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 Bouchard, Chairman and CEO and Mr. Ramon Hernandez, Deputy CEO, Finance, Performance and Development with other members of Orange's Executive Committee for the Q and A session that will start after the presentation. Thank you.
And let me hand over to Mr. 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 with comfort 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 1 is an excellent commercial performance overall, driven by strong equipment sales Due to shops reopening and also the launch of 5 gs. Number 2 is and acceleration in our revenues driven by an outstanding performance in Middle East and Africa, but also other European countries and enterprise.
Number 3 is a strong recovery on IT and IS with close to 11% growth driven by cloud, digital and data and cyber defense And number 4 is key milestones in infrastructure achieved with the recent nomination of the management team of our European tower pool, Totem. On the next page, You will have an overall view of our key achievements for Q2 2021. As a result of our excellent commercial performance this quarter, we now serve close to 11,200,000 convergent customers and more than 10,000,000 FTTH customers out of near 52,000,000 connectable homes. We posted strong FTTH net adds, especially in France and Poland. In mobile, 5 gs offers are now available in 6 countries and near 1,000,000 5 gs customers.
In Africa and Middle East, the EBITDA in H1 'twenty one grew 17%. This is the highest first semester ever. And fixed broadband, now one of the key engines of growth in NEA 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 Fintech United. Next page, we have here our financial achievements for H1 'twenty one.
During the semester, we posted revenues at €20,900,000,000 up 1.5% year on year, driven by MEA, Enterprise and all the European countries except Spain. The group EBITDA decreased by 0.4 percent to €5,800,000,000 mainly impacted by Spain at minus 16.2 percent and by co financing in France. Group e CapEx increased by more than 22% to EUR 3,800,000,000 in line with our guidance for 2021 between EUR 7,600,000,000 and EUR 7,700,000,000 after the slowdown experienced last year due to the pandemic. Furthermore, our organic cash flow of telecom activities increased year over year, reaching EUR 840,000,000 leads to the normalization in working capital related to last year's solidarity measures. Finally, the net debt ratio reached 1.99 times EBITDA, in line with our midterm guidance.
After this quick overview of our achievements, I am going now to hand over the floor to Thank you very much, Stephane. Good morning to all. So we're going to start with revenues. In Q2, group revenues have been accelerating by 0.6%. 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, From an activity perspective, this quarter was characterized by a rebound of equipment sales, an acceleration of mobile services fueled by Africa and Middle East. Convergent services led 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 EBITDA. 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 flat minus. In terms of segments, Africa, Middle East performance is quite remarkable at plus 17%, which more than offsets the Spanish decline.
Also, all the other European countries posted growth. Enterprise continues its path to recovery at minus 0.5% after minus pro financing proceeds. Spain, where the macro situation is still very tough, posted minus 16% and Also worth mentioning that the EBITDA trend for Mobile Financial Services starts improving, thanks notably to plus EUR 19,000,000 of net banking income growth. Our net income at the end of H1 landed at minus €2,600,000,000 Due to the EUR 3,700,000,000 accounting environment 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 will delay the economic rebound. Additionally, the impairment includes the 4th C and M Banks on Orange Spain's margin transferred to Toten, Spain.
This impairment had 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 €840,000,000 and grew by €585,000,000 Thanks to the normalization in working capital negatively impacted last year by solidarity measures to support our partners. In H1, our net debt to EBITDA ratio is in line with our guidance.
The increase of net debt on the semester mainly reflects, Besides the usual seasonality of the business, the payment of the remaining 2020 dividend and the buying bank of minority shares in Last but not least, before turning to our business review, let me highlight the decline of our average cost of debt in 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 already opened, And this has fueled a very strong commercial performance with mobile and net adds at +142,000, Thanks to both Sosh and Orange and also thanks to a record over the last 2 years of net debt from our Sohu 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 Ants. 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 In addition, after the 2 successful bank book price increases done this year, we just launched the 3rd 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 Our total revenues will have grown this quarter. This also explains the main part of our EBITDA decline at minus 2.2%. We expect EBITDA trends to improve in the second half of this year despite even more significant headwinds from co financing that will mostly offset be mostly offset by a steady improvement of our retail business and cost efforts.
