Earnings call transcript: Orange sees growth in 2024, AI partnerships boost

Orange has reported a slight increase in its full-year 2024 revenues, reaching €40.3 billion, marking a 1.2% year-over-year growth. The company’s EBITDA also saw a rise, with a 2.7% increase for the full year and an acceleration to 3.2% in Q4. According to InvestingPro data, Orange currently trades at a P/E ratio of 32.26, suggesting a premium valuation relative to its peers. The stock is currently trading near its 52-week low of $59.41, potentially presenting an interesting entry point for value investors. The market responded positively to Orange’s strategic partnerships and innovations, particularly in AI, which contributed €200 million in value creation for 2024.

Key Takeaways

• Orange’s revenue grew by 1.2% year-over-year to €40.3 billion in 2024.
• The company reported a 2.7% increase in EBITDA, with a notable 3.2% rise in Q4.
• Strategic partnership with Mistral AI added €200 million in value for 2024.
• Dividend for 2024 set at €0.75, payable in 2025.
• Strong growth observed in the Middle East and Africa markets.

Company Performance

Orange’s performance in 2024 demonstrates resilience in a competitive market, particularly in France and the Middle East and Africa. The company’s strategic focus on AI and digital transformation initiatives has begun to yield significant returns. The partnership with Mistral AI and the launch of the Maxit Super App in the Middle East and Africa have positioned Orange for continued growth in these regions.

Financial Highlights

• Revenue: €40.3 billion, up 1.2% year-over-year
• EBITDA: Increased by 2.7% for the full year, with a 3.2% rise in Q4
• Organic cash flow: €3.4 billion, a 6% increase year-over-year
• Net debt to EBITDA ratio: 1.8x
• Dividend: €0.75 for 2024, payable in 2025

Outlook & Guidance

Looking forward, Orange has set a 2025 EBITDA guidance of around a 3% increase and aims for an organic cash flow target of at least €3.6 billion. Analyst consensus from InvestingPro suggests potential upside, with price targets ranging from $71 to $106. With 8 additional ProTips and comprehensive financial analysis available on InvestingPro, investors can access deeper insights into Orange’s growth trajectory and market position. The company also plans to maintain eCapEx at approximately 15% of sales and stabilize EBITDA for Orange Business Services by 2026. These targets reflect Orange’s commitment to sustaining growth and enhancing shareholder value through strategic investments and operational efficiencies.

Executive Commentary

CEO Christel Hedeman emphasized the role of AI in driving efficiency, stating, "AI is a great enabler for efficiency, a top priority for the group." Hedeman also highlighted the €200 million value delivered by AI in 2024 and expressed confidence in the company’s trajectory, saying, "We are confident in our ability to fully deliver our Lead the Future trajectory while accelerating."

Risks and Challenges

• Competitive pressures in the low-end mobile market segment, particularly in France and Spain.
• Potential challenges in achieving procurement savings and cost reduction targets.
• Macroeconomic uncertainties in key markets, which could impact revenue growth.
• Execution risks associated with the network shutdown and copper recycling plans.
• Dependence on successful implementation of AI initiatives to meet efficiency targets.

Q&A

During the earnings call, analysts inquired about Orange’s focus on value and volume strategy, the potential for AI-driven efficiency improvements, and the company’s plans for network shutdown and copper recycling. Executives addressed these concerns by reiterating their commitment to strategic priorities and capital allocation strategies aimed at enhancing long-term shareholder value.

Full transcript - Ormat Technologies Inc (NYSE:ORA) Q4 2024:

Conference Moderator: Good morning, ladies and gentlemen, and welcome to Orange’s Full Year twenty twenty four Results Conference Call. The call will be hosted by Ms. Christel Hedeman, CEO and Mr. Laurent Martinez, Chief Financial Officer 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 the call to Ms. Christelle Heidmann. Please go ahead, ma’am.

Christel Hedeman, CEO, Orange: Good morning, and thank you for joining our full year results presentation. We are pleased to present today’s strong 2024 results with a guidance fully achieved. After two years, our Lead the Future strategy is delivering results on the four pillars of our plan. We have accelerated our transformation and reinforced our leadership. This is clearly reflected in our cash generation.

The incremental free cash flow all in after over two years amounted to billion. In France, our solid commercial strategy has further reinforced our leadership position, and we are back to growth in revenues and EBITDA. In all our countries, we remain focused on efficiency, and we have implemented new initiatives to accelerate particularly through artificial intelligence. These outstanding results give us great confidence to raise our 2025 guidance for organic cash flow. Let’s start with our 2024 results fully achieving our guidance.

Over the year, the group delivered EUR 40,300,000,000.0 in revenues, reflecting a plus 1.2% increase driven by growth in retail and Middle East and Africa. EBITDA performance continued to accelerate across the year, reaching plus 3.2 in Q4 and plus 2.7% for the full year. France is back to growth. Europe growth remains solid. Middle East and Africa recorded outstanding momentum and Orange business met its targets.

We maintained discipline on eCapEx with eCapEx to sales at around 15% in line with our target. Organic cash flow reached EUR 3,400,000,000.0, rising by almost 6% and exceeding our annual goal of at least EUR 3,300,000,000.0. Our balance sheet remains robust with a net debt to EBITDA ratio of 1.8 times benefiting from the cash upstream related to the creation of Mas Orange. Finally, our carbon reduction efforts continue. We have reduced emissions on all scopes.

We are accelerating on Lead the Future execution. We have achieved an average retail growth of over 3% at group level over the past two years, benefiting from the quality of our network, the excellence of our customer service and the leading position in terms of NPS Net Promoter Score in 15 countries. We have been actively pursuing in market consolidation in Europe, particularly in Spain, where MasaRenge is delivering synergies at full speed. We continue to urge Europe to review its regulatory framework as we believe a strong digital and telecom ecosystem is essential for enhancing competitiveness in the region. In terms of infrastructure, we fully benefit from our strong fiber footprint and we drive the monetization and optimization of our fiber networks.

