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

Good morning, ladies and gentlemen, and welcome to Orange's Q3 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. Thank you, and let me hand over the floor to Christel Heydemann.

Good morning, and thank you for joining our Q3 results presentation. Before getting into our Q3 results, I would like to mention that last week, we submitted together with Bouygues Telecom and Free-Group Iliad, a joint nonbinding offer to acquire a large part of Altice activities in France. In a challenging competitive environment, this deal would allow us to strengthen investments in France while maintaining a competitive ecosystem for the benefit of consumers. This nonbinding offer amounts to EUR 17 billion, of which 27% for Orange. There is no certainty that we will reach an agreement, and we are willing to engage in a constructive dialogue with the Altice Group. Back to our Q3 results. We remain fully focused on our business execution, and we are really pleased to report strong results driven by a robust commercial performance in France, Europe and the Middle East and Africa region. In France, in particular, we are proud to reaffirm our leadership in fiber with over 10 million customers and plus 1.1 million new customers in the last 12 months. We have become the first operator in Europe to surpass this milestone in the domestic market, marking a major achievement in our state-of-the-art network commercialization. In Spain, MASORANGE has announced an agreement with Vodafone Spain and GIC to create the largest fiber company named PremiumFiber. With 12 million premises and 5 million customers, this FiberCo will provide considerable benefits for the Spanish market. Our continued focus on cost efficiency is reflected in the EBITDAaL growth of 3.7% this quarter, along with a 0.7 point improvement in margin rate. These robust results enable us to once again upgrade our full year guidance with a full year EBITDAaL now expected to grow by at least 3.5%. Let's review our strong Q3 results on Slide 5. Revenues increased by 0.8% in the third quarter, driven by robust retail performance of 2.6%, which offsets the expected decline in wholesale. From a segment perspective, revenue growth is led by Middle East and Africa, achieving double-digit growth for the 10th consecutive quarter and Europe back to growth, thanks to retail services and IT&IS. In France, retail, excluding PSTN, grew 0.2% as expected and was offset by the anticipated decline in wholesale and equipment sales. EBITDAaL reached EUR 3.4 billion, growing by 3.7%, giving us confidence to upgrade our full year guidance to at least 3.5%. This growth is driven by our solid performance as well as our continuous efficiency initiatives fueled by advancements in procurement, AI and operational efficiency ambitions. In line with our eCapEx discipline, we maintained a CapEx to sales ratio of approximately 15%. I will now hand over to Laurent for the business review, starting with France on Slide 7.

