follow-up. In 2H, you expect trends in France, retail excluding PSTN, similar to 1H. And I guess with so many pricing changes, I think this will be reassuring. But then could you maybe talk about what goes into that assumption? I guess on the one hand, you guys clearly improved quite materially the net ad trends in both mobile and fixed. So this is something that you perhaps... uh expect to continue and on the other hand there's probably some dilution on the single play are pushed from some of the pricing aggression that we've seen over two queues so that would be one question and then maybe conceptually speaking just from the spanish jv again uh why is it maybe just uh 11.5 million homes when the combined entity of orange and moss mobile alone has got something like 19 million, so if it's restricted to some certain juggle piece, why is it not, I guess, a bigger combined entity would be a general question. Thank you very much.

Thank you, André. On the French plan for H2, And I will let Jean-Francois as well make some comments. But we will continue to drive the mix of value and volume. We will benefit from some of the tactical price increases that we've done. We will benefit, of course, from the net ads. We will continue to focus on convergent, I mean, migrating customers for convergent. So it's really the three pillars as we've highlighted in the presentation. It's really convergent. customer loyalty and control, cross-sell, volume, and then tactical price increase, as well as a very segmented and targeted marketing strategy with some focus on the young population, for instance, or on the communities. But I don't know if Jean-Francois, you want to, no, Jean-Francois, I said it all, so I said it all. On the JV, You're right that the 11.5 million lines means we will not move all the fiber infrastructure for Mass Orange in this fiber code. So we've been agreeing on the geographic perimeter, which is the one where we think we bring more values because this is where we have strict overlap between the Vodafone Spain and the Orange region. Vodafone Spain cable and fiber infrastructure as well as infrastructure.

That's clear.

Thank you very much.

Okay. Thank you very much. Our next question comes from Mr. Jacob Bluestone from . Please go ahead, sir.

Hi. Good morning. Thanks for taking my question. I've got two questions as well, one on France, one on Spain. On France, I was just hoping you could help us understand A little bit more around the weakness within the mobile ARPU. So if I look at the mobile-only ARPU, it went from growing slightly to falling slightly. I think you mentioned in your comments that SOSH was a big part of driving your net ads. So can you maybe just help us understand out of the strong mobile net ads how much of that growth came from SOSH and how much of the ARPU pressure came from broader pricing pressure in the market? And then just secondly, on Spain, if we look at the net ads, it looks like they slowed a bit. So your postpaid ads went from about 120,000 last quarter to 85,000 this quarter. Your broadband ads went from 91 to 44,000. So it looks like there was a bit of a slowdown in the quarter versus what we sort of saw perform in the last quarter. Was that because of being sort of more internally focused during the integration phase or anything to do with the market? If you can just maybe help us understand the slowdown in your Spanish net ads. Thank you.

Thank you, Jacob. So on the French mobile ARPO, so ARPO, There's a slight deterioration year on year, but it's stable quarter on quarter, and the slight evolution is due to the social very good momentum on mobile, but we are really stable on the positive momentum on social, so that's what explains the slight Decrease again year on year, but it's flat quarter on quarter. And as you know, our strategy with mobile customers, of course, mobile revenues, it's only 13% of the total France revenues because our intent as well is to make sure that we migrate customers from our mobile base to our convergent base. So mechanically, we have a mobile customer base that remains at a level under control and under pressure by the net ads because the higher value customers, we tend to migrate them in our convergent ARPOs. So mechanically, that's also driving some of the dynamics. On the Spanish market, I will let Manny comment.

Thank you, Christelle. Good morning again. Well, the important news is that we are growing, and that's not so obvious for a market leader with 41% or 42% market share. So I think that's very important and a very good signal that we started very well in this joint venture. Then, of course, the priorities are different in our growth strategy. with having 40% versus 20% of market share more or less before. That means that we have to focus on value creation with our current client base, especially via cross-selling and upselling. And the aggressive growth in new clients has less priority now because we are, let's say, prioritizing a stable market and a balanced value volume strategy.

Thank you.

Thank you very much. Next question comes from Mr. Karl Murdoch-Smith from Barenburg. Please go ahead, sir, your line is open.

