U.S. Markets closed

Edited Transcript of ORA.PA earnings conference call or presentation 13-Feb-20 7:30am GMT

Q4 2019 Orange SA Earnings Call

Paris Cedex 15 Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Orange SA earnings conference call or presentation Thursday, February 13, 2020 at 7:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Fabienne Dulac

Orange S.A. - Deputy CEO & CEO of Orange France

* Jérôme Barré

Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks

* Laurent Paillassot

Orange S.A. - Senior Executive Vice- President of Orange Spain

* Paul de Leusse

Orange S.A. - Deputy CEO for Mobile Financial Services

* Ramon Fernandez

Orange S.A. - Delegate CEO of Finance, Performance & Europe

* Stéphane Richard

Orange S.A. - Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* Andrew J. Lee

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Giovanni Montalti

UBS Investment Bank, Research Division - Executive Director and European Telecom Equity Analyst

* Jakob Bluestone

Crédit Suisse AG, Research Division - Research Analyst

* Nayab Amjad

Citigroup Inc, Research Division - VP

* Nick Delfas

Redburn (Europe) Limited, Research Division - Research Analyst

* Nicolas Cote-Colisson

HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology

* Stephane Beyazian

MainFirst Bank AG, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [1]

--------------------------------------------------------------------------------

Very good morning. Welcome to the presentation of our Full Year 2019 Results. I will first present the main highlights of 2019, and then I'll leave the floor to Ramon to go through the details of those results.

Let's start with Slide #4, which presents the key highlights of the year. So let me recall you briefly, what is there? First, good news, revenue and EBITDAaL are growing, with an acceleration in Q4. Second, we've had 3 strong engines of revenue growth last year: Africa and the Middle East, Europe and Enterprise. Three, there are improving trends of retail services and average revenues per office in France. Four, European leader in cybersecurity with double-digit growth. This is the result of our inorganic growth and the growth in the business of cybersecurity. A structural change in the management of tower and fiber assets that we announced and explained in the Capital Market Day. But of course, we will come back to this later on. And to summarize this, all elements of guidance have been achieved with an upgrade of 2020 organic cash flow guidance that will be one of the outputs of this presentation.

So in 2019, we have delivered our ambitions to offer an augmented connectivity with enriched and innovative services and customer relations. In a very competitive environment, 2019 was a successful year for Orange.

First, we have strengthened our networks. We now connect 40 million very high broadband homes, making us the absolute FTTH leader in Europe. In France, we make sure that our clients enjoy the most of fiber by offering a service called expert setup for any new FTTH subscriber. The service is invoiced and the take-up rate is above 11% of our fiber gross adds, delivering an amazing customer satisfaction with an NPS over 40 points for this service. We have been ranked the best mobile network in France for the ninth consecutive year. And 4G is now available in 15 countries in Africa and the Middle East. We successfully launched 5G in Romania in November with a EUR 6 premium over 4G.

Second, these investments allowed us to post a solid commercial performance, with more than 67 million 4G customers and 7.5 million FTTH customers, an increase of 22% year-on-year. Thanks to France, which posted the highest ever quarter for FTTH net adds and Spain, which reached a 79% FTTH penetration rate in its broadband customer base. Orange remains the #1 convergent operator in Europe with 10.8 million convergent B2C customers, growing by 3%; and convergent revenue growing by 4% year-on-year in full year '19, representing 39% of the total retail service revenues in our European countries.

Third, we are successfully executing our strategy to become a multi-services operator. Orange Bank reached 500,000 customers in full year '19, among which 29% have a consumer loan. We continued to enrich our banking offer over the last quarter of 2019 with the launch of Orange Bank in Spain; the start of handset financing, building synergies with telecom activities; and a partnership in France with a leading real estate developer to reinforce mortgage sales. We also continuously enhance our quality of service, as reflected in the user rating of our application on the Apple Store, which grew 1.4 points year-on-year to reach 4.5 out of 5.

We'll also remain a major player in content aggregation and distribution to consolidate our position as the leading multi-service operator. At the end of 2019, we had 10 million IP-TV customers and content revenues increased by 10.4% year-on-year with a positive gross margin. OCS celebrated 11 years and has almost 3.1 million customers.

In order to complete our smart home offers, after the launch of Connected Home and Protected Home earlier this year, Q4 2019 saw the soft launch of our voice assistant, Djingo, available as a new feature of our TV remote control or as a stand-alone speaker. It is a key tool to enhance our customers' interactions with our various services.

Fourth, we also continued to diversify and extend our business into the B2B market in Q4 2019. We have supported our growth in IT and integration services with [1 billion] of acquisitions in data, cloud and cybersecurity and building new business. For instance, Mars, the global food company, chose Orange to build a worldwide Intelligent Automated Network, which includes, among other features, flexible SDWAN for more than 300 sites and globally managed security solutions. Another example, the Central Bank of Norway has signed a 6-year contract for high performance, secure private cloud services.

Finally, as presented in our ENGAGE 2025 plan, as part of our engagements on digital inclusion and climate change, we opened 2 Orange digital centers in Tunisia and Senegal, and we reduced CO2 emission by 5.4% in 2019.

Looking now at our financial results. In Q4, group revenue and EBITDAaL accelerated, thanks to a better trend in services and wholesale revenue in France. Group revenue grew 1.1% versus 0.4% on 9 months '19; and EBITDAaL grew 1.3%, it was 0.6% on the first 9 months of '19.

In 2019, group revenue grew at plus 0.6%, and group EBITDAaL at plus 0.8%. If we exclude the digital content offers, revenue grew plus 0.8% and EBITDAaL grew plus 1.5% in 2019. eCAPEX are in line with our guidance at EUR 7.3 billion, including the impact of our 2019 RAN-sharing deals in Spain with Vodafone. And organic cash flow, which is our new KPI, reached EUR 2.3 billion.

Our net debt to telco EBITDAaL ratio increased slightly to 1.96, notably reflecting our investments efforts. Regarding the dividend for fiscal year 2019, we will propose EUR 0.70 per share and pay the balance of EUR 0.40 on June 4, 2020. As you can see, all components of our guidance for 2019 were met.

The next slide highlights our continuous efforts to strengthen our network premium while keeping our investments under control with eCAPEX slightly decreasing year-on-year in the context of fiber rollout acceleration in France, once again excluding the short-term impact of the Spanish RAN-sharing deal. This acceleration in France led to an increase of 4.5 million connectable homes year-to-date, which puts us well on track to meet our commitments. Overall, we reached a total of 40 million very high broadband connectable homes, of which close to 16 million in France, 15 million in Spain and 4 million in Poland.

Actively preparing for 5G. We have now selected our equipment vendors in France. We also launched 5G commercially in Romania in November, the first one in the group. In parallel, always seeking to optimize resource allocation, we agreed to sell 1,700 nonstrategic towers in Spain and sold real estate properties, including the building hosting us today. So this might be the last time that we organize such a presentation in those premises. But the next one will be attractive. Not expensive, but attractive.