Thank you, Christel. Good morning, everyone. In France, in a market which is overall flattish in value, the competitive environment remained generally stable with sustained competition on the low end. In this context, we continue to uphold our efficient commercial strategy grounded in extensive and innovative segmentation, strong customer loyalty and value. This strategy led to a robust commercial performance with 138,000 mobile net adds, best quarter since the fourth quarter 2022, 274,000 on fiber and 20,000 on convergence. This performance is driven by increased momentum on Orange brand and effective churn management with mobile churn improving by more than 2 points year-on-year. Convergence ARPU continued to grow, increasing by 1.1% year-on-year in the third quarter, while mobile and fixed broadband ARPU slightly declined year-on-year, reflecting the mix effect related to the competitive landscape over the past year. Fixed broadband ARPU slightly improved on a quarter-to-quarter basis. Moving to the financials. For France, our disciplined and efficient commercial strategy led to a 0.2% growth in retail ex PSTN revenues as expected. Revenue continues to be impacted by the structural anticipated decline in wholesale. Globally, we remain committed to cost optimization and confirm our objective of growing EBITDAaL in France in 2025 slightly more than in 2024. Let's turn to Middle East and Africa, which continues to deliver a very strong performance, demonstrating once again our positive momentum. Revenues are up double digit for the 10th consecutive quarter, driven by our 4 key drivers. Looking forward on the back of this performance, we are fully confident in our ability to achieve double-digit EBITDAaL growth in 2025. Let's turn to Europe. Revenues are back to growth in Europe this quarter at 4.7%, driven by services growing at 1.4%, thanks to a balanced volume value strategy and an exceptional IT&IS quarters, notably in Poland. Net adds remains very robust in both mobile and fixed broadband with mobile customer base reaching 22 million. Convergence revenue showed once again a strong performance, increasing by close to 6%. Looking ahead, we do confirm as well our 2025 outlook with a low single-digit EBITDAaL growth. Moving to Orange business. Revenues are impacted by last year's portfolio pruning by the difficult IT market and by the French macro environment. In that context, Orange Cyber Defense growth remains solid at over 6% in the first 9 months. In parallel, we are accelerating our transformation initiatives, focusing on growth areas such as sovereignty, security, while stepping up our effort to optimize our cost base. Nevertheless, considering the complex condition of the global IT market and the French market macro environment, the ambition to have EBITDA decrease in '25 versus '24 is difficult. Let's complete with MASORANGE, our joint ventures, which continues to create value with a strong focus on delivering synergies, which are close to our EUR 300 million target by year-end. In this competitive market, we achieved strong net adds in the mobile segment and maintained stable volumes in fixed. Revenues are up 1.7% this quarter. Services revenues benefiting from strong growth in both B2B and our new business initiatives, which offset the negative mix effect in a challenging telco market. We have been as well able to close strategic alliance with Tier 1 partners in energy, insurance and alliance. The positive momentum on equipment sales also fueled growth in third quarter and is helping to extend the lifetime value of our customers. Lastly, we do confirm our outlook for 2025 for MASORANGE. Back to you, Christel, for the conclusion.

Thank you, Laurent. I would like to conclude this presentation by confirming that our robust Q3 and 9 months results make us very confident in reaching our objectives. In addition, reflecting our continued focus on efficiency and operational excellence, we are upgrading our EBITDAaL guidance to at least 3.5% after a previous upgrade in H1. Thank you for your attention. The floor is now open for questions.

[Operator Instructions] As a reminder, journalists will have a separate Q&A in French at 10:30 a.m. Journalists, please stay connected after the presentation ends. Today, our first question comes from Akhil Dattani from JPMorgan.

I've got 2, please, if I can. The first is on French consolidation. Christel, you mentioned the nonbinding offer that you as a consortium have now submitted to SFR. I guess the details are limited, but the one thing that stood out was that the percent of the total transaction price that Orange will pay is 27%, which seemed higher than people might have assumed given expectations that there is relatively small portions of SFR that you'd likely buy. So could you just start by helping us maybe understand at a high level how that price was determined? And maybe any color you can give us on how we should understand what bits of SFR you could buy. And you mentioned within that in your commentary that you are willing to engage with [indiscernible] and the creditors. I just wondered if any sort of engagement has now kicked off so far. So that's the first question. And then the second one, I guess, sticking with the event-driven aspect of these things is MASORANGE. In the last few weeks, there's been a lot of speculation around your engagement with your private equity partners around a potential buyout of the 50% of the asset you don't own. Any sort of update on what is actually going on and what you can share? And I guess, more broadly, is there any sort of time line we should think about by which when you would need to make this call and then alternatively move to an IPO process? So is there any sort of time frame we can understand?