That's great. Thank you very much. And firstly, I'd just like to say good luck with the Olympics. And Christelle, it was fantastic to see you carrying the flame. What a great moment for you and for Orange overall. Two questions, please. Firstly, just any exposure to French politics? I'm mostly thinking about public sector projects and whether there could be any resultant delays in customer decision-making in terms of proceeding with projects there. And then secondly, I wanted to ask on minority interests and the outlook there. We've seen minority interest costs step up again significantly in H1. And that's understandable given that it's Africa that's driving most of the growth. But looking forward, consensus only seems to have fairly flat minority interest costs going forward. So I was wondering if you could comment on your expectations, both for this year but for future years in terms of the growth in that line. Thank you.

Thank you for your comment on the Olympics. So as you know, I'm not attending the event as a competitor, but indeed we have teams who are really dedicated to, to preparing and that's a real pride for all of them. On French politics, we don't see any impact, I would say, I mean, no impact in June and July, because in any case, public sector entities and the administration, they still need to benefit from digital. They still move their applications to cloud. They still need, actually more than ever, support on cybersecurity, so really no impact from the French politics and no slowdown in the market. We've had the impact in Poland, and that's part of the slowdown in the market, but that's more related to the fact that there was a number of CEOs of administration who had not been appointed, and so lack of ability to execute. But really, in the French environment, no impact at all. On the minority interest, Laurent, you want to comment?

Yes, thanks Carl. So indeed in H1, our minority interest is moving up from 211 to 268 million euros. So the drivers are definitely Sonatel in Senegal and a bit of Polska as well. So this is very much driven by the success we have in Middle East and Africa. And to your point, in the second half, we see a trend which would be consistent with our H1 numbers on these subjects.

That's great. Thank you very much.

Okay. Thank you very much. Next question comes from Mr. Rohit Modi from Citi. Please go ahead, sir. Your line is open.

thanks for the opportunity. I have to, firstly, in terms of your guidance, you have raised guidance for AME and Europe, but I understand group guidance remains the same. But in terms of your own expectations, do you see, you know, I know that group guidance is still the same, but do you see any uptick in your own expectations in terms of, you know, I know it's a small-digit growth, but, you know, it could be two to three, that's kind of your own expectations given, and if not, then where the weakness is coming from, what is offsetting the growth in AME and Europe overall? Secondly, just a follow up in France, given you have seen higher uptake in SOSH, if you can give any ballpark number, how much, what is the base of SOSH subscribers and what is the Orange subscriber base? And are you seeing any kind of cannibalization between Orange and SOSH in this year particularly? Thanks.

Thank you. So on the guidance, indeed, you noticed upgrade on the guidance for Europe and Middle East and Africa. And we reconfirm our guidance at group level. So there's no weakness. It's just that the upgrade on the Middle East and Africa and Europe at this stage have no impact on the full year guidance at group level. but it's a way to reaffirm our full confidence on reaching our group objectives. On the SOCH performance, we don't communicate on the detailed split in our customer acquisition by different brands, but what I can tell you, and I know that's a question that you ask regularly, is that we see no spin-down effect from the orange brand to the soft brand. So we see no acceleration and no customers migrating from orange brand to soft brand.

Thank you.

Thank you very much. Next question comes from Mr. Stefan Beyezian from Odo. Please go ahead, sir.

Thank you. I've got two. The first one is do you expect a little more pressure on the BTA trend in the second half or in the third quarter? from factors such as salary increases, the Olympics, you know, any factor that comes to your mind that could have a little bit of impact on the BDA trends or you think that, you know, all of that will be totally absorbed by growth. And the second question is a follow-up on the question about AI. The one thing you didn't mention is the ability to use, you know, chatbots for AI. the customer service, and you know that the Chutecum is working on that with its own joint venture. So I was just wondering whether you could, you know, what you've tested so far, is it promising to you on that aspect? What is today the percentage of calls that you're handling internally and externally to have an idea of, you know, potentially what you could be looking to save in the future, if you think that is promising? Thank you.

Thank you, Stéphane. On H2, I mean, really no pressure, but I don't know if, Laurent, you want to give more colors?

