Orange Management Discusses Q42013 Results - Earnings Call Transcript

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Orange (NYSE:ORAN)

2013 Earnings Call

March 06, 2014 2:30 am ET


Stephane Richard - Chairman, Chief Executive Officer and Chairman of Strategy Committee

Gervais Gilles Pellissier - Chief Financial Officer, Executive Director of Group Finance & Information Systems, Chairman of Treasury & Financing Committee, Chairman of Risks Committee, Chairman of Tax Committee and Chairman of Investments Committee

Delphine Ernotte Cunci - Deputy Chief Executive Officer


Frederic Boulan - Nomura Securities Co. Ltd., Research Division

Antoine Pradayrol - Exane BNP Paribas, Research Division

Jeremy A. Dellis - Jefferies LLC, Research Division

Stephane Richard

[French] Good morning. Welcome to the presentation for the 2013 highlights and the financial business performance and the outlook and conclusion. And we'll be delivering this presentation with Gervais Pellissier, as usual.

I shall first speak about the 2013 highlights. 2013 has been eventful, and Gervais will give you the financials and of course, we'll have ample time for Q&A. And with me for the Q&A, there will be the executive committee members. We have people from our team in London, who will also be able to take part in the exchanges.

Allow me to begin with a brief overview of the 2013 numbers. First off, I think it's fair to say that the numbers show the robustness of Orange. As all other European operators, Orange is faced with bareknuckled and changing competition. But nevertheless, in 2013, Orange displayed its responsiveness, as well as its robustness.

So this morning we are in a position to tell you that we have met all our financial objectives, whether they are strictly financial or importantly and encouragingly, whether they have to do with the rebound in terms of the sales or buoyancy because we took in more than satisfactory business results in all key countries, including France.

2013 was also the year when we truly started digging deep into our cost structure. And the numbers we've achieved have also demonstrated that indeed, we have done our homework, and that is going to -- that bodes well for the future and of course, we're going to continue those efforts in the coming months.

All this has been possible because labor relations and collective engagement have been good and have made this possible. Therefore, we do have a leadership at Orange. We are in a leadership position on competitive markets, where there's quite a lot of instability, of course. But Orange, with its strengths, with its assets, with its values has really performed quite well.

Now let's take a look at the key numbers for 2013. It appears that our sales amounted to EUR 41 billion, down 2.6%, excluding regulations. EBITDA amounted to EUR 12.6 billion. And therefore, the EBITDA margin was down 1 single point and a mere 0.5 point for France in fiscal 2013. In 2012, the drop in EBITDA margin was 1.6 points. Therefore, you see that things are sort of tapering off, and we're sort of in the landing phase. And in fiscal '14, as is our objective, we should be able to stabilize the EBITDA rate.

Operating cash flow. Well, we announced EUR 7 billion. Actually, slightly above EUR 7 billion. And interestingly, we achieved this without encroaching upon our investments because our investments were flat in absolute terms. In other words, the amount, 13.7% of sales, i.e. a greater share of our sales, versus 13.3% in 2013, 11.9% in 2012.

Net income group share, although you know what we think of that regarding how representative it is, well, anyway, doubled between -- well, from 2012.

In 2013, all the financial commitments we made to you right here have been met. Operating cash flow, net debt over EBITDA, come back to that later on, dividend and our selective portfolio policy. Operating cash flow first. Well, operating cash flow amounted to EUR 7.02 billion, slightly above the objective we guided you to.

Regarding balance sheet, well, we're closing fiscal '13 with a net debt over EBITDA near 2.2, very near what it was at the end of fiscal '12. In other words, as the number does not include the impact of the EUR 2 billion we have in tax litigation that we had to pay in fiscal 2013. In other words, we were able to absorb the EUR 2 billion in tax litigation during the course of 2013 because the debt in absolute terms did not change from the end of 2012 to the end of fiscal '13.

And I think that, that is quite a performance. We were able to stomach that impact rather comfortably. And let me remind you that the tax litigation is far from over because of course, we filed an appeal. And we are rather hopeful as to the likelihood of winning.

So anyway, the results enabled us to confirm that we shall be paying EUR 0.8 in dividend as planned, and we're very happy that the results allow us to do this. And the board approved the proposal I made yesterday to submit this dividend to the AGM. We already paid an interim dividend of EUR 0.3 in December 2013. Therefore, the balance, the EUR 0.50 remaining, therefore, will be paid down on the 5th of June.

Regarding portfolio management now. Well, in 2013, there were no major transformational transactions, which is pretty good in these uncertain times. But nevertheless, we actively managed our positions because we did carry out half a dozen transactions. Most of them are disposals, by the way, essentially nonstrategic assets such as our minority stakes in Austria or Portugal, for example, or nonstrategic businesses in some of our subsidiaries and a major transaction, which was well accomplished by the group.

As you know, the disposal of Orange Dominicana, the bottom line of all this is that in 2013, the proceeds of the active portfolio management, roughly EUR 1 billion, will enable us to recover some flexibility regarding cash management and regarding our balance sheet position. So it will help us, of course, achieve further balance sheet robustness, which is an ongoing objective. So we've been in a position to deliver these results in 2013 on the strength of 4 key levers that we needed to actuate.

Let me tell you what those levers are. As a matter of fact, we actually cast management's efforts on these 4 areas. First, marketing, the way in which we preempt market developments. More than ever, in 2013, on all its key markets, the group demonstrated its ability to anticipate, leap ahead of demand, segmentation and always come up with the right propositions at the right time, regardless of the policies pursued by our competitors.

The second lever is the deep-seeded modernization of the group. And the group -- and the efforts we have cast on cutting -- cuts both direct and indirect. We'll come back to that in a moment. Our approach is a medium-term approach, and our aim is to achieve digitization with respect to our customers, but also inside the company because digitization is synonymous with modernity. And of course, it has to do with our customers' demands, but it's also one way of cutting costs.

So all this was achieved with the sustained level of investments, in particular in very high broadband, both fixed line and mobile. That, of course, is critical because it's the preparation of revenue [ph] resources and marketing and differentiation moving ahead, and this was possible because we all cast major efforts on sustaining the labor relations, commitments we made and our social commitment. So we always pay close attention to strong employee engagement.

Now let's take a look at these 4 areas in greater detail. Let me begin with marketing, the market basically, competition. 2013 was a critical year for us because we recorded remarkable sales results despite barefisted competition. We have never seen such competition on our main markets thus far.

First of all, let's take a look at mobile. Let me begin with our main market, the French market. Well, in 2013, we achieved our best performance since 2009 with 700,000 net adds, 300,000 of which in the last quarter of 2013. So this vitality is quite encouraging because of course, it shall reverberate into 2014. But these sales results were achieved while improving our value market share.

I believe that we are the only established operator whose value market share increased in 2013 from 2012, a 0.8 point increase in market share, which shows the quality of our value differentiation strategy. You see, we look at content, service, customer support. This is a strategy that pays off, and it helps us reach out and sell our products and services.

Regarding 4G, well, we've doubled the investments. And well, with regard to last year, 50% coverage at the end of the year, and we recruited a little over 1 million 4G clients. That was our objective, and we met it. So you see that the -- it's the announcements made here and there by operators who tend to slash prices.

