Earnings Transcript for ORA.PA - Q2 Fiscal Year 2021

Operator: Good morning, ladies and gentlemen, and welcome to Orange's First Half Year 2021 Results Conference Call. The call will be hosted by Mr. Stephane Richard, Chairman and CEO; and Mr. Ramon Fernandez, Deputy CEO, Finance, Performance and Development; with other members of Orange's Executive Committee for the Q&A session that will start after the presentation. Thank you, and let me hand over to Mr. Stephane Richard.

Stephane Richard: Good morning, and welcome to our Q2 and H1 2021 results presentation. Today, we will also talk about our growth engines that associated with our transformational programs will convert our leadership as a top-tier telecom player and our 2023 guidance. Let's start with Page 4, where you have here the key messages of this semester. Number one is an excellent commercial performance overall driven by strong equipment sales due to shops reopening and also the launch of 5G. Number two is an acceleration in our revenues driven by an outstanding performance in Middle East and Africa, but also other European countries and Enterprise. Number three is a strong recovery on IT and IS, with close to 11% growth driven by cloud, digital and data and cyberdefense. And number four is key milestones in infrastructure achieved with the recent nomination of the management team of our European TowerCo, TOTEM. On the next page, you would have an overall view of our key achievements for Q2 '21. The results of our excellent commercial performance this quarter, we now serve 11.2 million convergent customers and more than 10 million FTTH customers out of near 52 million connectable homes. We posted strong FTTH net adds, especially in France and Poland. In mobile, 5G offers are now available in 6 countries and near 1 million 5G customers. In Africa and Middle East, the EBITDAaL H1 '21 grew 17%. This is the highest first semester ever. And fixed broadband, now one of the key engines of growth in MEA, posted a revenue growth in Q2 of 23% year-on-year. Finally, Orange Bank, accelerating its consumer credit development as we just signed a strategic partnership with the fintech, Younited. Next page, you have here our financial achievements for H1 '21. During this semester, we posted revenues of €20.9 billion, up 1.5% year-on-year driven by MEA, Enterprise and all the European countries, except Spain. The group EBITDAaL decreased by 0.4% to €5.8 billion, mainly impacted by Spain at minus 16.2% and by cofinancing in France. Group eCapex increased by more than 22% to €3.8 billion, in line with our guidance for 2021 between €7.6 billion and €7.7 billion after the slowdown experienced last year due to the pandemic. Furthermore, our organic cash flow of telecom activities increased year-over-year, reaching €840 million linked to the normalization in working capital related to last year's solidarity measures. Finally, the net debt ratio reached 1.99x EBITDAaL, in line with our midterm guidance. After this quick overview of our achievements, I am going now to hand over the floor to Ramon.

