EuroBusiness Media (EBM): Orange, France’s largest telecoms operator and one of the leaders in Europe, reports full-year results for 2013. Stéphane Richard hello. You are the Chairman & CEO of Orange. What are your takeaways from 2013 and what made you most proud last year?
Stéphane Richard: First of all, in 2013, we fulfilled all our commitments. We had four big commitments. The first was to deliver an operating cash flow over €7 billion, and that’s what we did. We are at €7.02 billion. The second was about the balance sheet structure. We had said to the market that we would keep the ratio between net debt and EBIDTA around 2.2 and at the end of 2013 we are at 2.2, because we have managed our balance sheet and our debt very cautiously. The third one was to pay €0.8 as a dividend per share, and I’m pleased to confirm that we will pay 80 cents per share as a dividend, meaning that we will pay 50 cents next June, based on 2013 results. And the fourth was about M&A policy. I had said that regarding M&A we would be very opportunistic and very pragmatic and that we would keep on reviewing our portfolio of assets. That’s what we did and, in fact, we mainly disposed of some non-core assets in 2013, and we will cash a little over €1 billion in 2014. This will clearly enable us to keep the balance sheet structure under tight control this year. So, as a whole, I’m quite satisfied to see that the performance that has been delivered by the group is a very solid one and I want, by the way, to thank all our teams in France and outside France that have made those results possible.
Then, you asked me about what I am the most proud of. I would say that there are probably, among this beautiful set of results, two things that I am particularly satisfied with and proud of. The first is about cost structure. In this company, as we are incumbents in a lot of different countries, it’s probably not so easy for us to really work hard on our cost basis compared with other operators that are more recent in the industry or that are not incumbents. In the beginning of 2013, we had committed to the market to reduce our cost basis by €600 million, and, in fact, the result of the whole year is a reduction of over €900 million. So I am very satisfied to see that all the efforts that we have endeavoured in the whole group have led to this result in terms of cost basis reduction, which is over €900 million. It shows that this company has a real capacity to work on its cost basis.
And, by the way, most of this result has been obtained thanks to the French operations, where probably it is the hardest to work on this cost basis. We have shown, by reducing not only the direct costs, but also the indirect costs, meaning also the headcounts and all the G&A that are probably the hardest topic to work on. We have been able to really deliver an outstanding performance and this is something that we will have, of course, to keep on working on this year in 2014.
And then, the second point that I would like to emphasise is about the commercial swing and the performance that we’ve been able to deliver on all the major markets where we operate. Let’s take a few examples. In France, we recorded in 2013 the highest number of net adds in the mobile market, a very challenging, competitive market, since 2009. We are above 700,000 net adds in the mobile market. It’s really a remarkable result and, in fact, the value market share of Orange has increased in 2013, despite this fierce competition and the price war that we know in France. I think this is clearly the proof of the efficiency of our marketing tools, but I think we will get into more details about that.
In other countries, like Poland or Spain, we have been able, once again in a very challenging environment, to deliver a very good commercial performance. We have market shares in those countries that are also increasing and, once again, I think this shows how efficient and competitive we are in terms of marketing.
EBM: You have made some stark, strategic choices. Are you seeing some of those choices bearing fruit today?
Stéphane Richard: Yes, definitely. I will probably point specifically at what we have decided in terms of networks and in terms of providing the best connectivity, as well as the highest speed in the mobile broadband domain with 4G, and also in the fixed network with fibre.
We have clearly decided to make a real priority in our investment policy and to put a lot of resources in 4G and in fibre. And if I take those two items, in 4G we are ahead of the competition in most countries where we operate. Beginning with France, we have 50% of coverage in 4G LTE with the highest speed in the market at the end of 2013, and we will be at 70% at the end of 2014. We are number 1 in Spain, and we have started the rolling out of 4G in all our European countries. And even in Africa and in the Middle East, where we are talking still more about 3G, we are currently providing 3G services in 17 of the 20 countries where we operate, and we have already started to roll out 4G in two countries in Africa. So clearly, in mobile broadband, Orange is providing the best connectivity and is ahead of the competition, and we see that the market is responding very well to this.