The monetization rate has increased by more than three points in France and five points in Europe in two years, while in Spain, we are creating a fiber call with Zegona. Orange business pursues its transformation and is delivering a sequential EBITDA improvement, leveraging continued double digit revenue growth from Orange Cyber Defense. Middle East and Africa delivered an outstanding double digit growth demonstrating our leading position and operational efficiency. I take this opportunity to highlight the strength of our position. The growth of Middle East And Africa is based on 16 countries benefiting from leadership positions, 160,000,000 mobile customers, solid growth engines and a strong untapped potential.

The risk inherent to the continent is mitigated, thanks to a well diversified country portfolio with no country representing more than 15% of Middle Eastern Africa revenues and a solid local anchorage. We definitely believe in the strength and the potential of our business. Our Lead the Future plan focuses on value creation and we delivered on our main indicators in the last two years. Firstly, free cash flow all in has significantly grown, almost doubling compared to where it was two years ago. Secondly, our return on capital employed increased to 6.9%, achieving a total increase of 100 points over two years.

EPS increased by 12% to $0.82 per share. The improvement in free cash flow all in, ROCE and EPS supports our dividend growth, dividend set at 0.75 for 2024, payable in 2025 is fully covered by our free cash flow all in generation. Bid the Future is also innovation at the forefront. The AI Summit in France earlier this week was an opportunity to reaffirm our strong position on artificial intelligence. We have notably communicated on a new strategic partnership with Mistral AI combining research, collaboration, AI integration to optimize our networks operations and the distribution of AI enriched offers for our B2B customers in France and in Europe.

AI is also a great enabler for efficiency, a top priority for the group. At year two out of three, we have reached two thirds of our EUR 600,000,000 savings ambition, and we have accelerated key initiatives to deliver cost savings cost savings in the midterm. In France, we have signed an anonymous agreement with trade unions representatives for a new senior part time plan for twenty twenty fivetwenty eight. This will enable us to adapt our workforce to the evolving challenges of our business and will contribute positively to EBITDA with progressive effects starting from 2025. We are as well accelerating our operational efficiency projects across the group.

Procurement will also be a key source of additional savings, thanks to accelerated group synergies. Our purchasing base represents EUR 18,000,000,000 every year and we aim to generate around EUR 700,000,000 in procurement savings in the mid term. Needless to say that AI has a huge potential to create value and improve our cost base. We delivered EUR 200,000,000 value thanks to AI in 2024 to more than 150 use cases in networks and operational efficiencies and we are targeting about million of value in 2025. Let’s move to our ESG commitments, which are at the heart of our strategy with remarkable achievements in 2024.

Most of our 2025 objectives have already been met a year ahead of schedule, including the reduction of scope one and two CO2 emissions, the number of beneficiaries of training to digital and enhanced representation of women in management networks. And we are also making significant progress on scope three. Let’s now move to France. In 2024, we remain the strong leader in France in a dynamic market. Competition in the fixed only and convergent markets, which represents more than 50% of our domestic revenues, remained healthy.

The low end of the mobile market was competitive. Our mobile only revenues account for 13% of Orange France total revenues. In that context, we can leverage our strong customer base and leading position with best in class churn and NPS, well above the market. Indeed, our NPS reached a second level record level of more than 30 at the end of twenty twenty four and our mobile churn is seven points better than market average. We focus on our commercial playbook execution, which is based on three axis.

First, we are driving increased segmentation to address all market segments, offering solutions that range from 2P offers to bundle offers with content. Second, we enhanced customer loyalty by capitalizing on our top positions in churn, NPS, mobile customer services and FTTH network quality. Finally, we increased value through upsell and cross sell initiatives such as value added services and migrating our base from ADSL to fiber with a premium. This commercial strategy is fueling retail revenue growth in line with our CMD ambition. This commercial strategy has proven successful.

We delivered on our commitments in 2024. We master our market. At the beginning of last year, we committed to get back to positive net adds on broadband and we successfully achieved this from Q2. And we also stabilized as targeted the convergent base in Q4. Convergence remains the cornerstone of our strategy, accounting for 30% of total revenues in France and 80% of annual retail growth excluding PSTN.

In Q4, the convergent ARPU reached up almost 4% year on year. Fiber kept driving fixed broadband commercial performance with the best quarter in two years leading to 1,100,000.0 net adds in 2024 and fixed broadband ARPU is up by almost 5%. Mobile remained strong this quarter with close to 120,000 net adds. This efficient commercial performance resulted in a full year growth of 2.6% in retail revenue excluding PSTN. With that, I hand over to you, Laurent.

Laurent Martinez, Chief Financial Officer, Orange: Thank you, Christel. Good morning, everyone. So let’s start with our group revenues up 1.2% in 2024 and exceeding billion. This solid growth was driven by retail services up 2.6% in the quarter and 2.7% for the year, more than offsetting the expected wholesale decline. From a division perspective, France is up 0.4% and Middle East And Africa contributed the most to revenue growth in the group, achieving a remarkable double digit growth.

Europe revenues declined due to a reduction in low margin activities despite retail accelerating during the year. Finally, in a challenging IT market, Orange business decreased slightly. Moving to EBITDA, growth accelerated across the year to reach 3.2% in Q4. This strong result was driven by an outstanding double digit performance for Middle East Africa, a continued solid growth in Europe and we are very pleased to be back to EBITDA growth in France. As expected, Orange business continued the sequential time improvement of EBITDA, helping the decrease compared to the previous year as per target.

