Orange S.A. (FNCTF) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Orange's H1 2025 Results Conference. For your information, this conference is being recorded. [Operator Instructions] The call today will be hosted by Christel Heydemann, CEO; and Laurent Martinez, CFO; with other members of Orange's Executive Committee for the Q&A session that will start after the presentation. And let me hand over the floor to Christel Heydemann.

Good morning, and thank you for joining our H1 results presentation. Today, we are pleased to share solid results with EBITDAaL growth of 3.8%, driven by a 70 basis point margin increase. Organic cash flow reached EUR 1.7 billion, up nearly 8% year-on-year. Those results are fueled by robust retail commercial performance across France, Europe and Africa, Middle East. In France, our efficiency program led to an acceleration in EBITDAaL growth, reaching plus 0.9% with 1 point margin improvement and EUR 200 million of OpEx reduction. Africa, Middle East continued to deliver an outstanding double-digit growth in revenues and EBITDAaL. Thanks to these achievements, we are upgrading our full year guidance, and we are now expecting an EBITDAaL growth of more than 3%. Let's start with a review of our strong H1 results. Over the first 6 months, the group generated EUR 19.9 billion in revenues, up 0.3%, driven by services growth and a very strong MEA region. EBITDAaL strong growth of plus 3.8% was fueled by double-digit performance in Middle East and Africa, accelerated growth in France at 0.9% and solid results in Europe as well as a good execution of the Orange Bank exit plan. Our efficiency initiatives are bearing fruit with a 70 basis point improvement in the group EBITDAaL margin. We maintained discipline on eCapex with a CapEx to sales ratio of 15.2%, in line with our full year target. Organic cash flow reached EUR 1.7 billion, an increase of EUR 120 million, on track to reach our full year guidance of at least EUR 3.6 billion. Our balance sheet remains solid with a net debt to EBITDAaL ratio of 1.9x. Finally, we continue to deliver a sustainable performance. Our effort to reduce carbon emissions continued, down minus 41% in H1 2025 compared with 2015. To meet our Scope 3 ambition, we are engaging with our suppliers through our "Partners to net zero carbon" program. Regarding digital inclusion, 4G population coverage in Middle East and Africa increased by more than 1 point during the first semester and reached 78%. We continue to invest in our trusted offer portfolio with a new B2C SaferPhone offer for teenagers, the creation of Orange Business Defense & Security division and the launch of Orange Quantum Defender. Let's now zoom in on the France performance -- commercial performance. In France, in a flattish market, the competitive environment remains generally stable in the broadband segment and still competitive on the low-end mobile segment. In this context, we continued to implement our efficient commercial strategy grounded in market segmentation, strong customer loyalty and value. We are proud to have been recognized by Arcep, the French regulator, as the best mobile network for the 14th year in a row and to lead the market with the best-in-class churn and Net Promoter Score. This strategy led to a robust commercial performance this quarter with 116,000 mobile net adds; 270,000 net adds on fiber; and 15,000 on convergence, with an improving momentum of the Orange brand. This is our best quarter in terms of total net adds in the last 10 quarters. This performance was driven by effective churn management with sequential improvement in a dynamic market. Convergent ARPO continued to grow by 1.8% year-on-year in Q2, while mobile ARPO decline reflects the competitive landscape in the low-end segment. Consequently, retail services, excluding PSTN, grew by 0.9% in H1, outperforming a flattish market in value. Looking ahead, we expect a small positive growth for retail services, excluding PSTN, for the full year 2025. I now leave the floor to Laurent.

