Interview with Chairman & CEO Stéphane Richard - 2015 Results en

EuroBusiness Media (EBM): Orange has just come out with its results for fiscal year 2015. We’re happy to welcome Stéphane Richard, Orange’s CEO. Would you say that the 2015 results you announced today mark a turning point?

Stéphane Richard: Yes, it is safe to say that 2015 was a landmark year. We saw a real turnaround. If there is one thing to remember about the 2015 results, it is growth – the return to growth. And we have been waiting six years for it. The return to growth is visible in our revenue, first and foremost. We are now back above the €40 billion bar, with two consecutive quarters of growth. EBITDA grew as well, at €12.4 billion, up slightly from 2014. And we surpassed our target, whether you compare on a like-for-like basis or factor in the acquisitions and other transactions we consolidated last year: Jazztel and Morocco. Also worth pointing out is our aggressive sales strategy, which helped drive these results. Let me give you just a few examples. First, there’s fiber. We increased the number of fiber customers threefold to nearly two million at end-2015. We doubled the number of 4G customers. These are the kinds of things that made 2015 such a strong year for us.

EBM: Can you break it down a little more for us? Where exactly did growth occur?

Stéphane Richard: Let’s start with France, which is the company’s largest country. 2015 was a fantastic year in France. EBITDA was up on our business in France. And we rolled out an aggressive sales strategy for our mobile business, tallying the kind of customer acquisition numbers we hadn’t seen in several years. Customer acquisition was driven by 4G and continued 4G rollout – with more than 80% 4G LTE coverage in France now – and fiber. We now have a decisive lead in the race to win fixed very-high-broadband business. This is now the biggest segment of the fixed market in France. Our investments in this market have given us a very, very large competitive advantage. I could also mention spectrum allocation. There was a major allocation on the 700 MHz band in France and Orange was able to secure the spectrum we wanted, further anchoring our lead on this market.

That was France. Now let’s look at Spain. For Spain, 2015 was marked by the integration of Jazztel. And that integration was a success. We are already leveraging synergies, with more to come in the next few months, that will be much greater than what we previously announced to the markets. Another early, and very positive, sign was, once again, the return to growth, reflected in our EBITDA, toward the end of 2015.

And then there’s Belgium, where Mobistar recorded a great FY 2015. Once again, growth was driven by capex to expand our 4G network, with 99% 4G network coverage in Belgium. Going forward, our strategy will be convergence via regulated cable access.
I would also like to mention Africa. Overall, we saw growth in excess of 5% in Africa. This growth made a valuable contribution to our companywide results. And profitability in Africa is three points higher on average than our companywide average.

In Poland we made good headway in the mobile market. I would even say we turned a corner. One challenge that remains, however, is fixed broadband. Our response is to target our capex to that market with an ambitious, three-year fiber optic rollout plan.

I’ll end with Orange Business Services, which, after a few tough years – under extreme pressure – with stiff competition and shifting business models, had a good year in 2015. Revenue was practically stable and financial performance improved.

EBM: Overall, it looks like, in line with your 2020 strategy, one of the keys has been capex. How substantial were your capital expenditures?

Stéphane Richard: Yes, capex was substantial. It really is the key to our strategy. Orange’s differentiator has to be the quality of the customer experience. This means investing more. Companywide, capex was up by more than 9%. Around two-thirds of our capex was to build network infrastructure. As you know, I announced that we would invest €15 billion in networks by 2018. We are on target with those plans.

The increase in capex is crucial to understanding where our sales performance is coming from. It is the quality of our networks – pretty much across the board – that differentiates us from our competitors. For the fixed market, this has meant speeding up our fiber rollout. We are now at more than five million fiber-connectable homes in France. And we just passed the one million fiber customer mark. We are now getting close to that figure in Spain, following the Jazztel acquisition. So, we have two countries where fiber is being rolled out at full speed. Right now, Orange is actually rolling out more fiber than any other operator in Europe.

And then there’s 4G. As you know, for our mobile business, what really helped us turn things around and stabilize our ARPU (Average Revenue Per User) was 4G. And 4G is another business where we are in the lead in practically every country where we operate. This is true for coverage and rollout speed. Overall last year, our 4G customers doubled in number over the previous year.

So, yes, 2015 was marked by substantial capex, with a capex-to-sales ratio of 16% – actually a bit more than 16% – we are at a record high. And we will pursue this strategy for the next two years at least. This is how we plan to secure the market-leading position we are in today.

EBM: When we look at where your EBITDA is this year, it looks like cost reductions are not the only thing driving it. What were the other contributing factors?