Yes, indeed. Stéphane, no, I would say, fundamental change since H1. The salary increase are implemented since Jan 1st. Olympic is small numbers, so we do not see any evolution in terms of cost trend between H1 and H2. besides the fact that we continue our effort on efficiency, of course, which is continuing, of course, as per our target of delivering 600 million euros of efficiencies by 2025.

And on AI, you're absolutely right that we have many use cases with our customer service. So it's not just chatbots. It's also to augment, I would say, our customer agents. customer service agents. So it's difficult to point to one use case, but we don't see a fundamental change. Customers who were using, I would say, self-service digital solution are still using it, but we improve their experience by GenAI. And customers who want to call and talk to someone, they would still benefit from GenAI solution because, for instance, we would... We've been measuring that we can save time for the calls of customers, which is efficiency, but it's also quality and well-being, I would say, for our customer agents because they save time in taking notes and gathering data from the file thanks to GNI use cases. So difficult to point, but you're absolutely right that the two big areas, or I would say there are three areas, but customer service is absolutely one of the main application of GNI together with the customization and targeted marketing as well. But difficult to point to one specific and difficult at this stage to share some financial impact, but still it's not just fully digital Gen-AI or fully physical human being because there will be Gen-AI embedded solution everywhere, including in our human and customer service centers.

Thank you.

Thank you. Okay, thank you very much. Next question comes from Mr. Nick Lyle from SofGen.

Please go ahead, sir. Good morning, everybody. A couple of questions on Orange France, please. Despite the slowdown in the broadband market, your fibre and DSL ads look, or DSL losses rather, look pretty good this quarter. Was there any reason for that? Is there any sort of slight change in the market that you could comment on? And then secondly, just back to the point you just made on the Orange France costs. I think the Orange France costs for the first half were up about 1% versus down for the second half last year. Was there any investment in there? And could you just remind us on the timing of some of those savings, so the 200 million energy drag that disappears and the general savings that you're making. Is there anything that's going to be faster or slower in the second half, please? Thanks very much.

Thank you. So on the fixed broadband performance, there's not one magic solution. It's a mix of... focusing on customer retention, some of the new offers we introduced, including in April. I don't know, Jean-François, you want to comment?

Yes, I mean, hello. Jean-François Palachet. So, yes, on the fixed broadband, as you were saying, Christelle, we have applied a number of recipes to get back to a stabilization of our broadband base, amongst which, of course, working on the churn. So this is probably what you have noticed. but mostly we've improved the growth in terms of broadband with having a number of actions, launching 2K offers. You've probably seen as well that we have launched the sales of TV, TV sets. I mean, we had the Euro Cup and we have the Olympics now, so that was missing in our portfolio. And we have also... launched a more segmented approach with some territories where we are a little bit more, let's say, aggressive when we have a lower market share. So this is what explains probably what you have seen.

And on cost, Laurent?

Yes, so overall no massive trend evolution between H1 and H2 on the orange-french cost. Nick, to your point, we continue to drive efficiencies. Of course, you have seen that our labor costs are roughly flat in H1 in France. We see that as a continuous trend as well in the second half, and we continue to work on efficiencies. globally the moving part of the EBITDA in France are the one that we have been describing price up the wholesale impact as expected around 100 million euros for the full year a bit of tailwind on the energies overall that gets to the flat EBITDA that we have as a flagship target for France in 2024 That's great, thank you

Okay, thank you very much. Next question comes from Mr. Adam Marshall from Goldman Sachs. Please go ahead.

So I think that's me. It's Andrew Lee from Goldman Sachs here. I just had one question just on Spain and your perception of the scope for market repair from here. I was just trying to bring in your comments on a challenging market environment earlier on in the call. And then you combined with the new contract test signed with Digi. How do you see the scope for market repair in Spain post the consolidation there? Thank you.

I think, and we said that from the very beginning, we are very focused on trying to repair the market, but the comment was that the commercial environment in Spain remains very competitive, especially on the low on the low price points. I don't know if, Manny, you want to comment on the market environment.