In the fourth quarter, we showed that there is room for customers who want a different service, who want a better product, who want more abundance, more flexibility, more comfort, more user-friendliness, better connectivity, better network performance, who want appealing rates, better roaming rates and so on and so forth.

In Spain, a word about Spain. The market is particularly competitive. Well, we performed well. But in Spain, there was a radical shift that took place in a few months' time because it was -- it used to be a rather conventional market, with a major chunk occupied by subsidized models. And following Telefónica's moves, we decided -- there was a decision to move away from subsidization, and now it's SIM-only basically. But this does not mean that sales do not include a terminal component.

In fact, although access sales are exclusively SIM-only based, there is still some strong demand to access terminals. It's not done through subsidies, but through other channels as it were. At any rate, competition has changed faces. And in spite of that, we were very agile. We responded to the new deal because we did increase our market share by 1.4 points, and we are #1 in 4G at the end of the year with a little over 0.5 million customers and 30% coverage.

In Poland now, 2013 was a year of recovery and rebound. Net adds reached 170,000. SIM -- our SIM-only, web-only brand called did very well. We recruited 350,000 clients at the end of 2013.

In the U.K., as you know, we operate through EE, our joint venture with Deutsche Telekom. We're fine there, with a major success for our 4G, over 2 million 4G customers. You know that EE decided to be the leader in 4G and to really stay ahead of the pack. As a matter of fact, the U.K. is an interesting country in that regard because it has the 4G migration rate which is the highest in the world.

And I believe that what's going on in the U.K. and the effectiveness of EE's strategy should lead us to learn the lessons and apply them to other markets, notably France, because the appetency for 4G is genuine. So much so that people are willing to pay a little bit more. And 4G does offer more usage than 3G, and this is one of the factors that should help us bolster our sales this year. So the U.K. example is rather edifying in that regard.

In the U.K., we also continue to improve profitability because EBITDA in H2 is over 25% in the U.K. Let me remind you that this spells a 5-point improvement in EBITDA margin, a 5-point improvement in the past 4 years, which demonstrates that in spite of the multiple challenges we have to take up in this competitive industry, we are nevertheless able to adopt strategies that improve the profitability of our operations.

In Africa, Middle East, the year was very good because our mobile customer base increased 7.2%. We -- if you take all the countries where we operate and the countries where we have subsidiaries, we're still in a minority position, and we'll soon have a controlling position.

Well, we have over 100 million clients in the region, self-explanatory number. We have become one of the leading continental operators in Africa, Middle East. And this is a region which is growing, demographically and economically speaking, with the highest growth rates in the world moving ahead. So this is a major competitive edge we have.

In Africa, Middle East, the success of mobile banking, Orange Money, is still bearing out, 9 million customers. It's very good to tie our customers in, and it is definitely a growth relay now. It's fair to say that. Transaction value tripled from 2012 to EUR 2 billion.

Fixed-line operations. Well, results were good and successes were there too. First, in France, our convergent offers now account for 1/3 of our customer base in fixed broadband. At the end of 2013, we had 3.4 million Open customers, a 43% increase from 2012. We also had great performance with fiber. We nearly doubled the number of Orange fiber customers from 2012 with 320,000 customers, a little over 2.5 million households connected to Orange fiber today.

And on the whole, these 2 engines, I say convergence on the one hand, not only in France by the way, it's a very powerful engine on the fixed market and very high broadband, the fiber technology, these 2 engines have allowed us to maintain a very good conquest rate in broadband and very high share and very high fixed broadband. Because if you take a look at what Orange accounted for in sales in over 100-megabit connections, fiber and cable, well, our conquest rate is around 40%.

In Spain now, we also performed well in fixed-line sales. In 2013, in ADSL, we recorded net sales were very high, a record in Q4 with 100,000 net adds. Our conquest rate is around 40% in Spain against a very competitive backdrop and where we're a challenger. All this was achieved on the strength of our convergent propositions, which now account for 2/3 of our fixed high broadband customer base. So double the proportion.

Now a word about Poland. In Poland, we also introduced some convergent propositions, which have met with shining success because in a few weeks' time, we recruited 300,000 customers with these Open offers. And in Poland, we're also tracking PSTN traditional lines, which are declining, of course. But the downward trend is not as sharp. We lost 600,000 in 2012, and we only lost 340,000 such lines in 2013, which demonstrates that we can indeed better manage the transition from the PSTN business model to the broadband and very high broadband business model.

Now let me move on to the structure cost -- the cost structure, excuse me. And the 2013 performance is quite good and it bodes well looking forward because in 2013, as you know, our objective was to cut by EUR 600 million. And we recorded a drop in indirect costs, and we're closing 2013 at minus EUR 929 million, well below or much better than the initial target.

And with these EUR 929 million saved, well, indirect costs are down for the first time with a vengeance, amounting to EUR 350 million. This, of course, results from all the efforts made in every nook and cranny, especially in France because France accounts for a major portion of this accomplishment.

And at this point, I need to commend all our people, of course, management, but first and foremost, all our employees across France who were really engaged in casting these efforts on our costs, processes, ways of working. So as I say, every nook and cranny to cut costs in a lasting way.

In 2012, what we did in cost reduction helped us to offset 10% of lost sales. But this time around, with our cost reduction efforts, we offset half of lost sales. And the -- you see there's pressure on sales, of course, but that's unavoidable because of course, that's the market, that's the way it is, and it's due to the competition that we're facing. But in spite of that, we've clearly decided to aim at covering the decline in sales as much as possible. And in 2014, we're looking at 70%.

So I won't delve into too much detail. We can entertain your questions, particularly Gervais can tell you more about this. But as you know, we're involved in a group program called Chrysalid, and it covers more areas than one. And let me just say a word about it.

I spoke about digitization earlier. Digitization also has to do with cost reduction, enhancing efficiency, and it does involve quite a lot of training. And a few days ago, we launched a program called the Digital Academy. Actually, it was an inauguration. It's a global training effort. All our employees will be concerned by 2014. The idea is to rouse their awareness, train them, make them more familiar with the digital tools inside the organization.

Moving on to investments. In 2013, we sustained high levels of investment, and our choice has been rather hard-nosed. It shows up in the numbers. We have been focusing on fixed very high broadband and mobile because when you take a look at these 2 areas, LTE 4G, excluding spectrum or fiber, well, the amounts we invested doubled from 2012, which means that we redeployed our budgets, our resources. We rationalized other areas, of course. But we really maximized our efforts on fixed, very high broadband.

In France, investments are up 4.5%. In absolute terms, in France, we amounted over EUR 0.5 billion in very high broadband, that is to say roughly 1/3 of network investments made in France. We cover 50% of the population with 4G service, and our aim is to cover over 70% of the population at the end of fiscal '14. At that point in time, I believe that our leadership will be quite stark, both in coverage and in 4G quality on the French territory.

In FTTH, as mentioned, we have 2.6 million homes that are connectable, and the pace of the deployment is still going on as we speak.

In Spain, we deployed 4G in 18 key cities. We cover 30% of the population, and we have initiated the fiber deployment program in Spain in keeping with the agreement we have with Vodafone. As you know, its purpose is to serve 6 million homes in Spain.

In Poland, we're at the end of a rather exceptional investment cycle that resulted from the agreement that we had reached with the regulating authority a few years ago. But nevertheless -- and now we have a relay that's been taken up by VDSL and a fiber deployment program that is going to start up in 2014.