After this overview of our achievements in 2019, I'll ask now Ramon to provide you more numbers, details and comments about this year. Ramon?

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [2]

--------------------------------------------------------------------------------

Thank you, Stéphane. Good morning. So let's turn to first revenues. As you can see, in Q4, group revenues increased by EUR 123 million. This is plus 1.1%. Excluding the positive impact from the digital content offers, Q4 revenue growth would have been at plus 1%, representing a better performance than the full year 2019 average, which was 0.8%. This came as a result of a very solid Q4 performance in our asset portfolio, apart from Spain, which faces an adverse market environment.

Let's briefly review them one at a time. First, Africa/Middle East grew by 6.1% in Q4, 6.2% in full year, a trend which is driven by mobile data and mobile finance services. The Europe segment grew by 1.7% in Q4, 1.4% over 2019, thanks to the success of our convergent offers, our innovative mobile offers in Belgium and our turnaround in Poland. France grew by 1.1% in Q4 or 0.9%, excluding the positive impact from the digital content offers, which translated to minus 0.3% over the full year 2019, just EUR 50 million away from stability, or plus 0.2% excluding the digital content offers. Enterprise revenues grew by 0.8% in Q4, this is plus 1% over 2019. And this is the first year of annual revenue growth since 2016 with cloud and security services posting double-digit growth. In contrast, Spain eroded by 2.3% in Q4, minus 1.5% over 2019, as we kept on focusing on value, despite the trend towards lower ARPOs for market net adds.

Looking at annual growth per business line, it is worth noting that IT and integration services posted an impressive plus 7.1% growth, followed by convergence at a solid plus 3.9%.

Turning now to EBITDAaL of telecom activities. It accelerated by plus 1% or plus EUR 32 million in Q4. In full year 2019, EBITDAaL grew by 0.9%, plus 1.6% excluding digital content offers impact. This growth was driven by the outstanding performance of Africa/Middle East at plus 9.4% and a solid growth in Europe at plus 3.4%.

France and Spain remained in positive territory in spite of a challenging market environment with, respectively, plus 0.1% and plus 0.3% growth, making up for OBS decreased by 1.7% in the context of business transformation.

Focusing on France. If we exclude the impact of digital content offers, EBITDAaL grew by 1.4% thanks to cost efficiency driven by the digitalization of our processes, with 57% of our noncommercial acts now being digital; a reduction of 6% in call rates; maintenance optimization; migration to all-IP; and a more efficient organization. These efforts, along with the positive group revenue trend, helped fuel the EBITDAaL telecom activities margin increase of 0.1 points in 2019 to reach 30.8%. But EBITDAaL growth does not suffice. And the management, the whole team is also strongly focused on ROCE evolution. In 2019, as you can see on the slide, our telecom operating ROCE grew by 0.9 point compared to 2018, meaning a continuous improvement over the past few years. This performance led to a consolidated net income of EUR 3.2 billion that grew by more than 49%.

This is mainly the result of growing EBITDAaL; the impact of the counter effect of the provisions made in 2018 for the French senior part-time plan, TPS; a better financial result that includes an improvement related to the revaluation of the economic hedges of subordinated notes denominated in pounds; and the loss related to the disposal of the remainder of our BT shares; and also an increase of corporate tax expenses.

So during our last December Investor Day, you know that we switched our guidance from operating cash flow to organic cash flow in order to reinforce the focus on cash. This is also in line with the indicator we use for employee and management incentive plans. Organic cash flow is the cash available for M&A; dividends; licenses; potential litigation, if any; and eventually net debt reduction. In 2019, our organic cash flow reached EUR 2.3 billion. This is above our guidance given in December of more than EUR 2 billion. And this represents a slight decrease of around EUR 150 million compared to the 2018 comparable definition, which basically comes from the increase in the income tax paid.

In 2019, our net debt-to-EBITDAaL ratio is in line with our guidance at 1.96, with the net debt reaching EUR 25.5 billion. It should be recalled that, in 2019, our net debt definition was changed to be adapted to IFRS 16. On a comparable basis, our net debt increased by EUR 600 million over 2019 as a result of our strategy of investments in FTTH; 4G; and also selective M&A transactions, essentially SecureData and SecureLink; which were partly offset by the disposal of our BT shares. Our liquidity position, as you can see, is very strong with EUR 17 billion at the end of 2019, including a EUR 10.8 billion in cash thanks to significant issuances this year to take advantage of very attractive market conditions.

Our debt maturity profile remains balanced, with an average maturity of Orange Bonds of 8.9 years and an average cost of gross debt of 3.36%.

Let's now turn to our business review, starting with France on Slide 14 for the next one. In Q4, total revenues increased by 1.1%, 0.9% if we exclude the impact of digital content offers. And as usual, in order to assess the underlying performance, let's analyze our retail activities, excluding the digital content offers. Retail services, excluding PSTN, increased by 1.7%. This is an acceleration compared to Q3, which was plus 1.5%. But also Retail services, including PSTN, posted less erosion with minus 0.6% in Q4 compared to minus 0.8% in the first 9 years -- 9 months, sorry, of 2019.

Convergent ARPO grew by EUR 1.1 to EUR 67.7, driven by price increases effective at the beginning of Q4, the increase in the number of lines per convergent offer and a very good performance of pay-TV at Christmas. Mobile Only ARPO grew by EUR 0.18 over 1 year to EUR 16.9 in Q4, driven by a better mix despite continuous migration into convergence. In broadband, price increases in back and front book effective since Q4 2019 and the reduction of the level of promotions in broadband helped to nearly stabilize the Broadband Only ARPO with a limited EUR 0.12 decrease versus minus EUR 0.50 in Q3 2019 to settle at EUR 36.20 in Q4.

Equipment sales decreased by 2.6%. This is minus EUR 12 million in Q4, improving from the previous quarter's trend, we were at minus 4.9% in the first 9 months of 2019, thanks to a rebound on high-value handset sales and also some initiatives to boost sales, including our take-back programs for old terminals.

Finally, wholesale revenues grew by 4.1%, driven by FTTH, which offsets the decline in unbundling and national roaming.

So in a nutshell, if we look at our full year results in France, where revenue grew by 0.2%, excluding the digital content offers, this was supported by an improvement in the trend of our retail revenues and an increase in our fiber-related revenues, in line with the acceleration of our deployments, including in the PIN area. EBITDAaL was flat positive at plus 0.1%. Excluding the digital content offers, underlying EBITDAaL grew at plus 1.4%, which is an increase of EUR 95 million compared to 1.3% in 2018, where it was growing by EUR 86 million. And this growth is supported by our transformation efforts, as I said just before.

For 2019, eCAPEX in France is up by 10.9%, driven by the very rapid acceleration of the deployment in FTTH. The rollout of lines deployed by Orange increased by 27%, this is an addition of 2.8 million lines in full year compared to plus 2.2 million in 2018, with a particularly significant acceleration in the PIN area, whose production doubled in 2019.