Ramon Fernandez: Thank you. Thank you very much, Stephane. Good morning to all. So we are going to start with the revenues. In Q2, group revenues have been accelerating by 2.6%. This is compared to plus 0.5% in Q1, and this is thanks to the very solid trend in Africa and Middle East, in Europe, excluding Spain, in Enterprise, which was partially offset by the decrease in Spain, a market that remains difficult, and in France, explained by the cofinancing proceeds. From an activity perspective, this quarter was characterized by the rebound of equipment sales; an acceleration of mobile services fueled by Africa and Middle East; convergent services back to growth, thanks to the good momentum in France, Poland and Belgium; while wholesale, as expected, decreased this quarter, and fixed-only services declined in France and Enterprise. Turning to EBITDAaL. We posted a very slight decline in H1 at minus 0.4%, which will contribute to the achievement of our full year guidance, which is [indiscernible] minus. In terms of segments, Africa/Middle East performance is quite remarkable at plus 17%, which more than offset the Spanish decline. Also, all the other European countries posted a solid growth. Enterprise continued its path to recovery at minus 0.5% after minus 15% in full year 2020. The decline in France by 2.2% is largely attributable to fewer cofinancing proceeds. Spain, where the macro situation is still very tough, posted minus 16% and suffered from a changing comparable basis, notably due to the repricing of our customer base in last summer. Also worth mentioning that the EBITDAaL trend for mobile financial services starts improving, thanks notably to plus €19 million of net banking income growth. Our net income at the end of H1 landed at minus €2.6 billion due to the €3.7 billion accounting impairment that we booked on Spain goodwill to reflect the local market environment, which has still not recovered, and uncertainties coming from the continuation of the sanitary crisis, which has delayed the economic rebound. Additionally, the impairment includes the foreseen impact on our Spain margin transfer to then Spain. This impairment has no cash impact. And as you already know, a new management team, a new CEO is in charge of the rigorous execution of our recovery plan, which includes pushing down our costs, rationalizing our brand portfolio and improving our end-to-end processes, already setting us on the right path. I will give you more details on Spain in a few minutes. In H1, our organic cash flow reached €840 million and grew by €585 million, thanks to the normalization in working capital negatively impacted last year by solidarity measures to support our partners. In H1, our net debt-to-EBITDAaL ratio is in line with our guidance. The increase of net debt on the semester mainly reflects, besides the usual seasonality of the business, the payment of the remaining 2020 dividend and the buyback of minority shares in Orange Belgium. Last but not least, before turning to our business review, let me highlight the decline of our average cost of debt and our strong liquidity position. Now turning to France. In the second quarter, we have implemented an effective commercial strategy to attract customers, especially in the shops which have all reopened. And this has fueled a very strong commercial performance with mobile net adds at plus 142,000, thanks to both Sosh and Orange and also thanks to a record over the last 2 years of net adds from our SOHO and SME customers despite the recent launches from our competitors. In broadband, there has been an ongoing very solid momentum of fiber with 353,000 net adds, enabling us to reach plus 68,000 total fixed net adds. Despite intermittent aggressive promotions launched by the same competitor to which we rapidly responded in order to prevent them from repeating, the overall level of price is still better than in the past, allowing us to pursue our value strategy reflected in the acceleration of both our mobile ARPU growing at 2.6% and our convergent ARPU growing by 0.7%. In addition, after the 2 successful bank book price increases done this year, we just launched a third one in June. These commercial actions will fuel our next semester results. As a result, our continuous strong commercial performance enabled us to accelerate the growth of our retail services at plus 0.4% this quarter or plus 2.6% excluding PSTN. It is noteworthy that excluding cofinancing proceeds, our total revenues would have grown this quarter. This also explains the main part of our EBITDAaL decline at minus 2.2%. We expect EBITDAaL trends to improve in the second half of this year despite even more significant headwinds from cofinancing that will mostly offset -- being mostly offset by a steady improvement of our retail business and cost efforts. Let's now turn to Europe where we achieved a solid commercial performance, a clear improvement year-on-year, with mobile net adds, excluding M2M, of plus 90,000 in Q2. This compares to minus 129,000 in Q2 2020. And fixed broadband net adds of plus 39,000, out of which 98,000 in fiber. Total Q2 revenues grew by 1.8% driven by strong growth of equipment sales and service revenues that grew in all segments but Spain. Belgium, Romania, Poland accelerated services revenue, boosting plus -- close to 6%, 3.4%, 4.4% in Q2, respectively. EBITDAaL decreased by 5.9% impacted by Spain. But excluding Spain, it grew by 4.7% driven by a very strong Poland, Belgium and Central Europe. Poland margin was boosted by growth of core telecom services in IT and IS. And in Belgium, EBITDAaL increased by 5.7% mainly driven by higher retail service revenues and by cost efficiencies. Let's move to Spain, one of the most competitive markets in Europe. In this context, from a commercial point of view, we continue to post positive net adds in convergence, mobile contracts and FTTH. Regarding our financial performance, total revenues in Q2 at minus 2.7% have improved the trend compared to the previous quarters, supported by equipment revenues increasing by more than 35%. However, EBITDAaL at minus 15% in H1 is impacted both by the repricing of our customer base performed last summer, generating ARPU reduction; also impacted by a drag from roaming since Q1 2020 was mostly a pre-COVID quarter; and finally, by the comparable basis effect linked to savings related to distribution costs during the first lockdown in Q2 last year. Despite a tough situation, we are moving ahead regarding the transformation of our operating model in Spain, and we are implementing our recovery plan. Firstly, we have successfully transferred our customers from Republica Movil towards Simyo, consolidating our low-cost brands in order to gain in agility, and this is the first move. There will be further steps that we will discuss in Q3. Second, considering the situation, we have to adapt our headcount structure through a voluntary departure plan that has been fully subscribed with 400 employees, representing around 12% of the headquarter staff in Spain. And third, our focus on customer care pays off through the improvement of the NPS and the churn reduction on all segments, enabling us to stabilize our customer base. That being said, we expect EBITDAaL growth in 2023. Beyond 2023, the updated business plan, which led to the impairment, is in line with the analyst consensus. Furthermore, the organic cash flow in Spain will grow starting in 2022. Lastly, I would also like to point out that there are some encouraging events from the Spanish market, where we expect the upcoming EU funds to help develop digitalization. And we can see that the government is fully aware and sensitive to the difficulties faced by the sector as demonstrated by the extension of the recent 5G 700 megahertz license from 20 to 40 years and the project to suppress the so-called TV banks for telcos. Let me now turn to the continued excellent performance of Africa/Middle East, which is characterized this quarter by a further acceleration of growth, with total revenues at plus 14.4% and EBITDAaL up by 17% this semester. Regarding revenue growth, retail services grew by 16% this quarter compared to close to 10% in Q1 2021, fueled by voice and all our growth engines. This quarter is also marked by an acceleration of profitability, thanks to our strict discipline allowing to improve direct margin rate by 1.5 points. EBITDAaL is now growing faster than revenues for 6 quarters in a row. And MEA organic cash flow is growing even faster than EBITDAaL. We will give you many more details on this performance and our perspectives in Africa/Middle East tomorrow during a dedicated session. Let's now look at the Enterprise segment, with revenues up by 2.3% in Q2 following the improving trend from the previous quarters, thanks to double-digit growth of IT and IS, up by close to 11%, and mobile, supported by equipment revenues. Cloud, cybersecurity, digital and data, each growing by double digits in H1, confirm the purpose of our strategy of increasing the IT and IS share in total revenues. Fixed-only services down by 5.3% are impacted by a decrease in voice revenues linked to a comparable basis effect in Q2 2020 when our customer demand for voice services peaked during the first lockdown and by a decrease in data revenues. This performance drives EBITDAaL at minus 0.5%, still impacted by roaming and the transformation in our business mix, but significantly improving the trend from last year, which was at minus 15%. As you know, here also, we will provide you with many more details on our ambitions for the Enterprise segment tomorrow morning, also with a focus on cyberdefense. Last but not least, we fully reiterate all the elements of our 2021 guidance, and as stated on the slide, you can see on the screen. Now I'm handing over the floor back to Stephane, who will talk about our growth engines.