Lastly, ICSS EBITDA was impacted by one off and the base effect related to a submarine cable sale last year. Moving to net income. Net income is stable in 2024 driven by higher EBITDA in 2024 and positive base effect related to 2023 French pension reform. Income tax reflected improved earnings in France and Middle East Africa as well as the base effect of deferred tax assets in 2023. Lastly, the net result related to Massaron was impacted by one of costs related to integration, restructuring plan and financial expense.

Moving to eCapEx, we maintained our disciplined policy. We pursued our investment in Middle East and Africa to support our strong revenues, while the limited increase in e CapEx in France is related to lease buyback of equipment. Organic cash flow is up by almost million reaching billion well in line with our guidance. The strong cash improvement of 6% is fueled by an uplift of EBITDA and lower tax income payment. Free cash flow all in reached around billion, almost up million driven by organic cash flow growth and phasing to our twenty twenty five in license payments.

On net debt, so our net debt reduced by EUR 4,500,000,000.0, driven by the EUR 4,300,000,000.0 net proceed that we received from the creation of Massaron in the first half. This led to a leverage ratio of 1.8 times, well in line with our guidance and reflecting our very strong balance sheet. Let’s move to review by segments starting of course with France. In France revenues and EBITDA are back to growth in 2024 with retail services revenues up 2.6% during the year. We’ll say decline has been mitigated by unbundling and civil work tariff increase in 2024 as expected.

For 2025, we are expecting a slightly better EBITDA growth than in 2024. Moving to Europe. Revenues are down 2.3% this quarter due to a decrease in low margin activities, while retail accelerated by nearly two percent. Retail growth in Q4 is driven by our volume value strategy, strong mobile net adds notably in Belgium and ARPU growth in Poland with as well churn improvement. This quarter represents the best commercial performance for broadband and FTTH since 2021.

Convergent Services maintained a solid momentum with almost 8% year on year growth. Altogether, Europe received a very strong 3.9% EBITDA full year growth, supported by price increase, operational efficiencies and synergies related to in market consolidation leading to an EBITDA margin uplift of 1.6 points. Looking ahead, we expect Europe to deliver a low single digit EBITDA growth in 2025. So let’s move to Middle East and Africa with an outstanding double digit growth both in revenues and EBITDA. In Q4, revenues growth accelerated to 12.6%, fueled by double digit growth on our four key drivers Orange Monet, six broadband, B2B and three gsfour gs, which is up 22% on a year on year basis.

This performance is driven by both mobile customer growth and ARPU up 4%. So four gs customer base increased only this year by 16,000,000 customers. We are also very proud of the success of our Maxit Super App launched in November 2023, which has already attracted over 17,000,000 users. Thanks to revenue growth, strict cost control, we delivered double digit EBITDA growth in 2024 for the fifth consecutive year, increasing the EBITDA margin to almost 39%. EBITDA minus CapEx is up by more than 11% on historical basis, leading to cash generation, which is our top priority for Middle East and Africa.

Moving forward, we target at least high single digit EBITDA growth in 2025. Turning to Orange business. Revenues for the quarter decreased by 4.1% due to the expected decline in voice services and a challenging IT market. In that context, we are pleased to report a four point increase in the NPS, highlighting overall business recognition as a trusted player. Cyber Defense is moving full steam with double digit growth this year.

Our transformation plan, which includes a voluntary departure plan in France, has allowed us to achieve our goal of reducing the EBITDA decline by 50% this year. Our transformation action will continue to unfold in the coming years and support the ongoing EBITDAL improvement with a decrease halved in 2025. We now target EBITDAL stabilization in 2026 in the context of a more complex IT market. Let’s move to conclude on Massaron. Massaron retained its leadership on growth adds and on value management with continued growth of commercial ARPU.

The market remains competitive, but worth noting that the three main operators including Massaron, of course, have increased their tariff in January of this year. Total (EPA:TTEF) revenues increased by nearly 5% this quarter, fueled by strong retail performance. Adjusted EBITDA is up 11, benefiting from strong synergy implementation. We delivered this year no less than million in synergies over nine months, exceeding nicely our target of million. We reached an agreement as well to create a fiber co with Vodafone (NASDAQ:VOD) Spain and we target to close the transaction by the end of H1 twenty twenty five after the selection process of the financial investors.

The proceeds will be, as communicated, fully devoted to debt repayment. For 2025, we target slight revenue growth, cumulative synergies above $300,000,000 and double digit growth of adjusted EBITDA minus CapEx. With that, I’ll hand over back to you, Christelle, for the conclusion.

Christel Hedeman, CEO, Orange: Thank you, Laurent. In light of our strong achievements in 2024, especially in cash generation, we have decided to upgrade the 2025 guidance initially provided at our Capital Market Day. We now expect an EBITDA increase of around 3% in 2025 and an organic cash flow of at least EUR 3,600,000,000.0. E CapEx will remain disciplined with circa 15% E CapEx to sales ratio, while maintaining our leverage guidance of around two times. Our dividend policy is unchanged with a dividend floor of $0.75 for 2025 paid in 2026.

Thank you for your attention. Laurent, the Orange Executive Committee, the Masa Orange management and I are now ready for your questions.

Conference Moderator: Thank you very much for the presentation. We’ll now be moving to the Q and A part of the call. Our first question comes from Mr. Andrei Tadicak from UBS. Please go ahead, sir.

Andrei Tadicak, Analyst, UBS: Hi, good morning, everyone, and congratulations on these results and thank you for the presentation. I have two questions, please. One just zooming in on France. So clearly, you expect trends to actually improve in 2025 on the EBITDA line despite some noise around competition. So I just wanted to focus on the drivers of this improving momentum.

So clearly, obviously, the, like I said, the cost cutting is set to improve, I guess, the profitability. But then what are your kind of latest thoughts around the competitive dynamics and the pricing, especially in mobile, which we’ve seen, I guess, improve since the price cuts that we saw in the second quarter? But then more specifically and what’s more important for you, the convergence competition that where we saw a lot of noise towards the end of the year? That’s one question, please. And then the second question on your dividend.