Turning to our commercial performance. We have delivered solid figures, both in mobile and in broadband, in Q4 2019 with a record in fiber. On mobile, we registered a resilient performance with plus 47,000 net adds in a still very competitive market despite an encouraging trend with price increases on lifetime offers, which went from EUR 5 to EUR 10 to EUR 12; and also in a market where the churn is decreasing over the first 9 months in 2019, according to the ARCEP figures. Our own mobile churn is down by 0.5 point year-on-year and stands at a low 13.3%, mainly thanks to convergence and the good performance of Sosh.

Convergence remains a strong acquisition tool, supporting our performance both in fixed and mobile, with plus 109,000 net adds in mobile and plus 27,000 net adds in fixed, fueling the convergent base at 5.8 million convergent fixed customers, which is 55% of our B2C base, and this ratio is growing by 0.2 point.

On fixed, we recorded 49,000 broadband net adds, with the high-end customer mix improving by 0.7 point. This solid performance is supported by a record quarter on fiber, with plus 239,000 fiber net adds. In Q4, 55% of these fiber gross adds come with new customers to Orange, consolidating our absolute leadership position on fiber with 3.3 million customers, an annual increase of 745,000 new customers in 2019.

Let's now turn to Spain, where the market is shifting towards the low-end segment with an intensified competition. As a result, our revenues decreased by 2.3% in Q4 and 1.5% in the full year. In this environment, where the overall market value has decreased, we posted results consistent with our value approach. We maintained a strong focus on efficiency improvement, resulting in an EBITDAaL margin that grew from 30.6% in 2018 to 31.2% in 2019, to achieve an EBITDAaL flat-plus performance at plus 0.3%, in line with our ambitions, thanks to our digitalization efforts in the distribution and customer care area. For example, we significantly reduced our core rate by 18% and closed 10% of our points of sale this year. We will continue to follow this path with the launch of our transformation plan, which will contribute to our objective on an EBITDA margin increase by 2023.

From a commercial strategy perspective, we preserved the value in the high-end and medium segment. We decided not to match our competitors' promotions, which were particularly high this quarter, and started to observe the effects of the back book price increases we made in July on half of our convergent base. The convergent ARPO [has] increased from EUR 58.1 in Q1 2019 to EUR 59.1 in Q4, the trade-off being negative net adds overall, with minus 25,000 net adds in broadband and minus 51,000 in mobile.

In order to strengthen our value proposal in the high-end market, we launched, this Monday, on the 10th of February, unlimited data offers on the Orange brand. Clearly differentiated from our competitor offers as there is, in our case, no speed limitation. This offer's premium positioning is supported by the football content, we are the only ones with Telefónica offering football in Spain; and target clients with an ARPO higher than EUR 80.

In addition, we will use our multi-brand portfolio more actively to better adapt to the market shift towards the low-end segments on which we have to improve our share of volume growth while avoiding cannibalization. It should be recalled that the low-end segment gross adds share in the overall market is currently 40%, and that we capture only 5 points of this growth, thus offering a clear potential for improvement. Our low-cost brands posted positive net adds all year, with a particularly neat progression on fixed broadband. And our objective will be supported by implementing convergence in all our brands in the next months.

On the wholesale business, following our efficient sharing and co-investment approach to provide high network quality, we extended our contract with Euskaltel in December, thus securing several hundreds of millions in cash inflows until 2024, acting as a natural hedge against retail market challenges.

In addition to the network sharing contract we signed with Vodafone in April, and to the extension of the contract with MÁSMÓVIL in September, this contributes to our objective of rolling out our network faster and at an optimized cost preparing for the upcoming 5G rollout.

Let's now turn to our 6 European countries, where total revenue grew by 1.7% this quarter compared to 1.4% in Q3, supported by ongoing positive momentum in Retail services, which were up by 2.4% in Q4. This momentum in Retail services reflects our ongoing focus on convergence, with revenues from convergence, which are only currently 17% of Retail services, maintaining a strong growth. It was more than 28% this quarter.

As explained in previous quarters, the minus 7.5% drop in wholesale services is mostly due to the loss of MVNO contract in Belgium last year, but this is an adverse effect which ended in Q4. Our focus on convergence was also visible in our commercial performance, with both stronger mobile contract net adds at 101,000 this quarter and stronger fixed broadband net adds at 72,000. It was only 45,000 last quarter. Both outcomes supported by steady improvement in the share of convergent contracts.

From a country perspective, we are reporting a sixth consecutive quarter of revenue growth in Poland at plus 1.3%. Beyond the continuing success of convergence, the key drivers for this performance in Poland were an improvement in Mobile Only services, itself the result of our more for more strategy, better equipment sales and stronger performance in IT and integration services. Our revenue performance in Belgium with Orange Belgium is also worth noting, with stronger growth up by 4.8% this quarter compared to 2.5% in Q3 and 2.8% in H1, driven by solid contract net adds and stronger equipment sales, both mitigating lower MVNO revenues.

Turning to profitability. Europe EBITDAaL grew by 3.4% over the full year 2019 as a result of better trends, both in revenue and in OpEx, mostly coming from indirect costs. All geographies posted a positive EBITDAaL contribution over 2019, namely plus 4.2% in Poland, plus 5.1% in Belgium and 1.7% in Central Europe. So this is really on our way to the growth outlook for Europe EBITDAaL over 2019 and 2023, an ambition that we expressed at our December Investor Day, and which is probably underestimated by outside parties.

Let's now turn to Africa and Middle East, the main contributor to the group growth, with revenues in Q4 increasing by 6.1% and an excellent performance with full year revenues up by two point -- by 6.2%. The revenue performance was driven by a very solid growth of Retail services at plus 8.6% in 2019, fueled by 3 robust drivers that you know well, representing more than 90% of the total Retail services revenue growth: Data with 23.8 million 4G customers, up by 43% year-on-year; Orange Money, we have an active customer base of 18.2 million, up by 20%, delivering EUR 425 million revenues in 2019; and fixed broadband with around 1.2 million customers, up by 21% year-on-year.

Looking at the commercial KPIs, the mobile customer base reached 122 million customers, including the impact of our exit from Nigeria. The customer base quality keeps improving, as reflected by an increase of 3 points in the charged base rate, which is the customers with at least 1 activity per month; and also a reduction of the prepaid churn by 4.5 points. From a geographical perspective, 7 countries grew at a double-digit pace. And the top contributors to total revenue continued to deliver solid growth in 2019, including Egypt, which grew at 7.9%, sustained by data development. Ivory Coast, growing the cluster at 5.2%, sustained by data development. EBITDAaL grew more than revenues at a very rapid pace, up by 9.4%, with the margin rates in Africa and Middle East increasing by almost 1 point to reach 32.2% over the year. Thanks to an efficient cost monitoring, almost 50% of the revenue growth in Africa/Middle East transforms into EBITDAaL growth.