Let's now turn to Europe, where We achieved a solid commercial performance, a clear improvement year on year with mobile net adds excluding end to end of plus 90,000 in Q2. This compares to minus 129,000 in Q2, 2020. And fixed broadband net adds of +39,000 out of which 98 of twenty nineteen. Total Q2 revenues grew by 1.8%, driven by strong growth of equipment sales and service revenues then grew in all segments but Spain. Belgium, Romania, Poland accelerated services revenues posting plus close to 6%, 3.4%, 4.4% in Q2, respectively.
EBITDA decreased by 5.9 Impacted by Spain, but excluding Spain, it grew by 4.7%, driven by a very strong Poland, Belgium and Central Europe. Poland margin was boosted by growth of Quarter Telecom Services and IT and RIS. And in Belgium, EBITDA 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 Conference and FTTH.
Regarding our financial performance, total revenues in Q2 at minus 2.7% have improved the trend compared to previous quarters, supported by 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 twenty twenty 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 Republic Amoville towards 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. 2nd, considering the situation, we had 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 3rd, our focus on Customer Care pays off through the improvement of the NPS and the churn reduction on all segments, enabling us to stabilize our customer base. That being said, we expect EBITDA growth in 2020 Beyond 2023, the updated business plan, which led to the impairment is in line with the analysts' consensus. Furthermore, the organic cash flow in Spain will grow starting in 2022. Lastly, I would also like to point out that there are some encouraging events on the Spanish market, where we expect the upcoming EU funds to help develop digitalization. And we can see that the government is fully aware and sensitive to the difficulties faced by the sector 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 percent and EBITDA up by 17% this semester. Regarding revenue growth, Retail Services grew by 16% this quarter compared to close to 10% in Q1 2021, fueled by voice and all our growth engines. This quarter is also marked by an acceleration of profitability, Thanks to our strict discipline allowing to improve the direct margin rate by 1.5 points. EBITDA is now growing faster than revenues for 6 quarters in a row 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 digit in Page 1, conference of our strategy of increasing the IT and IS share in total revenues.
Fixed Unit Services down by 5.3% are impacted by a decrease in voice revenues linked to a comparable basis effect in Q2 2020 This performance drives EBITDA at minus 0.5%, still impacted by roaming the transformation in our business mix, but significantly improving the trend from last year, which was at minus 15%. As you know, here Also, we will provide you with many more details on our ambitions for the Enterprise segment tomorrow morning, also with a focus on Cyber Defense. Last but not least, we Please reiterate all the elements of our 2021 guidance as stated on of 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. Thank you, Andre.
Let me record first my guiding thread. 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 that are now, for some of them, well and truly up and running and have started paying off while others will deliver their full benefits in the near future. In addition to the crucial competitive advantages you already know about, mainly 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. 1st, Africa 2nd, OBS 3rd, Cyber Defense 4, Europe 5, Orange Bank and 6, our infrastructure. Firstly, our Africa and Middle East footprints, which we have built over the past 20 years is now accelerating and bringing a strong contribution to the group performance, thanks to a value oriented asset management policy combined with rigorous operational management. This has immense potential to create value between now 2023 and the following years. Orange Business in 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 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 Eastern Africa increased revenues by more than 5% and its EBITDA by near twice that pace to nearly EUR 2,000,000,000. I will just give you the figures for H1, a clear acceleration. This performance is based on 4 high potential drivers: data, fixed broadband, B2B and Orange Money, where growth is set to bring revenues close to €1,000,000,000 by 2025. Note too that the region's performance is well balanced with half the countries posting double digit growth, reflecting the grow or transform or sell strategy. Orange Middle Eastern Africa is set to deliver a 6 percent CAGR in the years to 2023 with EBITDA growing at double digit and OCF faster than EBITDA.
2nd, Engine OBS and Orange Cyber Defense that will Continue the development with a successful transformation into a networked native digital services company Overall, OBS will return to sustainable top line growth with a CAGR of around 2% in 2022 and 2023 and return to EBITDA growth. We plan to continue our repositioning, which is an integral part of the group's strategy. The OBA strategy is built on 3 main pillars. 1st, transform the telco business by promoting value added services such as 5 gs, fiber, cloud connectivity, 2nd, expand into strategic digital areas such as cloud, digital and data, IoT and cybersecurity and 3, Adapt, our operating model to become the leading network native digital services company. In addition, Orange Cyber Defense, our rising star in a fast growing market where competitors trade in multiples of more than 20, Thanks to the carve out we are now implementing, we will have the firepower to seize new external growth opportunities quarter.
