Orange : 2019 Orange financial results Presentation

Orange financial results #FY_2019

13 February 2020

Stéphane Richard

Chairman and CEO

Ramon Fernandez

Deputy CEO, Finance, Performance and Europe

Disclaimer

This presentation contains forward-looking statements about Orange, notably on objectives and trends related to Orange's financial situation, investments, results of operations, business and strategy. Although we believe these statements are based on reasonable assumptions, they are subject to numerous risks and uncertainties, including matters not yet known to us or not currently considered material by us, and there can be no assurance that anticipated events will occur or that the objectives set out will actually be achieved. Important factors that could cause actual results to differ from the results anticipated in the forward-looking statements include, among others: the success of Orange's new strategy, risks related to information and communications technology systems generally, in particular technical failures of networks, the deterioration of the economic conditions prevailing in the markets in which Orange operates, fiscal and regulatory constraints and changes, growing banking and monetary regulations requirements and the results of litigation regarding regulations, competition and other matters. More detailed information on the potential risks that could affect our financial results is included in the Registration Document filed on 21 March 2019 with the French Autorité des Marchés Financiers (AMF) and in the annual report (Form 20-F) filed on 16 April 2019 with the U.S. Securities and Exchange Commission. Other than as required by law, Orange does not undertake any obligation to update them in light of new information or future developments.

2

Section one

FY 2019highlights

2019 key highlights

Revenue and EBITDAaL growth with acceleration in Q4

3 strong engines of revenue growth : MEA, Europe and Enterprise

Improving trends of Retail services and ARPOs in France

European leader in cybersecurity with double digit growth

Structural change in the management of tower and fiber assets

All elements of guidance achieved with upgrade of 2020 Organic CF guidance

4

2019 key achievements

Multi- Services

Customers & offers

Connectivity

Customer base

Network

Leadership

5*o/w 390K Orange Bank banking accounts

	3.1m				>500k			New deals
						global,		Cloud
	Customers				Customers*
					secured
Smart home
	o/w 29%have a			SDWAN
Launch of connected &
protected home offers		consumer loan
Homelan
NPS > 40 pts
			Customers
	Convergence			VHBB
	10.8m +3%yoy		7.8m	+23%
		yoy

customers , o/w 7.5 m FTTH

40m	VHBB connectable lines	5G
(+22% yoy) O/W 38m FTTH

2019 guidance achieved

yoy : comparison with the same period of the previous year, on a comparable basis unless otherwise specified

All Group level mentions include both telecom and banking activities. Conversely, all mentions excluding Orange bank are explicitly called "Telecom"

*subject to shareholders' approval; ex-date June 2nd, record date June 3rd, payment date June 4th 2020 for the €0.40 2019 balance

6

Revenue	EBITDAaL
€42.2bn	€12.9bn

			+1.1%					+1.3%
		+0.8%			+0.7%	+0.9%			+0.8%
				+0.6%
	+0.5%
							+0.2%
-0.1%					Q1 19	Q2 19	Q3 19	Q4 19	2019
Q1 19	Q2 19	Q3 19	Q4 19	2019

7.3	2.3	1.96x	0.70
€ billion	€ billion		€
eCAPEX	Organic CF	Net debt /	Dividend
EBITDAaL
	(telecom)	2019*
	(telecom)

2019 guidance achieved

Investments stabilisation with a fiber roll-out acceleration in France

40m

VHBB** connectable lines,

o/w 38.2m FTTH+31% yoy 14.9m lines in Spain,+8% yoy 4.2m lines in Poland, +25% yoy

eCapex to Sales (telecom, in %)

17.2%	17.2%
	FTTH eCAPEX
13.6%	eCAPEX
12.6%excl. FTTH
2018 cb	2019

Group	Telecom
FY 2019 eCAPEX	+0.7%

	+€53m
€7.3bn	yoy
As % of rev.
+ 0.6% yoy	17.2%
+ €44m yoy*
+0.0 pt yoy

• o/w €56m due to network sharing deal with Vodafone in Spain7

FTTH roll-out acceleration in France

FTTH connectable homes in France:

			+65%
	+23%		+4.5m	16.3m
			2.8m
		+2.7m	1.7m
	+2.2m	2.2m	0.5m
6.9m	1.9m
	0.3m

YE 2016	2017	2018	2019	YE 2019
Own network	3rd parties network

**VHBB > 100 Mbps

Section two

Financial results overview

Revenue kept

Group revenue growth (yoy in %)

growing

Q4 2019	FY 2019
yoy	yoy

1.2			+1.1%
1.0
0.8		+0.7%
0.6			+0.8%
+0.4%
0.4		+0.5%
0.2
0.0	-0.1%
-0.2
Q1 19	Q2 19	Q3 19

FY19 revenue growth by segment

+1.1%

+1.0%

Total growth

Growth excl.

Digital content offers

Q4 19

FY19 revenue growth by activity

FY 2019	+1.1%		+0.6%
revenue*
+€123m	+€252m
€42.2bn	excl. digital		excl. digital
reading offer		reading offer
	+1.0%		+0.8%
	+€114m		+€343m

• Orange Bank Net Banking Income is not included in Group revenues but in "Other operating income", that is below the revenue line and feeds directly into consolidated EBITDAaL.

MEA				+6.2%	IT & IS	+7.1%
Europe				+1.4%	Convergence	+3.9%
Enterprise				+1.0%	Mobile only	+0.9%
France	-0.3%		Wholesale	-0.1%
Spain	-1.5%			Fixed only	-2.9%
	(including narrowband)
IC&SS	-5.4%				Equipment	-3.1%

9

EBITDAaL growth fuelled by MEA and Europe

FY 19 EBITDAaL (Telecom) growth per segment (yoy in €m)

		+0.9%
		49	-21		Digital
			-82
			13,019	content
				offers
		157
			68
	12,907	4
Digital	4
content	158
offers
				12,951
	12,749

FY 18 cb France Spain MEA Europe Enterprise Others FY 2019

FY 2019

EBITDAaL

(Telecom)

€13.0bn

Q4 2019

FY 2019

yoy yoy

+1.0% +0.9%

+€32m +€111m

As % of rev. As % of rev.

30.0% 30.8%

-0.0pt yoy

+0.1pt yoy

EBITDAaL margin evolution (telecom)	Operating ROCE* evolution (telecom)
		IAS 17
		IFRS 16
+0.1pt							+0.9pt
30.8%					+0.6pt
30.7%			+0.3pt

FY 18

FY 19

FY 16

FY 17

FY18

FY 18

FY 19

* ROCE(n) = adj.EBIT (n) / Net Operating Assets (n-1)

10

Net income grew +49.4%

FY 2019

	+49.4%
	124	108	-269	3,226
	883
2,158	123
99

FY 2018	EBITDAaL cb	Neutralisation	adjustments	Impairment	Financial result	D&A, income	FY 2019
Net Income		of IFRS 16	cb*	of goodwill &		tax paid &	Net Income
from		lease interest		fixed assets		others	from
Consolidated		expenses					Consolidated
Group	1	effects in	2		3	4	Group
		EBITDAaL

FY 2019

yoy

Net income

+49.4%

+€1.1bn

€3.2bn

1.	EBITDAaL improvement yoy
2.	Adjustments mainly related to the counter-effect of the provisions booked in 2018
	for the French senior part time plan
3.	Includes economic gain related to the revaluation of hedges of subordinated
	notes in GBP and loss related to BT shares
4.	Includes increase in corporate taxes expenses

11	* See details on slide 24

Organic Cash Flow* above guidance.

Organic Cash Flow at € 2.3bn in 2019 in € bn

5.8

-1.1

-1.2

						2.3
	-0.2		-0.9

EBITDAaL -	income taxes paid	net financial	change in	other operational	Organic
eCAPEX (telecom		interests paid**	working capital	items	Cash Flow *
activities)					2019

*Organic cash flow from telecoms activities corresponds to net cash provided by operating activities, minus (i) repayments of lease liabilities and on debts related to financed assets, and (ii) purchases and sales of property, plant and equipment and intangible assets, net of change in fixed assets payables, (iii) excluding telecommunication licenses paid and significant litigations paid (and received).