Furthermore, in Poland, we have a network sharing scheme. Well, of course, we do that in a number of countries, but Poland is one and our network sharing is quite substantial. 8,200 sites, no less. We do this with T-Mobile, Deutsche Telekom, that is. And these 8,200 sites include 900 4G sites, because in Poland, we also started up the deployment of 4G.

Finally, in Africa, Middle East, we deployed 3G in 17 out of 21 countries, and we launched 4G in 2 countries, Uganda and Mauritius. All these results, in particular, the cost reduction and efficiency efforts were possible because collective and individual engagement was strong.

And this engagement, this subscription of employees can be achieved, but it is absolutely capital for the -- for future success, and we're constantly working on engagement. We need to explain, we have to give meaning to what we do. And we also have to pay close attention to any form of tension to the quality of labor relations.

And we're quite proud because with this engagement and with all these efforts, we're reaching a situation where the percentage of our employees who consider that the quality of the work at Orange is at least as good as in other French companies. It's 92% at the end of 2013. And at the end of fiscal '13, to crown this effort, this ongoing effort of ours, we were awarded a few prizes as an employer in quite a few countries, including France.

There you go. So I hand over to Gervais, who's going to give you some financial numbers.

Gervais Gilles Pellissier

Merci, Stephane. So I focus on a few more details in terms of economic performance for the group, and as Stephane has come on the main figures. But if I start with the main KPIs for the company, just to come back on what happened in Q4, we have, and that's still one of the issues, suffered some increased revenue contraction in Q4, mainly due to the back book repricing in the Open countries, especially in France. The fact that customers are moving to new prices and new offers and also to the sharp fall in market prices and business model shift towards SIM-only, especially in Spain, which is also creating some price differential with the traditional subsidized model.

One of the good news of this last quarter is regulation, where regulation impact is much lower in Q4 than what it was for the full year. In the full year, regulation cuts have represented more than 40% of our revenue drop. In Q4, regulatory impact is limited to 28% of the revenue drop. And this is clearly a slowdown that we observed mainly in termination rates.

And what we can say is that in 2014, we'll still have a few termination rate cuts in Eastern Europe countries in terms of global impact, small country looking at Denmark, Luxembourg, but Luxembourg doesn't play that a big role in our figures. But most of the impact is in eastern countries, plus the European roaming decisions that could still impact our revenues.

Cost reduction has accelerated. Despite the revenue pressure, we keep our ability to maintain the margin decrease at less than 1 point in spite of the stronger revenue pressure. In parallel to our efforts on OpEx, we have maintained our level of CapEx. Maybe just to mention that Q4 looks slightly down compared to Q4 2012 because we have tried to do a little more CapEx at the beginning of the year in the first 3 quarters, especially to ensure that we will accelerate in terms of LTE deployment, for instance.

In terms of revenues, the -- as I mentioned on the next page, the revenue contraction is mainly related to what happened on the mobile front with the repricing, the change of the move of customers to new tariffs, and the penetration of convergent is value creating -- convergence is value creating for the future because it is decreasing the churn. It is increasing the overall perception in terms of quality of service from the customer, but it has an immediate impact, which is a discount on the street price as it is given to the customers.

In France, mobile services are down by 12%, driven by the ongoing drop on ARPU following the repricing in the second quarter of the year. And also, on the stronger penetration of the convergent offers, Open, which entails a slight repricing, but as I said, increased customer rates. On the fixed side, the trend is more or less steady with a 3.4% drop in Q4.

In Spain, the fourth quarter slowdown reflects the substantial reduction in market prices, the ongoing change of the business model towards SIM-only. I think in the last quarter, the 80% of the gross adds have been measured [ph] SIM-only offers, and an increasing level of handset sales, mostly offsetting the drop in sales revenues.

Service business grew at a healthy rate of 8%, driven by the strong customer growth, especially for convergent offers.

Poland has already published its figures, and Stephane has commented it. But what we can say is that the trend in the fourth quarter are good with more or less stable situation compared to Q4 2012.

In other geographies, strong performance in emerging markets, especially driven also by good performance in Egypt in the last quarter of the year. In Europe, strong performance in Romania, but not enough to offset the strong drop of revenue in Belgium.

For Orange Business Services, a stronger performance in Q4 compared to what we had in Q3, which is also mitigating some of the negative trends we had been observing in the year.

For group EBITDA, on next page, you can see the reduction of both direct at indirect costs already commented, but now we offset 50% of the revenue decline with our cost decrease, and restated EBITDA was down by EUR 1 billion with interest [ph] over a quarter was related to regulatory changes.

EBITDA margin is down by 1 point, at 30.9%, whereas we dropped by 1.6 points in 2012. Direct costs, we have already commented, down by 5%. In spite of a solid commercial performance, especially in the last quarter of the year, more sales act for less money. Indirect costs were down by EUR 350 million.

EBITDA for the different group segments, the contribution of the different segments. In France, the trend is almost stable. We should underline the achievement of French operations with just a drop of 0.5 points in terms of EBITDA rate. In Spain, Poland and the rest of the world, the EBITDA trend improved in H2 compared to H1. And in the Enterprise segment, the trend was more or less flat in spite of the strong pressure in terms of price in the B2B connections.

Regarding costs, Chrysalid is continuing to drive the modernization of the company processes, and we have tried to give you 2 examples of what we are doing within Chrysalid. Chrysalid is a real structural program where we try to really change the processes of the company for the long term, not just to have cost cuts in the year that we would not be able to reproduce the year after. The program is targeting now EUR 3 billion of cumulative cost savings by 2015. And to date, at the end of 2013, we have already delivered EUR 2 billion compared to an objective of EUR 1.8 billion.

In the customer management area, this is the first -- the top part of the slide, you can see it is happening in 2 countries with constructing -- contrasting, sorry, commercial dynamics. In France, a country where the mobile customer base has been under strong pressure over the first half of 2013, unitary mobile customer management costs are down by almost 9% year-on-year. In Spain, where the customer base is growing, you see unitary mobile customer management costs were down but even more impressive, 15% year-on-year. So in those 2 countries with different dynamics, we reduced the unitary costs to provide the service to our customers.

Regarding network, network costs. Radio site sharing is already being used at 42% of the group radio sites, already exceeding our regional targets of -- for 2015 of 35% of share. We have almost stabilized the network cost for the group for the first time, whereas we are facing a strong increase of the traffic and an increase of the number of sites, which is 5%. 3,700 additional sites have been built in 2013 compared to 2012.

And I would like to highlight the exceptional performance of Orange Poland, where shared radio access network sites increased from 2,700 at the end of 2012 to 8,200 at the end of 2013. After completing the program with an additional 1,800 sites this year, we'll save around 30% of average network OpEx per site while improving quality.

Regarding other indirect costs. They have been reduced more or less across all lines. In terms of general expense, we have been able to use levers such as e-billing and videoconferencing, as well as cutting back on our use of consultants to reduce our level of general expense by around 7%. In advertising and promotion, we can now lever the use of our Animals offer through Europe, segmentations for Europe. And in a similar manner, we are now using pan-African campaigns to promote our offers through emerging market operations.