So you are now upgrading the free cash flow guidance for $25,000,000 you are at $1,800,000 net debt to EBITDA, so quite below your leverage target. So I guess investors will want to hear a commitment that the dividend per share will continue to grow in 2026 and beyond. So is that something that you can already communicate? Thank you.

Christel Hedeman, CEO, Orange: Thank you. So on the France dynamic, indeed, we expect a slightly better EBITDA growth than in 2024 with continuous efforts on costs. So first and foremost, we plan to continue to benefit from retail growth, low single digit retail growth driven by, as we’ve done so far, volume and value. As you know, we’ve been already doing that in 2024, maintaining our best in class churn, leveraging, of course, our solid convergent segment. So we will have tactical price increases and as we said, continue to upsell from copper to fiber.

On the competitive environment, actually, as we said, stable environment on broadband and convergence. And of course, the core focus for us, as we said, is churn reduction and best in class churn. And you see convergent customer churn is much better than non convergent customers. We expect to see a continued good momentum on the convergent ARPU. And as you know and as we’ve said, I mean, convergent segment is 30% of our total revenues in France and it’s 80% of our retail growth in 2024, if we exclude PSTN.

And of course, this is a mix of tactical price increases and as we said, the upsell and cross sell strategy. On the mobile market, we expect as we’ve seen and commented on 2024, the mobile only market, especially in the low end, remains very competitive, even though we’ve seen since the beginning of the year some price increases of a few euros for actually all operators. On the mobile, the entry price point on B brand have moved on average from €8 from slightly above 100 giga five gs packages to €10 now. And this is true from old players. So increases from EUR 1 to EUR 5 on most tariffs with some differences depending on the data buckets.

So from that standpoint, we are confident that and we see no change. Actually, it’s pretty reassuring. On the EBITDA, of course, it’s all the efficiencies and the cost drivers as we’ve highlighted. So we plan to accelerate our net cost reduction. We mentioned procurement.

This is, of course, all the operational efficiencies that Jean Francois is driving with his team, optimizing subcontracting schemes, advertisement and promotion. We will get a bit of tailwind from on the energy side. And on workforce, as we said, we have agreed with our employee representatives on this new early retirement scheme, which will we will start to benefit in 2025 toward the end of the year, but we will see progressive effect towards the end of 2025 and of course increasing until 2028. And we mentioned AI. And of course, as you know, we continue on EBITDA to get the wholesale headwind.

And as per the Capital Market Day, wholesale headwind in 2025 is expected to be circa EUR 100,000,000. On the dividend, as you know, we have an attractive dividend yield above 7%. Our capital allocation policy isn’t changed, so that’s why we communicate on this floor at EUR 0.75. And of course, it’s unchanged until our next Capital Market Day. And so we will revise it at the next Capital Market Day.

So end of this year, early twenty twenty six with no taboos as we’ve been saying several times.

Andrei Tadicak, Analyst, UBS: Thank you, Christel. Just on this last point at the dividend, so there’s a floor, right, which investors might view as insufficient given what I said in terms of the leverage and the free cash flow. So is there an ambition at least to continue growing this number with the specifics, obviously, as you say communicated later in the year or early next year? But is there an ambition to actually grow this?

Christel Hedeman, CEO, Orange: Well, I mean, as I’ve just said, we know we have a very attractive dividend yield. When we talk to investors, we also know and we want the share price as well to increase. So that will be linked. So at this time, of course, we’re not making any announcement on our capital allocation. But of course, we know this is a key expectation from all investors and this is something we will tackle as part of our next Capital Market Day, which at the latest, I would say, should be when we publish our 2025 results.

Andrei Tadicak, Analyst, UBS: Thank you very much.

Conference Moderator: Thank you very much. Our next question comes from Mr. Nicolas Codcolisson from HSBC. Please go ahead sir. Your line is open.

Nicolas Codcolisson, Analyst, HSBC: Well, hi. Thank you. Two short questions please. The first one is on the labor costs in France, because I think you are planning to recruit 6,000 employees in the next few years. But if you are to take into account the senior plan in line with what happened in the past years and the natural attrition, how should we see the headcount evolving in the coming years?

And also if you can remind us when are the next wage negotiations all in France again? And my second question is on cross selling in France. I was wondering how big the business opportunity is at this stage in terms of revenue and EBITDA? And if you are intending to sell more products maybe outside telecoms in order to keep the churn very low in the convergent packages? Thank you.

Christel Hedeman, CEO, Orange: So on the labor cost in France and on the headcount, as I mentioned, actually, it’s not just an early retirement program that we renewed or that we extended with our employee representatives. We signed a new workforce planning agreement, which includes indeed a plan on hiring especially young talents in some of in the areas and I have in mind, of course, in our stores, in Orange business, in our AI initiatives. But this is part of and this is, I would say, consistent with the hiring we have been doing in the past years as Orange. As part of the workforce, of course, we have, as you know, also an aging workforce and that’s why we have this early retirement plan, which we think will have EBITDA impact roughly million at the end of the plan, so 2028. Now let me remind you that this plan is of course fully based on the voluntary departure.

So that’s taking into account the assumptions that we’ve made based on the previous plans. As you know, this is the scheme that we have been using for a long time and that our employees are used to. When it comes to wages negotiation, it’s too early to comment because we had just we just started actually the negotiation with our employees. We expect the to we expect it to be lower than last year knowing that, of course, the inflation has decreased significantly, but it’s really too early to comment further given I want to leave the negotiation to go to its end. On the cross selling opportunity in France, actually, not just in France, because this is something that as you know, as part of our churn reduction initiatives and also leveraging, I would say, the huge portfolio of customers that we have.