Stephane Richard: Thank you, Ramon. Let me requote first my guiding [indiscernible]. Growth is key. Growth within these constraints for innovation, and growth is the bedrock of our business sustainability. That's why my strategy for the group is built on several growth drivers that are now, for some of them, were truly up and running and have started paying off, while others will deliver the full benefits in the near future. In addition to the crucial competitive advantages you already know about, namely our network leadership and our quality of service, I would like to highlight other growth and transformation drivers that will create lasting value for the group and which are sometimes overlooked or underestimated. First, Africa; second, OBS; third, cyberdefense; fourth, Europe; five, Orange Bank; and six, our infrastructure. Firstly, our Africa and Middle East footprint, which we have built over the past 20 years, is now accelerating and bringing a strong contribution to the group performance, thanks to a value-oriented asset management policy combined with rigorous operational management. It has immense potential to create value between now, 2023 and the following years. Orange Middle East and Africa's remarkable performance, which regularly beats market estimates and GDP growth across our footprint, has its roots in our growth drivers and an efficient operating model that allows us to set ambitious and sustainable objectives, which we will describe in detail tomorrow. Bear in mind that in 2020, against the backdrop of a global pandemic, Orange Middle East and Africa increased revenues by more than 5% and its EBITDAaL by near twice that pace to nearly €2 billion. I will just give you the figures for H1 at clear acceleration. This performance is based on 4 high potential drivers