As an example, in France we have 1 million 4G customers at the end of 2013. I could also mention the UK, where we are above 2.5 million customers in 4G. In the fixed networks, it’s about fibre, and VDSL in some countries. In fibre, France, I think, is a very good example of how fibre can really help us to be more differentiated and competitive in the market. And, in fact, the fibre, and the ambition that we have in fibre, has clearly enabled us to have a very good level of conquest market share in 2013. Actually, more or less two thirds of the new customers to fibre are Orange customers and, once again, it is a very efficient tool for us to regain some momentum and some market share in dense areas where, in fact, we had been severely challenged by the new operators in the past and where fibre is definitely a very powerful instrument to really be back and win back customers in the market.
So, what we have made regarding the networks, spectrum, mobile, broadband and fixed networks has clearly now proven its relevance in terms of the first results that we have in 2013.
EBM: What do you see now as the levers for future growth?
Stéphane Richard: We are in the middle of a fast changing industry and, clearly, I do not expect in 2014 a calm and quiet year. I think we will still be in a very challenging environment with increasing competition, with some price pressures in all the markets, and also, with fast technological moves. If I just try to draw what seems to me as the largest, biggest trends in the industry, I would probably emphasise four things, four topics, four domains.
The first is what we could call a market overhaul. In fact, what we have seen recently is a very quick shift from a traditional market, with a large part being subsidised offers, to something which is now mainly SIM only / WEB only offers, which by the way doesn’t mean low cost offers; because, in fact, in the SIM only segment of the market you have low-end offers, but you have also high-end offers with some service and some contents. We must be ready to cope with these new trends in the market. And we must have the good offers that correspond to those new demands, meaning that we must cover the whole spectrum of SIM only and WEB only offers, starting with the low-end part – and as you know we have specific brands for that, like Sosh in France or New Mobile in Poland, for instance – but also be able to deliver some premium offers and high-end offers in the SIM only and WEB only segment.
The second big market trend that I see is about convergence. We have talked about convergence for quite a while ourselves. We have always believed that it would be something very important in the market that would drive the market and the demand. And this is what’s happening today. More and more people in Europe are attracted by convergent offers, combining mobile and fixed access and, in fact, it is a crucial driver in the market. It means that in all the countries where we are mobile only, we must have an access to the fixed network and be able to provide a convergent offer, and clearly in a few European countries it will be a challenge this year, in 2014. And I am quite satisfied to see that big players like Vodafone, for instance, have realised how important convergence is in the market and now they are looking for cable assets, for instance, everywhere in Europe. So SIM only, but it’s a rich and diversified SIM only, and convergence are to me the two big trends in the market. This is about the first overhaul.
The second overhaul is about usage habits, consumption behaviours of our customers. What we see is that we have clearly entered into the digital revolution and that we expect a real explosion in usage, in uses: multi-screen, an unlimited array of services available now in the Internet. And, of course, we have also a stronger appetite of our customers and users for high-speed, for broadband, mobile or fixed broadband. And this totally validates the strategy that we have been implementing to deploy the new networks, mobile and fixed. So the explosion in usage and the appetite of our customers for high speed is something that is very impressive, if you see the last month of 2013, and it is something that will in my view really, once again, increase and be confirmed in 2014.
The third overhaul is about the digitalisation that will accelerate in all our activity and our business. It is about, first, the user experience and the customer experience that will become more and more digital. So we have to be, once again, ready for that. We have to be probably more efficient in the online customer relationship. And also, we have to be more efficient in the cross-channel relationship because people are going more and more, and quickly and easily, from one channel to another one. So we have to be able to really take care of our customers, from a shop to a call-centre and to the web. So this digitalisation of the user experience is something very important that, in my view, will once again increase in the coming months.
But the digitalisation will also be a reality inside the company: in the way we are working, in the way we are cooperating with each other between different teams inside the company, and also, in the way in which management is made within the company. So, as you can see, the digital trend is something that will really cover both outside the company the relationship with our customers, but also inside the company.
And last, the big overhaul that I see in 2014 is about the industry itself. You know, I have been explaining for years now that, in my view, the European industry is too fragmented and, in fact, has been organised in a way in the past years by the regulation, also by the policy led by competition authorities, in the way that it targeted a unique goal which was to have the lowest possible prices for consumers. Which is nice for consumers, but clearly can’t guarantee to the industry that we will have the resources to really invest and innovate for the future networks and also R&D innovation. In my view, this has now been realised by most politicians and most decision-makers in the industry.