Good morning, everyone. Thank you, Christel. So let's start with the revenues, up by 0.3% for this half year. Services revenues are up by 2.1%, mainly driven by Middle East and Africa. This was offset by the expected decline of wholesale at minus 4% and of equipment sales, in line with market trends. From a division perspective, MEA continued its impressive double-digit growth. Europe revenues reached stabilization, while France ex PSTN retail growth was offset by the expected decline in wholesale and equipment. Finally, revenue trend for Orange Business continued to be impacted by the competitive IT environment and portfolio pruning. In terms of efficiency, we accelerate on our focus on cost savings, very much on track with our EUR 600 million target by end 2025. I want to underline the very positive result of our efficiency, in particular in France,with 4% OpEx reduction as targeted in this half year. Moving to EBITDAaL. Growth accelerated to 3.8% in H1 with an EBITDAaL margin up by 0.7 basis points and increasing for the sixth consecutive quarter. France confirmed its ability to sustain EBITDAaL growth, supported by OpEx efficiencies in line with our target. Middle East and Africa pursued its outstanding performance, growing double digits for the 10th consecutive semester. Europe demonstrated solid EBITDAaL growth in line with expectation. And Orange Business, to end, is on track to reach its 2025 target, thanks to a sequential improvement. Moving to net income, increasing by close to 7%, excluding the impact, net of tax, of the noncash provision booked in connection with the French workforce planning agreement signed in Feb. Higher EBITDAaL in H1 2025 was partly offset by increase in amortization costs related to investment and tax. Moving on, on CapEx. We keep our discipline by staying at close to 15% eCapex over sales ratio, while we continue to invest in our high-growth business in Africa and Middle East. Organic cash flow is up EUR 120 million, reaching EUR 1.7 billion altogether for H1. Strong cash improvement of nearly 8% is driven by EBITDAaL growth and change in working capital. We are well on track with our full year guidance of at least EUR 3.6 billion for the full year. Free cash flow all in reached EUR 1.1 billion, with anticipated slight decline year-on-year due to phasing in telco license payments between '24 and '25. On to the net debt at 1.9x EBITDAaL, very much in line with our guidance of around 2x, a slight increase in H1 notably due to the call of EUR 450 million of hybrid bonds in April and phasing of free cash flow all in. So let's turn to the business review and starting with France, with an EBITDAaL up by 0.9% year-on-year, a 1 point improvement in the EBITDAaL margin. And this, thanks to an historical cost reduction of 4% driven by our efficiency program. In terms of revenues, the growth of retail ex PSTN of plus 0.9% in H1 was offset by the expected decline in wholesale and equipment. This improvement of H1 EBITDAaL trends allows us to confirm firmly our objective of growing EBITDAaL in France in 2025, slightly more than in 2024. Turning to Middle East and Africa, which continues to deliver a very strong performance, demonstrating again its positive momentum. Revenues is up double digits, driven by our four key growth drivers. MEA posted an outstanding 13% EBITDAaL growth in the first half of the year, cementing 10 consecutive semesters of double-digit EBITDAaL growth. Based on this strong performance, we are upgrading our ambition for the full year from at least high single-digit EBITDAaL to double-digit growth. Continuing with Europe. Revenue stabilized this quarter at 0.2%, driven by services growing at 1.2%, in line with Q1, thanks to an effective volume -- value strategy. Net add remains robust with mobile well above 100,000 for the fifth consecutive quarter. Convergence revenues demonstrated a performance increasing by 5%. In terms of profitability, EBITDAaL is up by a bit more than 2% and margin is up by 0.6 basis points, fueled by services revenues and efficiency savings. Looking ahead, we do confirm 2025 outlook with a low single-digit EBITDAaL growth. Moving to Orange Business. Revenue decreased by 5% in the first half, reflecting the impact of last year's portfolio pruning and the challenging macro environment. Orange Cyberdefense continued to deliver a solid growth of 7% in the half year. Going forward, our cybersecurity business will be strengthened by the acquisition of ensec in Switzerland that we announced last week. We also continue our push on sovereignty and security with our new defense and security vertical, SecNumCloud certification of Cloud Avenue and the launch of Orange Quantum Defender. At the same time, we are actively pursuing our cost base optimization and transformation initiatives. Cost savings on SG&A allow us to further improve our EBITDAaL development to minus 5% in H1, moving toward our goal of halving the full year decline versus 2024. Turning to MASORANGE. Our JV continued to create value with a strong drive to deliver synergies, well on track to deliver EUR 300 million by year-end. From a business perspective, revenues are up 4.7% in this first half, driven by MASORANGE's strong commercial performance with positive net adds in fixed and mobile segments. Services growth also reflects remarkable expansion in B2B and in new businesses such as insurance and energy, in addition to the positive momentum on equipment, helping to extend the life time value of our customers. Adjusted EBITDA is up by close to 13% in H1, fueled by revenue momentum and synergies. Back to you, Christel, for the conclusion.

Thank you, Laurent. I would like to conclude this presentation by confirming that our robust H1 results make us very confident in reaching our objectives with an EBITDAaL growth now expected at more than 3%. Thank you for your attention. The floor is now open for questions. I am with the Orange Excom as well as Meini, the CEO of MASORANGE.

[Operator Instructions] And our first question is from Akhil Dattani from JPMorgan.