Thanks, Akhil. So on the French consolidation and the nonbinding offer, I won't provide you more details on the split than what has been already communicated. But as we've said, the B2B business would mainly be towards Bouygues Telecom and Iliad. So we are looking at B2C spectrum and assets. And of course, we've done the estimates based on the level of synergies we would generate and based on the -- on what we could purchase. So it's really a value-driven -- it's a value-driven split. And of course, it's too early to provide you more comment given it's still a nonbinding offer, and we are still -- of course, we haven't reached an agreement with the seller, as you know. On the -- I mean, engagement so far, I mean, I won't comment. As you know, we made public the fact that we have submitted a nonbinding offer given the importance of this transaction for the French market. And for us, Orange a listed company and of course, for Bouygues as well. Our main priority, of course, we know we would like to move as fast as possible in a process that could be long. But of course, it's for the seller to decide. They have different options. We don't expect to make public every single discussion we would have if we want to move fast. But of course, we know there's a lot of media attention. On MASORANGE, similar, there's a lot of speculation in the press. As you know, we are preparing our strategic plan for Orange. And as part of this discussion with our, I mean, 50% shareholder in MASORANGE, we are planning and we are working on the strat plan, the financial plan for MASORANGE. And as part of the discussion, of course, we are fully in line with what's provided for in the shareholder agreement. And you know there's a lock-in period before an IPO can be triggered in April '26. But we are also investigating all of the options. As we said, they always remain open. So there's no specific time line and there's, for sure, no rush for us to reach an agreement. But clearly, the discussions we have on the financial forecast for the company and the ambitions we both have for the company is probably what's generating a lot of media and speculation, I would say.

If I may just add on the French side that, of course, the price that we would put is consistent with the asset and the value we would purchase, obviously.

Our next question is from Andrew Lee from Goldman Sachs.

I had 2 questions. One was just to see if we push a little further on, as you put it, the event-driven opportunities for Orange. I know there's not much you can say on French consolidation. But can you just talk -- you said obviously, you want to accelerate or you want to move fast on French consolidation. Could you talk about your confidence in the approval process around consolidation more broadly in France in terms of both the EU competition authority approval and French authority approval and what's giving you the confidence to launch this bid? And then if there are any timing implications around moving fast there? As a follow-up to that, just on the MASORANGE side of things, is the speculation around Spanish consolidation complicating the time line to kind of you reaching a conclusion on what you plan to do with that asset? And then just a separate operational question. In France, it looks a little bit like the competitive intensity at low-end, mobile has still a bit into low-end fixed. Is that true? And if you could just articulate what's going on there, that would be helpful.

Thanks, Andrew. On the French consolidation, first of all, as you know, there's a process where Altice France is -- has been restructured and the owner actually wants to sell. So that's the driver of all those discussions, number one. And of course, in that environment, we do believe that a French group of company providing synergies is the best solution to create maximum value. Now when it comes to the regulatory process, the political environment, it's really too early, and we know that authorities will have to review that in detail. But in any case, if you look at the option, which is a piecemeal deal on one side or a solution amongst other telcos, we do believe that not only our proposal is the best one to protect the intensity of competition, but also to protect the ability of the industry to invest, and we know our networks require investment for security, for AI and for resilience. So I mean, there's no -- we know the antitrust authorities are what they are. We know what happened in the U.K. with the CMA approval. We don't have any signal from antitrust authorities that they would approve such a transaction. We know based on our experience with both Belgium and Spain that they would review carefully. It could be EU or French processes. Actually, given we have 3 companies bidding for part -- the main part of Altice France, it would probably be 3 antitrust processes. And so depending on any of us -- the 3, it can be France or Brussels. Then of course, antitrust authorities can decide to take the whole approach. But there's no doubt that both authorities would work together, I would say, on the assessment. The main rationale for us on why this deal makes sense. First of all, it's something we've been pushing, and we are absolutely convinced that Europe needs consolidation -- national consolidation, but it's really when you look at the intensity of the competition on our mobile markets, I mean, the ability to create synergy and efficiency for us on mobile is also the ability to sustainably compete and offer low prices to consumers. So that's really the driver, and that's going to be the core of our explanation, I would say, with antitrust authorities. Not to forget that this is a French group of companies in an environment where we are talking about highly critical assets. But again, there's no certainty that this deal would be approved until it is. On MASORANGE, no, all the rumors and speculation on Mass Orange or all the speculation on what could happen in the Spanish market have no impact. I mean we looked at the valuation of MASORANGE in a stand-alone, I would say, view. And of course, we work actively to improve, I would say, our position in the Spanish market. That's the reason why we signed and we launched the premium fiber because we know there's a lot of players. I do believe that consolidation in Spain will probably come first from smaller players, and we know some of them. Some of them are actually partners of us. But clearly, the market in Spain remains super competitive and will remain super competitive for quite some time. The comment I was making on antitrust authorities for France would be exactly the same for Spain, and we would not expect anything to happen soon or to be [Audio Gap] to reach closing for MASORANGE. So we don't take that into account, of course, for us. When it comes to the competitive intensity in France, the low-end market remains very competitive, but it's true that in Q3, we've seen a number of entry price points increasing, and we are more around the EUR 10 for mobile and -- I mean, there's still RED, which is the SFRB brand cheaper than that. But we've seen a EUR 1, EUR 2, EUR 3 difference compared to what we had seen, especially in end of Q1 and Q2. And on broadband, there's also promotions and for the low-end broadband, but the market remains stable compared to what it was before. And last but not least, of course, you know how important our convergence strategy is, and that's really for us the fuel and the growth engine in our retail market in France.