Regarding labor costs. This is the first year we are reducing our labor expense, thanks to the strongly favorable volume effect, both in French and international operations. So instead of last year reported increase of EUR 150 million and even EUR 310 million after the European Commission decision on the French forfait [ph] employees, we now show a decrease of EUR 107 million, strong favorable volume effect.

The impact of the French crédit l'emploi -- crédit d'impôt compétitivité et l'emploi is EUR 79 million. We expect our labor expense to continue to show an improvement in 2014, in line with the plans we had announced when we have been posting the senior part-time plan 2 years ago. Group headcount shown here in terms of active employees at the end of 2013 was down by 3%, just over 5,000 employees for the group.

I will not comment the CapEx charts. Stephane has already given some detail, but you see here what are the main programs which have been increased and those where we have been changing and reducing. I think the management of CapEx is also to put more emphasis on how to generate growth in the future, but also to be able to rationalize and improve what we do in those areas.

To come now to the net income page. As close to EUR 1.9 billion, net income is more than double compared to 2012. Where are the main differences coming from? Not from the operational performance, which is more or less at par, which is more or less even compared to year ago if we include the restructuring costs, but mainly in terms of depreciation and impairments. The value of our assets outside of France have been as stable or slightly decreasing compared to a strong drop a year ago, which explains the main difference.

Our financial results are fairly stable year-on-year, even if the cost of our debt is decreasing. In 2012, we had a positive one-off, which was the capital gain on the Egyptian shares we had exchanged with the former owner, Mr. Sawiris.

In terms of cash flow, and starting at the level of our guided operating cash flow, just over EUR 7 billion, you can see the group net debt increased just by under EUR 200 million over 2013 following a EUR 350 million decrease in 2012. After a significant spend in 2012, cash out for license and spectrum was back to a more reasonable level of EUR 450 million in 2013. Net interest paid were up due to a lower level of dividend received from Everything Everywhere, but the stable underlying level reflects the stability of our debt.

The next slide shows our soft point in 2013 with tax cash out almost 3x the 2012 level due to the tax decision of EUR 2.1 billion, which has been paid to the French state at the end of July 2013.

Working capital requirement were slightly more negative in 2013 due largely to the changing business [indiscernible] in Spain with the move from subsidized offer to a SIM-only plus installment sales of terminals. You can also see the lower level of cash out from dividend payments with EUR 1.3 billion paid corresponding to a payment of EUR 0.50 per share in 2013 in terms of cash out. The end result is a net debt at EUR 30.7 billion and a net debt to EBITDA ratio of 2.37. Excluding the effects of the tax liquidation, this ratio would be at 2.2x EBITDA.

The next slide shows the evolution of the net debt in terms of main dynamics, but I think I will not comment it further. The debt itself, the structure of our balance sheet remains very sound. We have tried and we have succeeded to keeping a strong liquidity and a smooth [indiscernible] payment for EUR 5 billion for the coming years.

Our end of 2013 liquidity position is at EUR 6 billion of cash and EUR 6.3 billion from backup credit facilities. Our 2014 redemptions are now already covered by the recent issues, equivalent of EUR 2.8 billion of hybrid bonds in January and $1.6 billion bonds.

The average annual level for the subsequent 4 years is at about EUR 3 billion and new year after is above EUR 3 billion. The average weighted cost of our debt in bonds dropped from 5.25% in 2012 to 4.83% in 2013. Finally, the average maturity level of our debt, excluding the issues in early 2014, is at 8.8 years, which is best-in-class in terms of European telcos.

Now a few comments on our different operations. To start with France, a large part of the revenue decline was offset by a substantial cost decrease. Evolution of our mobile service revenues, which decreased by 12% in Q4, reflect, as I said, the additional or further repricing of the mobile base. More than 70% of our customers were positioned on the 2013 offer at the end of the year, and 85% of -- on the post 2011 offer, which means that now, 85% of the French mobile contract base is with an offer which is priced after the launch of the first operator.

Fixed revenue decrease was limited to less than 3% after a 3.6% decrease in 2012. PSTN revenue decline slowed down, as Stephane mentioned, in line with the customer base evolution, but also with a slight increase in subsequent fees we realized in June 2013. The French broadband market grew in volume in 2013, and this growth benefited our retail and wholesale business.

On the retail side, revenues were steady. The increase in customer base by 2.2% was compensated by the slight discount introduced with the convergent offer, Open. Excluding the convergent discounts, ARPU are roughly stable on the broadband market.

France EBITDA margin decreased by only 0.5 points at 35.6%, whilst the drop amounted to 2 points in 2012. More than 50% of the revenue decline has been compensated by cost decrease, whereas France compensated on 23% of the revenue decline with cost decrease in 2012. And the total cost reduction for France is EUR 800 million.

For the first time, Orange France decreased its indirect cost by a significant amount of EUR 320 million. Direct cost have also decreased significantly. We have internalized more commercial acts towards our own shops and call centers while intensifying the digitization of the relationship with customers, especially those choosing SIM-only offers.

Investment have increased by EUR 120 million compared to 2012, reflecting the focus on various speed networks. FTTH, more than EUR 300 million investment, plus 30% year-on-year. And since 2010, we have invested EUR 800 million into FTTH on the French market, and we plan to continue to accelerate in 2014 and '15. For LTE, CapEx have amounted to EUR 200 million, 4x more than in 2012.

In Spain, revenues have grown by 4.4%, excluding regulation. The erosion in mobile service revenue was driven by a 13% year-on-year reduction in ARPU related to the sharp fall in market price and to the move to SIM-only, which means without the inclusion into the price of the terminal. These effects have been partly offset by Orange Spain's strong commercial performance in mobile but also in fixed.

Overall, Orange Spain managed to increase its share of mobile contract subscribers growing 1.8 percentage points in terms of market share, up to 23.3%. This also, thanks to his leadership in 4G rollout and customer base. Plus 12.5% yearly pro forma growth in fixed revenues is mostly driven by a 21% growth in broadband customer base.

Convergent offers now cover 67% of the fixed broadband base with 30 additional percentage points year-on-year due to the solid commercial performance -- commercial success of our Canguro offer, the equivalent of -- not exactly the equivalent, but the equivalent of Open in Spain. As a result, Orange base has increased its share of fixed broadband subscribers by 1.3 percentage points, becoming #2 on this market at the end of the third quarter 2013. Meanwhile, this has brought a significant improvement in EBITDA, plus 9%, and in EBITDA margin by 2 points.

Poland. Over the last 12 months, we have implemented a very strong turnaround in our operations, and this is now clearly visible in the newfound commercial momentum. Revenue decreased by 3.9% over 2013. Lower fixed revenues, down 6%, but as Stephane mentioned, slowing down in terms of decline. Lower mobile revenues, which were down by 2.6%, but this continues to reflect some price pressure in spite of our recovery in terms of market share, especially in the high end.

Growth in mobile customers has accelerated to plus 3% in Q4. It was our highest quarterly growth in number of customers, as Stephane mentioned. So convergent offers now represent nearly 300,000 customers, 9x more than what we had at the end of 2012. And in terms of costs, costs are continuing to be reduced, including labor expense with voluntary departure plan in our Polish operations.

For other geographies, moving to Europe and Africa, Middle East. In European countries, you have seen the numbers of Mobistar, where a significant market repricing and our lack of margin of maneuver to be a convergent operator today makes the situation more difficult in some of our geographies.