Can I ask two, both on France, please? The first is more operational, and I just wanted a bit of an update on what you're seeing in the French market. I guess, Christel, you mentioned very good KPIs in the quarter, but you also mentioned a softening in the retail ex PSTN. So I'd just love to understand better the specifics of just what you're seeing? And specifically, when we think about H2, I think you mentioned retail ex PSTN will remain similar to the Q2 level of between 0% and 0.5% growth. If you could just flesh out that. And what gives you the confidence you can keep growing EBITDAaL as well as you have in H1 into H2 in that context, a bit of an update on cost cutting. So that's the first question. And then the second question is on French consolidation. I'm sure you've seen that there's been a lot of speculation in the press in recent weeks and months. And specifically, we've seen comments around access to a data room now being provided by SFR to the various operators. And we've also seen comments on the French finance minister and industry ministers around the process. So I guess, I'd love to understand what can you tell us around what actually has changed and happened. And actually, where are we in terms of what we're seeing on the consolidation process?

Thanks, Akhil. So on the French market, as you've noted, indeed, for H2, we see a flat to small positive growth for us. And clearly, our market dynamic, and as you -- as we've said, we are in a flattish market with a low-end mobile market that remains very competitive. Our strategy is focused on convergence, which means reducing churn, and we are very proud to be focused on this loyalty strategy. We have the best NPS. We have the best network that's been reconfirmed again in -- for 2024, and we have reduced churn. And so as you can see from our ARPO in Q2 and H1, and that's what we expect to continue to see for H2, I mean, ARPO and convergent customers is what's driving growth, while on the contrary, the mobile-only market remains competitive. And as you can see, we have a slightly reduced ARPO in this market, knowing that, of course, the mobile-only market is only less than 13% of our total revenue in France. So in that environment, clearly, we continue to execute our strategy. We will continue to do some very tactical price increase, more-for-more type of price increase, but limited compared to what we've seen in the past. So as you've noted, our confidence on EBITDA is mostly driven by all the efficiency program that we've launched. Of course, we continue to invest on customer loyalty, but we drive efficiency, and that's operational efficiency, procurement, of course, workforce efficiency. We'll continue to benefit from the senior part-time plan that we've signed earlier this year, AI and all actions that we've launched. We continue, of course, to have the wholesale headwind and -- but this is well known and no surprise. So we are very confident with our trajectory. But in a market that's obviously, I mean, competitive and flattish, so when it comes to consolidation opportunities, my first message is, of course, we do think that there is a need for consolidation. This is true in France, and I think this is true for Europe, and this is following the report from Mario Draghi at the European Union 1 year ago. So no surprise in that environment. Now where do we stand in that environment? Of course, France is our first market. We've been very active with consolidation in the past in Romania, in Belgium and, of course, in Spain, now with MASORANGE. We do welcome the U.K. decision moving from 4 to 3. As you know, SFR is in the process of restructuring its debt. It's not over yet, so we cannot make any comment on what SFR wants to do. But I can confirm that France being our first market, we are obviously ready to engage. And indeed, there are preliminary discussions between operators on what could happen. Of course, this is still early, but again, I do believe market -- in-market consolidation makes sense.

Our next question comes from Josh Mills, BNP Paribas.

Similar ones for me, I'm afraid. But just on -- the first question would be around the EBITDA trajectory in the second half, a bit more explicitly. And perhaps, we could frame it in terms of margin drop-through in the revenues that we're seeing because, obviously, you've been able to deliver solid EBITDA growth, nearly 1% in the first half despite a slowdown in service revenues. Is that how we should think about the EBITDA trends in the second half of the year, i.e., does where consensus sits around 1% EBITDA growth for France still makes sense given the competitive trends you're seeing? That would be the first question. And then secondly, around consolidation, it would be great just to hear your latest thoughts on where Orange's priorities are if a deal were to materialize. And what I mean by that is, what kind of assets would you see as most valuable for the Orange Group to acquire? And then maybe any high-level thoughts on where you think the kind of challenges might be? So what are the sticking points as we go through the process, be that SFR, debt restructuring, potential valuation, regulatory process? Where do you think the biggest hurdle comes if you enter into what would be a 1- to 2-year process?

Thanks, Joshua. So on the EBITDA trajectory, I mean, we are very confident. And in H2, we expect it to be very similar to H1 in terms of underlying trends. I don't know if, Laurent, you want to give more colors.