We are aiming for market building double digit top line growth and the medium term margin aligned with that of the market and about twice today's. Number 3, Europe, despite the temporary difficulties in Spain, Is enjoying traction from the other 6 countries and is set for strong growth. Other European countries Europe excluding Spain, we remain a strong growth driver, thanks to the success of convergent buffers and the rollout of very high speed fixed broadband with a revenue CAGR of over 2% expected between 2020 20 We are looking for steady growth in the convergent base with a CAGR of more than 9.5% that will take us to 31% above 2020 levels by 2023. Today, our subsidiaries all self convergent offers and we are stepping up our efforts to develop our own fiber networks in Poland through our fiber co and Slovakia, For example, we are exploiting the potential of convergence in Belgium as well as in Poland, where we are consolidating our leadership, targeting a convergent based CAGR of 6% and a growth by 20% in 2023 versus 20 Lastly, in Romania, we are finalizing the acquisition of Telecom Romania. This deal, which Regarding Spain, as already mentioned, the new management has a very clear roadmap.
And although the EBITDA will grow in 2023 and the organic cash flow will grow starting in 2020 To sum up, our objective is to increase EBITDA by around €150,000,000 over the 2020, twenty 2023 period across all European countries, including Spain, meaning an EBITDA CAGR of roughly 2%. For the other European countries, we are aiming at an EBITDA CAGR in the mid single digits. Number 4, Orange Bank has demonstrated our ability to diversify our activities and we continue to build up this ambitious entrepreneurial project launched in 2017. We have already won the volume challenge with the customer base in Europe and Africa We are now focusing on the value challenge. With paid offers accounting for over 90% of new customers in France and loans granted to more than 60% of customers in Africa, which sets us apart from most purely freemiumneobank models.
In practical terms, 2020 was a pivotal year as Orange Bank's EBITDA is bottoming out. The improvement will continue going forward, allowing the bank to help drive the group's growth around end 2024 when it should reach breakeven. Let's look now at our infrastructure. We have built 1st class networks in Europe, of both mobile and fiber, an achievement we are proud of, which will support B2C, of the year. Our infrastructure assets, 1st and foremost fixed, are unrivaled in terms of both their coverage and the value they deliver.
Our decision to pioneer investment in fiber was the right one and is now paying off. Our competitors have decided to follow our tracks by the way, but Orange has built up a huge lead over all European competitors with more STTH connectable homes than Telefonica, British Telecom, Deutsche Telecom and Vodafone combined by the end of Q1 2021. Please note that some of our peers have based their fixed offers on other technologies such as and a clear reduction in our Fiber E CapEx on the horizon from 2022. In addition, the investments in FTTH also enable us to position ourselves ahead of the rollouts of the mobile network for the future, namely 5 gs. Notably, we are targeting more than 2 thirds of the population covered in midterm in Spain, Poland, Slovakia and Mondura.
This strategy positions us as a pioneer in Europe for the next network revolution with softwareization making us more efficient and agile. We are the 1st European player to launch a fully automated and cloud native 5 gs network, which we call the Zero Touch Network and which will also serve to develop the use of artificial intelligence to secure, optimize and anticipate the behavior of this network of the future. All of these functionalities on which we are working with a set of partners in open run architecture with the operational as of this year in Lanyon in our big R and D center before the experimental network is extended from 2022. Our efforts in mobile and fixed have also made us the leader in convergence with more than 11,000,000 customers. Let me now hand over to Ramon, who will explain how we are doing in monetizing fiber in retail and wholesale revenues.
Thank you. Thank you, Stephane. So in France, we have succeeded in extracting value from our structure with a 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 2025 and allowing wholesale revenues to remain close to stable between 2024 2025. In the Retail segment, our solid foundations make us 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 will 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 through co financing. The broadband market is Currently split around fifty-fifty in copper and fiber excesses, but proportions are set Towards around 3 quarters in fiber excesses in the midterm. Secondly, concerning Orange, This transition to fiber impacts our wholesale revenues trajectory with temporary and permanent streams of revenues.