Ramon Fernandez: Thank you, Stephane. So in France, we have succeeded in extracting value from our infrastructure with the monetization rate which is set to rise by 10 points in 2025 from 62% in 2020, fueling retail revenue CAGR of 2% to 4%, excluding PSTN, between 2020 and 2025. And the lowering wholesale revenues remain close to stable between 2024 and 2025. In the retail segment, our solid foundations make up France benchmark fiber operator, allowing us to increase ARPU with a near plus €5 pricing differential and associated multiservice sales. This will be a source of growth in the retail market. As promised, we'll also today provide some color 1 quarter sooner than originally promised for our wholesale business in France. Firstly, the fixed wholesale market has been evolving over the last 2 years as we observe a switch from copper to fiber, accelerating with the health crisis; and second, the catch-up by our competitors with our infrastructure cofinancing. The broadband market is currently split around 50-50 in copper and fiber accesses, but proportions are set to tend towards around 3/4 in fiber accesses in the midterm. Secondly, concerning Orange. This transition to fiber impacts our wholesale revenue trajectory with temporary and permanent streams of revenues. The temporary revenues such as PIN areas construction revenues with limited EBITDAaL impact are set to finish around end of 2025. As for cofinancing, that is a source of monetization, our peers have purchased a total of around €3 billion at the end of H1, which is approximately 60% of the target we expect. All by temporary, revenues of hundreds of millions in cofinancing are still expected beyond 2025. While the permanent streams of revenues are linked to fiber, of which local loop, enterprise and infrastructure markets that will develop later, those revenues will partially offset the inevitable decline in copper revenues. So this transition to fiber leaves us with 2 questions. How does the fixed wholesale revenue slope ahead of us look like? And second, what are the growth drivers that will help us to offset this decline. Well, first the downward slope will be less pronounced beyond 2023 than originally expected because the high ambitions we have for our growth drivers will allow us to generate new revenues with a near stabilization of fixed wholesale revenues from 2024 onwards. Concerning our growth drivers, the slide above illustrates on the green parts our new growth relays. We have adjusted our projections of a decline in fixed wholesale revenues over the 2021-2025 period to reflect a more limited downturn combining a significant fall in copper revenues, a slower pace of cofinancing after the catch-up in 2020 and the big increase in recurring fiber revenues almost doubling between 2021 and 2025. There will be double-digit growth in Enterprise Fiber revenues with the launch of FTTE and aggregation offers as well as FTTH-enabled SOHO offers and in infrastructure and carrier-to-carrier revenues, which include recurring civil engineering revenues as well as hosting and collection revenues in the PIN area, including where Orange is not the local network operator. This dovetails with our mid-network operator strategy. Concerning the mobile, another key element of our wholesale business, we will manage to replace natural roaming decline, thanks to new mobile offers on 5G and IoT and potential new mobile wholesale contracts. To conclude, Orange will be able to near stabilize mobile and fixed wholesale revenues after 2024 by leveraging its various growth drivers, including business offers and services and civil engineering, targeting SOHO and SME customers. Most importantly, when it comes to the financial equation, we expect a decline of wholesale revenues from 2021 to 2025, but 2/3 of this net revenue growth will have a very limited EBITDAaL impact, notably PIN construction revenue and interconnection. Therefore, we expect a limited decrease in EBITDAaL of less €500 million from 2021 to 2025. That said, this decrease will be mostly offset by the increase in retail services revenue over the period and on the cost side, also offset by scale-up savings. The final element of our strategy to get the most out of our first-class infrastructure is a comprehensive review, fine-tuned to match local circumstances. I would say that the common thread here is really a tactical opportunistic value-creative strategy applied country by country. Overall concession, as you know, in France becomes a benchmark in Europe, embodying a new approach by selling our rights of use in the PIN area to several partners, making it possible to reveal the value of nonproprietary assets where each line was valued around €600. In Poland, the partnership in a 50-50 joint venture with APG, which has [indiscernible] our assets around €600 million, will enable us to extend our FTTH leadership with a convergent customer base to grow by over 20%. In Spain, which was a different approach for a 3 million line fiber rollout, we adopted an agile leasing approach, reducing CapEx impact while keeping ownership of the assets. And of course, looking at the mobile infrastructure with our TowerCo, TOTEM, we will be fully operational by the end of the year as planned. And TOTEM is designed as a highly joint tool for industrial growth that targets multiple opportunities, generating an accelerated ROCE. Lastly, to accelerate these growth drivers, all the growth drivers that were described by Stephane, and in order to seek strategic opportunities, the group, on top of its ability to raise additional debt benefiting from a healthy balance sheet, will be flexible regarding the capital of the entities concerned, arbitrating between balance sheet financing and third-party equity funding, and this could include bringing in new investors, for instance, to TOTEM, to Orange CyberDefense or to Orange Middle East/Africa as we've done with our fibercos, and this can be done also through IPOs or other ones. I now conclude by presenting 2 wrap-up slides. First, you can see here that these growth drivers will enable the group to step up the pace of revenue and EBITDAaL growth in a sustained manner, contributing to a total nearly €2 billion in top line growth and around €1 billion in EBITDAaL growth between 2020 and 2023. The incremental EBITDAaL is expected to comprise, for instance, over €700 million coming from MEA, but also from Europe, from OBS, OCD, from Orange Bank. Second, we will, and this is the last slide, combine our growth ambitions with the benefits of the scale-up cost efficiency program, and as already said, the planned reduction in eCapex from 2022. In fact, with most FTTH rollout completed in our 3 main markets, France, Spain and Poland, we confirm that we aim to achieve an eCapex to consolidated revenue ratio of roughly 15% by the end of 2023. Using all these levers, we are therefore confident of reaching our organic cash flow target of between €3.5 billion and €4 billion in 2023. And so to wrap it up before turning to your questions. Our equity story is not only about transformation and cost discipline, which is evidently key, but it is also about our strong, solid and sustainable growth engines. Thank you very much.

Operator: [Operator Instructions]. Our first question today comes from Andrew Lee from Goldman Sachs.

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

Stephane Richard: Thank you, Andrew. So on your first question about the risk analysis, let's say, in the wholesale trajectories, I'd ask Jerome Barre who is in charge of the wholesale business. And then on the second question, the French competitive market, of course, I will ask Fabienne.

Jerome Barre: So no, it's not our best case, the thing I would like to say. It's a trend we are very confident in. Yes, because you see, as said by Ramon, concerning our ambition on the recurring revenues, of course, we have to offset the decline -- the inevitable decline of copper. But on fiber, we have a very ambitious levers to see, one on the local loop for our civil engineering and hosting in the 40% where Orange is not the operator. In the mid-network, you see we are very confident in our capability to sell connection -- traffic connection and back rolling. And last but not least, we have a strong ambition, but today, we are very confident in this ambition concerning the enterprise market. So the consequence of that is that we consider that we can double the recurring revenues -- recurring fiber revenues between '21 and '25, you see with the double-digit growth on these new segments, civil engineering, infrastructure, enterprise and so on. So when we consider the consequence on EBITDA, as I said, it's not a best case. It's -- we are really very confident in our capability to reach this €500 million decrease ambition. If I now take an example, look at the interconnection activities, the interconnection activities will be impacted around €400 million. That is a decrease due to regulation, the decrease of 10 million [indiscernible] rates. But this €400 million of decrease in revenues has absolutely no impact on EBITDA because it's fully symmetric. The decrease of our cost will be just about at the same level, the decrease after revenues. So if I take this Orange example, it shows that we are confident in our ambition to limit the decrease by €500 million and the EBITDA.

Stephane Richard: Thank you, Jerome. Sorry?