Next up, we'll hear from Josh Mills, BNP Paribas.

Two questions from my side, please. The first was just around Orange's group leverage. Would you be able to give us a bit of color about how you expect the SFR deal if it goes through to impact your leverage profile? And following on from that, does the leverage post the SFR deal still leave you with enough headroom to pursue other transactions such as buying in MASORANGE as an example? And somewhat related to that, given that the French consolidation deal, if approved, won't complete until the second half of 2027, how should we think about how this impacts your shareholder returns policy to be outlined at the Capital Markets Day in February? And then the second question for me is just going back to the operational performance in France. I think last quarter, you gave a bit more color on your expectations, how French service revenues ex PSTN should develop. Obviously, it slowed down 20 bps versus last quarter. How should we think about this going into year-end? Is there the chance that this is going to turn negative? Or do you still have the ambition of maintaining flat to slightly positive retail revenues ex PSTN in Q4?

Thank you, Josh. I'll start by your second question, and then Laurent can comment on your first one. Operational performance for Q4, we expect the same trend as Q3, which is a flat to small positive growth, excluding PSTN for retail services. So really same trend as Q3. And on the group leverage, Laurent can comment, but I think we've said before, it's very important for us. I mean, we want -- we know shareholder return is important, and we have a leverage that allows us to be flexible. And of course, remaining investment grade is important, but we think we have a solid balance sheet, and we have the opportunity to carry several transactions.

Josh, so indeed, as you know, we have a very strong balance sheet. Of course, the potential acquisition of SFR will have some impact on the leverage, but it will create as well a lot of value, as we said, which means that this leverage will basically be smoothen on a relative short period of time. Overall, we are confident that we can run both MASORANGE potential acquisition and our fair share of SFR purchase without, I would say, impacting the shareholder return, which remains for us a top priority.

Maybe just one other follow-up, if I may. If we were to see the bid price for SFR change or increase over the coming months, is the agreement for the asset split between Iliad, Bouygues and yourselves and the percentages given set in [ stone? ] Or would there be the potential for certain operators to change the amount which they're buying and the assets which they are acquiring as part of the deal? How much flexibility is there on the 27% split you have today?

Thanks, Josh. I mean you can be assured that the 3 of us have a very constructive dialogue, and that's what we want to have with the seller. Now obviously, I don't want to give you information that would jeopardize our ability to have the best negotiation in a transaction that's obviously very complex. As we said, we are value-driven in our approach. Each company, let's not forget that we have a very strict antitrust process and that this bid has been prepared, of course, with all the scrutiny and to be compliant with the competition rules. So all of us -- we have our own models of valuation, but we also -- we have such an experience, and we know, of course, very well the French market. So that's something we would be able to discuss the 3 of us with the seller. But again, value-driven approach, which doesn't mean we're thinking of a mechanical negotiation for such a transaction with such impact on every 3 player.

