Full Year 2022 results and Capital Markets Day 2023

Adrian Dearnell:
Welcome Christel Heydemann, CEO of Orange. You just presented your fourth quarter 2022 results along with your new strategic plan, LEAD THE FUTURE. This is after just under a year at the helm of Orange. Let’s kick things off with your 2022 results, which are perfectly in line with your targets.
 
Before talking about your Capital Markets Day and the 2023–2025 Strategic Plan, could we quickly look at the highlights of the fourth quarter 2022?
 
Christel Heydemann:
Thank you Adrian.
That’s right, we delivered exactly as promised to the market.
I would like to point out three highlights from the fourth quarter, still a challenging context because of inflation.
 - First, quarterly revenue rose 1.3% on an annual basis. This sequential rise came with steady growth of Retail services, mainly due to rate increases. By contrast, Wholesale saw structural decline.
 - Second, kudos to our operational efficiency program Scale Up. With €400m of net savings from indirect costs over the year, we have saved a total of €700m since 2019. Excluding additional costs related to inflation, the Group would have achieved the net savings target of 1 billion euros since 2019 a year ahead of schedule. 
  - Third, EBITDAaL rose 8.5%. While the quarter was helped by a base effect, organic growth was nearly 3%. Finally, organic cash flow reached €3.1bn in 2022, slightly above consensus.
 
Adrian Dearnell: 
What are the factors underlying this trend of accelerating revenue growth?
 
Christel Heydemann:
Revenue grew 1.3% in the fourth quarter, compared with +1% in the third quarter.
There were two drivers last quarter. Europe 7 was boosted by higher rates implemented in 2022, and by continued turnaround in Spain, which has returned to growth since the third quarter at +2.1%. Africa & Middle East is still growing strong, at 5.7%. France has turned slightly positive while OBS, though struggling with margins, still shows revenue growth every quarter thanks to its digital solutions.
 
Adrian Dearnell:
Let’s move to EBITDAaL. Growth was impressive at over 8%. What were the highlights this quarter?
 
Christel Heydemann:
Our EBITDAaL is trending up sharply, at +8.5%. That’s +2.9% excluding the base effect from the 2021 employee shareholder plan. Rate increases also helped. These absorbed around 40%
of inflationary effects over 2022. So EBITDAal grew +2.5% last year, perfectly in line with guidance.
 
Adrian Dearnell:
Let’s move to the exceptional commercial performances in certain countries.
 
Christel Heydemann:
The commercial performance from Mobile acquisitions in France was very strong in the fourth quarter.
This ended the best year for Mobile net acquisitions since 2017. We lead the NPS by more than 10 points ahead of our nearest competitors.
 
In Europe the highlight was the performance of Retail Services. These continue to show steady sequential acceleration, with an annual rise of nearly +3%.
 
In Spain, revenue already slightly positive in the third quarter grew more than 2% in the fourth. After several quarters of negative growth since the first quarter 2019, this performance is thanks to the recovery plan implemented by local management.
In addition, growth in Africa came to nearly 6% last quarter. Of special significance is the return to growth of Orange Money. Impacted by the rise of OTTs in certain countries, Orange Money benefited from virtuous effects of the radical response we provided.
 
Adrian Dearnell:
CAPEX is still the focus of markets. What is your view?
 
Christel Heydemann:
It is still a vital topic since markets want us to lower our CAPEX as they are not convinced of our ability to create value based on the past. We have shown our ability to limit CAPEX. It declined –0.7% in 2022, in line with our guidance.
 
Adrian Dearnell:
A final word on 2022?
 
Christel Heydemann: 
It was my first year in a company I already knew very well as a member of the Board of Directors. 2022 was especially difficult because of inflation. I saw how the Group stepped up and proved its resilience. The combativeness was the result of efforts from every employee. This collective commitment has allowed us to withstand the heavy pressure that will be around for a while. However, the profound economic and structural changes have resulted in a new Strategic Plan for 2023–2025.
 
TRANSITION
 
Adrian Dearnell:
Then if you would let’s move to the presentation of your new strategic plan, LEAD THE FUTURE. The plan is dense, but very dynamic. It thoroughly reviews your ecosystem and provides intense analysis and targeted actions.
 
To start, what have you observed since your arrival, and the need for the LEAD THE FUTURE strategic plan?
 
Christel Heydemann:
My observations are the result of many months of reflection. After a systematic review of our activities, I have based the plan on one simple observation. Our sector, telecoms, has become absolutely vital.
The explosion of digital uses comes with increasingly stronger demands from our customers. The sector must meet the growing challenges of resilience, and even sovereignty.
Yet at the same time the sector is now at a crossroads. Opposing forces of greater competition and regulations result in ROCE that is still too low. Investment in telecom infrastructure is consequently under pressure.
 