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

Jerome Barre: Okay. If I must answer again to your question. So in the -- you see a doubling of our revenues in fiber. We consider that there is 50-50. 50-50, which is still mechanical, you've seen we're working with newer access. And there is absolutely no risk about that. So our ambition is about the 50 as a percent on the infrastructure and enterprise market. But again, we consider that there are big potential into the market. And so we are confident with the ambition.

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

Fabienne Dulac: So in line with the previous quarter, we still observe an improvement of the French market. The four players keep playing the game of a kind of market repair. And they contribute to create a more constructive competition environment. Their decision, I don't know if you see that, but yesterday to raise their price on the mobile, on the B brand is a really good news because we are waiting for that, and this is going in the right direction. So despite some potential aggressive promotion, both on mobile and fiber around €10, launched all the time by the same competitors, the overall level of price is still better and they are well oriented and better aware than in the past. So for my point of view, the market is full, and this is the complex, very significant because that sustain and support our brand-new strategy. We were able to launch 3 back book repricing in the beginning of the year, and it's exactly what you can observe in that -- in our commercial and financial performance, both on mobile and fiber. And despite our competition in fiber, we are still the leader, and we are able to win market share in all areas.

Operator: We now move on to our next question from Nicolas Cote-Colisson from HSBC.

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

Stephane Richard: Okay. Thank you for those two excellent questions. Let me turn first to Jean-François Fallacher who's with us on the call to answer the first one. I'll try to take the second one. Jean-François?

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

Stephane Richard: Okay. Thank you, Jean-François. And then we'll come back later on the Spanish situation. Regarding our regulatory environment in France and to try to summarize the situation, I would say that we have a regulatory agenda which is dense with important steps in front of us. And I would say that there are 3 major topics with the regulator. The first one is around fiber rollout, and I would say the last step of the fiber rollout in France. And just to give you the -- our view on that point, we are very much confident in our capacity to complete and to fulfill our commitments in terms of fiber rollouts even though the sanitary crisis, of course, has had an impact on the calendar. But we are very confident in our capacity to reach an agreement, sort of deal, with the regulator regarding the conditions of the end of the fiber rollout plan in France. So no -- I would say, no big risk around this point. The second is about copper. With the quality of service, of course, a topic, but also, marginally speaking, about the decommissioning plan and prospect that we have now to prepare and to submit to the regulator and to public authorities for the last -- for the next decade, in fact. So regarding maintenance cost on copper network, as you probably know, we spent the range of €500 million every year for the maintenance of the copper network. This amount is stable. And in fact, in the recent weeks, we have announced some actions to try to restore in some very specific areas that have been more impacted by weather conditions or punctual events. We have announced some actions, but it's mainly about recruiting a few additional people, technicians, and it's in the range of €10 million additional expenditures. So let's bear in mind that this cost of €500 million would be more or less stable now this year and probably in the last -- in the next 2 or 3 years. So that is no, I would say, specific financial pressure to fear regarding what we are doing in terms of copper maintenance. It's more about an organization and priorities maybe of our technical teams, and this has been done. Because this is very important for Orange also to show our customers in new areas, if we want to be successful in the migration towards fiber also, but also in front of local authorities that we do not abandon the copper network. Now as I said you, this is more one element in -- a larger issue, topic, challenge which is the decommissioning of the copper network. That will take a decade and that will have, of course, to be very closely monitored technically but also financially. We have started to exchange with the regulator but also with public authorities. And one of the financial parameters that will be -- that will play a key role in the management of the decommissioning plan will be the unbundling tariff. And this is clearly a lever in the hands of the regulator. So asset, they have made public that they are reviewing the unbundling tariff. So we have submitted to the regulator our views on the evolution of this unbundling tariff. As you know, it's a tariff which is set every year. So I think we will have the first event regarding unbundling prices in next January. That will also give a clue on the way the regulator is going to accompany this decommissioning plan, which will be not a big challenge for us in the next decade. So to summarize, I would say no specific pressure coming from the regulator or public authorities on maintenance costs on copper. And our plan has been accepted by authorities. And a discussion that will take place in the next weeks regarding unbundling. And the third big topic is about the B2B market. On the B2B market, everything that the regulator has asked Orange to do has been done. So this is a very important point to stress. We have today no conflict with the regulator regarding commercial practices, regarding wholesale market in the B2B market. We have played the game that was expected from us. We have respected the rules of the game. Now this is a market where, as a matter of fact, we have a strong position because the enterprises and especially the small and medium enterprises have a very strong relationship with our teams on the ground, that's why everywhere on the ground that we provide a quality of service and reliability of our services, which is considerably higher than those of any competitors. This is a fact. And at the end of the game, of course, the regulator has an important role to play, but the customers decide to choose an operator or another one. And so far, they have been choosing constantly, well, for a large part of them, Orange. And of course, we are working very hard to maintain this level of quality of service and the quality of this commercial relationship with our B2B customers. So to summarize, in terms of regulation, there is no specific threat or action from the regulator and the B2B market. And there is no sanction or things like that, that we could have because we have been good citizens, I would say, and we have respected what was asked us on the B2B market. And then, clearly, what we need to do is to keep our customers and to provide the best possible quality of service, which is recognized by the way, by the Net Promoter Score in the B2B market, which is at the highest ever.