Our next question today comes from Roshan Ranjit from Deutsche Bank.

I've got 2 questions, please. First question, just, I guess, in the context of any potential antitrust filings that we do get, can you remind us what percentage of your B2B revenues and total revenues you derive from France, please? And the second question on the operational side. Now this was the second quarter where you have upgraded your EBITDAaL guidance, yet we haven't seen anything change on the organic cash flow level. I appreciate it is a greater than metric. But are there any other moving parts at the organic cash flow level? I know last year, you absorbed a higher cash tax, yet still saw an upgrade, but any details you could give there would be very helpful.

Thanks, Rohan. As you know, we do not publish the split of our B2B between -- in France. But clearly, we have taken into account in our negotiation with Iliad Free and Bouygues Telecom, the fact that when we have high market share, I mean, you can count on our competitors to try to get assets that would help them grow and increase market share. So that's why B2B transaction -- the B2B part of Altice France would go to Bouygues Telecom and to some extent, Iliad Free, not to us. But we don't publish the split on B2B in France. On the organic cash flow guidance, Laurent?

Yes. Rohan, so our guidance on cash remains valid, above EUR 3.6 billion. So it's above EUR 3.6 billion of OCF. So that remains valid. I just take the opportunities to state that within our 3.8% of EBITDAaL growth in France, we have 0.9 points coming from the bank, which are not part of our OCF, as you know.

Our next question comes from Matthew Robilliard from Barclays.

Hopefully, you can hear me.

Yes, we can.

So I had 2 questions. The first one was around OBS. So you mentioned that the environment was tough and you've slightly or you will maybe change the guidance, at least what you deliver. And the question was a bit broader. I mean, clearly, it is natural to see you lose a bit of market share on communication. I also understand that on IT, it's a competitive market. But at the same time, we see a lot of growth for some services like cybersecurity, data centers, cloud and obviously, talks of the increased need for sovereignty in Europe should be a positive for you. So maybe you could lay out a little bit where you see growth coming from at some point in the next future. And also, if you could give a bit of clarity in terms of your data center exposure, maybe if you could give us a sense of what is the capacity you have in France and in Europe? And how you expect that to grow? And then the second question, I was going to ask again about the potential SFR transaction. And just a point of clarification because in the press release, you indicate that not all of the assets of Altice SFR are concerned by the bid. I also note that in the French press, there was some reference that the offer that you were making for the assets represented an EBITDA multiple of around [ EUR 6.6 billion, ] which kind of suggests, if I'm getting my math right, that the value of the EBITDA that you are bidding for is around EUR 2.6 billion. so quite lower than what the trajectory of Altice's EBITDA suggests for the full year based on the H1. So I don't know if you can give a bit of detail as to what you're buying. I understand, obviously, there's no the French overseas. There's some service businesses of Altice that are not included. But if you could give a sense of what is the EBITDA as a whole you would be buying, that would be very helpful.