Last but not least, turning to the Enterprise segment. Q4 2019 was the fifth consecutive quarter of revenue growth from 0.6% in Q1, 0.7%, 1.8%, 0.8% in Q4. The transformation is bearing fruit, 2019 being the first year, as already said, of top line growth for OBS since 2016. And this performance can be explained by essentially 2 trends. First, the growth of IT and integration services at plus 6.5% over 2019 that keeps accelerating. And this acceleration is driven by the cloud activities whose organic growth, so excluding acquisition, amounts to 19% in 2019; and also by cybersecurity activities, which posted an organic growth of 24% in 2019. So strengthened by the acquisition of SecureData and SecureLink, Orange CyberDefense has really become a European leader in cybersecurity, with nearly EUR 600 million of total revenues at the end of 2019, on track to meet our ambition to reach EUR 1 billion revenues by 2022. The second trend is the slower decline of fixed service revenue, down by 1.7% in 2019, thanks to the success of [won] offers in France, driven by fiber penetration and fueling data growth plus 1% in 2019. This performance offsets the decline in mobile revenues impacted by increased competition in H2. The EBITDAaL margin reached 15.2% at the end of 2019. EBITDAaL has been declining by 1.7%. This is linked to the evolution of the product mix resulting from the transformation of the activity and more specifically, to the growing proportion of IT integration services, which now reaches 37% of total revenues at the end of 2019, an increase of 2 points compared to 2018. And we confirm our ambition to bring the EBITDAaL back to growth at the end of 2021.

Let me now, with this, hand the floor back to Stéphane to conclude this presentation.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [3]

--------------------------------------------------------------------------------

So let me now conclude with our guidance. Based on our solid 2019 results and better 2020 visibility, it is now partly upgraded from the previous December 2019 version. Firstly, we are targeting a flat-positive EBITDAaL in 2020, then a steady growth between 2% and 3% over the 2021-2023 period. This item is unchanged versus the December 2019 version.

Secondly, the economic CapEx, which include the impact from RAN-sharing deals signed in 2019 in Spain and Belgium, will increase around EUR 200 million in 2020. It will then be flat in 2021, before beginning to decrease from 2022. Our goal is to bring the eCAPEX to sales ratio down to around 15% by the end of 2023. This item is unchanged versus the December 2019 version.

Thirdly, the organic cash flow target for 2020 is upgraded to above EUR 2.3 billion from above EUR 2 billion previously. Organic cash flow will then grow from 2021 to 2023, with a EUR 3.5 billion to EUR 4 billion target in 2023.

Fourthly, we are now committing to execute the additional net savings program of EUR 1 billion by 2023, or on an indirect cost base of EUR 14 billion in 2019. This means that if we reach the revenue growth targets underlying our EBITDAaL and organic cash flow guidance, then EBITDAaL and organic cash flow will exceed the guidance over the 2020 to '23 period.

Fifthly, our target net debt-to-EBITDAaL ratio remains unchanged at around 2x in the medium term.

Finally, concerning the 2020 dividend. We will propose to maintain a EUR 0.70 level while paying a EUR 0.30 interim dividend in December 2020. This is consistent with our 2020 targets, namely a flat-positive EBITDAaL and an addition of around EUR 200 million in eCAPEX. Concerning the period 2021 to 2023, we will maintain a minimum of EUR 0.70 per year, without excluding the possibility of an increase depending on organic cash flow performance.

Before opening the floor to your questions, I would like to point out some key Orange ambitions in the context of a disappointing share price evolution following our Capital Market Day, ENGAGE 2025.

To begin with, I'd like to emphasize that our value creation performance improved for the third year in a row as our operational ARCEP grew 90 basis points in 2019 compared to 2018. This was made possible by a resilient core business supporting our investment efforts in new growth areas. Thus, we are delivering our plan to optimize asset efficiency and capital allocation for our European infrastructures, both in fiber and towers.

Regarding fiber, in France, we have just launched a competitive selection process for a long-term financial partner in Orange Concession, an extensive platform of 22 awarded public initiative networks across France with 4.4 million awarded lines, and we expect to close this transaction by the end of this year, 2020.

In Spain and Poland, we are assessing our options to find the best solutions in terms of scope, structure and partner for both countries. These parameters will be set by the end of this semester.

Regarding towers, we are working on the earmarking of the French and Spanish assets while defining the best structure to meet our objectives, namely asset efficiency and readiness to capture the value of market consolidation. Our objective is to be operational in 2021.

As part of the long-term incentive plan set up for the 2017-2019 period, 1.3 million shares will be vested at the end of March to 1,200 employees who hold key positions within the group. It will be the first time that this group of executives will receive a long-term compensation fully paid in shares. Might be even the first time in the company's history.

Concerning the CEO and delegate CEOs, this long-term incentive plan program,represented between 16% and 18% of the total compensation in 2019 and will be fully paid this year also in shares. On a more personal note, Ramon, Xavier and myself are announcing that we will invest 50% of our 2019 annual variable compensation into Orange shares.

Thank you for your attention and we are now, the whole team, ready to answer to your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [1]

--------------------------------------------------------------------------------

Nicolas Cote-Colisson from HSBC. I've got 2 short questions. One is on the guidance. You have increased the upper -- the cash flow guidance for 2020. I understand there is a bit of a working capital requirement optimization program here. Can you just tell us if the EUR 1 billion net saving program was including this working capital requirement optimization? And secondly, on the wholesale part of the business, can you help us understanding the situation around the wholesale fiber, especially around the service level agreement? Because it seems there is a bit of an argument with the asset currently. So I'm just wondering what kind of financial risk is attached to this business if asset was to eventually control the pricing.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [2]

--------------------------------------------------------------------------------

All right. Okay. So on the first question, Ramon.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [3]

--------------------------------------------------------------------------------

On the first question, the answer is no. So when we see that the performance is better, yes, it is partly in terms of the organic cash flow 2019 and 2020 because of the work we're doing for working capital. But the EUR 1 billion target in terms of net indirect cost reduction in 2023, on the basis today in 2019 of EUR 14 billion, this is really now a strong commitment we are making. It was previously an ambition of which only EUR 150 million was embarked, so the addition of EUR 850 million now carved in stone is a hard objective.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [4]

--------------------------------------------------------------------------------

On the second question about wholesale revenues and the relationship with ARCEP, maybe Jérôme can provide.

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [5]

--------------------------------------------------------------------------------

Yes. I'm not too sure to understand the question. So I might have -- yes, exactly. Because we are in a symmetric situation concerning regulation in fibers and we do not expect constraints coming from ARCEP about the tariff of fiber, maybe your question is about what Altice did about the tariffs of optical fiber lines? So maybe I answer to this question, if it is your...

--------------------------------------------------------------------------------

Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [6]

--------------------------------------------------------------------------------

It's not, I am interested in your answer.

