Orange S.A. (ORAN) Q1 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong growth in the Middle East and Africa, particularly in Egypt, despite currency devaluation. The company is strategically investing in Spain with a focus on 5G and premium markets. While there are challenges in France and Europe, the overall sentiment is positive due to growth in key regions, strategic investments, and a disciplined approach to pricing. The Q&A section highlights management's proactive strategies in challenging markets, offsetting negative impacts, and potential revenue growth from new agreements, contributing to a positive outlook.
Key Financial Performance
Revenues €9.9 billion, up by 2.1% year-on-year, driven by solid retail services growth of more than 3%.
EBITDAaL €2.4 billion, up by 2.3% year-on-year, fueled by retail services performance.
CapEx 14% of sales, consistent with around 15% full year ambition.
Retail services growth in France Up 3% year-on-year, driven by value strategy with ARPO up year-on-year.
Wholesale revenues in France Fell by less than previous quarters, benefiting from the unbundling tariff increase.
Middle East and Africa revenue growth Up over 11% year-on-year, driven by mobile revenue growth and an increase in mobile ARPO by 5.4%.
IT&IS revenue growth in Orange Business Up 7.5% year-on-year, driven by double-digit growth in Orange Cyberdefense and solid performance in digital services.
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Operating Highlights
New Brand Signature: Launch of the new brand signature 'Orange is here' in a dozen countries, positively received for its innovative approach.
GenAI Offers: Launch of new offers on GenAI for B2B customers in France.
Partnership with Google Cloud: Expanded partnership with Google Cloud to leverage AI and GenAI across work streams.
MASMOVIL Transaction: Completion of the transaction with MASMOVIL to form a leading operator in Spain, creating a market share of over 40%.
Spain Market Positioning: Spain is now fully deconsolidated from group KPIs, with a focus on cash generation and synergies.
MEA Growth: Middle East and Africa segment showed double-digit growth for the fourth consecutive quarter, with a focus on mobile revenue.
Synergies from MASMOVIL: Run rate synergies from MASMOVIL amount to about €490 million, with potential commercial synergies of around €100 million.
CapEx: CapEx is at 14% of sales, consistent with the full year ambition of around 15%.
Streamlining Portfolio: Streamlined product and services sales portfolio, reducing it by more than half to focus on profitable offers.
Focus on Cash Generation: New joint management team prioritizing executing synergies and deleveraging to 3.5 times.
Turnaround Plan for Orange Business: Successful execution of a voluntary departure plan in France, with departures starting in the second half of 2024.
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Risk or Challenges
Competitive Pressures: The formation of MASORANGE in Spain is a strategic move to strengthen market position against competitive pressures, as the telecom industry in Europe is highly competitive.
Regulatory Issues: The decrease in low-margin activities in Europe is attributed to new regulatory decreases in termination rates, which could impact revenue.
Supply Chain Challenges: The company faces challenges in supply chain management, particularly in the context of equipment sales and the impact of regulatory changes on mobile termination rates.
Economic Factors: In Egypt, the anticipated devaluation of currency was factored into forecasts, indicating potential economic risks that could affect revenue growth.
Integration Costs: The integration costs associated with the MASORANGE transaction are estimated to be moderate, but any unforeseen costs could pose a risk to achieving the projected synergies.
Operational Performance: While operational performance in MEA is strong, any disruptions in the region could impact the anticipated high single-digit EBITDAaL growth.
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Guidance & Outlook
Brand Launch: Launched new brand signature 'Orange is here' in a dozen countries, positively received for its innovative approach.
MASMOVIL Transaction: Completed transaction with MASMOVIL to form a leading operator in Spain, fully deconsolidating Spain from group KPIs.
AI and GenAI Initiatives: Launched new offers on GenAI for B2B customers and expanded partnership with Google Cloud to leverage AI across operations.
Synergies from MASORANGE: Run rate synergies estimated at €490 million with potential commercial synergies of around €100 million.
Operational Focus: New joint management team focused on executing synergies and deleveraging to 3.5 times to enhance cash generation.
Turnaround in Orange Business: Streamlined product portfolio and executed voluntary departure plan to improve profitability.
Revenue Growth Guidance: Confirmed global target to grow retail services excluding PSTN between 2% to 4%.
EBITDAaL Guidance: Target to stabilize EBITDAaL in France in 2024 and expect low single-digit EBITDAaL growth in Europe.
MEA Growth Outlook: Confirmed at least high single-digit EBITDAaL growth for the Middle East and Africa region.
CapEx Guidance: CapEx at 14% of sales, consistent with around 15% full year ambition.
Overall Financial Confidence: Confidence in achieving full year guidance remains unchanged.
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Shareholder Return Plan
Share Buyback Program: None
Dividend Program: None
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Key Q&A
Q:What does the change in competition pattern in France say about pricing or is it just a one-off?
A:The French market is behaving reasonably, with strong performance in mobile and improved broadband churn. Price increases and reduced promotions have contributed to growth.
Q:Are you referring to price increases from last year feeding into 2024 or have you also increased prices in the last few months?
A:Price increases were implemented last year, with tactical moves continuing into Q1.
Q:Could you explain the outlook for labor expenses?
A:Labor expenses are up due to global inflation and salary increases, with ongoing expansion in EMEA markets.
Q:What do you imagine for price competition in Spain?
A:The Spanish market is aggressive in low-cost brands but disciplined in the premium segment. Price increases are expected to impact P&L starting April.
Q:Can you provide a split of the CapEx spend?
A:CapEx figures are aligned with the 15% guidance, with a focus on fiber rollout in France.
Q:How far are you through the voluntary departure plan?
A:The plan is in motion and will impact financials in the second half of the year.
Q:What is driving the growth of TOTEM?
A:TOTEM's revenue is stable, with hosting revenue growing by 2.6% year-on-year.
Q:Why are you not benefiting from customer losses at SFR?
A:Orange is posting positive net adds and strong fiber growth despite SFR's losses.
Q:Is there a market problem beyond last year’s slowdown?
A:There is a market slowdown, but churn is under control.
Q:Are you considering network consolidation in France?
A:There are reports of networks for sale, but antitrust complexities may limit options.
Q:What could the cost of the Olympics be for you?
A:The cost is projected to be a few tens of million euros.
Q:What is the likelihood of commercial synergies in Spain?
A:Commercial synergies are expected to be around €100 million, driven by intra-brand movements.
Q:What contingency measures are you taking in Egypt due to devaluation?
A:Orange Egypt is benefiting from a price increase and strong organic performance.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the potential for further price increases in Egypt following the devaluation, stating only that discussions are ongoing with the regulator.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
ARPO
ARPUs
DIGI
Egypt
JV
Jean François
Laurent
Mr
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capacity
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customer relationship
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devaluation
fact
figure
follow
head
investment plan
kind
labor
market condition
movement
net
number
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plan course
premium
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The earnings call reveals strong growth in the Middle East and Africa, particularly in Egypt, despite currency devaluation. The company is strategically investing in Spain with a focus on 5G and premium markets. While there are challenges in France and Europe, the overall sentiment is positive due to growth in key regions, strategic investments, and a disciplined approach to pricing. The Q&A section highlights management's proactive strategies in challenging markets, offsetting negative impacts, and potential revenue growth from new agreements, contributing to a positive outlook.
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ORAN Report
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