The temporary revenues such as pin areas construction revenues with limited EBITDA and Bant are set to finish around end of 2025. As for co financing, that is a source of monetization. Our peers have purchased A total of around EUR 3,000,000,000 at the end of H1, which is approximately 60% of the target we expect. All by temporary revenues of 100 of 1,000,000 in co financing are still expected Beyond 2025. While the permanent streams of revenues are linked to fiber of which local loop, enterprise and infrastructure markets that I will develop later.
Those revenues will partially offset the inevitable decline in copper revenues. So this transition to fiber leaves us with 2 questions. How does fixed wholesale revenue slope ahead of us look like? And second, what are the growth drivers that will help of 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 group drivers will allow us to generate new revenues with a near stabilization of fixed wholesale revenues from 2024 onwards.
Concerning our growth drivers, the slide above illustrates on the green part our new growth release. We have adjusted our projections of the decline in fixed wholesale revenues over the 2021, twenty 25 period to reflect a more limited downturn, combining a significant fall in copper revenues, a slower pace of co financing after the catch up in 2020 and the big increase in recurring fiber revenues almost doubling between 202120 25. There will be double digit growth in enterprise fiber reviews with the launch of FTTE and aggregation offers as well as FTTH enabled servo offers and in infrastructure and carrier to carrier revenues, which include recurring civil engineering revenues as well as hosting and collection revenues in the PIM 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 5 gs 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 thirds of this net revenue loss, we have a very limited EBITDA impact, notably in construction revenue and interconnection. Therefore, we expect limited decrease in EBITDA of less than €500,000,000 from 2021 20 25. That said, this decrease would be mostly offset by the increase in retail services revenue over the period and on the cost side also offset by scale up savings.
The final element of our strategy to get the most Out of our first class infrastructure is a comprehensive review, fine tuned to match local circumstances. I would say that The common thread here is really a tactical opportunistic value creative strategy applied country by Orange Constantion, as you know, in France becomes a benchmark in Europe, employing a new approach by selling our rights of use in the Ping area to several partners, making it possible to redeem the value of nonproprietary assets where each line was valued around €600,000,000 In Poland, the partnership in the fifty-fifty joint venture with APG, Which has then our assets around EUR 600,000,000 will enable us to extend our FTTH leadership with a convergent customer base to grow by over 20%. In Spain, we chose a different approach for a 3000000 lines fiber rollout. We adopted the Magile leasing approach, reducing CapEx impact while keeping ownership of the assets. And of course, looking at the mobile infrastructure, with our tower co Totem, we will be fully operational by the end of the year as planned and to them is designed as a highly adjoined tool for industrial growth event targets multiple opportunities generating an accelerated road share.
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, We'll be flexible regarding the capital of the entities concerned, arbitrating between balance sheet financing and 1st party equity funding. And this could include bringing in new investors, for instance, to TOTEM, to Orange Cyber Defense or to Orange Middle East Africa as we've done with our fiber cores and this can be done also through IPOs or otherwise. 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 EBITDA growth in a sustained manner, contributing to a total near €2,000,000,000 in top line growth and around EUR 1,000,000,000 in EBITDA growth between 2020 2023. The incremental EBITDA is expected to comprise, for instance, over EUR 700,000,000 coming from MEA, but also from Europe, from OBS OCD, from Orange Bank. 2nd, we will and this is the last slide, combine our growth ambitions with the benefits of
of the scale up cost efficiency
program and as already said, the planned reduction in e CapEx from 2022. In fact, with most FTTH rollouts completed in our 3 main markets, France, Spain and Poland, we confirm that We aim to achieve a new CapEx to consolidate a revenue ratio of roughly 15% by the end of 2023. Using all these levers, We are therefore confident of reaching our organic cash flow target of between €3,500,000,000 and EUR 4,000,000,000 in 2023. And so to wrap it up before turning to your questions, Our equity story is not only about transformation in cost discipline, which is evidently key, But it is also about our strong, solid and sustainable growth engines. Thank you very much.
Thank you. We're now available for your questions. By the digit one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our Call. Our first question today comes from Andrew Lee from Goldman Sachs.
Please go ahead.
Yes. Good morning, everyone. I had two questions. The main one though was on wholesale visibility, and thanks for providing us with those slides. I think They're really helpful.