In the fourth quarter, we had strong performance in other countries, especially Romania. And in other 2013, 5 of the 7 European countries have delivered a positive revenue growth with data revenue up by 16% year-on-year.

In Africa and Middle East, strong performance in Q4, plus 6.1% revenue growth, driven by Guinea, plus 45%; Mali, plus 13%; Ivory Coast, plus 11%. The region's mobile customer base was up by 7% year-on-year and now, we have more than 100 million customers in this area.

Orange Money customer base has continued to grow, representing 21% of the mobile customer base in the countries where the service has been launched.

And now to close with the operations, Enterprise. Pressure on price still drive the revenue contraction, especially on the traditional connection business, but also not only the legacy connection, but also now the VPN or what is Internet connections. Migration to IP continued in 2013, plus 1.7% growth of the IP VPN customer base. But the pressure coming from contract negotiation penalized the top line.

For IT services, like cloud, security, videoconferencing, we have a solid performance, and these are the growth engine for this segment with generally double-digit growth in those different segments, compensating partly today the decrease of the major technologies.

Moreover, we are positioning ourselves a little stronger in this area with the acquisition in France of Atheos to strengthen our security business, and this will help to continue to grow in this area. The revenue shortfall was significantly offset by efforts of modernization and cost-cutting, especially in international operations. We compensate by cost reduction 40% of the revenue decline. Thank you.

Stephane Richard

[French] I want to take the floor now to speak about 2014. Allow me to tell you our vision of the key trends on primary markets in 2014, and I'll speak about the commitments that we are making regarding our performance for fiscal 2014.

First, let me begin with a few remarks regarding the key trends in the industry moving into 2014. Allow me to begin with markets and marketing. I would like to underscore 2 key trends which are of consequential merit and which seemed irreversible.

The first trend is SIM-only. As you know, SIM-only has extended across Europe, and the emergence of SIM-only propositions has 2 somewhat contradictory impacts on our business models. First of all, there's a negative impact because it pushes prices down, but it is also positive because it somewhat offsets the first negative effect, which has to do with the change in the model and the resources put into terminal subsidies go down.

The share of SIM-only in our sales has jumped from 10% to 50% in France in the course of 1 year, from 0 to 30% in Poland, and from 0 to virtually 100% in Spain. The market, as I mentioned earlier, shifted to SIM-only very quickly indeed.

What you need to understand is that SIM-only does not rhyme with low cost. The SIM-only model, of course, meets wide customer demand. But I think you'd be mistaken to believe that SIM-only is considered similarly as just a price war. There is no direct connection between SIM-only and low cost. Some SIM-only propositions are value propositions, I'd say value for money with of course, strong focus on price. But there are some SIM-only transactions that are mid-market or upscale even with more abundance, more service. And that is the value strategy within SIM-only that we shall pursue in 2014.

This also means that we shall be present in all countries where the SIM-only should be taking place where -- and where terminal subsidies are a differentiating element on the market. Take Spain, for instance, 100% SIM-only. But 87% of our sales involve access to a terminal, to a handset.

The second key trend is convergence. Convergent propositions appeal to more and more European consumers. I think we can ascribe this to the straightforwardness there is to having a single operator for all. Whatever you do in the family, it's straightforward, it's financially worthwhile and it also has to do with technology and usage changes.

Tablet users, for instance, use up most of their connectivity at home on a fixed network with Wi-Fi, but they also want something fluid between the fixed line and the mobile network. And then all this, of course, advocates having a single connectivity operator, whether you need mobile or fixed line service.

Therefore, in Europe, we find it is fundamental to provide people with convergent access. Take France, Spain, Poland. In those, there are a few situations where we have to improve things, take Belgium, for instance, or Romania. But as we see it, convergence has become an overarching priority.

We have to offer convergence because we are convinced that everywhere, all over the world, not only in Europe and in developed countries, take the American market or British market, which have not yet shifted to convergence. Well, in those markets, we can offer convergence.

The second key trend has to do with further increase in usages. And users want better customer experience. They want richer and richer content. They want to download information. They want to work interactively using any kind of terminals, whether at home or on the move. And all this will lead to great demand for broadband, very high broadband to access richer and richer content.

If you take 4G, for instance, well, our aim is 2.5 million 4G customers at the end of the year, 1.5 million in Spain and -- 2.5 million in France, 1.5 million in Spain. And up until now, 4G usage has increased -- well, shows a 50% increase from 3G usage. So it's quite clear that 4G doesn't just have to do with the price of the offer of the flat fee. It has to do with usage and consumption, the consumption generated by our consumers and their demand.

But we have, of course, stuck to our vision. We have a slight price differential in 4G because as you may have seen, when we changed our mobile price at the end of January, we maintained a EUR 3 premium on our 4G offers in spite of the announcements made left, right and center by other operators. But we still have this 4G, 3G mix with a difference.

Regarding fixed rate high broadband here, so very high broadband and speed, so fiber, in other words. Bear in mind that 2/3 of French people who shift to fiber choose Orange. We are capturing 2/3 of new fiber customers, and the market still has operators who are slashing prices, and they offer prices that seem ludicrous. But in spite of that, we have still managed to be successful with our quality and value strategy on the strength of the intensity of our deployment.

And as far as fixed line operations are concerned, well, for -- the ARPU is better and the churn is lower. So you see that our quality strategy is indeed rewarding. Our aim is 1 million fiber customers at the end of -- at the beginning of 2015, excuse me.

And naturally, in order to accomplish that, we shall continue to deploy. We'll be at 3.7 million connectable homes at the end of 2014, up 1 million roughly, and we shall accelerate our deployment in Spain with Vodafone. Our aim, as you know, is to connect 6 million homes, 50-50 with Vodafone by 2017.

To answer one of your questions, I'm sure, regarding Bouygues Telecom's announcements on fixed prices in France, let me say that we believe that the fixed market is driven by convergence. It shows up in the numbers. And when it comes to convergence, our propositions are very relevant and competitive. And when you take a look at the fixed-line component of our convergent propositions, the numbers are very similar with those announced as being breakthrough by Bouygues Telecom.

So we believe that within our convergent propositions, especially since we launched a quadruple play with the Sosh brand, our proposition is competitive for those people interested in that product and service. Now some people want better connectivity quality, that's why they choose fiber, some people want more content and richer service. So that's the way it is.

Regarding roaming, this also made a buzz. We decided to use roaming to appeal to clients and to offer our European customers roaming access conditions that are attractive. We launched Go Europe, which was very successful, because now we have 1.5 million customers who have gone for Go Europe. And usage has been growing because regarding data roaming in the course of 1 year, we doubled data roaming consumption across Europe. So you see that the elasticity between price and consumption does exist. There is such a thing. And by increasing usage, you can offset price declines.

So we've chosen to preempt European Parliament decision confirmations with the first package that was announced. We have decided to use this to stand out from competition to attract customers. And since February, we've been accelerating that. We've included roaming from and to over 30 countries in our premium offers. All our premium offers have a significant roaming component with unlimited communications from 7 to 60 days, depending on people's needs, and data volume, which can reach up to 14 gigabytes per year in the case of the top end service or products.

The third trend for 2014 is the need for digitization and need for web-based relations. This, of course, is based on demand for innovative services. There are plenty of players, including operators, who have a lot to offer, and we have to identify and cherry pick the services where we, operator, can stand out in this global competition based on our technology, based on the guarantees that we can provide in terms of safeguarding people's personal data and of course, meeting people's demands as people -- more and more people have smartphones, the remote of life, as they say.