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [7]

--------------------------------------------------------------------------------

Okay, okay. So I take the point about Altice. So as you know, in the optical fiber regulation in France and prices in France, you have 2 different systems. So first one is about (inaudible), so you can -- as an operator, you can subscribe to a (inaudible) line offers from the infrastructure operator. And the second one is to cofinance and to pay each month a maintenance tariff. And so the move of the market is that more and more operators choose the second wave. So the most is cofinancing and paying the maintenance fee each month. And what's new is that this, as announced, to increase the second tariff, the maintenance tariff, and so it's a very important point to keep on because it's -- [cofinances] practice is becoming the best of the market. This price of maintenance is calculated accordingly to the cost structure. And so Orange, as a infrastructure operator with -- clearly studies the subject, always examines the opportunity of moving the tariffs because we have to pay attention to 2 points. The first one is that -- our investment risk taking. And second point, that our cost maintenance costs are fully covered by our wholesale offer prices. And last but not least, that there is an equivalent treatment of all operators in the market. So therefore, following this announcement made by Altice, we clearly studied the subject, examined the opportunity to move our tariffs and we'll put clearly this subject on the table of our discussion with the regulator in France. So we do not expect a decrease of the tariff for fiber. And on the opposite, it adds move, puts us in a situation of studying any move of [increased] tariffs.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [8]

--------------------------------------------------------------------------------

Okay. Thank you, Jérôme. Next question.

--------------------------------------------------------------------------------

Giovanni Montalti, UBS Investment Bank, Research Division - Executive Director and European Telecom Equity Analyst [9]

--------------------------------------------------------------------------------

Montalti, UBS. Maybe if you can give us some more comments on the footprint of Orange Concession. Would you consider including also the co-investment that you need to do in the areas where you're not going to roll out directly?

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [10]

--------------------------------------------------------------------------------

No. The answer is very clear. The scope of Orange concession is still public initiative networks. So we are talking about 22 networks, 4.4 million lines. They might have different legal frame, legal patterns. Jérôme, do you want maybe to offer a little more details about the specific nature of those projects and of 22 PINs?

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [11]

--------------------------------------------------------------------------------

Yes. So you see -- maybe the question is about the different vehicles that exist in the market and our competitors have created some specific vehicles. You have to understand the difference between our vehicle and what they intend to do. First, yes, as Stéphane said, Orange Concession is about the PIN area. So the part where Orange is a -- in a concession regime with local authorities, where the vehicle created by our competitors are more specifically dedicated to the medium dense area. And the key -- second key difference, key fact is that Orange Concession will operate commercially these PIN networks, so over 22, 4.4 million lines, which represent a 30% market share in the PIN area. So it will be a sort of commercial operator. So commercial operators selling lines, optical fiber lines to detail -- retail, sorry, retail operators. As on the opposite, the vehicles created by our competitors buy -- most of them buy, cofinance optical fiber to infrastructure operators. So it's a big difference, big difference. Orange Concession is clearly a commercial operator for this area, whereas some of the vehicles coming from our competitors are created in order to buy and cofinance the deployment made, for example, by Orange or by Altice.

--------------------------------------------------------------------------------

Giovanni Montalti, UBS Investment Bank, Research Division - Executive Director and European Telecom Equity Analyst [12]

--------------------------------------------------------------------------------

Sorry, for my [-- let me clear], but for the part of team where you are (inaudible)...

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [13]

--------------------------------------------------------------------------------

It's another question.

--------------------------------------------------------------------------------

Giovanni Montalti, UBS Investment Bank, Research Division - Executive Director and European Telecom Equity Analyst [14]

--------------------------------------------------------------------------------

The co-investment is including the CapEx or (inaudible).

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [15]

--------------------------------------------------------------------------------

No, it's another -- direct again, maybe.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [16]

--------------------------------------------------------------------------------

So the question is...

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [17]

--------------------------------------------------------------------------------

The question is about how we could...

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [18]

--------------------------------------------------------------------------------

No, but (inaudible) we do not operate. Are we going to use?

--------------------------------------------------------------------------------

Giovanni Montalti, UBS Investment Bank, Research Division - Executive Director and European Telecom Equity Analyst [19]

--------------------------------------------------------------------------------

(inaudible).

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [20]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [21]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Jérôme Barré, Orange S.A. - Senior Executive Vice-President of Orange Wholesale & International Networks [22]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [23]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [24]

--------------------------------------------------------------------------------

No, no. The answer is no.

--------------------------------------------------------------------------------

Giovanni Montalti, UBS Investment Bank, Research Division - Executive Director and European Telecom Equity Analyst [25]

--------------------------------------------------------------------------------

[Based on] the guidance of the CapEx.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [26]

--------------------------------------------------------------------------------

Yes. What we...

--------------------------------------------------------------------------------

Fabienne Dulac, Orange S.A. - Deputy CEO & CEO of Orange France [27]

--------------------------------------------------------------------------------

Yes. It's included in the CapEx and in the build we have to do. And so there's no change in the CapEx and in the guidance because it was -- we have to deploy as constructure in this area, and we will do for Orange Concession. So it will have the revenue. But there's no more invest than we have in the guidance. I think is your question, no?

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [28]

--------------------------------------------------------------------------------

I don't think so. But...

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [29]

--------------------------------------------------------------------------------

So what we said in December, what we said in December is still absolutely true. We said there will be an Orange Concession for the Orange-built PIN area. And then we said that in the third-party lines in the PIN area or maybe in the [SFR] medium dense area, we would also be looking at possibilities to optimize for cost to access to these networks. This is what we said in December. This is still what we are doing. And so you will have a final answer to your question when we will give the details, but we are working on these areas also.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [30]

--------------------------------------------------------------------------------

But there is -- but to be clear, there is no uncertainty about the CapEx impact of our presence in the third-party PINs or third-party medium dense areas. Either we would choose for -- we will opt for cofinancing our location. This is including in the eCAPEX trajectory that we provide to the market. There is nothing new to expect or to fear from that point of view. And we are currently thinking and working on the creation of a possible entity or vehicle in order to host our investment in those third-party, once again, PINs or medium dense areas. Okay?

--------------------------------------------------------------------------------

Giovanni Montalti, UBS Investment Bank, Research Division - Executive Director and European Telecom Equity Analyst [31]

--------------------------------------------------------------------------------

But this vehicle eventually would be different at all...

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [32]

--------------------------------------------------------------------------------

Will be different, clearly.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [33]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [34]

--------------------------------------------------------------------------------

It's a different purpose, and it will be different.

--------------------------------------------------------------------------------

Unidentified Analyst, [35]

--------------------------------------------------------------------------------

(inaudible). I just wanted to have maybe some more color on fiber, and our fiber remains a tool for you to gain market share. So in very dense area, you gave some details that fiber helped you to gain back some market share in Paris, for example. And we see for a few quarters, your competitor is accelerating also in fiber. I wanted maybe to have some more information on how fiber is maybe also a tool for you to keep or increase your market share in less dense areas or low dense areas where you naturally have a higher market share. And if we should see a link between the fact that now your competitors closed a little -- the gap -- the [late] they had in fiber. And with the slowdown a little bit in the fixed net adds.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [36]

--------------------------------------------------------------------------------

Fabienne is, of course, going to provide you with an extensive answer, but there is no slowdown. We had the record high net adds in fiber in Q4 2019, 237,000. So there is no really -- real slowdown, but it is true that the other players, of course, are catching up.