It's great
to get clarity on what your base case is and to kind of see how you think through the revenue and EBITDA impact. I guess the key question from us is, how much risk is there to that base case? Like what if 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 Just on the French competitive environment. We've had a lot of competition in mobile promotions over the last couple of quarters, but it actually looks like the key incremental change or pressure in Francis on customer spin down in fixed.
Just wondered if you could comment on the overall competitive intensity in the market and with a focus on the fixed line side of things. Thank you.
Thank you, Andrew. So on your first question about the risk analysis, let's say, in the wholesale trajectories, I'll ask Jerome Barry, who is in charge of the wholesale business. And then on the second question, the French competitive market, of course, I will ask Fabienne.
Good morning, everybody. So no, it's not our best case that's a thing I would like to say. It's a trend we are very confident Concerning our ambition on the recurring revenues, Of course, we have to offset the decline, the inevitable decline of copper. But on fiber, we have very ambitious to see one of the local loop for civil engineering and hosting in the 40% where Orange is not the operator. In the mid network, you see we are very confident in our capability to sell connection traffic connection.
And so the consequence of that is that we consider Then we can double the recurring revenues of recurring fiber revenues between 2021 2025. You see, with the double digit growth on these new segments, civil engineering, infrastructure, enterprise and so on. So when we consider the consequence in EBITDA, as I said, it's not this case. It's We are very confident in the capability to reach this 500,000,000 decrease ambition. If I am by the decrease due to regulations, a decrease of 10,000,000 churn rates, But this EUR 400,000,000 of decrease of 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 as the decrease of our revenues. So if I take this only example, It shows that we are confident in our ambition to limit the decrease by €500,000,000 on the EBITDA.
Thanks. Can I just Sorry?
Yes. Sorry. I was just going to ask, how many of those elements that You went through in terms of local loop and hosting in the 40% where Orange doesn't have fiber. How How much of that have you actually signed up and have kind of your hands on today? Or is it that this isn't a highly confident ambition versus what you've actually signed up?
If I may answer again to your question, so in the U. S. Doubling of our revenues in fiber, We consider that there is fifty-fifty, fifty-fifty which is mechanical, you've seen the recurring of newer accesses 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 in the market.
And so we are confident in our way to reach our mission.
Thank you. If I may just add one word before handing over to Fabienne on the second question. When you look at the French market today, there is at least one Thing that is indisputable and clear and absolutely obvious For now and for the future is that France is going to be a fiber optic country. Everyone in France, Customers, enterprises of any size and of course all the sector will switch to fiber. Quickly, probably France will be the most advanced country in Europe of 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 markets this Switch, very rapid switch of the country towards fiber. So this is basically the reason why we are very, Very confident on our prospects on the wholesale part because in fact for our competitors, there is no alternative But to switch quickly to fiber. And for our customers, there is a momentum today in the French market that will accelerate this migration towards of fiber. Good
morning. So in line with the previous quarter. We still observe an improvement of the French market. The 4 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'll see that, but yesterday, to raise their price on the mobile and beyond It's a really good news because we are waiting for that, and this is going in the right direction.
So despite some Thank you for your aggressive promotion. Both on mobile and fiber, around €10,000,000 launched all the time by the same competitor. The overall level of price is still better, and they are well oriented and in a better way than in the past. So from my point of view, the market is more peaceful, and this is the complex very significant because that sustained support of our new strategy. We were able to launch 3 back book repricing in the beginning of the year, It's exactly what we what you can observe and not in our commercial and financial performance, both on mobile and fiber.
And despite the competition in fiber, we are still the leader and we are able to win market share in floor.
Thank you.
Quarter. Thank you. We now move on to our next question from Nicolas Colisson from HSBC. Please go ahead.
Thank you. Good morning. Two quick questions, please. The first one is on Spain. It seems the turnaround is taking more time than expected.
So you have a 16% drop in EBITDA in H1. Are you comfortable with the 10% decrease in the full year as in the consensus? And what kind of restructuring costs should we assume eventually? My second question is on the regulatory environment in France. Clearly, there is a lot of pressure on you to invest in fiber and copper, but also to open the B2B market to more competition.
So Can you tell us what are the key milestones to come regarding regulation in the B2B market? And also, how do you manage your copper maintenance CapEx given the government pressure at present. Thank you.