So our customers use digital channels more and more when interacting with Orange, whether it be purchases, customer service, assistance, contacts, by chat, by email and increasingly, in community, systems between users and [ph] fora, which we are, of course, heavily involved in. We have people who do that day in, day out. For example, web-based activity from a fixed line or a mobile device amounted to EUR 100 million in 2013, and digital contacts now account for 20% of total Orange France contacts versus 15% in 2012. So you see that it's a very sharp increase there, and we're looking at an acceleration in web-based content.

So it's a challenge for us. We have to offer a cross-channel experience that our customers enjoy when they call a call center, when they use the web service and so on. So we have to be there, and we have to make better use of customer data.

Last year, we set up a big data program within Orange France and the aim has not been to make money with the data, but just to use the oceans of data we have to offer better service to our customers, more tailored service to better meet their needs and demands. As I said, digitization and customer relations are an opportunity for us to shrink our cost structure while improving, enhancing and modernizing the service we provide our customers with.

Regarding services overall, I won't elaborate too much on this because we are pressed for time. But let me just say that the group has moved into Open innovation with resolve. Open innovation is somewhat of a cultural breakthrough as far as we are concerned. We've decided to fully open up our innovation chain to the outside world, to the world of developers, first with a very active policy with start-ups, with students, with entrepreneurs, with developers in this huge community out there and by focusing on our own systems in order to make them more readily open to the outside world.

This is what we call APIs, as you know. This is where developers and innovators plug in to, to access our own systems. And of course, this is a benefit to our clients. There are plenty of service areas where things are speeding up at Orange. And because these are the future sources of revenue for the group, there's a cloud, now we have 2.4 million cloud users. These are private individuals. And this, of course, is very good to tie customers in. In Enterprise, we made 22% inroad in cloud revenue, and this growth really is indeed at play.

In mobile-based payment and financial services, based on the success we reaped in success, we're addressing the European market now, and we introduced a new service in France called Orange Cash in 2 cities, Strasberg and -- we did that this month, and we're going to extend this across the French territories. The service was designed with a partner called VISA. And it's very user-friendly, very simple, easy to use and any person who has a smartphone can pay and shop using a smartphone. So it's NFC contact that is totally secure.

Authentication is SIM chip-based, and you can also purchase online. Then there's entertainment and content. We constantly seek more content abundance in music, video. And we develop synergies with DailyMotion, our subsidiary, and gaming. And that is constantly changing, of course. And in that area, we aggregate and sell. And actually, our aim is to offer profligate [ph] services and innovation to as many people as possible. And then there are connected objects. As you know, this is a very fast-growing area in more areas than one, of course. We are particularly focusing on 2 areas: well-being, health -- health care. We've been a long-standing player in the health care area. Now we want to extend our reach in well-being in connection with the development of connected objects. And there's security, notably home security, the smart home, which has to do with the home automation, of course. So we're developing integrated solutions, and we have -- we'll be launching a disrupt proposition in France somewhere [ph] when it comes to home security.

The fourth key trend is market consolidation here. Of course, quite topical as we speak. We believe that consolidation -- industry consolidation is going to pick up pace in Europe. You're all familiar with our view of the European industry, and we believe that it's unavoidable to see some consolidation in mobile industry. There are too many players in mobile today. The splintering, this fragmentation does not make it possible to meet the investment needs to provide very high broadband in terms of spectrum and in terms of technological deployment across Europe, and this is one of the reasons for Europe's delay against America and Asia.

Industry consolidation in mobile will not be easy. It's going to be uphill because there's plenty of reluctance from the competition authorities. They consider that for the past 15 years, they've had this steadfast approach. And maybe now, they've come to the realization that they should change their judgment. Anyway, we believe that there will be interesting tests that will be run. Of course, there are some real-life cases that will take place, say, in Europe or in Germany or any -- somewhere else. Maybe in France. Who knows? And there will be fixed mobile consolidation. This is how the industry is responding to convergence. And some key European players who did not really believe in convergence until now, now realize that they must, and they're looking at cable assets.

I've heard on the grapevine that consolidation could not be good for consumers because it could mean that there will be price increases. If you take a look at Austria, for instance. Austria is the counterexample. I mean, some people say, well, look at Austria. You see? Prices increased. Well, I can tell you that it's not true. It's not the case.

There's a great survey by HSBC that was published a few days ago.

Yes, Charles? Thank you for contribution, by the way. No, it wasn't Charles, excuse me. My apologies.

Anyway, a great HSBC survey that had shown that there was no price increase in Austria contrary to popular belief. If you take a look at the content and the propositions and the diversity of the offers on the market after the reduction of the number of players, well, it appears that current prices are still below what they were prior to the consolidation. So you really have to pay attention to what you hear and read because consolidation is not necessarily a rise in prices. But it can provide some stability, some -- more sense on markets, and we are all for that, of course. Then there's the minimal version of consolidation, which is network sharing. I mentioned that in several European countries, we were involved in network sharing agreements, and there, too, we shall see whether opportunities could arise.

In the meantime, in 2014, above and beyond tapping into these trends to spike revenue generation because there's still -- there will still be pressure on revenue in 2014, we shall further the efforts we shall cast on cost reduction. Our -- I said our aim was to cover the shortfall in the revenue by reducing costs. And all this leads us to set an objective, which is particularly challenging, stabilize the group's EBITDA margin in 2014, and this would be quite a turn given the past 3 years we've been through. The aim is critical for us. It's a keystone.

It -- now moving on to the group's guidance 2014. It translates into this number, the [indiscernible] average 2014 for EBITDA, from EUR 12.1 billion to EUR 12.6 billion. The lower point, EUR 12.1 billion, spells the stabilization of EBITDA given the sales outlook that we're contemplating for fiscal 2014. The upper point, EUR 12.6 billion, would mean stabilization of EBITDA in absolute terms. Such is the situation for this indicator, and we do think that it's fair because that is value creation and the main business indicator that helps measure the group's performance. So that's the first objective, stabilize the group's EBITDA in fiscal '14 as has been announced for a few months now. The second objective has to do with the balance sheet. We shall maintain the guidance regarding net debt over EBITDA. We want to near 2x. We were 2.2x in 2013, excluding the tax litigation. We want to get closer in 2x, and we're confirming this in the medium term, around 2x in the medium term.

Regarding M&A, unsurprisingly we shall remain very selective and cautious. Naturally, if there are opportunities to partake in consolidation in a way that's beneficial for us and the industry, well, we shall be involved. But we shall cherrypick, of course, because financial maneuvering is rather tricky.

Yesterday at the Board of Directors meeting, I submitted that we adjust our dividend for 2014. There will be interim payment at the end of this year and the balance next year. The 2014 dividend should be EUR 0.6. EUR 0.60 seems to be the good balance between the group's cash generation. We're looking for 2014, the uncertainty we're faced with. And we have to maintain some flexibility in our resources and in managing our balance sheet. Nevertheless, I and the group have this will to offer attractive compensation to our shareholders at EUR 0.60 a share, the yield of the share will be one of the most attractive in the industry and in -- and on the French stock exchange.