--------------------------------------------------------------------------------

Fabienne Dulac, Orange S.A. - Deputy CEO & CEO of Orange France [37]

--------------------------------------------------------------------------------

We expect more competition on fiber in 2019 and in 2020. It was normal. We were -- we have the first-mover advantage, but we know that was temporary. And now we [have exactly] -- as we expect, more competition. And in this context, I want just to recall maybe some figures. On Q4, we post the best quarter ever recorded in volume; and during this year, we maintained our market share. And I remember in Q2 and Q3, we were the first in the conquest share. So yes, there is no competition on fiber, but we maintain the advantage and we'll maintain a solid and strong volume acquisition. If you observe the different areas in very dense area, we have a very good winning back, and we maintain this. Yes. It's slowly winning back, but we pursue the winning back market share. In middle dense area, we have currently a real winning back market share. So it's very important for us because we are able to be in proximity of our customers with a strong network storage -- sorry, storage network. And organizational regional we had, had this year. So we are really near from customers and it is key in this battle. And in the PIN area, the battle will be a little bit different, but we are at the beginning and now we don't observe any loss of market share in this area. It will -- maybe in the future, will maybe slide. For us, the principle battle in this area is the value battle because we know that customers, we [belong] them and we have a lot of them, have dual-play offer with a very small hurdle. And the battle for us is to migrate them, and it's exactly what we do. And in the same time, we want to generate more ARPU because with triple play, with premium offers sustained by fiber and the diversification, we are confident we can improve the value of this area. So we don't observe any loss of market share in 2019 with more competition. And the second player, because I think if you think about it, yes, they made a lot -- a good performance, but this performance is maybe linked because you push migration on its own customer base. It's not our case. I remember, 55% of the new customers on fiber -- sorry, 55% of customers on fiber are new. So it's still a tool of acquisition. So they are just catching up just a little bit, maybe some period where they are less -- more inactive. But I am really confident that the performance we have in 2019 we can pursue in 2020 because all the industrial tool, all the commercial tool are ready and we have a lot of customers eligible to fiber. So no worry for me.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [38]

--------------------------------------------------------------------------------

Thank you, Fabienne. Next question? London maybe. Can we have a question from London? Is London with us?

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

We'll take a question from Andrew Lee from Goldman Sachs.

--------------------------------------------------------------------------------

Andrew J. Lee, Goldman Sachs Group Inc., Research Division - Equity Analyst [40]

--------------------------------------------------------------------------------

I had a question on free cash flow and degearing. It is really great to get stronger commitment to your efficiency efforts and free cash flow ambitions today. I just wondered if you could talk about what you see as the scope for degearing over the next 2 years? What would need to happen to facilitate that reduction in net debt? And just as a follow-up, your net debt came in almost EUR 0.5 billion better than consensus this quarter. Could you just explain what drove that? I think it was improved working capital, but any color on that would be very helpful.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [41]

--------------------------------------------------------------------------------

Ramon?

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [42]

--------------------------------------------------------------------------------

So first point is, there is going to be, I guess, in the company, at all levels, focus on cash, which is going to be stronger than ever. In the past years, we had been really concentrating in going back to profitability, looking really at EBITDA as really the main target. In the recent years, we have been starting to include organic cash flow in the indicators that we follow, including for the incentives of management, but not only. And now this point on cash is really high on the agenda because ultimately -- and also because I guess many people are a bit lost with IFRS 15, 16, et cetera. Ultimately, what counts is cash. So there is a mantra now in the company, which is that customer is king and cash is queen, okay? So there is this very strong focus. And this is why we have also decided that, by 2023, we wanted to see the reversal of a trend basically because if you look at the organic cash flow situation of a company in 2010, a lot has happened since, but it was much higher. It has been going down, down, down. This year, in fact, in 2019, the organic cash at the company is at the same level as 2018 if you accept the impact of the increase in the tax payment, which is EUR 150 million, exactly the decrease in organic cash. And as we said, in 2020, we want to be superior to EUR 2.3 billion. So we are on the trend, which is going to be a positive trend. And we are going to utilize all the levers in order to do this.

What happens to the leverage and to the debt situation? Well, first, there is the positive contribution of growth, including and especially organic cash. But we know that we are at a time of still very high CapEx. We know that there is not always a lot of enthusiasm about CapEx. But at the same time, if we can show all the performance, such as one Fabienne was describing on fiber in France, it's not by miracle. It's also because we are holding out this network, and it is going to be just a fantastic asset for the company for the next years. It is going to be a fantastic asset. Why is Poland turning around? Because there has been this fiber investment, et cetera. So there is this slight increase this year in CapEx. It's going to be stable the year after in 2021, and then starting to decrease in 2022. So this will have a little impact on the debt. We will have spectrum allocation in 2020 in France, in Poland, in Romania. So there will be a small impact of spectrum allocation on the net debt situation. But the other elements are going to be stable or positive, which is basically the interest paid on debt will be stable. The corporate tax will be stable, okay? And so in terms of working capital, we expect to see some positive elements and also on some of the part of what has an impact there. So there will be a slight increase on the debt leverage, but absolutely on line with the 2 figure, which is our objective. And so we will really remain in a very strong position.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [43]

--------------------------------------------------------------------------------

And we are happy with the current balance sheet situation of Orange with this level of to -- in the net debt-to-EBITDAaL ratio in the medium term. We don't see any reason in the global environment and in our prospects to question this. So we are happy with this, and we will manage the company in terms of cash investment returned to shareholder, keeping this level of -- around.

Another question from London, maybe?

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Our next question comes from Nayab Amjad from Citi.

--------------------------------------------------------------------------------

Nayab Amjad, Citigroup Inc, Research Division - VP [45]

--------------------------------------------------------------------------------

I have 2 questions, please. You've agreed a couple of network sharing deals in Spain and Belgium. What is your strategy in France? Would you be open to 5G network sharing in France? And if so, would it be just in the rural areas? And my second question is a clarification on the net savings plan. We understand that out of the EUR 1 billion net savings, only EUR 150 million were included in the midterm guidance. Is this still the case? And if so, what is the reason for keeping such a substantial buffer? And does it imply upside to midterm guidance?

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [46]

--------------------------------------------------------------------------------

Okay. Fabienne, please? 5G [RAN-sharing] prospects in France.

--------------------------------------------------------------------------------

Fabienne Dulac, Orange S.A. - Deputy CEO & CEO of Orange France [47]

--------------------------------------------------------------------------------

As explained by Stéphane this morning and a few days ago, I think it's just reasonable to have discussion about mutualization in certain area. Not everywhere, but in certain area. Because the deployment of the 5G will necessarily deploy a lot -- many new sites. So we are open to have discussion. It's not currently what we are because we are just before the spectrum bid and so -- but we will be ready when it will be time.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [48]

--------------------------------------------------------------------------------

Thank you. Ramon, on the saving plans.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [49]

--------------------------------------------------------------------------------

On the net savings plan. So you made a nice resume, yes, in the guidance in December, and it is still the case today. When you look at the organic cash flow figure in 2023, there was only EUR 150 million. What is different today is that what we were expressing as an ambition, we all have ambitions when we take commitments, it's not exactly the same thing. So we say it's going to be a commitment to be where we say EUR 1 billion less, et cetera, in 2023. So if everything else is equal, meaning the [impetuses] of our start plan on the evolution of revenue growth, EBITDA growth. If we have carved in stone this EUR 1 billion net, et cetera, then mechanically, the organic cash flow figure in 2023 would be higher if everything else is equal.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

We take a question from Nick Delfas from Redburn.