I'll take the call to answer the first one and try to take the second one.
Hello, everyone. 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 besides the consequences on our financial accounts that you see today. So what we're announcing clearly There is a return to growth and a turnaround that will happen in 2023. There will be a change of trend in the 2nd semester of last year, amongst which I would like to stress a few elements that we have been already Executing that we're reminded by Ramon in introductions for simplification of our processes and brands.
We have already Suppressed one of our local brands. The reason why we are doing that is, obviously, to be able to focus more and to be more Active and more pushy towards the market in this part of the market, in the low cost. You have seen that we have negotiating with the unions plan to have the departure of more than 12% of Arjo on the way. You have seen that for the Q4 in a row, Our net adds on mobiles are positive. Our fiber net adds are very positive.
As Ramon already stated as well, the churn in the second quarter has been the lowest since many years. So we see some of the key KPIs starting to move and to go to start to move in the right direction in 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.
Okay. Thank you, Jean Francois. Maybe we 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 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 fiber rollout in France. And just to give you the our view on that point, we are very much confidence 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're very confident in our capacity to reach an agreement sort of deal with the regulator regarding The second is about copper with the quality of service, Of course, topic, but also more generally speaking about the decommissioning plan and prospect that we have now to prepare and to submit to the regulator and to public authorities for the last for the next Decade, in fact. So regarding maintenance cost on copper network, as you probably know, we spent The range of €500,000,000 every year for the maintenance of the copper network. This 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 EUR 10,000,000 additional expenditure.
So let's Bear in mind that this cost of €500,000,000 would be more or less stable now this year and probably in the last or in the next 2 or 3 years. So there is no, I would say specific financial pressure to fear regarding what we are doing in terms of copper maintenance. It's more about an organization and priorities maybe of our technical teams, And this has been done because this is very important for Orange also to show our customers It's that we do not abandon the copper network. Now as I said you, this is more one element In larger issue topic challenge, which is the decommissioning of the copper network that will take 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 so ARCEP, They have made public that they are reviewing the lending tariff. So we have submitted to The regulator, our views on the evolution of this unbending tariff. As you know, it's a tariff which is set every year. So I think we'll have the first event regarding unbending prices in next January. That will also give a clue on the way the regulator is going to accompany this decommissioning plan by authorities and a discussion that will take place in the next weeks regarding unbundling.
And the 3rd 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. 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 relationships 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 As 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 on the B2B market.
And there is no sanction or Things like that, that we clearly what we want to do is to keep our customers and to provide the best possible quality of service, which is recognized by the way by the Net Promoter Score in the B2B lead shape, which is at highest ever.
Thank you.
Thank you. We now move on to a question from Roshan Ranjit from Deutsche Bank. Please go ahead.
Great. Good morning. Thank you for the questions. 2 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 of the lines outside of concession. And I think previously, you said there are 3 models which you could follow, which is Orange build out the lines. Concessions could do this 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 trend in down from any potential co investment. And secondly, again, sticking with the hotel, but in Spain, In your kind of guidance of returning to EBITDA growth in FY 2023 now, what Assumptions have you made around the wholesale contribution given the developments in Masimo and Neuquotel. Is there any detail you could provide us there? Because I think there are some potential break clauses in there. Thank you.
Thanks for your question. So we will start with Spain, if you agree. And so I turn to Jean Francois.
Yes. Concerning the whole Same contribution into our P and L. I remind that this is close to 18%. So more than 80% of the business in the company is obviously retail driven. So clearly, we are expecting following up the potential merge that Should happen, we believe, at the back to school between Masmorville and Escalpel some movements on this contract.
There isn't much we can say now. These contracts are long term contracts, all of them. But clearly, we've been preparing ourselves and We're going to see what's going to happen in the Q3 of this year around these contracts.
Okay. Thank you, Jean Francois. For the second question, which is Orange, an important question. I will ask Ramon maybe to provide you the framework and then maybe a word from Again and from Joao. Yes.
Thank you, Martin. So on how we access to 3rd 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 is 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 mid bank We believe contracts, which helps to lower the cost of renting, but I'm afraid we don't disclose all these details.