Yes. So on the H2, we see indeed an EBITDAaL evolution year-on-year, very similar to the one of H1. We don't see any seasonality, as Christel say, in terms of retail ex PSTN. We see a flat to small positive growth in terms of revenues. And of course, we'll continue to expand and accelerate on the cost savings, EUR 200 million of cost savings in H1. And we'll continue the effort in H2 to get to this stability in terms of our evolution -- same evolution in H2 in terms of EBITDAaL.

When it comes to scenarios for France, as you can expect, I'm not going to give you a lot of details given, of course, we don't want to disclose, but let me first insist on the environment that, indeed, SFR or Altice is still in the process of finalizing its debt restructuring. And this is, of course, a prerequisite. And France is our first market. We are a leader in France. But the first priority, as I said, is to make sure that there is a clear case for a 4 to 3 market consolidation. And it's true that this means antitrust authorities, political support in an environment where this is not completely obvious. Then I'm not going to give you comment on which asset could be of interest, given it's very early, very premature. And I don't want to disclose anything that would be used in the negotiation against us, as you can expect.

Our next question is from Ondrej Cabejsek from UBS.

I have a similar pattern of questions, please. So two of them, one is a bit higher level on the EBITDA building blocks into 2H because I can see a couple of things that could potentially improve momentum in the second half for the group level because, obviously, business, for example, ICSS, these units should improve. So if does -- if that does happen, if you continue to cut cost as you'd have in France, you could be actually close to 4% EBITDAaL growth on the group, which then would bring your group OCF closer to EUR 3.7 billion. So I'm just wondering if there are other things in the bridge between EBITDAaL and OCF that could also be a bit worse in the second half, that is the reason why you didn't kind of upgrade the OCF number for the full year as well. That's one question, please. And the second question, obviously, consolidation again. So in terms of your potential pipeline of deals, so obviously, you've got two of them, one in Spain, the reconsolidation that you are aiming for; and then potentially the deal in France that we've been talking about. So I'm curious as to whether you have spoken to credit rating agencies on the options to, for example, use hybrid debt and at what extent, if so, in order to impact the -- or limit the impact on your balance sheet if you do both deals, for example. And then in your thinking, how would that influence the guidance around potential dividend -- or dividend growth, rather, which is, I guess, what investors are quite focused on in the sense that everyone would really like to see you continuing to guide for an absolute growth in the dividend over the coming 3-year period?

Thanks, Ondrej. I think on the -- on your question regarding H2 and guidance, of course, you remember that we've upgraded our OCF guidance for the full year to more than EUR 3.6 billion. So we've done a slight, I would say, upgrade in -- of our guidance for EBITDAaL to be, I mean, more than 3%. So we did -- of course, we do not comment on the details, but you're right to say that we expect, and as I said, in H2, that's similar to H1 with some improvements, and Orange Business continues to drive its transformation plan. H1, H2 for France, we commented before. MEA, we've upgraded to double-digit EBITDAaL growth. Now when it comes to organic cash flow guidance, we said more than EUR 3.6 billion. So we remain in line with this. And we are very committed, of course, to delivering it. So not much to comment. We had some one-off impact in H1 on ICSS, for instance,which, of course, will not come back in H2, but we are rock solid on the guidance, and this is what you can remember. On the pipeline of deals, you're right. France, we commented earlier. Spain, as you know, really too early to talk to credit rating agencies, but we know we are very committed, of course, to our cash flow and to our return to shareholders. We've commented on the floor for the dividend in 2025. As you know, we have a Capital Market Day in February where we will guide for the 2026 and after. Of course, for us, M&A deals means value creation, and we want to -- we know that France and Spain are two critical markets for us. So we see these as priorities. And we do think that we have the opportunities to manage that while keeping, of course, our rating and investment-grade status. But of course, we know and we do think that we can do that while, of course, creating value, which means meeting your expectation. Of course, I'm not going to give you a comment on 2026. This is, of course, for the Capital Market Day in February, but your question and your attention is very clear to us. And we think we can meet all objectives.

Our next question comes from Roshan Ranjit from Deutsche Bank.