Operator: We now move on to a question from Roshan Ranjit from Deutsche Bank.

Roshan Ranjit: Two for me, please. And again, going back to wholesale, thanks for the detail, very useful. I guess my question is regarding the PIN areas and how we should think about the lines outside of concession. And I think, previously, you said there are 3 models which you could follow, which is Orange build up the lines. Concessions could derisk or there could be a third-party vehicle. So my question is, how should we think about that impacting your CapEx? And should there be any slight trend up in the CapEx? Or will we still see this overall trending down from any potential co-investment? And secondly, again, sticking with the wholesale part in Spain. In your kind of guidance of returning to EBITDAaL growth in FY '23 now, what assumptions have you made around the wholesale contribution given the developments MASMOVIL and Euskaltel? Is there any detail you could provide us there? Because I think there are some potential break clauses in there.

Stephane Richard: Thanks for your questions. So we'll start with Spain, if you agree, and so I turn to Jean-François.

Jean-François Fallacher: Yes, concerning the wholesale contribution into our P&L, I remind that this is close to 18%, so 1-8 percent, of the business, and the company is obviously retail driven. So clearly, we are expecting following up the potential merge that should happen at the back-to-school between MASMOVIL and Euskaltel, some movements on these contracts. There isn't much we can say now. These contracts are long-term contracts. All of them, there are penalties attached. Obviously, I cannot review more of the details of these contracts which are linked by confidentiality agreements within the competitors and partners. But clearly, we've been preparing ourselves and we're going to see what's going to happen in the third quarter of this year around these contracts.

Stephane Richard: Okay. Thank you, Jean-François. For the second question, which is a large and important question, I will ask Ramon maybe to provide you the framework and then maybe a word from Fabienne and from Jerome.

Ramon Fernandez: Thank you, Roshan. On -- so on how we access to third-party networks in the PIN area, here, you have -- well, first, it's fully included, of course, in our guidance in terms of reducing CapEx starting in 2022. So this is fully embarked. I would say that here, we have started to mobilize some, let's say, financing schemes in order to lower the cost of renting, accessing third-party networks. So we have set a vehicle with a major bank with the lease contracts, which helps to lower the cost of renting. But I'm afraid we don't disclose all the details. These are our little secrets. But we have started to optimize the cost to access to one part of the network, which has been built by one of these operators, one of the constructing operators which are active in the PIN area. And we may extend this to a larger scope in order to continue to lower the cost of renting. So this is basically what we can do. We can either cofinance, we can rent on, let's say, traditional basis, or we can do it through some dedicated schemes, which help to lower the cost of renting. So we are mobilizing all the different schemes, and there will be some further steps, in fact, in the near future. But we will -- I'm not sure we will be disclosing all our little secrets from time to time. It's good to keep some element of mystery. But it's really optimized, this is what I can say.

Fabienne Dulac: Maybe I can just highlight the Internet access provider policy and specifically in the PIN area where we are not the builder. We make the choice to use the line rental and through [indiscernible]. [indiscernible] is SPV created by a bank, and that allow a [indiscernible] to be at a very advantageous rate. So this is the best solution for Orange to deliver -- to be time to market in a very significant area. We have a very strong market share in PIN area, you know that. And it's the solution we have to deliver a strong commercial performance. It's exactly what you can observe in the figure we deliver today. And to take into account the final question. This strategy is very clear, and the learning and the strategy learning were embedded in our strategic plan and it had been taken account in our guidance. So that doesn't change our trajectory despite if there is an acceleration, it's embedded. So it's really clear.

Jerome Barre: Yes. And so for [indiscernible], so also part of the PIN area where Orange is the operator of the network. So in a few words, I must say that all lights are green. First, we got the agreement of all local authorities, which means that the 24 Orange PINs will merge to Orange Concessions. So it's sort of grand slam. And we also note a great addition of our employees with 90% of them who decided to join the new entity. And last but not least, the antitrust process and progress without any running at that stage. So it means a consequence of that means that we maintain our ambition, objective of a closing in the beginning of Q4 2020. So everything is okay for Orange Concessions.

Roshan Ranjit: Great. That's super helpful. Just -- so just to conclude and without going into too much of the secret. It's basically a third-party vehicle which Orange is leasing the lines on in the PIN areas, that's what you're doing.

Stephane Richard: Yes. Yes.

Operator: We now move on to a question from Stéphane Beyazian from Stifel.

Stéphane Beyazian: The first one, can you update on the preparation and the phasing of the cost plan of '22, '23? I'm trying to understand whether it can be visible as an impact in 2022 or very much back-end loaded to 2023. A second question on the outlook. Is the EBITDA target, the new one, the €1 billion increase, actually higher than when you initially set the free cash flow guidance? I think the EBITDA guidance is above consensus expectations. And I'm just wondering whether you're seeing extra flexibility on your free cash flow guidance, but perhaps you've also found some incremental headwinds elsewhere in the cash flows or in CapEx. And just a quick one, if that's possible, on the towers. I think you mentioned some appetite for Pan-European tower consolidation. I'm just wondering whether you've seen any similar appetite in discussion with possible partners.