These are our little secrets. But we have started to optimize the costs to access to one part of the network, which has been built by One of the constructing operators, which are active in the Pinarver, And we may extend this to more larger scope in order to continue to lower the costs of renting. So this is basically what we can do. We can either co finance, we can rent on, Let's say, traditional basis or we can do it through some dedicated schemes, which help to lower the cost effectiveness. So we are mobilizing all these different 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 legal secrets from time to time.
It's good to keep some element of mystery, but it's really optimized. This is what I can see.
Yes, maybe I can just highlight the Internet as provider policy. And specifically, in the Pina where we are not the builder, we make the choice to user line rental and through ScoFeet. ScoFeet is an SPV created by a bank and that allow Orange to lease at a very advantageous rate. So this is the best solution for Orange to deliver to be time to market in a very significant area. We have a very strong market share in the P and L 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 financial equation. This strategy is very clear, and the leasing and the strategic plan and it has 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.
Yes. And So in a few words, I must say that all rights are green. First, we got the agreement of all local authorities, which means that the 24 Orange teams will merge to So it's sort of Guang Shan. And we also note a great addition of our employees with 90% of them decided to join the new entity. And last but not least, the antitrust process is in progress without any warning at such stage.
So it means the consequence of that means that we maintain our ambition?
Yes. 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 EUR 1,000,000,000 increase actually higher than when you initially said 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 Thank
you, Stephane. So on the cost plan, yes, we are really And you have many COMEX members around this table who are mobilized on the scale up program, the EUR 1,000,000,000 We have decreased and delivered EUR 150,000,000 out of EUR 1,000,000,000, 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 It's 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, etcetera, etcetera, to deliver what has been disclosed in our objectives. In your Second question on the outlook for EBITDA. We've been giving you a number of elements on specific engines, especially and what we have been delivering up And what we are looking forward to is exactly matching the target Of organic cash. So we will be there on time. Thank you.
Regarding European consolidation of the Tarakou area, I'd like to tell you that I am very convinced that we will see some form of consolidation in the Taro Group. 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 more revenues on those assets. The second target is value extraction, I would say, or revealing the value of those assets That are today not reflected in the value of operators, especially in this solution for monetization is to sell to pure players like CNX 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 as we an element in which a brick on which We 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 Telephone, I know you will find Orange. So yes, I am very much I'm 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. And then Last point, which is very important.
There are less regulatory and antitrust obstacles in the way in the path to consolidation than, of course, when it comes to full operators. So I think that the path is relatively And that there is a high probability that we will see this. And maybe last point you said Besides the launch players like Those that I mentioned, you have the 2nd tier players, local big players that Don't want to sell purely their assets to TowerCros And that's on the contrary, we'll be very interested in joining a Europe and operators controlled model in the tower business. There are plenty of them. There are plenty of them.
So that is the reason why in this tower co segment. I would say, in my view, in the near future, you will see pure players like Cellnex and And maybe the other ones, but you will see also players you have today like Vantage for instance, but you will see larger players on an alternative model, which is an operators controlled model. And that's Why it was so important for us to create TOTEM and to be one of the, I would Prominent players in the game that is going to take place now.
Thank you. Thank you. Thank you.
Thank you. We now move on to a question from Jacob Bluestone from Credit Suisse. Please go ahead.
Hi, good morning. Thanks 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 Ramon, I think you said that you'd received EUR 3,000,000,000 cumulatively from co financing Receipts so far. In your Q3 presentation, you said that number was €2,400,000,000 So that would suggest that you received about €600,000,000 over the last 9 months or sort of a run rating about something like €800,000,000 of co financing receipts, which is almost half your group Equity Free Cash Flow. Can you just confirm that, is that a correct understanding of how big the co financing receipts currently are within your overall free cash flow mix? Or is this something we're missing there?
Thank you.
Jacob, no, it's correct. It's absolutely correct, so nothing to change.
Okay. Thank you.
Thank you. We now move on to a question from Mathieu Robilliard from Barclays. Please go ahead.
Good morning and thank you. I had a question in terms of the competitive environment again in France. Just trying to get a little bit more color. So obviously, we've had a few initiatives on the B2B side since the beginning of the year. I think the previous results You highlighted that it hadn't made any big difference, but I wanted to know if that was still the case.