--------------------------------------------------------------------------------

Nick Delfas, Redburn (Europe) Limited, Research Division - Research Analyst [51]

--------------------------------------------------------------------------------

Just a question on Orange Bank. Obviously, the costs have been in the mid- to low hundreds of millions for about 400,000 account holders. So it's about EUR 1,000 per account. So can you talk a little bit about how you anticipate the costs versus the benefits of Orange Bank over the next year or 2? And certainly, if one compares it to some fintechs in the U.K., the customer intakes are relatively low. And secondly, you mentioned something on Slide 5 around handset financing. Could you talk a little bit more about that? I can't recall if that was in the context of Orange Bank.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [52]

--------------------------------------------------------------------------------

Thanks. So Paul, who is the Head of Mobile Financial Services, will provide the answer.

--------------------------------------------------------------------------------

Paul de Leusse, Orange S.A. - Deputy CEO for Mobile Financial Services [53]

--------------------------------------------------------------------------------

Can you hear me?

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [54]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Paul de Leusse, Orange S.A. - Deputy CEO for Mobile Financial Services [55]

--------------------------------------------------------------------------------

Thank you for your question. First, on the cost of Orange Bank and the cost of acquisition. Well, it's not -- 2 things to be discussed. The first one is that the cost to build Orange Bank, so far, the cumulative EBITDA losses were a little bit more than EUR 360 million, that to get more than 500,000 customers, which means that the cost to build this bank relative to the number of customers is -- yes, it's quite important, but it's less than what you see in the big fintechs you mention. I mean if you've got a look at all the fintechs and 26 [Revoluts] and so on, you may see that the valuation of these fintechs is at more than $1,000 per client. If you have a look on the other side of what Orange has paid to build this bank relative to the number of clients, we are far below this $1,000 per client. Which means that, yes, we are relative to the market, what we have done is not -- is consistent with what the market has done, even if not [top] -- if not better. One, you mentioned -- also on the cost side, I think you mentioned the cost of acquisition. We have decreased this cost of acquisition by 15%, 1-5 percent, this year, and we will continue to decrease the cost of acquisition over the next year.

You mentioned the difference with the other fintechs. I think one key point, and I won't obviously give detail on my competitors, is that Orange Bank has much more active customers than its competitors. With Orange Bank, more than 2/3 of our customers do more than one transaction per week. If you have a look of what has been communicated by some of our competitors in the press, and I won't name the competitors, the 67% with Orange Bank should be compared to less than 40% with the other fintechs. Which means that we pay perhaps less than competitors to attract customers, but these customers are much more active to the -- to our competitors. That's due to the fact that we distribute Orange Bank in our own shops, and the customers feel much more engaged with the brand Orange Bank thanks to the sellers of Orange. That's one point.

You mentioned the point of handset financing. It's an offering we are developing in France, we'll be developing in Spain, in other countries as well. It's an offer when -- where you can finance your handset or part of the price of your handset on the premises of the shop. So you pay an interest rate, which is paid either by other customers or by Orange, depending on the value of the customer, and that you get a loan between 6 and 18 months to get your hand phone.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [56]

--------------------------------------------------------------------------------

Thank you, Paul.

--------------------------------------------------------------------------------

Nick Delfas, Redburn (Europe) Limited, Research Division - Research Analyst [57]

--------------------------------------------------------------------------------

So just -- could I just follow-up on 2 things there? Could you just give -- is that going to have an important impact on your working capital, the handset financing going into Orange Bank? And if I could just go back to the discussion earlier on CapEx, I think you said there's no uncertainty on the CapEx for 2020. But I think people still don't understand, or at least I don't understand, if you use Orange Concession to finance your access to third-party networks, shouldn't that reduce your eCAPEX for 2020?

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [58]

--------------------------------------------------------------------------------

So maybe both questions for Ramon.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [59]

--------------------------------------------------------------------------------

Yes. So on the first one, I mean, the balance sheet of Orange Bank is totally separate from the balance sheet of the company. So it's a standalone process. The only contribution of Orange Group to these type of issues is in Romania, where the Orange Money Romania activities are financed by the group. And that's very well under control. So you -- no worry about this. And in Romania, by the way, Orange Money is also an interesting story to watch.

On Orange Concession, I think you have heard the presentation. And you know that one of the elements going with Orange Concession is that it will be -- even if it's not the primary objective of the scheme, it will deconsolidate the CapEx going with what's being invested in our PIN area. So in the years ahead, you have a net impact on our eCAPEX figure, which is lowering the CapEx figure of the group coming from what is being invested in the PIN area. So yes, it is included. And as already said previously, all this is fully included. And for perspective, we gave in December, where nothing -- absolutely nothing has changed. I hope it's clear. If not, we will come back to it. But...

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

We move on to Stephane Beyazian from MainFirst for the next question.

--------------------------------------------------------------------------------

Stephane Beyazian, MainFirst Bank AG, Research Division - Analyst [61]

--------------------------------------------------------------------------------

Can I come back on the savings plan? And are you in a position already to provide a little more detail so that we can understand how they could materialize by 2023? Or if you're not ready yet to tell a little more on what's the underlying to achieve them, when do you think you can provide more details? And regarding the French operation, can I just come back on the ARPUs, which showed very encouraging trends in fourth quarter. And can I make a direct link there with the cut-off promotions that you've done in your physical channels and whether you think there is a little more room for the trends to continue to improve in the next quarters around the promotions?

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [62]

--------------------------------------------------------------------------------

Thank you, Stephane. So...

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [63]

--------------------------------------------------------------------------------

So on the first question, thank you, Stephane, for the question. It's premature to give details, okay? We said in December that this EUR 1 billion savings plan would be concentrating on 4 pillars. On digitalization, on mutualization, on -- or what is going to come fundamentally with a circular economy, but not only in terms of [failed] savings, and which will, by the way, catch -- what is the expression in English? One bird with 2 -- it's 1 stone and 2 birds or...

--------------------------------------------------------------------------------

Unidentified Analyst, [64]

--------------------------------------------------------------------------------

(inaudible).