There we are -- so much for the presentation. And now, here in Paris and in London, we'd be delighted to entertain your questions. Thank you very much for your kind attention. You may raise your questions in French or in English.

Question-and-Answer Session

Unknown Analyst

[French] I have 2 questions. First of all, on 4G. Could you tell us how people have received this price hike? Is there some friction? And you mentioned a mere 50%. Can we deduce, I mean, infer that most 4G customers are below 3 gigabytes? Or do you think that you'll be able to up-sell and -- with a bunch of early adopters going above 3 gigabytes soon? My second question has to do with sales costs? Taking a look at the drop in sales costs with rising prices in terminal sales, what would the -- how can you learn lessons from Spain where you sell 87% terminals with a SIM-only business model?

Stephane Richard

Well, thank you. Delphine Ernotte may respond to these questions that have to do with French market.

Delphine Ernotte Cunci

Regarding 4G, well, yes, indeed we did raise prices, but there has been no negative impact. Quite the contrary, a very good trend, similar to what we experienced in Q4. And very good buoyant business in mobile in early 2014 even -- in spite of the price increase. Regarding the consumption of 4G customers, it's difficult to give you a -- clear-cut answers because average consumption is on the rise. We're at the beginning of the 4G wave, so to speak, so it's early days. Of course, it's fair to believe that there are some clients out there who are reaching a threshold, and average consumption will rise. In the past 6 months, it has risen quite sharply. So there will be strong 4G usage moving forward. Regarding commercial costs, sales costs -- regarding the results that were presented and the way in which we achieved net adds in 2013, let me remind you that 63% of gross sales were achieved with premium, the -- so Open and Origami, based on the traditional model with subsidized offers. And it is that performance which has enabled us to increase the value market share we have on the mobile market. So of course, there may be some adjustments to be made in terminal subsidies between the low end and the high end of the market, but the results we reaped in 2013 and those that we're experiencing in early 2014 show that there is a subsidized market in France, and it's quite buoyant so much so that people need to renew terminals because of 4G. So shifting from a subsidy-free model to something else would be very, very risky because we're a leader in the top end market and it does account for 2/3 of our gross sales in Q4 '13.

Stephane Richard

Thank you, Delphine. Do we have any other questions?

Unknown Analyst

I have 2 questions, if I may. One on fiber. Could you come back to your conquest rate, the impact of fiber on your mobile net adds and value creation for the group in France? And secondly, in terms of M&A, are there any assets which you may want to shed because they may lack some value creation? And would there be market consolidation opportunities that could lead you to consider pushing your dividend down?

Stephane Richard

Delphine, regarding fiber?

Delphine Ernotte Cunci

Well, fiber has 3 virtues. First, it makes us more competitive on the retail market because in the Paris region, for instance, the most competitive market in fixed-line operations, we're not the leading operator; we're not even second. But with fiber, however, we're increasing our installed base and market share on the fixed-line markets. So we are indeed taking customers away from competition. Then there's ARPU. EUR 3 ARPU more with fiber. So there's a retail impact on fiber. Also, as you may know, we've run a technical test in Palaiseau where we covered the city in a -- one shot with fiber. I won't give you the figures. We don't want the regulator to hear this, but the impact on Orange's market share has been huge and it was very, very positive, to put it mildly. And so there's a lot to be done. We have to consider covering neighborhoods or areas to have some real sales effectiveness. So as far as retail is concerned, we still have quite a lot of potential regarding fiber. Another benefit of fiber is wholesale because some revenue is more difficult to explain than copper revenue. With copper, it's leasing on a monthly basis. With fiber, there's co-funding and recurring revenue and so on, but the benefit is that it's paid ahead unlike for the copper network. So we're looking at wholesale sales. And finally, with fiber, in the medium term, you can switch from the copper to the fiber network. Hence the Palaiseau test. That's why we did it, inter alia, how we shift from copper to fiber with a huge network operation gains. And fiber, of course, is a passive facility. It's far more stable, far more effective and efficient than copper for very high broadband and with the outlook we have in improving our indirect costs. And so here, we have huge operational efficiency potential. So those are the 3 factors. Retail is already bearing out. Wholesale is active. It's in progress. And eventually, we shall be able to slash our fixed-line operating costs.

Stephane Richard

Regarding the second part of your questions, are there any assets we'd like to shed? The answer is no. The short answer is no. I wish to maintain a dynamic vision of our asset portfolio. It is my belief that we have to constantly or at least regularly consider the efficiency of our operations in terms of portfolio management wherever we are, notably in Africa, Middle East. We operate in roughly 20 countries in that region, and we wish to extend, of course. And for market related or historical reasons, we may here and there find that our investment may not be as profitable as initially expected. So I'm not saying that the scope will remain unchanged. What I'm saying is that after all -- in the wake of all the transactions done in the past 2 years, notably Switzerland, the Dominican Republic, there's not much to be expected in terms of asset disposal. Now your question on dividend. How should I put it? Off the cuff, the short answer is no. Payout and shareholder compensation is crucial. It's capital and the trust and the relationship of trust we have with the community of our shareholders and investors. This is part and parcel of the industry. If there are any consolidation moves, we shall be the beneficiaries one way or another, even if we're not directly involved. And even if we were involved in a consolidation move on the European market, there are plenty of financial ways that would allow us to involve to and that would enable us to maintain payout. So you see, there's no direct connection, as I see it, between our involvement in consolidation, if any, and dividend payout. Once again, it is my belief that dividend payout must be sustained in striking the balance between the involvement of -- the engagement of the stakeholders in the group, and we need that engagement in order to move forward.

Then because we have questions in London. So may I ask our colleagues in London to take the micro and ask questions?

Frederic Boulan - Nomura Securities Co. Ltd., Research Division

Okay, it's Frederic Boulan here from Nomura. A couple of points. Firstly, on France, we saw worsening Q4 trends in service revenues. Can you talk about your previous comments on ARPU for '14? You were talking about 8% pressure before. Is this still on track? Or do you see some pressures in that number? The second point, if you could comment a bit more on your EBITDA guidance range for 2014 and specifically the assumptions you have for France in terms of revenue and EBITDA. And lastly, some clarifications on the leverage. If I take about 2.1x the mid-range of your EBITDA target, I get about EUR 26 billion of debt for the end of the year, which is about EUR 4.5 billion lower than the full year '13 number. So can you just tell us the assumptions you don't here in terms of hybrids? And then the split between organic free cash flow generation, are there external moves?

Stephane Richard

Okay, about the ARPU trends and maybe the comments on the fourth quarter results revenue that are a little lower maybe than expected, Delphine?

Delphine Ernotte Cunci

So -- okay. We definitely have a very proactive policy in terms of repositioning our customers on our new base or our new tariffs. 85% of our base is repositioned with post-relaunch [ph] offers and 70% on -- to 2013 offers. That's why we have -- we were very proactive in repricing our customers with one very, very important benefit, which is the churn, which was really under control and very, very low compared to what it was 1 year ago. That's why the reprice was still quite high in Q4. And besides, the increase of the roaming -- national roaming agreement was a little bit lower than it used to be in Q3 and Q2. That's why the mobile revenue decreased. For 2014, we are very cautious because we know the market will still be very agitated. But still good commercial performance in Q4 and still good performance nowadays make us very confident in our ability to continue to increase our value market share in 2014.