Indeed, we are selling new offers to customers. You’ve seen the launch of our cybersecurity offers for customers. We’ve been selling for quite some time insurances. We are selling cybersecurity insurances, of course devices that’s been for quite some time in the industry. And we continue and content is also a core upsell opportunity for us, especially linked to our broadband packages.

So this is definitely we also have agreements on music, entertainment. So there’s the old type, this is part of us being distributors for players. So this is not new, but we will continue to do so.

Nicolas Codcolisson, Analyst, HSBC: But I was just wondering, so beyond the benefit at the churn level, all these initiatives, are they do they contribute in terms of gross profit margin positively? Or is that really just a churn tool?

Christel Hedeman, CEO, Orange: No, this is not just a churn tool. This is contributing. And as you know, if we have also tried to upsell new services, I have in mind, of course, the banking activity with Orange Bank in Europe, which we decided to stop because it was neither contributing on the churn, neither contributing on the margin. So of course, we are very disciplined when we launch and when we upsell on making sure that this contributes positively, of course.

Nicolas Codcolisson, Analyst, HSBC: Okay. Okay. Thank you.

Conference Moderator: Okay. Thank you very much. Next (LON:NXT) question comes from Mr. Akhil Dhatani from JPMorgan. Please go ahead, sir.

Akhil Dhatani, Analyst, JPMorgan: Yes. Hi, good morning. Thanks for taking the questions. Can I just start with a quick clarification on the French EBITDA? Christelle, you mentioned obviously a number of drivers, but one of the things you’ve highlighted in the results today is that you’ve spent some CapEx in 2024, buying out some of the routers that consumers were leased in France.

So if you could just maybe help clarify whether that’s a meaningful impact on order in EBITDA. So that’s just a very quick clarification. And in terms of my main questions, it’s really two. One is, on OrangeMaz, Laurent mentioned the fiber deal that you’re hoping to close through Q1. I just wondered if you could comment in terms of how we think that should high level work.

There’s also a lot of speculation on proceeds, which the press is saying could be about billion. Could you just talk us through without going to specific numbers, what that means for the deleveraging of that asset? And then what that could mean for the timing of when you consider reconsolidating the business? And then the second one was just on the CMD. Crystal, you mentioned a few points around timing and things you’re thinking about.

But I guess high level is you’re planning for that event. Can you sort of talk us through what are your main priorities?

Andrei Tadicak, Analyst, UBS: Sorry.

Christel Hedeman, CEO, Orange: Yes, Akhil, I think you got cut, but your question was on the CMD and then I heard what would be your main priorities.

Akhil Dhatani, Analyst, JPMorgan: Yes, Akhil, I’m trying to understand what you think the main priorities for that event would be. You talked about a few things around AI, the dividend, but just high level, what do you think about as you plan as a management team? Thanks a lot.

Christel Hedeman, CEO, Orange: Thank you, Akhil. So on the French EBITDA, indeed the CapEx lease, which was done in Q4 and slightly impacting our CapEx in France, has a beneficial impact, but it’s very limited in our trajectory. So it was really more tactical, but it’s not something that’s driving really the EBITDA trajectory is driven by what I was explaining before, cost reduction and strong focus on our commercial performance. On Spain and the fiber co, we still expect we’re still in the process of negotiating. We signed the binding agreements with Aegona in December and we expect to close it by the end of H1.

At this stage, it’s and the proceeds from this transaction will, of course, mean cash proceeds for Max Orange. And we expect those proceeds to fully be used for deleveraging

Nicolas Codcolisson, Analyst, HSBC: the Masa Orange company.

Christel Hedeman, CEO, Orange: There are some echo on the line, but I hope you can hear me. On the Capital Market Day, I would say, as usual, I mean, we will, of course, highlight what will be our strategic priorities for the midterm and providing an update on the trajectory for different businesses and as well as capital allocation, of course, for the next years. And no doubt that AI will be a driver. I mean, we’re just at the beginning of a real revolution, thanks to AI. So this is not just short term or midterm.

This is a really long term driver. So no doubt that this is something that we will accelerate on. And I would say innovation in general, that’s a strong asset for us. We have teams working and this is the core DNA of the company. So we will have a strong focus on this.

Thank

Akhil Dhatani, Analyst, JPMorgan: you. Can I just ask one clarification? What will dictate the timing of the event? You obviously mentioned it will be latest by your free results next year. Is it a function of closing the Spain deal?

Or are there any other variables that dictate timing?

Christel Hedeman, CEO, Orange: No, I won’t provide you any guidance on moving, I would say, on Mass Orange. No, it’s fully a function of we haven’t really set a date. So I would say at the it’s going to be between the end of twenty twenty five and I would say logically at the latest for the results of 2025, which means early twenty twenty six if we come to capital allocation, especially focusing on our 2025 results and consequential dividend payment. Great. Thank you.

Dividend payment.

Akhil Dhatani, Analyst, JPMorgan: Great. Thank you.

Conference Moderator: Okay. Thank you very much. Next question comes from Mr. Roshan Granjeet from Deutsche Bank (ETR:DBKGn). Please go ahead sir.

Your line is open.

Roshan Granjeet, Analyst, Deutsche Bank: Great. Good morning, Ivan. Thanks for the questions. I’ve got two please. Going back to France, Christel, you mentioned the scope for tactical price increases.

If I look at the Q4 trend, we saw a slight slowdown in the convergence ARPU growth. So how should we think about this targeted price increase through 20%? And how does that reconcile with your I guess we’re now at the end of the 2% to 4% growth CAGR. So what should we expect for 25% please? And the second question is just around TOTEM.

You are still guiding to a 1.5 times tenancy ratio targeting 26 up from 1.4. Could we get a sense of how that is driven? Is that more from the kind of orange build out? Are you expecting to try and maybe win some other customers? And how are discussions with the MNOs in the Spanish market evolve in there?

Thank you.