Stephane Richard: Thank you for your questions. So Ramon is going to take the first 2 questions, and I may try to provide elements on the third question. Ramon?

Ramon Fernandez: Thank you, Stéphane. Thank you, both Stephane. So on the cost plan, yes, we are really -- and you have many [indiscernible] numbers around this table who are mobilized on the scale-up program, the €1 billion cost-cutting program. We have decreased and delivered €150 million out of the €1 billion, of which a bit more than 40 in H1 in an environment with some adverse conditions, but it's well on track. All the objectives have been confirmed, including the details we gave on what is expected from labor costs, which is half of the €1 billion real estate. We have been changing a number of metrics in the related programs, accelerating restructuring, et cetera. So I guess what we can do in Q3 is come back with additional details on this. The trend that we have been expecting, which is looking at €200 million to €250 million cost reduction impact in 2021 and then €300 million to €350 million in 2022, is still what we are looking at. And so there is nothing to -- nothing really more to say on this. Everybody is mobilized. We have people leading real estate, energy, et cetera, et cetera, to deliver what has been disclosed in our objectives. In your second question on the outlook for EBITDAaL, we've been giving you a number of elements on specific engines, especially Africa, the bank, OBS, OCD. Tomorrow, for those interested, it's just to make some additional teasing because we would love to see you tomorrow morning, but you will have many more information on these 2 big segments for the group. But at this stage, I think what's best to say is that we are absolutely confident on the organic cash flow target for 2023, and this is against the most important point at the end of the day, to make sure that we will be there at least at €3.5 billion with this target of €3.5 billion to €4 billion. And what we have been delivering up to now and what we are looking forward to is exactly matching the target of organic cash. So we will be there on time.

Stephane Richard: Thank you. Regarding European consolidation on the TowerCo area, I'd like to tell you that I am very convinced that we will see some form of consolidation in the TowerCo market in Europe. And let me try to explain why I think so. In fact, as you know, most big European players have created telcos or they have sold their assets. And they have done so basically for 3 targets. The first is improving the technical and financial management of those assets, especially by creating dedicated teams in charge of those assets and also, of course, looking for revenues on those assets. The second target is value extraction, I would say, or revealing the value of those assets that are today not reflected in the value of operators, especially in the stock price of operators. And the third goal is monetization. The monetization -- the easiest solution for monetization is to sell to pure players like Cellnex or other companies. But for the operators that have decided not to sell those assets because they are considering those assets as strategic for the future development, and also, it will be an element on which -- a brick on which they could build a new business with growth and with value creation, for those players, the monetization means maybe -- consolidation means bringing new partners, equity partners, maybe IPO, but certainly not selling assets. And in that part of the sector, you will find, as you know, Deutsche Telekom, you will find Vodafone and you will find Orange. So yes, I am very much convinced that we will see some form of consolidation because there is a common interest to create or to reach a critical size in the market. There are a common interest to accelerate in improving the management, the quality of the management of those assets. And then last point, which is very important, there are less regulatory and antitrust obstacles in the way, in the path to consolidation, then, of course, when it comes to full operators. So I think that the path is relatively clear and that there is a high probability that we will see this. And maybe last point to say that besides the large players like those that I mentioned, you have the second-tier players, local big players that don't want to sell purely their assets to TowerCos. And that on the contrary, we'll be very interested in joining an operator's controlled model in the tower business. There are plenty of them. There are plenty of them. So that is the reason why in this TowerCo segment, I would say, in my view, in the near future, you will see pure players like Cellnex and maybe other ones. But you will see also players -- you have today like Vantage, for instance, but you will see larger players on an alternative model, which is an operator's controlled model. And that's why it was so important for us to create TOTEM and to be one of the, I would say, prominent players in the game that is going to take place now.

Operator: We now move on to a question from Jakob Bluestone from Crédit Suisse.

Jakob Bluestone: There's obviously quite a lot of detail that you provided, which is very helpful in terms of the various moving parts in terms of things that are going up and things that are going down. I just had a point of clarification around how much you're currently -- how much of your free cash flow is currently coming from cofinancing. Ramon, I think you said that you'd received €3 billion cumulatively from cofinancing receipts so far. In your Q3 presentation, you said that number was €2.4 billion. So that would suggest that you received about €600 million over the last 9 months or sort of a run rating about something like €800 million of cofinancing receipts, which is almost half your group equity free cash flow. Can you just confirm that? Is that a correct understanding of how big the cofinancing receipts currently are within your overall free cash flow mix? Or is there something I'm missing there?

Ramon Fernandez: Jakob, no, it's correct. It's absolutely correct, so nothing to change.

Operator: We now move on to a question from Mathieu Robilliard from Barclays.

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

Stephane Richard: Thank you for your question. So maybe Fabienne for the first question, and Ramon for the second.