12

Net debt*** (telecom activities)

€25.4bn	€25.5bn
1.93x	1.96x
2018	2019
(under IAS 17)

Net Debt / adjusted EBITDA Telecom

Net Debt / EBITDAaL Telecom

Liquidity position (telecom activities)

• 17.0bn

o/w €10.8bn in cash

**Excluding 0.1 billion euros in interest disbursed on lease liabilities

***see details on slide 25

Section three

Business review

Q4 2019 France

Total revenues back to growth thanks to Convergence and Wholesale services

in €m	Q4 19	yoy cb	FY 19	yoy cb
Revenues	4,731	+1.1%	18,154	-0.3%
Retail services	2,730	-0.2%	10,807	-1.6%
Convergent services*	1,142	+5.6%	4,397	+3.9%
Mobile only services	571	-4.6%	2,324	-4.3%
Fixed only services	1,017	-3.8%	4,086	-5.4%
Fixed only broadband	688	+2.2%	2,699	-0.2%
Fixed only narrowband	329	-14.3%	1,387	-14.1%
Wholesale	1,422	+4.1%	5,487	+2.9%
Equipment sales	439	-2.6%	1,351	-4.2%
Other revenues	141	+11.8%	509	+5.7%

EBITDAaL	7,135	+0.1%
EBITDAaL margin	39.3%	+0.1pt
eCAPEX	4,052	+10.9%
eCAPEX/revenues	22.3%	+2.2pt

Improvement of CA Retail trend in Q4 19

Quarterly yoy growth excl. digital content offers (DCO)

1.6%	1.5%	1.5%		1.7%
-0.7%	-0.9%
-0.9%		-0.6%
Q1 19	Q2 19		Q3 19		Q4 19
Retail Services excl. DCO		Retail Services	excl .PSTN and DCO

FY 19 Revenues : +0.2%yoy excl. digital content offers (DCO)

Q4 19 quarterly ARPOs (in €) and growth, yoy:

	Convergent				Mobile only		Broadband Only
			69.5
	68.0										17.1			37.0	36.9
			+1.1
			16.9
	66.6	67.7
															-0.12
														+0.18	36.3
												16.9
									16.7										36.2
	Q4 18	Q4 19		Q4 18	Q4 19				Q4 18	Q4 19
		DCO			excl. DCO				DCO			excl. DCO			DCO		excl. DCO

Improvement in trend of Mobile-Only and Fixed-Only ARPOs:

2.0%

			1.5%	1.2%	1.6%
0.8%
0.6%				1.0%
						0.0%
-0.9%	-1.0%
			-1.4%	-0.3%
Q1 19	Q2 19	Q3 19	Q4 19
		ARPO Convergent *			ARPO Mobile only *			ARPO Fixed only *

14	* Growth yoy, excl. digital content offers (DCO)

Q4 2019 France: commercial performance

Record quarter in fiber net adds. Good performance in mobile with decrease in churn

Mobile contract net adds (in '000s) and churn rate
		net adds excl M2M		quarterly churn rate in %
13.8%				13.3%
						55%
+111
				+90
			+61		+47		of broadband B2C
		+19					Customers are on
						Openconvergent
							offers (+0.2pt yoy)
Q4 18	Q1 19	Q2 19	Q3 19	Q4 19

Fixed BB net adds (in '000s)

FTTH ADSL and others

+49

+71	+49	+41	+65
+186				+239
+168	+160	+178
-116	-119	-119	-112
				-190
Q4 18	Q1 19	Q2 19	Q3 19	Q4 19

99%	of 4Gpopulation coverage (+0.4 pt
yoy)#1 ARCEP position 9 years in a row
84%	of B2C voice contractcustomers
have a 4G plan(+5pts yoy)
+2.1%	Number of mobile lines per
convergentoffer (Q4 yoy growth)