Adrian Dearnell:
Given these conditions could you detail the LEAD THE FUTURE plan?
 
Christel Heydemann:
The plan is based mainly on our strengths: our fixed and mobile networks, and our customers. It will be organised around four pillars. These are based on a new enterprise model, a transverse axis.

• First pillar: MONETISE aims to strengthen the excellence of our core business. In addition to customer service, our product offers will be enhanced. We must go further in distinguishing our Group. This can be achieved through our operational excellence, network expertise and services. The goal is to capture full value.
• Second pillar: CAPITALISE aims to improve our network infrastructures through more digital and A.I. This is achieved by decommissioning in favour of very high debit fixed and mobile networks. Moreover, we aim to raise the value of all countries where we do business. We are open to tactical and strategic partnerships that create value.
• Third pillar: FOCUS and TRANSFORM , an action plan for our enterprise segment. Orange Business Services is being renamed Orange Business. This transformation plan is driven by a restructured management team. They will make choices, sometimes difficult ones, in order to return to profitable growth over the span of the plan. A rebound of EBITDAaL is targeted for 2025. Finally, we will continue to develop cybersecurity, which is already showing strong growth.
• Fourth pillar: GROW, to continue to invest in areas we have identified as the right model for value creation. This is the case in Europe and Africa, where we are reinforcing our presence in a balanced way.
• Finally, all of the preceding depends on a new business model that I can sum up in three words:

o Performance. Special attention will be given to operational efficiency, and to execution generally.
o Excellence. The skills of the men and women who make up the DNA of Orange. Networks, of course. But also, the technologies requiring automatisation, new software, data analysis and A.I.
o Confidence. Lastly, and at the heart of Orange, a CSR policy underlining our transformation. This will be the guiding light for our decisions. It will also ensure our economic, environmental, and social performance.
 
Adrian Dearnell:
Let’s return to performance and excellence. It seems this plan
shows an even greater desire than in the past for commitment to value
creation. Is that true? Could you clarify?
 
Christel Heydemann:
It is definitely the case. I stressed the notion of value creation several times during the presentation. This should guide our actions, our investment allocations, and our efforts to control costs.
Markets are very demanding about eCapex. We aim to lower ours to around 15% of revenue, from end-2023 to 2025.
Regarding cost control, during 2019–2022 our Scale Up program exceeded the initial target of €600m, reaching €700m.We have launched a new program, with a tranche of €600m to be reduced by 2025. This is based on indirect costs and some direct costs. Energy is excluded because it is too volatile. It has its own program.
Given this outlook of ongoing value creation, we must take a highly pragmatic approach to assets that produce steady income. However, we must not hesitate to stop activities or sell them when they no longer meet our required return on investment.
This search for value creation will involve operational and managerial ambition – this is not guidance – of growth of 100–150 bps in ROCE by 2025.
The goal is to be able, without weighing on the Group’s balance sheet, to begin increasing shareholder returns.
 
Adrian Dearnell:
You have just used the word guidance. For the new three-year period of 2023–2025, could you provide guidance please?
 
Christel Heydemann:
We are facing an uncertain environment. Even if the health crisis is behind us, there is a new challenge in inflation.
Facing this, we have implemented a new phase of cost control. This is part of a policy of monetizing our services. The target is slight growth of EBITDAaL over 2023–2025.
Similarly, we will continue to bring eCapex down. By 2025 we are aiming for €4bn of organic cash flow, our most fundamental aggregate.
For the balance sheet, the rule will be to stay within a ratio of around 2x debt. This way we always have easy access to capital markets.
For 2023–2025 we forecast dividend growth to €0.72 in 2023, paid out in 2024. A rise of +3%. Then €0.75 in 2024, paid out in 2025. Again, a rise of +3%. Afterwards the new floor is €0.75.
 
Adrian Dearnell:
A final word on this presentation?
 
Christel Heydemann:
The key words for this new chapter are firmness, determination, and trust. 
Sticking to our guns: The priorities are clear and virtuous, and we plan to stick to them. Firmness too for allocation of capital and capex.
Determination. For the profound transformation of Orange Business, cost control for inflation, the monetisation of our services and price strategy. And finally, our dealings with regulators. I’ll conclude with
Confidence. For the success of our plan, the significant potential of maximizing operational software, the generation of organic cash flow. Automatically this sends a message of confidence for the
dividend, which will grow regularly over the period to a new floor of €0.75 by 2025.
All of these elements are intertwined. I would like to thank our shareholders for their confidence.
 
Adrian Dearnell:
Christel Heydemann, thank you very much.
 
Christel Heydemann:
My pleasure.