I have two questions, please, focused on France again. Christel, you mentioned the scope for targeted price increases, which I think is something which we have seen to some extent in the first half. In the context of the kind of flattish market, should we think about -- those practice growth market, sorry, should we think about those increases across the board or focused on certain products? I think, previously, you've said that the high end of the market, convergence has been very robust, but is there still scope for some price increases there? Also I guess, I saw you guys are now giving 5G away temporarily, similar to something you did a couple of years ago. So are these strategies, which we should think about to stimulate that growth in the second half of the year and into '26? And secondly, just on the OpEx. You mentioned OpEx reduction 4% in H1 citing labor and external purchases. Now I think the labor plan -- reduction plan you highlighted in last year was more back-end loaded over the period, so more benefits in '27, '28. Are you starting to see some of those benefits come through now? So is there a scope for upside to that saving target? Or is it more phasing?

Thank you, Roshan. On the France targeted price increases, of course, all of that in a flattish market, as you said. When we look at the ARPU increase, it's very limited due to price increase, and it's mostly package and value increase with additional services. And of course, that means increasing the number of mobile lines, for instance, per convergent customers. That means, of course, content. That means insurance, cybersecurity and upgrading from low-end offers to higher-end offers. We have seen, though, some tactical price increases. And including on the low end of the market, including in July, we've seen less data in the mobile package entry prices. And we've seen that from all players, including Iliad, who has done a plus EUR 1 price increase on one of its packages, which historically has not been the case. So I think this is something that we expect to continue to see. And as you know, Orange is never the first one to drop prices. So of course, we want to play on volume and value, which means that we play with all our A brand, B brand, et cetera. But it's true that we see less promotions. And somehow, we've seen in July some -- a better environment. But again, this is -- we will be the one trying to drive it across the board. But again, keeping in mind value first, of course. And when we do price increases, that's because we think and we know, and it's always more-for-more type of mechanism, which means that customers have the option, as always. On OpEx reduction, you're right to say that the latest early retirement plan that we signed in February will mostly bring impact end of this year, but mostly '26 and after, '27, '28. So some of the OpEx reduction that you see is actually the consequence of previous plans that we had in place as well as a lot of the transformation that we are driving, operational efficiency, making sure that, for instance, we load our technicians first before using subcontractors and things like that. So there's a lot of those efficiency are really driven by operational efficiency and many of our quality programs.

Our next question is from Carl Murdock-Smith from Citi.

I'll break from tradition from my peers and try and ask about something else other than France. So starting on Orange Business and the acquisition of ensec in Switzerland, I was just wondering if you could add a little bit more color around that acquisition. But more broadly, are you interested in further bolt-on acquisitions within Orange Business? How large is cybersecurity within Orange Business, given that it's growing 7%? And what about ensec particularly attracted you? And then secondly, I wanted to ask about equipment sales kind of across the group. So if I look at France or I look at Europe, equipment sales are growing -- or declining worse than the kind of service revenues. But then if I look at MASORANGE, equipment sales are growing faster than service revenues by quite a long way. So can you talk about the kind of reasons for that? Is it market reasons? Is it commercial strategy reasons? I'd just be interested to hear what you have to say.

Thank you. On the Orange Business, so commenting on the ensec acquisition in Switzerland, so it's typically a bolt-on acquisition, and we have done -- previously, we have done one -- another one in Switzerland, I think, 2 years ago. And we do expect to continue when it makes sense to do this type of acquisition. In parallel, by the way, we are also doing divestment. So you can call them bolt-on divestments. But as part of our portfolio pruning for Orange Business, we have concluded a small divestment of our workspace activity in DACH, and we have a few other -- we did a small divestment as well in France. So this is part of our portfolio pruning. When it comes to cybersecurity, of course, this is a growth market for us, and this is a market where we've been gaining share, and we continue to invest to gain share. We see cybersecurity more and more as the entry discussion with customers. And so more and more connectivity is sold with cybersecurity. And this is true, of course, with large accounts for already quite some time, but this is very true for small and medium business customers. And this is something that we continue to invest on as part of our trust positioning, and that's why we've launched also some new offers, Quantum Defender, which is, of course, for the post QD and to make sure that when quantum computing comes at scale, we can continue to protect. So we are clearly investing in that field, and this is part of our transformation for Orange Business. On the equipment sales, every market is different. But overall, the equipment market in Europe is declining and what MASORANGE is doing very successfully is to replicate on the full MASORANGE portfolio of customers what Orange was doing with the high-end customers. Remember that equipment sales, it's not just the equipment sale that we look at. It is also the full value of a customer and the reduction it can bring on churn when customers buy equipment with us. And so we have programs, and we compare that across countries. But overall, the equipment market is decreasing. The equipment values and the life time of equipment is expected also to increase. This is also part of our carbon reduction plan. But we do it in a very, I would say, consistent manner, looking at the full value of customers. And we know that equipment sales drive visitors in our stores, and equipment sales is a way as well to reduce churn and to shield our customers. So this is -- but Spain somehow is the effect of the MASORANGE JV and making sure that we apply across the board what Orange was doing before in Spain. And then you see very different dynamics across the different markets. We see it as well on the B2B market where there's less, I would say, equipment renewal from enterprise customers. And you see that in our mobile revenues trajectory for Orange Business.