16.3m

55%

+3.5pts

of FTTHconnectable homes (+38% yoy) o/w 3.3mFTTH customers (+29 %)

of FTTHadds* are new customers

Growth of B2C broadband convergentcustomer premium** mix, yoy

15	*gross adds + migration **Livebox Up, former Play and Jet

Q4 2019 Spain

Preserving value and efficiency in a downtrend market

in €m	Q4 19	yoy cb	FY 19	yoy cb	83%Convergence as % of broadband B2C customer base
Revenues	1,346	-2.3%	5,280	-1.5%
Retail services	938	-3.4%	3,760	-2.9%
Convergent services*	525	-3.1%	2,092	-2.4%		79%Fiber penetration in BB customer base
Mobile only services	284	-6.4%	1,161	-5.7%
Fixed only services	127	+1.0%	501	+1.0%
Wholesale	241	+5.6%	901	+11.9%
Equipment sales	167	-6.1%	620	-9.5%		68%4G penetration in mobile customer base
EBITDAaL			1,646	+0.3%
EBITDAaL margin			31.2%	+0.5pt
eCAPEX			812	-24.0%		18%TV penetration in BB customer base
eCAPEX/revenues			15.4%	-4.6pt

*B2C only

Increase in value clients

Mobile convergent net-adds in '000's

Value**	43
				-1
-14
Entry level	-65

Convergent ARPO increase	EBITDAaL growth sustained by
In €	Cost efficiency
		EBITDAaL growth in m€
		4
	+20 cts		+0.5pt
			EBITDAaL
58.9 58.1 57.5 57.9 59.1	Cost 84	margin

JAZZTValue***

Entry Level

39	28
-21	-41
Q4 18 cb	Q4 19

Revenue -80

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

16	** Love Intenso *** Irresistible	FY 19

Revenue evolution (yoy, in €m)

Q4 2019 Europe

Improvement in profitability driven by indirect costs optimization and solid commercial performance in convergence

in €m	Q4 19	yoy cb	FY 19	yoy cb
Revenues	1,548	+1.7%	5,783	+1.4%
Retail services	942	+2.4%	3,641	+2.9%
Convergent services*	170	+28.5%	623	+34.0%
Mobile only services	531	-2.2%	2,143	-2.1%
Fixed only services	157	-8.0%	644	-7.2%
IT & integration services	84	+13.4%	232	+20.3%
Wholesale	269	-7.5%	1,071	-6.5%
Equipment sales	292	+10.8%	898	+3.8%
Other revenues	45	-4.9%	173	+14.5%
EBITDAaL			1,492	+3.4%
EBITDAaL margin			25.8%	+0.5pt
eCAPEX			869	-1.7%
eCAPEX/revenues			15.0%	-0.5pt

*B2C only

			+1.7%
	-12				-2	1,548
	+38	-14	+10
			+29
				-22
1,522
	Retail services : +2.4% yoy
Q4 18 Convergent	Fixed		Wholesale	Other	Q4 19
cb	Mobile	only	IT &	Equipment
	only		integration

FY EBITDAaL growth per area	Europe, mobile contract net adds		Europe, Fixed Broadband net adds
yoy, in m€
			ex-M2M (in '000s)				(in '000s)
		+3.4%
				Convergent	Mobile-only	% convergence	Convergent	Broadband-only	% convergence
				in base
			+1.7%	1,492			in base
		+5.1%	9	16%				19%	50%				57%
	+4.2%	14		163	26				87				72
						101	56		45
						86
	26					62		38
1,443			197
			174		134	148	106
				111	85		85	92
					66
				-34		-49	-49	-47
				-148	-18				-20
FY 2018	Poland	Belgium &	Central	FY 2019				-29	-28	-40
cb		Luxemburg	Europe	Q4 18	Q1 19	Q2 19	Q3 19	Q4 19	Q4 18	Q1 19	Q2 19	Q3 19	Q4 19

17

Q4 2019 Africa & Middle East

Excellent performance

in €m	Q4 19	yoy cb	FY 19	yoy cb
Revenues	1,461	+6.1%	5,646	+6.2%
Retail services	1,229	+8.5%	4,738	+8.6%
Mobile only services	1,098	+9.7%	4,230	+8.6%
Fixed only services	127	+6.4%	493	+10.3%
IT & integration services	4	-69.5%	14	-33.0%
Wholesale	191	-8.0%	780	-6.4%
Equipment sales	29	+2.6%	96	+8.9%
Other revenues	12	+59.9%	32	+5.5%