Stephane Richard

On the EBITDA guidance, I take the point and I let Gervais answer on the leverage. On the EBITDA guidance for 2014, which is, as you have understood, a key point in the guidance that we give to the market, the point is that as we are in a very uncertain environment and that everyone can see the pressure on prices, the pressure on revenues, we think that the -- that once again, the best economic parameter that we can really work on and around which we have to monitor the business is the EBITDA generation and the EBITDA rate. So clearly, I confirm that our main guidance is to stabilize EBITDA rates, as I described a few minutes ago. Now what does this imply for France? It implies for France that we will have an EBITDA rate slightly increasing in 2014, around 1 point. Once again, in an environment in terms of price policies and market, which is still relatively uncertain, so it means that we will have to work mainly on the cost basis, and this is what we are doing. We have no specific or accurate forecast in terms of revenue that we won't provide to the market. But in terms of EBITDA, what is consistent with the overall objective of stabilizing EBITDA rate for the group is a slight increase of EBITDA rate in France.

Gervais Gilles Pellissier

Regarding leverage and debt, it is true that we count on a change of net debt in the range I described, above EUR 4 billion, which is due, I would say, for a huge part to the issuance of [indiscernible] debt. So EUR 2.8 billion of [indiscernible] debt changed the relationship between equity and debt into our IFRS figures. On top of that, there are a few things. One is the disposal of Orange Dominicana, which will bring an additional [ph] EUR 1 billion of cash on top of the operational performance, plus a few additional items: a slight decrease of the cash out of the dividend; the cash in of the crédit d'impôt pour la compétitivité et l'emploi, which is cashed in 1 year later than it is accounted for into the P&L. So a few items like that explain why you come to the EUR 4 billion, more or less, net debt decrease year-on-year between 2014 and 2013.

Stephane Richard

[French] Thank you, Gervais. Back to Paris.

Antoine Pradayrol - Exane BNP Paribas, Research Division

Antoine Pradayrol from Exane BNP Paribas. I have 2 quick additional questions on your guidance, please. First of all, regarding CapEx, could you give us more flavor regarding CapEx? Will it rise or remain flat in 2014? And regarding cost cutting, if I correctly understand your EBITDA guidance and the comments you made on 12.1 so that would be a stable EBITDA rate? In other words, you may envision that you're looking at a sales shortfall of 3% to 4% from crunching the numbers correctly? Does this mean that cost cutting OpEx declines will be greater in absolute terms in 2014 from 2013? We're looking at EUR 1 billion in cost cutting in 2014. Have I crunched the numbers correctly?

Gervais Gilles Pellissier

Regarding CapEx, this is Gervais Pellissier speaking, so we could have been more specific. Let me put it this way. Our rationale is stability or a slight increase in CapEx. We believe that our plan leads to roughly stable CapEx. Of course, we could increase then CapEx in order to maintain leadership or to accelerate coverage, as was the case this year. So stable positive, put it that way. Now regarding EBITDA and cost, there are 2 kinds of costs. Indirect costs, where we're really going to move them down, the difference between the EUR 350 million achieved in 2013 and the EUR 250 million we're aiming at in 2014. A major portion of that difference is the -- well, there's less of an impact of the CICE, the French scheme. So you see that, of course, has played a -- that tax measure has played a significant role. And regarding direct cost, now we're cautious. We're walking on egg shells here because it has -- it's pegged to sales because either -- as Delphine said, either offers are subsidized, in which case our sales cost will be higher and we'll less be able to reduce them, but ARPU and sales will be higher. Or we'll be driven to a SIM-only model more and more with fewer sales cost and lower sales. So we have to be cautious here because we can't control those trends. Some trends are shifting towards subsidization in France, as Delphine said. But as Stephane said, there was a quick shift towards SIM-only, as in Spain, for instance. So I say, we're walking on egg shells. So we're keeping our options open. We're adjusting our distribution cost, our retail cost through significant commercial cost reductions that -- a quick reduction in the indirect distribution in France and in other European countries such as Belgium, we're going to reduce indirect distribution costs so we're not going to be as dependent on third parties. The only country where it remains rather extravagant, that's what all operators say, is the U.K.

Antoine Pradayrol - Exane BNP Paribas, Research Division

Yes. Regarding commercial costs, does this mean that you haven't yet decided to move to staggered sales in France? Or that you've made the decision and it's half-and-half, you don't know what the volume is and so on?

Stephane Richard

Delphine, over to you.

Delphine Ernotte Cunci

Let me remind you that France is somewhat specific in that you cannot stagger more than EUR 200. There's a French act. Forget the date. Anyway, there is a law in France. So there's nothing we can do. We're considering models like that. But at any rate, for an iPhone or a Samsung Galaxy, it would be difficult to fully spread out the price of the terminal. But with a one-shot payment and merely EUR 200, it gets involved. It's convoluted, the rental model. CellFree [ph] has this model. It's not really flying. So that's a French constraint. That's the way it is. We can't allow customers to pay for their terminal over time too much.

Stephane Richard

London? Yes?

Jeremy A. Dellis - Jefferies LLC, Research Division

Jerry Dellis from Jefferies. I've got 2 questions, please. Firstly, in terms of your M&A policy, when you talk of a selective M&A policy, are you mindful of the risk of perhaps being left behind in Spain if others consolidate around you? And if that were to happen, how might we expect Orange to respond? And then the second question related to the group. Should we anticipate cash flow actually stabilizing in 2014? And if that isn't the case, then are there implications for the level of dividend payout beyond the 2014 year?

Stephane Richard

I'll try to answer on the Spanish situation, and I'll let Gervais answer on the cash flow statement. Regarding the situation in Spain, the first thing that I would like to emphasize is that in this country, we are relatively competitive, both in terms of mobile and fixed market. Because as you know, we have a competitive offer on -- including a fixed access. We have today, a market share in the broadband market which is around 15%. We are, in fact, the second player in this market. So we do not suffer in Spain of a substantial lack of access to a fixed component of a bundle, meaning that we are on the convergent market and it's precisely because we are -- and we are strong in the convergent market that we have been able to fulfill our commitments and targets in terms of commercial success. Now, of course, we pay a lot of attention to the Spanish situation. We know that there are some rumors or interest around the specialty cable players. We will see in a very opportunistic way what's going on. Everyone knows that there could be some combination in this market making sense in terms of going faster and forward to the convergence between Orange and a player in the fixed market. But there is nothing in the agenda even though clearly for us, Spain is, apart France, probably the key market in Europe where we will try to really focus our resources to play the consolidation.

Gervais Gilles Pellissier

Regarding the cash flow prospect, first, if you deduct from my answer to the question on CapEx and with the guidance on EBITDA, you'll see that it is more or less an EBITDA minus CapEx figure, which is either stable or slightly decreasing over 2013 if we are with a stable CapEx and with a EUR 12.1 billion EBITDA. We have taken that into account in our revised dividend figures, the one which has been proposed by Stephane to the board. And we are also checking that in terms of payout on the free cash flow, we are remaining at reasonable levels because the free cash flow evolution in 2013 should be -- in 2014 should be slightly better. We have, as I said, a few items I just mentioned before in terms of below-EBITDA items that should be in a better direction in 2014.

Stephane Richard

Another question in London? No? Paris? Okay. So thank you very much. Thanks.

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