Our next question comes from Nick Lyall, Berenberg. Next question is from Stephane Beyazian from ODDO.

My question has been asked.

Next, we have a question from Andrew Lee, Goldman Sachs.

Just two questions for me. Firstly, on wholesale, I'm cognizant, Christel, that you want to hold back some things for the 2026 CMD. But just what -- the wholesale losses looked to have ticked up a little bit. Is there any kind of color you can give on what's driving that? And any sense on trajectory into 2026, given I'm guessing you've got pretty good visibility on that now? And then just second question, going back to -- well, following up on a couple of questions earlier on the retail ex PSTN trend deterioration. I'm guessing that is pretty much full drop-through into EBITDA trends. Could you just go -- into EBITDA. Could you just confirm that? And then the question really is, what has surprised you in terms of that trajectory in France? I know that the competition is in mobile, but what surprised you in terms of the intensity of that competition? And is there anything that gives you any confidence that, that will abate outside of the consolidation hopes?

Thanks, Andrew. On the wholesale, we are absolutely in line for '25 with what we had presented in our last Capital Market Day. And of course, the decline is mainly related to copper evolution. And so we expect EUR 1 billion revenue decrease, 2025 compared to 2022. This is the Capital Markets Day, EUR 400 million EBITDA loss between -- over the 3 years, with EUR 200 million upfront and EUR 100 million in '24, EUR 100 million in '25. So we are absolutely in line with that. When it comes to, of course, moving forward, we are in the process of building our copper decommissioning plan. And as you know, this is a huge industrial program. We have launched RFPs for companies to pull out the copper and then to recycle it. And so we're in the final process. We haven't selected them, and the RFPs are not finalized. And then, of course, when it comes to wholesale trajectory, some of that is also related to the commercial decision of our competitors and to accelerate migration to fiber. So there's no surprise. Of course, I won't give you a comment on 2026, but we are really in the process of building this wholesale and, I would say, this industrial plan, while, of course, working with the regulator on making sure that we don't leave money on the table with our competitors when it comes to unbundling price or as well the fiber wholesale price. Remember that in our wholesale revenues, most of it -- some of it, apart from copper, is sustainable revenues because, of course, we have a huge fiber network in France. We have civil engineering. So -- and we had some price increase. So we continue to work with the regulator to make sure that we have the proper return on investment for this infrastructure. Of course, we have MVNO type of wholesale and so on. So again, this is the full combo, but not everything in wholesale is copper related, and some of it is sustainable. When it comes to the retail services trajectory, excluding PSTN, no surprise in Q2 because when -- in our Q1 results, we had guided on the fact that in Q1, we were still benefiting for -- from some price increase that had been done in 2024. So we had some price increase mechanism in Q1, which we were expecting not to see in Q2. So no surprise. And we see H2 in the same, I would say, trajectory as Q2, so small to positive growth for our retail, excluding PSTN services. As we commented, this is very much driven by our convergent value strategy, while, of course, playing on the full market, which means that we address low-end market as well and volume. But as you can see from our commercial results in Q2, we have a very solid commercial engine, both on mobile-only, broadband-only as well as convergent, and this is really what's -- what makes us confident on the trajectory.

Our next question is from Emmet Kelly, Morgan Stanley.

Actually, the bulk of my questions have already been answered, but I had a specific question, please, Orange Business Services and on the creation of new division. So the Defense & Security division was created just a few weeks ago. And obviously, this is a big theme in Europe at the moment with a new NATO defense targets. I think France is currently spending about 2.1% of GDP on defense, and NATO was asking for a step up to 3.5%. Now can you talk about the potential role that telcos could play in higher defense spend? What kind of products are we looking at? Is this network slicing? Is it cybersecurity? Is it secured communications and whether you can say that the lack of use of Chinese equipment in your French network might be helpful for winning future contracts?