Yes, of course. Well, we are in a complex market because we have a lot of competitors, a lot of brands, and the low cost share in broadband in cross ads is above 50%. So that's our reality. And that's why the results of Mars Orange are very satisfactory, because we have been able to grow ARPU and to grow client base. And that is reflected in a service revenue increase of more than 1%, with a result also in EBITDA and in cash flow, which is quite impressive. So we have been able to grow year-on-year the operating free cash flow by almost 20%, 19.8%, and in reported cash flow almost 15%. So this is a clear evidence that our volume value strategy makes a lot of sense.

Thanks. Can I just follow up? It's more of a kind of medium to long-term question. Just has there been any change to your sense of the scope for for Spanish market growth and your ability to grow within the market given the changes over the last six months?

I mean, I think we've not changed at all about our view that by combining MassMobile and Orange, we've created a market leader in Spain that has both the ability to compete with Telefonica, especially on the high-end part of the market, on the B2B, and that's one of the of the growth venue as well as to continue to invest and to differentiate and to capture with our portfolio of brands the lower part of the market. So it's still, it's only three months, but as you know, we spent two years negotiating with the DG competition in Brussels to avoid remedies that would have a negative impact, and we are very reassured that the plan is so far moving as we could anticipate. You've noticed that DG has renewed an agreement with Telefonica on the roaming agreement, so You know, one of the remedy was this national roaming agreement, and we've always said that we had agreed at the market price condition on this roaming agreement, and this confirms that the remedies we don't think will have any impact on the market condition. So now it's just for us to execute to deliver the synergies and to continue to create value. But at least we are very reassured after three months on the impact of the remedies, which was one of the big questions, of course, Thank you.

Thank you very much. Our next question comes from Mr. Fernando Cordero from Banco Santander. Please go ahead, sir.

Hello. Good morning, and thanks for taking my two questions, both related with Spain. The first one is, as a follow-up on many previous comments on the fiber cost saying that it is not the rationale for that vehicle to have presence in greenfield projects. And I would like to conciliate that comment also with the synergies that you are expecting from FTTH in Spain in that sense. just to understand what kind of, let's say, vehicles or what kind of strategy are you looking in order to materialize the FTTA synergies that you have in Spain, particularly with declines that you have outside the current mass orange footprint. And the second question is on the top line and in the medium term, you have already highlighted which is the current situation of the B2C segment competitive dynamics. But I would like to understand which is your strategy or which are the key areas of opportunity that you are foreseeing in B2C. Thank you.

Fernando? Yeah, Fernando, your line was cut, but I think during your second question, but your question was on the strategy to grow.

In B2B.

In B2B, okay. Okay, very clear. On the fiber core, as you highlighted, indeed, the main priority is really to combine assets and to bring more customers, including cable customers from Vodafone Spain, on the future fiber core infrastructure. When it comes to footprint that's outside of our existing fiber footprint, so we would benefit in the fiber core from some of the Vodafone Spain fiber infrastructure, but then outside of the fiber core footprint, we are considering different options. Of course, as you know, today we are we are leaving infrastructure from Telefonica. We also have the opportunity to invest in infrastructure, but as you know, the Spanish market is overbuilt, and so our focus is on making sure we both differentiate. At the same time, we try to bring the market to more rational. Mene, do you want to?

Yes, thank you. So if you look at the NETCODE, this is maximizing usage to increase efficiency of our existing fiber networks. That's the first logic. Outside of the future NETCODE, we are evaluating strategies of incremental deployment or co-investment. And co-investment is a vehicle that they've used in the past and which has proven to be very efficient. In terms of P2P, we are leader in 5G in the Spanish market. We are the only operator with 5G standalone solutions and with concrete projects on the way. So we have implemented, for instance, the most innovative solution for the board of Barcelona in Europe, and we will leverage on that and are growing in public administration and in big accounts at a double-digit rate currently, and we will try to continue that way. Thank you.

Okay, thank you very much. Next question comes from Mr. Titus Khan from Bank of America. Please go ahead.

Morning, everyone. Thanks so much for the presentation and taking my questions. Just two, I think, more follow-up questions from my side. First one would be just on your broad trend, which you've already talked about. Do you have any feeling within the market – I know you're the kind of first one to report Q2 – results, but whether the market trend overall in terms of net ads has improved compared to Q1, and this has been helpful for your stabilization at broadband net ads in France, and how should we think about subscribers into Q3 and Q4 as well? And a second question, just a very quick follow-up. I think you mentioned on the presentation in ICSS there were some one-offs. Is there any way to quantify this for H1? Thank you so much.