Christel Hedeman, CEO, Orange: So on France, as I was mentioning, we see already some moves on the low end of the mobile market. And when it comes to price increases and ARPU for convergent offers, it’s really driven as well from the copper to fiber, so DSL to copper migration. And we’ve also done some tactical price increases, including back book on copper offers as we’ve done, but very tactical. I don’t know if Jean Francois you want to comment for that?

Jean Francois, Executive Committee Member, Orange: Yes, I can slightly comment. I mean, we will have, as you explained, Cristal, a balanced strategy on value and volume. And basically, we are really expecting retail to continue to grow low single digit in 2025. We are very confident with our commercial strategy. As you saw, the market is moving with the right direction on mobile in the month of Jan.

So we are confirming the ambition of plus 2%, plus 4% growth over 2022, ’20 ’20 ’5 percent as was guided in the CMD. So very confident on twenty twenty five’s commercial strategy.

Christel Hedeman, CEO, Orange: And when it comes to Totems, so we have successfully, I would say, increased our tenancy ratio already and we continue to drive it. And this is true in France and this is true in Spain. And of course, this is not just based on the Orange or Mas Orange footprint, even though, of course, in Spain, Mas Orange is driving its network synergies and this is impacting all the tower cores, I would say, supplying to Mas Orange. But we’ve also extended the footprint and the tenancy ratio of TOTALM with other players in Spain and we will continue to do so. But as you know, Spain is an interesting market where there are more power cores than there are

Nicolas Codcolisson, Analyst, HSBC: MNOs.

Roshan Granjeet, Analyst, Deutsche Bank: That’s great. Thank you. And just on that point, I mean, do you see the telco market evolving in Spain in the near term?

Christel Hedeman, CEO, Orange: That’s an interesting as you know, we’ve been very active to drive evolution in this market with Masa Orange. Mainly you’re on the line, so actually maybe you’re closer than I am to you’re actually based in Madrid now. So do you want to comment on the Spanish dynamic? So maybe mainly it’s not plugged in. But no, we know that the market is still very competitive and actually we see and that’s what we have been arguing with Brussels actually during the antitrust process.

Of course, we talk about the MNOs and the large ones and MasSoranges is a leader in Spain. But there are still a lot of small players, mostly MVNOs, but also have some fiber footprint and many of them are very active discussing and tactically trying to consolidate the market. So there’s no doubt that Spain will continue to evolve in the near term.

Roshan Granjeet, Analyst, Deutsche Bank: That’s helpful. Thank you.

Conference Moderator: Okay. Thank you very much. Our next question comes from Mr. Paul Smith from Citi. Please go ahead, sir.

Paul Smith, Analyst, Citi: That was great. Thanks very much for the questions. Two, please. Firstly, kind of following up slightly on some of the previous questions about labor costs and requirements, but thinking slightly longer term. Some companies in the sector put out fairly aggressive headcount reduction targets, whether in the short term or by kind of end of decade.

Just thinking in terms of particularly how much you’re talking about AI today and the changes to employee terms and these kind of things. Just can you talk slightly about your headcount requirements in the medium term from your current footprint, I think, at around 70,000 employees in France and around 130,000 employees worldwide. And then secondly, you talked a lot about the consumer competitive environment. I was wondering if you could also talk about the business competitive environment and expand slightly on the challenging IT market conditions that you referenced on Orange business.

Mathieu Robial, Analyst, Barclays (LON:BARC): Thank you very much.

Christel Hedeman, CEO, Orange: So on labor costs and headcount, I think I’ve said it before, but as a company and given our history, you don’t expect me to announce, I would say, a big headcount target reduction because at least it proved in history of the company that it’s actually counterproductive. Now if you look at our track record and I think that’s true for any telecom incumbent in Europe, we have been massively reducing headcount over the past twenty years. And this has been driven mostly, of course, through retirement and, of course, embracing new technologies. And so that’s why the early retirement scheme that we have in place will continue to have impact if we take the assumptions that again we’ve discussed with our employee representative knowing that this is only on a voluntary basis. So this is absolutely not a target, but we can estimate that it’s roughly 6,000 employees who could be eligible and voluntary to adopt this scheme.

Now this is over the next years and this means that those employees will remain employees of Orange for actually a longer period of time, but they would be on a temporary basis, which means that we would have immediate cash benefit from this scheme. So really no headline on headcount reduction because we really want to be responsible in the way we manage our employee workforce. When it comes to AI impact, I really I’m not sure how companies can announce headline. We know that all jobs will be impacted by AI and this is actually why we have massively trained all our employees and we are actually providing tools so that employees can all benefit from GenAI in a secured environment within the company. So there’s no doubt that this is driving efficiency if we take our presales team, if we take our developers, if we take our, I mean, customer support.

So this will have impact. But at this stage, the technology is really far from replacing humans. And I think it will never replace actually human or it should not replace human, but it will really enrich and make our employees more efficient. So at this stage, it’s really difficult to anticipate, I would say, short to mid term headcount impact. But as part of our workforce planning negotiation with employee representatives, we’ve clearly highlighted the type of jobs and positions where we plan to hire and train because it’s not just external hiring, it’s also training.

We have already a few thousand employees working on data and AI and we will continue to increase that. And so that’s very important for us. But no doubt that AI will have impact on all type of jobs and will impact all employees. On the consumer and I would say business competitive environment, If we focus on the French market and the small businesses, this is, of course, a market that is always that’s always been very competitive. And as you know, we have a very solid market share, actually qualified as dominant market share by the antitrust authorities.

But we fight hard to protect and defend this market share, and we’ve successfully done it over the past years. With if we look at our global businesses and international footprint, it’s clear that this is a very competitive market, especially when it comes to IT integration. And so on the IT integration type of business, our type of network services, we face competition from large IT integrators as well as, I would say, more traditional competitors. So this is not new, but this has definitely increased probably driven by the maybe less dynamic IT environment in the

Christel Hedeman, CEO, Orange0: past month.