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [65]

--------------------------------------------------------------------------------

Voilà. You got it, right? And so we will be, at the same time, having a positive impact on climate, et cetera, and making savings. If you use secondhand equipment, if you have secondhand devices in your shops, et cetera, this is going to be positive on both aspect. And then there is the fourth pillar, which is what we call the (foreign language), all the agility of the group. And on each of these issues -- we had a discussion in the executive committee Monday, Tuesday on this. We have, of course, identified main activities. If you look at digitalization, for instance, in terms of RPAs, in terms of bots, you can put savings clearly associated to more active use of all these bots, RPAs, et cetera, in all activities. If you look at all the secondhand business, which will, by the way, also have an impact on CapEx, it was one of the elements of eCAPEX, you will have very specific savings associated, et cetera, on mutualization, using more of the platforms we have already at group level. So we have clear ideas. We are collectively working on it. We are discussing all these issues together. And this will be something we will come back to in more details, but don't forget, the real target is 2023, okay? And so we will come back to you every year to say where we are, but we know what we have in mind. It's not just a figure which has been -- we're trying this out of the blue. We are really working on it. And also, last point, please go back to the past recent history of the group with the Chrysalid program, Explore 2020, Lean CAPEX. We were absolutely [all rendezvous] on our commitments there. And we reported on it on a regular basis. These were gross savings, we were there, we've done it. Now we are moving to net savings, which is a very important difference. We will be there as well as we have been in the past.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [66]

--------------------------------------------------------------------------------

I think we can say, Ramon, that we will provide you with more details about the content of this program agenda on our H1 2020 publication, meaning in July. We will make a focus because, in the meantime, we will have been able to spend enough time collectively to define the details of this program and the methodology.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [67]

--------------------------------------------------------------------------------

And the second question was for Fabienne.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [68]

--------------------------------------------------------------------------------

Second question? Yes. On...

--------------------------------------------------------------------------------

Fabienne Dulac, Orange S.A. - Deputy CEO & CEO of Orange France [69]

--------------------------------------------------------------------------------

Yes. The French market is highly -- is still highly promotional, but quarter-after-quarter, we observed a market more and more rational, and it's a very encouraging movement. All competitors are slowly shifting to a strategy more focused on value. And this is an opportunity for 2 dynamics. First of all, reduce the level of promotion. And it's exactly what we did in Q4, and it's exactly what you can observe in the ARPU and then the revenue. We stopped all promotion on broadband on the traditional channel, except on the digital, and we have only one such promotion, but it's very important for us. And the second point in parallel of the promotion, it's an opportunity to have prices increase in the front book and in the back book, and it's exactly what we did just before the Q4 and reflected in our results. So yes, we can observe a beginning of market [rapport] and Orange is benefiting of this recovery of the market as the Q4 result can prove it. So it's very important that the rationality of the player will pursue, and I am really confident that, that will be because I think we had -- we are at the end of a story, and we are moving clearly towards more rational activity in France.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [70]

--------------------------------------------------------------------------------

Maybe we can take, I think, a last question, either from the room or from London. I don't know if there is someone in the room or in London. But is there someone here...

--------------------------------------------------------------------------------

Operator [71]

--------------------------------------------------------------------------------

Our next question comes from Jakob Bluestone from Crédit Suisse.

--------------------------------------------------------------------------------

Jakob Bluestone, Crédit Suisse AG, Research Division - Research Analyst [72]

--------------------------------------------------------------------------------

Two questions, please. Firstly, just on the monetization of your fiber assets. Just to be clear, I mean, would you consider monetizing, say, minority stakes outside of the concession areas? Just in terms of sort of trying to crystallize some of the value that sits in there? And then secondly, if you can maybe just help us understand a little bit more what's going on in Spain. We saw an inflection in retail revenue declines. So thinking a little bit less than last quarter, despite the sort of pressure in the net adds. Do you think this sort of improvement -- have we passed the low point? Or is that a little bit too early to call the inflection in Spain at that -- at this point? And then linked to Spain as well, you mentioned that you're only taking 5% gross add share in the low end, despite the fact that, that was 40% of the market -- the gross adds. Can you maybe clarify a little bit how do you intend to improve in the low-end segment without causing cannibalization?

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [73]

--------------------------------------------------------------------------------

Well, on the first question around monetization of fiber assets. As we have announced in December, we are currently working on the preparation of FiberCos in Poland and in Spain. So it's clearly aimed to monetize and to share also the investment to do more deployments of fiber in those 2 countries. So we have clearly the goal to create those FiberCos, Poland and Spain. Possibly to, of course, welcome a long-term partner in those FiberCos with this target of doing more FTTH rollout because we are still convinced that this is a very strong and very powerful lever for us to grow and to grow also in market share in those countries, but also to monetize and optimize our resource allocation.

In France, we are working on the PIN scope. This has been explained. We don't want and we don't plan to create an entity or to open or to monetize the fiber that we are currently running out in the mid-dense areas because we think that this is a key strategic critical asset for the company in the long term, and we just don't want to share this.

--------------------------------------------------------------------------------

Ramon Fernandez, Orange S.A. - Delegate CEO of Finance, Performance & Europe [74]

--------------------------------------------------------------------------------

And then, Laurent, I think, is on the line for...

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [75]

--------------------------------------------------------------------------------

Laurent is on the line on the Spanish market and situation. Laurent, can you take the answer?

--------------------------------------------------------------------------------

Laurent Paillassot, Orange S.A. - Senior Executive Vice- President of Orange Spain [76]

--------------------------------------------------------------------------------

Yes. Well, what's going on in the Spanish market. Basically, the market is still growing, slight growth. It still remains a very strong convergent market, 73%. On the prepaid market, it's convergent. So what's happening really is that we see a decrease in the mainstream segment and an increase in the low-cost segment. And it's true that our share as Orange in the low-cost segment is low. And this is a segment that has been doubling over the last 15 months. So basically, what we are doing there is we're playing defense on our mainstream brands, Orange and Jazztel. And in fact, we've been growing our convergent ARPU acquisition by EUR 4. We're also increasing, as you've seen in the charts, the mix in terms of value and non-value offers for Jazztel and Orange. This is slowly translating into the ARPU, as you've seen also. And all the things that we've launched recently, like the unlimited in the high end of Orange, is part of this strategy, choose to maintain and to defend the values. This is also improving our attractiveness, but it's also depending on customer base. And we need to play offense on the low cost. And that's what we've started to do. We've been ramping up Amena over the last few months in the low-cost segment. We will be adding up in Q2 SIMO and República Móvil, and we're very confident that we have the ability to take and capture a fair share of this segment without cannibalizing the Jazztel and Orange brand for the reason I mentioned. But we're also playing by -- with different brands. We're also playing with different offers, distribution channels. So this is allowing us to very -- be very precise in terms of targeting every segment. So this is going to be a ramp-up in H1, and we'll be able to capture all the benefit of this low-cost strategy in H2. And again, it is because we are maintaining our focus in value creation. And meanwhile, obviously, we are still transforming our operating model. We are driving step changes in digital, simplifying processes, which is allowing to massively reduce inbound calls. And so basically, we are working hard on maintaining and improving the indirect OpEx.

--------------------------------------------------------------------------------

Stéphane Richard, Orange S.A. - Chairman & CEO [77]

--------------------------------------------------------------------------------

Okay. Thank you. Thank you, Laurent. I think it's time to close this meeting.

So thanks to all of you. And see you very soon.