Stéphane Richard: You make an important point. Over the past two to three years market competition has been fierce. And that hasn’t gone away. And of course, downward pressure on prices has an impact on revenue. So, the top priority of the company and its management has been to reduce spending. We set up a cost-cutting plan, Chrysalide, to save €3 billion, which we exceeded. What was noteworthy – and very positive – in 2015 was the positive jaw effect derived from two concurring trends. First, our cost-cutting plan, which will continue with the Explore 2020 plan to achieve even greater performance and cost savings. So, we continue to keep a close eye on spending. Second is our revenue growth, made possible by our investments. Combined, our efforts in these two areas are now making sustainable EBITDA growth a distinct possibility.

EBM: What major operational projects are you focusing on now?

Stéphane Richard: Quite a few, naturally. The first one I would like to mention is the banking launch. Our banking services. As you know, our strategy plan includes developing a new mobile-only, all-digital banking service. The project has shifted into high gear: we have entered exclusive negotiations with Groupama in France to acquire the banking platform we need. Groupama Banque will position us to release our new banking service in early 2017. So we are gearing up to launch our banking services. That’s one major project.

I would also like to mention our continued investment, particularly in improving our network coverage everywhere, but especially in France. We recently announced that the entire high-speed train route between Paris and Lyon is now covered by our 3G and 4G networks. This is transforming the passenger experience. We are doing the same thing on the highways. And on indoor coverage. And, of course, we are pursuing our fiber rollout plan, which we will continue to ramp up in 2016.

EBM: While we are on the topic of 2016, what’s your guidance for this year?

Stéphane Richard: For 2016 our first guidance is straightforward: higher EBITDA than in 2015. The year 2015 marked a turnaround, one year ahead of target. We have to consolidate the return to growth in 2016. So the first objective is straightforward: higher EBITDA than in 2015.

Our second major guidance concerns our balance sheet. I haven’t yet mentioned this, but we performed as well as we did in 2015 despite maintaining a strong balance sheet. We even kept our EBITDA-to-debt ratio at around 2, which was our medium-term objective. So, these two objectives are very important.

A third objective is our asset management strategy. 2015 was a very active year from this standpoint. We made several acquisitions that support our strategy. First, convergence, with Jazztel in Spain. And, second, growth, with four new countries in Africa. We made a careful selection among the many other opportunities that presented themselves.

Also in 2015, we withdrew from countries that no longer aligned with our strategy. These included two countries in Africa, one of which was Kenya, a major country. And EE, a mobile-only operator in the UK we felt we needed to get out of; we were able to move out of that position at very favorable terms. Our highly selective and proactive asset management strategy will continue in 2016 for all markets in which we operate.

EBM: So, when do you plan to increase your dividend payouts?

Stéphane Richard: The dividend is important news. We will keep it where it is currently – and I feel it offers an attractive yield at €0.60 per share. This is, of course, confirmed for FY 2015, and also for 2016.

Our EBITDA is back on the track to growth. However, I do not yet feel that growth is strong enough. So, we will try to speed that growth. Plus, our return to growth is recent. We have just two quarters behind us. Therefore, I feel that it is reasonable – and healthy – especially given the substantial capex I mentioned, to consolidate our return to growth and profitability. Once we have a few quarters of EBITDA growth behind us and, probably, a few percentage points additional EBITDA growth, we will consider, as I have previously stated, making our dividend payout more attractive.

EBM: One last question – and I am sure you were expecting this one – about market consolidation. What does the industry look like right now?

Stéphane Richard: France is where things are happening right now. Paradoxically, out of France’s four operators we are probably the one that needs consolidation the least. At the same time, we are the only operator that can enable consolidation to happen. This is due to the nature of these companies, of their shareholders, and to Orange’s position within the system. Which means that our current position is strong. We are a key player in market consolidation and, at the same time, we are in a position to set some clear, firm ground rules. The first ground rule is that consolidation must create significant value for Orange shareholders. So, within this framework, we now have an equation to solve. And that equation is complex. Because consolidation is not just two companies sitting down at the table to talk. It necessarily involves all four players. And that makes things complicated.

And, of course, we also have to arrive at a situation that will be acceptable to the antitrust authority, whose approval is required. The work is complex and very intense right now. And I have already said that the process, although complex, should not and cannot drag on for months. So, we are talking about a few weeks, here. We have been in talks with the different stakeholders in the consolidation process for about a month. My objective is still to wrap things up – if, once again, we feel it is in line with the ground rules we have set – within the next few weeks. I can’t give you an exact deadline. What I can say is that my objective remains the same. The talks are going well. I remain reasonably optimistic as to the outcome. Of course, I still have to be cautious, because, once again, the market is complex and the ground rules we have set for consolidation are non-negotiable.

EBM: Stéphane Richard, CEO of Orange, thank you.

Stéphane Richard: Thank you.

Paris, February 16, 2016 — Orange, France’s largest telecoms operator and one of the leaders in Europe, reports annual results for 2015. Stéphane Richard, Chairman and CEO of Orange, comments on the group’s results and outlook.
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