Paul Smith, Analyst, Citi: That’s great. Thank you for the color.

Conference Moderator: Okay. Thank you very much. Our next question comes from Mr. Mathieu Robial from Barclays. Please go ahead, sir.

Mathieu Robial, Analyst, Barclays: Yes. Good morning and thank you for the presentation. I had two questions, please. The first one is about France again, but looking at it slightly differently, clearly you are doing a very good performance with an acceleration in volumes despite the competitive environment. And I was wondering if besides all the good things you’ve done, if that is also due to a reacceleration of the market growth in Q4 or you feel you’re taking a bit more market share?

And I realize we don’t have numbers from the other players, but maybe portability numbers that you may have could shed some light into that. And then I had a question about OBS. So we’ve seen that you’ve delayed a bit the stabilization of EBITDA. And as you flagged, 2025 is going to prove more difficult because there’s more competition on the IT side. Is your expectation and your guidance for 2026 based on a better environment in IT?

Are there other levers that now make you confident you can stabilize that in 2026? Thank you.

Christel Hedeman, CEO, Orange: Thank you, Mathieu. On France, I mean, definitely, the performance in 2024 is based on the very solid and stronger performance of our teams in France. As we said, 80% of our growth is coming from the Convergent segment. It’s not the Q4 performance is not linked to an acceleration in the market dynamics. So it’s really the accumulation of all the work we’ve done.

As we said, very detailed segmentation, very focused approach and tactical movements as well as this upsell cross sell. So it’s there’s no magic, but I mean, Q4 has not been less competitive. And I think we’ve been commenting quarter after quarter. Of course, if you look only at the mobile net adds, the mobile market remains extremely especially on the low end, very competitive. Now there’s always seasonality in some seasonality in Q4.

So that’s driving. But as you said, at this stage, we can only comment for Orange. We don’t have the other play or the market performance. Jean Francois, do you want to add?

Jean Francois, Executive Committee Member, Orange: Yes, but we can comment because we have portability and we are very proud to be for the first third quarter, consecutive quarter positive in portability versus three and stable versus weak. So that’s something we are pretty proud of.

Christel Hedeman, CEO, Orange: I think you share your pride actually when you say it, Jean Francois. No, when it comes to OBS, of course, I mean, our 2025 and 2026 performance, I don’t think we are I mean, we are not planning on a better IT environment. We are really planning on what we control. And Elliott is driving a very aggressive, I would say, transformation focusing, of course, our internal efficiencies, our operational performance as well as repositioning our portfolio and we said it. So we’re investing on our next generation platform, evolution platform.

We are launching new AI offers. We have been pruning our portfolio. And of course, we have Orange Cyber Defense that continues to grow double digit, very solid performance and a leader now in Europe, of course, benefiting to these results. So no, we are not, I would say, betting on external to drive this.

Mathieu Robial, Analyst, Barclays: Thank you very much.

Conference Moderator: Thank you very much. Our next question comes from Mr. Stefan Beyazian from ODDO. Please go ahead sir. Your line is open.

Christel Hedeman, CEO, Orange0: Thank you very much. Good morning. Can I ask you regarding the network shutdown because you’ve started some tests, actually more than tests in a couple of locations? So how is that going on? And whether you start to have some thinking about what savings potentially you could get out of that from selling copper, for instance.

Any indication would be interesting. And I’ve got a second question regarding free cash flows. Is it possible to have a little bit of guidance or color on what taxes you are expecting for 2025, so cash taxes? And also possibly on litigation, there were a couple of issues at the end of twenty twenty four. Thank you.

Christel Hedeman, CEO, Orange: Thank you, Stephane. So I will let Laurent comment on the free cash flow and taxes litigation. On network shutdown, I’ll let Jean Francois add further, but it’s at this stage, we’ve read in the news some numbers on the savings or the benefit we could get from the copper resale. This is not science fiction because we plan to resale it, but the numbers are completely built,

Conference Moderator: at least they

Christel Hedeman, CEO, Orange: are not coming from us. So this is not what we are only starting to work on the supply chain for recycling this copper, but there is a cost to extract it. And so yes, we will get savings, energy saving when the copper is dismantled. But this is obviously a very large industrial plan that we passed successfully the first step January. And that’s going to be a key element actually of our next Capital Market Day because of course this is for us a key project in France.

Jean Francois?

Jean Francois, Executive Committee Member, Orange: Yes. So indeed, we are planning to shut down our corporate network. As you know, this is a project that will bring us up to 02/1930. We have taken the first step because we have phases in this project. Actually, we have eight phases that will bring us again to until the end of two thousand and thirty.

We had the first what we call lot with 200,000 households that we’ve shut down. We’ve done that thirty first of Jan. I mean, it went extremely well. I mean, we had less complaints than the number of fingers of the hand at the end. So we’ve been really happy about the way it turned down.

And as turned out, sorry, and as Cristal was saying, concerning the copper reselling, this is also going to grow in the next years, but we are, I would say, in the first steps. And we have started to shut down commercially what we call the second lot, which is concerning 900,000 households, which are going to be shut down in end of Jan twenty twenty six. So this project is starting extremely well.

Christel Hedeman, CEO, Orange: Laurent, this is cash flow.

Laurent Martinez, Chief Financial Officer, Orange: Yes. Good morning, Stephane. So the drivers in terms of our cash for 25%, of course, number one will be the EBITDA minus CapEx uplift 9.9% with our guidance of EBITDA up 3%. So that’s, of course, the main engine in terms of cash positive evolution. We will have against that some tax headwinds and we have considered in our guidance of at least billion the tax impact in France, which is impacting us by around million.