EBITDAaL	1,815	+9.4%
EBITDAaL margin	32.2%	+0.9pt
eCAPEX	987	-2.0%
eCAPEX/revenues	17.5%	-1.5pt

• 80% of revenue comes from sustainably solid retail services
  Revenue cb yoy growth in %

	Retail services	Total MEA			10.2%
	8.5%	7.7%			7.8%	7.9%		8.5%
			7.2%	7.6%
			6.7%
6.3%							6.1%
					5.8%
3.0%	6.2%
	5.2%		5.2%	5.3%
			3.7%
FY 17	Q1 18	Q2 18	Q3 18	Q4 18	Q1 19	Q2 19	Q3 19	Q4 19

• 90%of Retail Services revenue growth in FY 19 from Data, Orange Money, and Fixed BB

23.8m +43%yoy	1.2m +21%yoy
4Gcustomers	FBBcustomers
+25% Datarevenue growth FY19	+19% FBBrevenue growth FY19
Orange Money €425m FY 19	EBITDAaL margin
revenues		Increase by ~1pt
Revenues in million EUR,
yoy growth in %
+27%		c. +1 pt
425	32.2%
334		31.2%

FY 18

FY 19

FY18

FY19

18

Q4 2019 Enterprise

Back to revenue growth in 2019 driven by ongoing successful transformation

in €m	Q4 19	yoy cb	FY 19	yoy cb
Revenues	2,104	+0.8%	7,820	+1.0%
Fixed only services	1,007	-0.9%	3,963	-1.7%
Voice	325	-5.7%	1,289	-6.8%
Data	682	+1.6%	2,674	+1.0%
IT & integration services	846	+5.3%	2,909	+6.5%
Mobile*	251	-6.0%	949	-3.6%

EBITDAaL	1,191	-1.7%
EBITDAaL margin	15.2%	-0.4pt
eCAPEX	404	+10.3%
eCAPEX/revenues	5.2%	0.4pt

*Mobile = Mobile Only Services + Equipment Sales

Cybersecurity

A European leader with €580mrevenues

FY19 organic* revenue growth +24%yoy

Revenues growth fueled by IT&IS (yoy in %)		37%	IT&IS
	Share in total segment revenues
	TOTAL	fixed only	mobile	IT&IS
10%
5%	+1.2%	+0.6%	+0.7%	+1.8%	+0.8%
0%					Cloud
-5%					FY19 organic* revenue growth +19%yoy
-10%
Q418	Q119	Q219	Q319	Q419

19	*Excluding revenues impact from the last 12 months acquisitions. Proforma growth for
Cybersecurity is +15% yoy in FY19.Proforma growth for Cloud is +15% yoy in FY19.

Section four

2020 guidance

Short and mid term guidance

2020e		2021e		2022e		2023e

EBITDAaL, yoy	Flat +	CAGR:
2% to 3%

eCAPEX incl. RAN sharing deals, yoy	circa + €200m		Flat	Decrease
Organic Cash Flow (telecom)*	Improved	> €2.3bn			Growth	circa 3.5
Guidance			to €4bn
Net debt / EBITDAaL (telecom)
			Around 2x in the medium term
Dividend**
		0.70€			Floor at 0.70€

From an ambition announced in CMD to a commitment to execute the €1bn net savings 2023 vs 2019 ***

	*Organic cash flow (telecoms activities) : Organic cash flow from telecoms activities corresponds to net cash provided by operating activities, minus (i) repayments of lease liabilities
	and on debts related to financed assets, and (ii) purchases and sales of property, plant and equipment and intangible assets, net of change in fixed assets payables, (iii) excluding
	telecommunication licenses paid and significant litigations paid (and received).
	**Subject to shareholders' approval.
21	***On an indirect cost base of € 14bn of telecom activities at FY 19, excluding MEA (fast growing), and OBS IT&IS labour and ITN costs (transforming its business model), out of a
18bn€ indirect cost base in FY19