Thank you, Matthew. On the -- on Orange business, clearly, there's, of course, the structural transition from legacy connectivity to next-generation connectivity, and that's changing the nature of the services we provide, moving from a traditional telco to a more integration type of services. And we are investing in our evolution platform, so in really having a platforming approach for those services. Of course, cybersecurity is clearly -- and by the way, next-generation connectivity is not a market that's declining. But of course, compared to the value of legacy, it's -- there's a value difference. But clearly, the next-generation connectivity is not a decreasing market. Cybersecurity, clearly, it's -- we've been investing for years, and we continue to do so. On cloud and data center -- on cloud to start with, we are transitioning from some -- so part of our solution has been in the pruning of our -- of the portfolio. And so we have some transition effect, but that's clearly an area where we are investing on sovereign cloud, private sovereign cloud, public sovereign cloud with Bleu together with Capgemini. When it comes to data center capacity, we don't provide details, but of course, we have capacity in all the countries where we operate, and we are investigating plans to accelerate in that field. Of course, we are not a pure player in data centers. So we have -- we are still thinking what should be our strategy. So not ready to provide you more details on this. On SFR, clearly, the list of assets is what has been published. So it's very clear. It's everything in Altice France, but the overseas business, XpFibre, Intelcia, Ultra Edge and ATS. They are field services unit. So that's everything else. When it comes to EBITDA, bear in mind that for us, the valuation is both, of course, multiple of EBITDA, which so far was based on the data we have, which is end of '24 as well as our own assessment of synergies and every of the 3 bidder has done its own assessed synergy plan. So we've done our math. And clearly, the value comes from the synergies as well. So it's not an easy straightforward EBITDA calculation.

Our next question today comes from Nick Lyall, Berenberg Bank.

Can you hear me?

Yes.

Great. If could I ask a couple on consolidation as well, please? On the argument, Christel, you mentioned the pro-consolidation argument, it seems you're going to use is to protect competition. So could you just explain to us why you think cutting out a disruptive operator protects competition here? Are you arguing that Altice France wasn't sustainable? Maybe you could help us with that. And then secondly, it's going to be up to the 3 of you to put together remedies. So on the structural side, do you think there are any acceptable remedy takers left? Or do you believe the remedies -- are you thinking this is going to be behavioral now post the CMA decision, for example? So could you help us a little bit with what sort of remedies might we have to think about?

Thank you, Nicholas. I don't -- I won't say anything that would prevent our ability to run a smooth and open dialogue with antitrust authorities. But clearly, what we see and think of mobile consolidation, and we know that from our MASORANGE experience, where 18 months after closing, we are driving synergies that allow us to continue to compete on the low end as well as to compete on our A brand on the premium market. And we are driving synergies and the market and the price point for consumers has not changed on the contrary. And so in France, I think what we know is that -- we know exactly the amount of synergies that can be driven by bringing more mobile customers or broadband customers on our infrastructure. And that's driving efficiency that in return allow us to continue to compete and to offer attractive price point for consumers while continuing to invest. Otherwise, you have to cut investments if you want to just continue to play in a super competitive market. And remember that we would then end up with 3 players in the market, 2 of them being stronger. Of course, our objective is to be the leader in France. But 2 other competitors post consolidation, if that goes through, would have more ability to invest and would have more ability to compete head-to-head with us. So that's why we do believe that competition authorities should really look at it similar to what the CMA has done in the U.K.

Our next question comes from Stéphane Beyazian from ODDO.

Two questions, yes, if I can. The first one is, can you update us a little bit on the cost savings? And I'm partially thinking of the early retirement plan where you are in this regard and perhaps also the network step down. I think you were planning to launch a tender for the copper and have different contractors. And so I was just wondering where you stand on that as you continue to make progress in your cost cutting plan? And the second question coming back to the offer. I was just trying to clarify one thing. So if you're contributing 27% to the bid, would it be fair to say that your share of the EBITDA of SFR is probably a little bit lower than that because you may be taking a bit more spectrum than some other buyers in the consortium? Would that be fair?

Thank you, Stephane. I'll start with your second question. I won't provide you more details. So unfortunately, we don't want to speculate on what could be. And remember, this is only a nonbinding offer at this stage, and we haven't agreed with the sellers. So I think it's really premature to provide you more details on that. But the split of assets is exactly the one that has been shared in the press release. On cost savings, the early retirement plan is now open. It's been open for several months, and it's the -- I mean, the employees who are, I mean, deciding on a voluntary basis to accept it -- I mean, many have volunteered already. So it's really executing as per plan. And I don't know if, Laurent, you want to comment on the various cost savings, procurement and the copper RFP as well.