So that’s on top of the guidance uplift we have. And we have as well some limited headwinds on the financial interest due to the interest rate decrease, which is impacting our positive treasury. So that all of that is leading to the EUR 3,600,000,000.0 at least of organic cash flow. So moving to the free cash flow all in, we have, as I said, some phasing on the licenses of five gs, mainly in Europe, which in terms will lead to globally this EUR 500,000,000 average license per year over twenty four to twenty five. And this is a kind of run rate we see on the midterm so far.

In terms of litigation, as you know, we had a litigation with Knil, indeed, which would be paid out in H1. We are talking about million. And we’ll make appeal for this Kneel fine. And we do not have any litigation, I would say, as we see on 2025 so far. But this is something which is, of course, depending on the various lawsuits that we have.

Christel Hedeman, CEO, Orange0: Thank you. And just a quick follow-up regarding Orange Bank, which will go away this year. Will that help a little bit in terms of savings this year? Is there anything around any cash also that you may have to de debose anything that we should know?

Laurent Martinez, Chief Financial Officer, Orange: No, absolutely, yes, Stephane. So very much in line with our trajectory. I remind the net cash impact is million for the Orange Bank closing and we are in line with that. In 2025, a bit less of headwinds in terms of profitability, but nothing significant, so all in line with the expected trajectories.

Christel Hedeman, CEO, Orange0: Thank you. That’s very clear. Very clear. Thank you.

Conference Moderator: Thank you very much. The next question comes from Mr. Joshua Mills from BNP Paribas (OTC:BNPQY). Please go ahead, sir. Mr.

Joshua Mills, your line is open in case you have a question. Okay, in that case, we’ll move on to the question from Mr. Otavio from Bernstein. Please go ahead.

Christel Hedeman, CEO, Orange1: Hi. Good morning. Very simple questions, but I guess it’s something you want to tackle on the CMD later on, but it’s on the capital locations. In previous questions, it’s been highlighted about your gearing that is effectively reducing and that gives you options. The optionality, of course, it’s on the cash distributions, but also in terms of the assets that you have of balance sheet, I’m talking about Spain and the JVs on the fibers.

Now because in Spain also you’re doing the you try to monetize or at least you the plan is to monetize the networks. That will lead to an acceleration of the gearing and that potential also the time when the private equity would like to monetize their own stake. So therefore, the question is going to next year, did kind of ranking in terms of the priority between cash distributions and bringing some of the assets you got off balance sheet like Spain and also the fibers, the JVs both in France and in Poland, which are on the pecking order? I know that it’s very likely that you want to tackle this later on in the CMD.

Christel Hedeman, CEO, Orange0: But if you can give us a bit of

Christel Hedeman, CEO, Orange1: a flavor how you’re basically going to manage your balance sheet going forward? Thanks.

Mathieu Robial, Analyst, Barclays: Thank

Christel Hedeman, CEO, Orange: you. So indeed, you’re rightly pointing to the various options that we have. As we’ve said, we are very focused on value creation for the company and our teams in Spain are very focused on delivering the synergies, which is the first lever to create value for us of our share in mass orange. We will not disclose any timing or any tension, but we’ve been very clear on the fact that we want to have the option to reconsolidate and the Masa Orange asset. There’s no predefined scheme to do that.

So that means all options are open and that’s why we’ve been very clearly keeping the cash upstream dividend that we received at the creation of Mass Orange and the low leverage at Orange balance sheet level. And as you know, we also have a lot of valuable assets on our balance sheet. We have a lot of fiber footprint. We mentioned that, that infrastructure is a key pillar of our strategy and it’s and we believe it’s a core value. And we have TOTEM, we have various assets, we have fiber cost.

The first priority for us with fiber cost is, of course, to increase the monetization rate of the fiber that’s it’s on our fiber assets. So monetization can go through our retail or through wholesale agreement. That’s why we have a wholesale teams dedicated to that. But no predefined, I would say, path. Of course, the Spanish mass orange valuation is a key priority.

De leveraging, priority one. Finalizing the executing full steam the synergies and finalizing and closing the fiber core.

Christel Hedeman, CEO, Orange1: If I can be a bit more specific, the netco, the monetization, when it will be done in Spain, the cash will go towards deleveraging or towards upstreaming dividends to Orange?

Christel Hedeman, CEO, Orange: Yes. No, sorry, I thought because I thought I had already mentioned it. But no, the cash upstream to Masa Orange from the fiber co will go fully to the deleveraging of Masa Orange. Perfect.

Christel Hedeman, CEO, Orange1: And in terms of the JV for fiber, do you have both on the concession in France and in Poland? Do we expect that at some stage will be brought back into on balance sheet, we will consolidate or you will be leaving outside your perimeter for a long time?

Christel Hedeman, CEO, Orange: So if we talk about our French fiber co, we have the option to take control back and that’s pre agreed with our core shareholders. And this is something that we’ll assess based on, of course, as always, value creation for Orange shareholders. And we have similar scheme, by the way, in our fiber core in Poland as well, where we are also looking at increasing, I would say, the value of our fiber footprint in Poland.

Christel Hedeman, CEO, Orange1: Okay. Thank you.

Conference Moderator: Okay. Thank you very much. We will tie once again the line of Joshua Mills, BNP Paribas. Please go ahead, sir. Just one minute, just in case your line is muted, you are now live in case you have a question.

Okay, perhaps not. In this case, we see no further questions on the line. We’ll pass the line back to the management team for the concluding remarks.

Christel Hedeman, CEO, Orange: Thank you all for joining this morning earnings call. We are confident in our ability to fully deliver our Lead the Future trajectory while accelerating. We have upgraded our organic cash flow target for 2025 to reflect this commitment. AI all our actions and initiatives are designed to lay a strong foundation for a successful phase beyond 2025. Thank you all.

Conference Moderator: Thank you very much. This concludes today’s conference call. We’ll now be closing all the lines. Thank you and goodbye.

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