Thank you, Emmet. So indeed, we are investing -- and by the way, this division is not focused on France only because we see similar trends across Europe, and we have similar discussion with all governments. And of course, we are not a player in the battlefield type of solution, but there's a lot of needs for more digital solution from defense and security teams. Of course, we already have Orange Cyberdefense. But if you think about IoT, cloud, AI driven, of course, 5G slicing, all of those can be -- and cybersecurity, of course, all of those can complement needs from, I would say, authorities in those markets, knowing that, of course, defense is one sector. But if you think about all critical infrastructure, think of energy, water, transportation, et cetera, they have very similar needs. And so -- and we have this know-how. So too early to give a comment. But for instance, on cloud, we obtained the SecNumCloud certification in France for our Cloud Avenue solution. As you know, we're investing with Capgemini on Bleu, a 50-50 JV to offer Azure Light in Microsoft application in a SecNumCloud environment in France, and we have a number of initiatives like this one. So that's what I can say here.

Our next question is from Fernando Cordero from Santander.

Okay. It is just related with -- let's say, with the portfolio of the group. In that sense that your portfolio decisions pipeline is quite busy, I just would like to understand at which extent you may use some your current assets as, let's say, potential sources of funds to -- let's say, to fund these potential transactions that you may be doing? And in particular, I'm talking about TOTEM. In that sense, at which extent are you maintaining, let's say, the strategic position of TOTEM? Or at which extent TOTEM maybe could be understood as a potential source of funds for this pipeline that you are having already?

Thank you, Fernando. What I take as -- I will revert the question saying that, indeed, we have a very solid balance sheet. But on top of that, we have a lot of assets on our balance sheet, fiber infrastructure, tower infrastructure and so on, that have tremendous value. Let's be very clear, today, our focus is to make sure that we can create value for our shareholders by -- on every single M&A transaction when we have them by the synergies that those transactions create and the value they generate. And we do think that we have a balance sheet that today allows us to do that without, I would say, forcing us to make some portfolio arbitrage. That being said, we constantly review our portfolio of assets. And if there is value creation opportunities coming from those portfolio, we will drive them. But we are not in a position where we feel that we have to make some portfolio decision to be able to materialize some of our opportunities, if I think of France or Spain, of course.

Our next question comes from Ottavio Adorisio from Bernstein.

It's just a follow-up on actually the previous one. It's about your thinking on infrastructure ownership. It's true, you have a lot of assets, but the difference between assets you can sell like your subsidiaries and asset that you continue to use is quite different. You've been one of the few incumbents that kept ownership of the towers and most of your fiber networks. You recently have watered down that strategy in Spain. So my question is, first, if you can give us an update on what's going on, on NetCo monetization? We heard that demand has not been great from private equity, if you can update on that. And second, considering what you said, it's true that the approach on infrastructure ownership is changing. You no longer see full ownership of infrastructure in France as key, and you're prepared to sell minorities or sell altogether the asset.

So on the FiberCo in Spain, nothing has changed, and we are in the process of -- as you know, we have signed a binding term sheet between MASORANGE and Vodafone Spain Zegona earlier in January. And we are in the process of attracting a financial investor for this NetCo. The process is close to be completed. We had announced a signing over summer, and we still plan this over summer for closing by the end of the year. So we are absolutely in line with that. I'm not going to make any comment on rumors, on the financial structure or the valuation because, I mean, I'm not going to comment, but we are very confident with our ability to create value with this NetCo and, again, confident on our ability to close this transaction. When it comes to strategy for ownership of infrastructure, we have not changed our mind when -- we have a wholesale division that's focused on creating value from those infrastructure. And of course, value comes from monetizing them through Orange as a telecom operator as well as through other operators. From time to time, when we think there is value to be made by creating a NetCo like we are doing in Spain, we are doing it. You may have seen that we made an announcement with Proximus in Belgium as well for fiber. We have a FiberCo in France, as you know, in rural areas. We have a FiberCo as well in Poland. So this is key. When it comes to TOTEM, TOTEM is very focused on increasing tenancy ratio. And of course, we've been -- you were rightfully asking about the market consolidation in France. We think it's more comfortable for us, I would say, to be able to play on both sides, both the infrastructure as well, of course, the service layer when there's an environment with consolidation. But again, we look at monetizing infrastructure separately from the OpCo, I would say, value creation, but we do think that having more added value by combining infrastructure and service makes a lot of sense.

Our next question is coming from Nick Lyall from Berenberg.