Thank you. So on the broadband trend, as you know, we don't give guidance on commercial net ads, but we are comfortable on the fact that the commercial actions we launched in Q2 will continue to pay off in H1. in Q3 and Q4. On ICS, Laurent?

Yep. So, hello Titus. So, on this technical subject of ICSS, we have around one-third of the impact in terms of year-on-year, which is a big impact from last year, which is related to the submarine cable sale. and the two-thirds are related to 2024, so one-off and a bit of phasing, just for you to have some colors on that.

Okay, thank you.

Okay, thank you very much. Next question comes from Emmet Kelly from Morgan Stanley. Please go ahead.

Yes, good morning, everyone. Thank you for the presentation and taking my question. Just one question from my side, please. On the competitive dynamic in France, the number two player in France, SFR, they clearly experienced a pretty tough Q1. They had very heavy mobile losses in terms of net ads, and their EBITDA was down, I think, 6% to 7% in Q1. Just wondering, from your perspective, have you seen any changes in behavior from Altice France throughout the year, whether it's any pricing actions they have taken, maybe any changes in marketing stance from them? and what does really change in number portability trends between SFR and Orange? Thank you.

Thank you. We've not seen any change. I mean, of course, we've seen a number of analysts comment on some of the changes they made where you've been focusing a bit more, but really, frankly speaking, no behavior change from SFR. And when it comes to portability, we've seen as well in Q2 similar changes trend than what we had in Q1, in Q4, Q3, where we continue to gain customers from a portability standpoint from SFR. Okay, thank you.

Okay, thank you. Thank you very much. Our final question today comes from Mr. Nicolas Cote-Colesan from ABC. Go ahead.

Yes, hi, thank you, in case you didn't have enough of the French questions. We saw Iliad pushing in the higher end of the broadband market. I just want to check if you have seen any impact on your side. And secondly, in a more general way, you mentioned tactical price increases. Do you think that big picture, given your high NPS and segmentation strategy, you have room to again increase some prices in the coming months? Thank you.

Thank you. So, I mean, as we've highlighted, it's really we want to drive volume, value, and then when it comes to value, it's, of course, churn, keeping churn in the control. That's our top priority. And tactical price increase, we've done some. You know that for the promotions, we move from 12 months to six months, and we stick to that even though some of the competitors have not – had followed and have changed. So we continue to be very tactical, a bit of more for more. We've increased on the copper offers because of some packages, but again, there's no... We don't, I mean, no room and no environment to do a big bang. I would say price increase over all, I mean, back book price increase as we've done in 23 because inflation remains really under control and the trend remains. So that's why we have... all our growth engine in motion, customer loyalty, customer acquisition, and, of course, continue to cross-sell, upsell, and leverage our strong convergent portfolio, as well as innovation. The Orange CyberSecure offer had a very good takeoff in June, and, of course, migrating customers from copper to fiber, from 4G to 5G, that's driving growth as well.

If I may just follow up on the churn. Obviously, Q2 churn in mobile was low, but there's always a seasonal effect here. So do you consider the 11.4% churn in mobile as more than a seasonal improvement, and is it something more important?

No, I think we have the lowest churn in the market. I mean, our churn numbers are pretty good. I mean, on all type of offers, mobile, fixed broadband, convergence is even much better with four points lower churn on broadband. So here there is not much to say, maybe to complete on what you are asking on free. I mean, no material impact we see on the free offers that they launch beginning of the year on our high-end offers and high-end growth sets.

Okay, thank you very much.

Okay, thank you very much. Looks like we have no further questions at this point. I'll pass the line back to the management team for the concluding remarks.

Thank you all. So thank you for attending the results. So as a summary, you've understood that our Lead the Future plan is fully in execution and we are fully on track. We delivered a solid H1 performance with financial results and organic cash flow growth year on year above the 17% and we are very pleased to reconfirm and fully confirm our full year 2024 guidance. Thank you all. Have a good summer and enjoy the Olympics.

Thank you very much. This concludes today's conference call. We will now be closing all the lines. Thank you and goodbye.