Fabienne Dulac: Okay. Thank you. So we have been monitoring very clearly all the move and change in the B2B market during this first semester. But we don't observe any impact despite the arrival of new competitors [indiscernible], not only one, no impact. I have to say that the opposite is not true. In Q2, we observed a particularly very good trend in our commercial activities and especially in the mobile segment and on the fiber. So the result -- the figure we disclosed shows a very strong performance in the SOHO and SME segment, both mobile and fiber, due to the relationship we have with our customers, the ability we have to be in proximity, as explained by Stephane a few minutes ago. So no impact. But we remain cautious because I don't think the battle is finished. And we will pursue a cautious strategy and our anticipation for the future. Sorry, and you have a second question about handset market. So after a very difficult year in 2020, 2021 is well oriented for the handset and we record a very strong growth of equipment revenue in Q2 driven by the reopening of our shop last fall, but also by the 5G launch contact center. If you remember at the beginning of the year, 40% of handset sales were 5G compatible. In Q2, it's 50%. So appetite for 5G month-after-month is growing and support a good commercial momentum on handset sale. And we don't observe any impact from discussion you can see in the newspaper about subsidiary. So we are really confident that equipment for 2021 is well oriented with the -- behind the lockdown [indiscernible] we made in the past.

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

Fabienne Dulac: Yes. I'm not worried because the part of Orange in handset market made by the operator are so huge. It's not a question. It's not an issue.

Ramon Fernandez: So on the cost question, there is, first, a big impact. We were talking about handsets and equipments. And when you look at the -- a bit more than €200 million direct cost increase in H1, you have close to €300 million cost increase due to equipment. So these are, of course, generating revenues, but they are generating costs. And if I may say so, these are good costs because they are very much coming with the take-up in the 5G handset sales, and this is preparing the ground for the increase in the 5G customer base. We now have close to 1 million 5G customers. But obviously, we have much more 5G handsets which are now being sold. More than one out of 2 handset smartphone sold today in France is a 5G smartphone. And it's the same in many of our European countries. If you take Poland, for instance, it's taken off extremely rapidly. So there is one element of the direct cost increase, which is coming from equipment. There is another one which is connectivity costs, which is not at all of the same magnitude, of course, but which comes with the evolution of the model and one point we discussed previously, which is accessing third-party networks. And then the other important element is, of course, that part of, this time, indirect or direct costs come also with the fast-growing engines such as OMEA with the performance you can see in terms of profitability, which is growing extremely rapidly. So you will continue to see this very strong focus on cost discipline. I'm not going to go down through every line. We can, if you want, come back to this on a separate call, but it's also true when you look at the indirect costs where we are really putting this on the extremely close watch in order to secure the EBITDA performance of the group.

Stephane Richard: I think we have time for one last question, and then I will make a quick conclusion.

Operator: Our last question today comes from Abhilash Mohapatra from Berenberg.

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

Stephane Richard: Ramon, for the question -- the answer.

Ramon Fernandez: Thank you, Abhilash. I think your maths are right. If you look at the wholesale slide, we say that roughly 2/3 of the revenue decline are very low EBITDAaL contributive. So if you take the slightly less than €500 million impact in terms of EBITDAaL, your €1 billion something must be right because it's a mathematic conclusion. And so this is really the important outcome of what we say today, which is that there is a revenue impact on one side, but I think Jerome was very clear, for instance, on his termination rate example of €400 million, which is close to 0 EBITDAaL. I mean this is a general equation. And second, on the French EBITDAaL, when you take the wholesale retail cost control, et cetera, you are -- let's say, you are around flat, okay, around flat. And then we will see what is this will be around in the next years.

Stephane Richard: Thank you. So if I may, and before saying goodbye, I would like to just very quickly wrap up what are the key messages from us on this call. The number one is about Spain. What we want to tell you is that Spain is today under in-depth transformation. Spain is on the way of a commercial recovery. And Spain is, from an accounting point of view, now totally cleaned up. So Spain is on the good way. Clearly, the situation in Spain is challenging, but I think we have the right team, we have the right plan, we have the right strategy. It will take a little more time than maybe we thought 1 year ago, but I am very confident in our still capacity to recover in Spain. Number two is about wholesale. And this is very simple, and this has been recalled by Ramon just a minute ago. Of course, we will have an impact in the wholesale revenues due to this historical migration from copper to fiber. But this impact will be limited in terms of EBITDAaL, will be limited below €500 million by 2025. So this is a very important, I think, point that everyone should now work on and keep in mind. Number three, the retail market in France is well oriented, I would say, even strongly oriented, and we are quite confident that the second part of this year will show accelerated trends with strong net adds attracting growth in retail revenues. Number four, and this might be the most important for you, we are today confirming clearly and confidently all our guidances, especially, of course, the 2021 guidances. They are unchanged, they are confirmed, but -- and it's more importantly, the 2023 guidance, especially regarding the organic cash flow production by the company. So we will reach between €3.5 billion and €4 billion of organic free cash flow by 2023. And I wanted to still repeat this and the degree of confidence that we have in our capacity to reach this target. So thanks for being with us. And I wish you with the whole team a good day and a good summer.

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