Just a question on the ARPOs in France again, please. Just the problem seems to be more the slowdown in convergence and in broadband. So could you give us a little bit on the outlook for that for the second half, please? The comps seem to get a lot tougher because of seasonality. So is there a risk that actually these ARPOs for convergence and broadband could go negative maybe in the second half of the year? And just to come back to Ottavio's question here on Spain. On the Spanish joint venture with Zegona, is that something you want to do before you consider any changes in ownership for your Spanish assets as well, please?

Thank you. On the ARPO slowdown, I mean, as I've said before, I mean, no surprise because we knew that we had in Q1 some baseline effect, I would say, from the -- or some price increase effect, but we see overall the convergent ARPO at a very solid -- with a very solid dynamic and at a similar level and actually even slightly above what it was in Q1. Convergence is 31% of our total Orange France customer, and it's really the growth engine for us in France as we've said. So no color. And definitely, I mean, no comment to make on the trajectory moving forward. As we've said, we see a flat to small positive growth for retail services in H2. And as I said, convergence remains the main growth engine for us. When it comes to Spain, I don't have -- I mean, I don't have any comment to make. We look at the -- I mean, the FiberCo creates value, so it's not a prerequisite or not. It's the fact that it creates value on its own in the Spanish market, and that's why we are doing it. When it comes to our shareholder agreement between shareholders of MASORANGE, we have a shareholder agreement. As you know, there is a lockup period of 2 years after closing. The teams and Meini here are very focused on delivering synergies, and you can see that from the H1 results of MASORANGE. Of course, at any point in time, we can have a discussion between shareholders, but there's a very clear process to -- towards an IPO, and that's what the teams are focused on. So the FiberCo in itself, we look at it not as a prerequisite. We look at it as a value creation opportunity for us in Spain.

Before taking our last question, I'd like to remind journalists that your Q&A session will start at 10:30 a.m. Central European Time. Now let's please take our last question, which comes from Ondrej Cabejsek from UBS.

I'm just taking advantage of the queue emptying out before the allocated time. So I have two follow-up, please, if I may. So one on the wholesale side of things. So obviously, you -- as Andrew was saying, there's a deterioration in the top line. If I just look at the revenue loss year-over-year in 1H, that was close to EUR 150 million. So I'm just wondering, given that you, Christel, mentioned that, obviously, the guidance of EUR 100 million EBITDA loss for this year is intact, can you just give us a bit more color in terms of what's going on below the top line or maybe this is just a seasonality effect? But with the clear deterioration in the top line, already EUR 150 million loss on the top line year-to-date, what makes you confident that the EUR 100 million EBITDA loss is still something that's achievable this year? That's one question, please. And then a second question, if I may also. Christel, you mentioned competition on the low end of the mobile market in France, but then how do you see the competitive situation in the convergence space where, obviously, your competitors also launched new products with more aggressive discounting towards the end of this year -- sorry, last year, of course? So how is that market evolving in your view?

Thanks, Ondrej. On the wholesale -- Q2 wholesale decline, it was expected. And again, it's in line with our CMD trajectory. So mainly related to copper evolution. In Q1, we were still benefiting from some civil work tariff increase that were implemented in March 2024. So that's probably what drives your analysis. But we are very -- overall, we are confident with this EUR 100 million EBITDA loss for this year. And again, I mean, this was the CMD minus EUR 200 million in '23, minus EUR 100 million in '24, minus EUR 100 million in '25. So those are obviously rounded number, but we're still confident with this trajectory. When it comes to the convergence space, actually, we don't see the convergent market as a competitive market. Actually, we welcome the fact that our competitors are also adopting the same strategy as we do, which is focusing on convergence to reduce churn and to reduce the competition intensity, I would say, of the market. But at least, we do not see -- we have the best churn. Again, convergence is 5 points lower churn than broadband customers. So it works extremely well, and we are focused on this. We see some tactical discounts or promotions to boost convergence. We are doing some. Our competitors are doing some. But even within the convergent portfolio, we have somehow an entry type of offers and more high-end type of offers. And so we are absolutely confident that the market is moving in the right direction from that standpoint.

That was our last question, so now I will hand the floor over to Christel Heydemann for any concluding remarks.

Thank you all for joining our H1 call. We are pleased with our solid H1 results, which once again demonstrate the soundness of our Lead the Future strategy and our drive on efficiency. We will continue to be focused on offering the best quality services to our customers, capitalizing on all our assets. For the rest of 2025, we are very confident to meet all our guidance including our upgraded EBITDAaL guidance to above 3%. Thank you all, and I wish you a great summer.