And it means that, I definitely think, we will enter in 2014 in a consolidation phase in the industry, in Europe. This consolidation can be within the mobile sector, meaning that we will see, in my view, a reduction in the number of mobile operators. And as you know we will have some interesting cases in the next weeks in Ireland, in Germany, maybe in Italy, in France where there are increasing rumours about a consolidation of the sector.
We will see also a consolidation between fixed and mobile players. We have mentioned the cable players looking for a mobile offer or mobile-only players looking for a fixed – meaning cable in most countries – offer. So I think that in Europe we will see more and more fixed-to-mobile operations consolidation in the next months. So, this is the fourth big overhaul that I see in the industry. We should have a lively year in terms of M&A in the sector.
EBM: Coming now to your guidance, you recently changed your guidance. Talking now only of EBITDA guidance, could you tell us why and what is your outlook?
SR: It is true that we have mainly spoken mainly about EBITDA stabilisation in 2014, because it is the simplest and the most relevant target for the management to really monitor our business according to the EBITDA generation. That is why we have decided, I would say logically, naturally, to provide to the market a guidance which is based on EBITDA generation. Because EBITDA is the source of everything: EBITDA is the source of cash; EBITDA is the means for us to also manage balance-sheets; and it is the best parameter to really assess performance, commercial and financial performance of the company. So that is the reason why we have – I would say, once again, very logically – decided to provide guidance which is based on EBITDA generation.
As far as 2014 is concerned, I just confirm that the management is totally focused on stabilising the EBITDA in 2014, meaning that we will at least stabilise the EBITDA margin. But we still have revenues under pressure, so to be able to stabilise EBITDA margin, we will have to work hard on the cost-basis once again. We will provide a guidance in terms of EBITDA which will be a range from €12.1 to €12.6 billion. €12.6 billion is what we have delivered in 2013. So it means that the lowest points of the range will mean stabilising the EBITDA margin and the highest point of the range will mean stabilising EBITDA in absolute terms. So it’s an ambitious target but, once again, the management is 100% focused on this.
But beyond EBITDA, which will be the heart of our guidance, we will still guide our choices and decisions according to the balance sheet structure. We want to keep a very solid balance sheet too for this company. So the net debt to EBITDA ratio will have to be back to 2, or close to 2. We are today at 2.2. I just want to remind that we had tax litigation, which was very substantial in 2013, €2 billion, so we will have to absorb this in the coming months.
Regarding the EBITDA generation, we know that our revenues will still be under high pressure because we are in very competitive markets in Europe. So the best way for us to really secure the EBITDA target is to work on the cost basis. And that’s what we are going to do. After the very outstanding performance in 2013, we will continue to work hard on the cost basis. This is really a matter of collective commitment of the company, and it is also based on the capacity of all our employees to understand why we have to do this and to provide them with a level of satisfaction towards the company that can also secure their personal commitment to this objective. So in 2014, clearly, we will work hard on the cost basis because it is for us the best way to secure the EBITDA target.
Regarding the balance sheet, the other important point is about M&A. We will remain very cautious and very pragmatic and opportunistic regarding M&A. As I mentioned, we will have some cash proceeds in 2014 from the operations that we have realised last year. I mentioned some in-market consolidation prospects. Clearly, in some European countries, we will try to play the game in order to secure once again the convergence in those markets but remaining very, very cautious in terms of M&A.
EBM: And finally, what will be your dividend policy?
SR: When you take into account the uncertainties that we have in this industry, the ongoing price war that we have in several big European countries, starting with France, when you take into account the absolute priority for us to secure the balance sheet, to manage properly the debt and to keep this ratio between net debt and EBITDA around 2, clearly the balance that we must try to target in terms of dividends is something that will still provide a very attractive yield to our share-holders, but at the same time will take into account all those uncertainties and give us the necessary flexibility to manage the opportunities and, also, to manage the balance-sheet.
That is why I asked the board to pay a dividend of 60 cents per share in 2014, of which we will pay a first amount of 20 cents at the end of this year. It will provide a very attractive yield to our share-holders, but at the same time it will secure the necessary flexibility in this uncertain period where, once again, the pressures on prices and on revenues will remain strong.
EBM: Stéphane Richard, Chairman & CEO of Orange, thank you very much.
SR: Thank you.