Appendices

Change in net income

	FY 2018	FY 2018	FY 2019
(in millions of euros, on a historical basis)	historical	cb	actual
EBITDAaL	13,005*	12,762	12,860
Neutralisation of IFRS 16 lease interest expenses effects in EBITDAaL	-	119	123
Adjustments**	(1,028)	(868)	15
Depreciation & amortization of fixed assets	(7,047)		(7,110)
Impairment of goodwill & fixed assets	(105)		19
Share of profit (losses) of associates and JV	3		8
Other income / (charge)	1		12

Operating income	4,829	5,927
Effects resulting from BT stake	(51)	(119)
Financial result (excluding BT)	(1,311)	(1,135)
Tax	(1,309)	(1,447)
Net income from continuing activities	2,158	3,226
Net income from discontinued activities	-	-
Net income from consolidated Group	2,158	3,226
Minority interests	204	220
Net income Group share	1,954	3,006

*adjusted EBITDA ** See details on slide 24

23

Adjustments

	FY 18	FY 18	FY 19
in €m	historical	cb	Actual
Cost of restructuring programs	(189)	(193)	(165)
Cost of acquisitions and integration	(11)	(11)	(24)
Significant litigations	(33)	(34)	(49)
Specific labour expenses	(812)	(812)	(23)
ow Senior Part Time	(812)	(812)	(25)
Portfolio review and others	17	182	277

24

Change in net debt	2019
(in millions of euros)	Actual
EBITDAaL - eCAPEX(telecom activities)	5,754
Change in working capital requirements	(204)
Change in eCAPEX payables	45
Net interest paid (including dividends received)*	(1,196)
Income taxes paid	(1,079)
Other operational items**	(975)
Organic Cash Flow (telecom activities)	2,345
Main litigations paid/received	5
Licences and spectrum paid	(334)
Dividends paid to owners of parent company	(1,857)
Dividends paid to non-controlling interests	(243)
Coupons and other fees on subordinated notes	(357)
Net of acquisitions and disposals	(77)
Exclusion of IFRS 16 leases from the net financial debt	584
definition***
Other financial items	(91)
Change in net debt	(25)
Net financial debt***	(25,466)
Ratio of net financial debt / EBITDAaL of telecom activities	1.96x

* Excluding €97m of interest expenses on IFRS 16 leases

**Of which (i) disbursements related to "Part- Time for Seniors" plan in France (TPS, procedures in relation to agreements on the employment of seniors in France) and related to restructuring and integration costs, (ii) repayments of lease liabilities, and (iii) elimination of non-monetary effects included in EBITDAaL.

25***In comparison with 2018, the definition of the net financial debt of 2019 now excludes the financial lease liabilities included in the scope of IFRS 16 and includes the debts relating to financed assets.

Convergence, the bedrock of our strategy

• 7.1bnrevenues in FY 2019Convergent services

+3.9% yoy

Convergent B2C customer base in million

% of broadband B2C customer base
France*			Spain				Poland
	5.80	3.12	3.08	3.06	3.04	3.00				1.37
	5.77									1.33
	5.73
	85%				83%			1.31	62%
5.70	55%				1.28
5.65								1.24
55%								57%
Q4 18 Q1 19 Q2 19 Q3 19 Q4 19		Q4 18 Q1 19 Q2 19 Q3 19 Q4 19		Q4 18 Q1 19 Q2 19 Q3 19 Q4 19
Churn improvement with convergence in Q4**
	-4pt				-4pt				0pt
Quarterly convergent ARPO, in €/month in Q4
	€69.5				€59.1			€24.0
	+2,2% yoy				+0.4% yoy			+0.9% yoy***

Number of mobile lines per convergent offer (Q4 yoy growth)

1.67	1.95	1.89
+2.1% yoy	+3.4% yoy	-1.3% yoy

	* cb Open customers only
	** Churn differential between convergent B2C customers and total fixed BB B2C customers
26	*** YoY evolution calculated in local currency