Also, If maybe you could share your thoughts on one of your competitors moving into the handset market, 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 costs or it was more to do with a change in the revenue mix, which maybe We'll be offset by also lower EBITDA, but maybe if you could give us a broader picture on the cost trajectory, that would be very helpful.
Thank you.
Thank you for your question. So maybe Fabienne for the first question and Harmel for the second.
Okay. Thank you. So we have been monitoring very closely Well, the move and change in the B2B market during this 1st semester, but we do not observe any impact Despite the arrival of new competitors as in the asset, not only 1, no impact. I have to say that the operator 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 we the figure we disclosed shows a very strong performance in the Solar and PCME segments, both mobile and fiber, Due to the relationship we have with our customers, the ability would have to be in proximity as I invited 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 our cautious strategy and our anticipation Sorry, and you have a second question about on-site market. So after a very difficult year in 2020, 2021 is well oriented for the asset, and we recorded very strong growth of equipment revenue in Q2, driven by the reopening of our shops, first of all, but also by the 5 gs launch context. If you remember, at the beginning of the year, 40% of handset sales were 5 gs compatible. In Q2, it's 50%.
So appetite for 5 gs month after month is growing and support From discussion, you can see in the newspaper about subsidiary. So we are really confident that the equipment for 2021 is well alluded with the help of the lockdown period we laid in the past.
Thank you, Fade. 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 cost service revenues. Obviously, I'm referring to Iliad here. Maybe it's too early days.
Yes. I'm not worried Because the point of Orange in unset market made by the operated by the operator are so huge. It's not a question. It's not an issue.
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 €200,000,000 direct cost increase in H1. You have close to EUR 300,000,000 costs 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 we are very much coming with the take up in 5 gs handset sales. And this is preparing the ground for the increase in the five 5 gs customer base. We now have close to 1,000,000 5 gs customers, but obviously, we have much more 5 gs handsets, which are now being sold. More than 1 out of 2 handset smartphone So today in France is a 5 gs smartphone, and it's the same in many of our European countries. If you take 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, 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 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, 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 under extremely close watch in order to secure the EBITDA performance of the group.
Thank you very much. I think
we have time for one last question and then I will make a quick
question. Okay. Thank you. So our last question today comes from Abhilash Mohapatra from Berenberg. Please go ahead.
Yes. Hi. Good morning, everyone, and thanks for taking my questions. Hopefully, two quick clarifications. Just around the €500,000,000 EBITDA impact figure that you gave us for wholesale.
Just wanted to understand what does that mean in revenue terms, please. Looks like consensus has wholesale revenues coming down by $600,000,000 over $21,000,000 to $25,000,000 We thought it could be More like sort of north of $1,000,000,000 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%.
Thank you very much.
Ramon for the answer. Thank you, Abhilash. I think your maths All right. If you look at the wholesale slide, We say that roughly 2 thirds of the revenue decline are very low EBITDA contribution. So if you take slightly less than €500,000,000 impact in terms of EBITDA, Your EUR 1,000,000,000 something must be right, because it's a mathematic conclusion.
And so this is really the important outcome of what we see today, which is that There is a revenue impact on one side, but I think Jerome was very clear, for instance, on his termination rate example of EUR 400,000,000, which is Close to 0 EBITDA. I mean, this is a general equation. And second, on the French EBITDA when you take the wholesale, retail, cost control, etcetera, you are let's say, you are around France, okay, around France. And then we will see what So if I may and before saying goodbye, I would like to just very quickly wrap up of the key messages from us on this call. The number 1 is about Spain, what we want to tell you is that Spain is today under in-depth transformation.
Spain, it's underway of a commercial recovery. And Spain is from an accounting point of view now to the Clintab. So Spain is in 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 steel capacity to recover in Spain.
Number 2 is about wholesale. And this is very simple and this has been recalled by Amor just a minute ago. Of course, we will have an impact in the wholesale revenues due to this historical migration from copper to fiber. But this impact will be limited. In terms of EBITDA, will be limited below €500,000,000 by 2025.
So this is a very important, I think points that everyone should now work on and keep in mind. Number 3, 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. We'll show accelerated trends with strong net adds attracting growth in retail revenues. Number 4, 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 €3,500,000,000 €4,000,000,000 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 Consumer.
Thank you. That will conclude today's conference call. Thank you for your participation.