Orange SA (NYSE:ORAN) Q2 2018 Earnings Conference Call July 26, 2018 2:30 AM ET
Stéphane Richard - Chairman & CEO
Ramon Fernandez - Executive Director of Finance, Performance & Europe
Laurent Paillassot - Deputy CEO
Helmut Reisinger - CEO, Business Services
Johan Balijon - Head, Department of Global Solutions & Services for Russia and CIS Branch
Gervais Pellissier - Chairman, Orange Business Services
Fabienne Dulac - Deputy CEO
Daniel Morris - Barclays Bank
Nicolas Cote-Colisson - HSBC
Stephane Beyazian - Raymond James
Andrew Lee - Goldman Sachs Group
Nick Delfas - Redburn
Nawar Cristini - JPMorgan Chase & Co.
Nicolas Didio - Berenberg
Frederic Boulan - Bank of America Merrill Lynch
Jakob Bluestone - Crédit Suisse
Thomas Coudry - Bryan Garnier & Co Ltd.
Good morning, ladies and gentlemen, and welcome to the Orange's First Half 2018 Results Conference Call. The call will be hosted by Mr. Stéphane Richard, Chairman and CEO; and Mr. Ramon Fernandez, Deputy CEO, Finance Performance and Europe, with other members of Orange's executive committee for the Q&A session that will start after the presentation. [Operator Instructions]. .
Thank you, and let me hand over to Mr. Stéphane Richard.
Good morning, everyone. Thank you for joining our H1 2018 results conference call. I will first give an overview of the key points of this first semester, and then I will hand over to Ramon Fernandez, who will enter into more details about this set of results. And then we are available for answering any question that you might have.
So let's start with Page 4, which give you -- which gives you the main numbers of this first semester. H1 2018 was a strong semester for Orange. We achieved significant progress across all our financial metrics revenue, adjusted EBITDA and operating cash flow. The group revenues grew by 1.7% this semester. It's still 1.3%, if we exclude the impact from the ePresse audiobook offers in France versus 1.2% over 2017, with all geography-based reporting segments contributing to group revenue growth. The main contributors were Africa and Middle East, France and Spain. Europe's strength improved, while enterprise just stabilized.
Turning to profitability, group adjusted EBITDA grew by 3.3% this semester, or 2%, excluding the impact from the ePresse audiobook offers in France versus 2.1% over 2017, with 70 -- with the 57% of our group's top line growth translating into adjusted EBITDA growth. Acceleration in telecom-adjusted EBITDA is faster, with an increase of 3.9% this semester. The main contributors are here, again, France, Spain and Africa Middle East. This good results allowed us to sustain our investment efforts in line with our full year guidance, while improving the pace of growth in operating cash flow at plus 2.9% compared to 0.5% over 2017.
Let's turn now into Page 5, which gives you the main results in terms of commercial performance. Thanks to our ongoing investments in very high broadband networks, our 4G and very high broadband customer basis continue to grow significantly this semester. We now serve more than 50 million 4G customers, improving by 38% year-on-year, thanks to the positive commercial momentum in Europe and Africa and the Middle East; and 5.5 million very high broadband customers, up by 37% year-on-year, thanks, mainly to France and Spain. Our TV customer base continue to grow at plus 6.3% year-on-year, with now 9.2 million customers.
Page 6, we want to remind everyone that the convergence strategy is really the bedrock of this performance. Actually, we have always been a step ahead, whether on the convergence that has become a market standard or on fiber. Our leadership in fixed and mobile networks, together with our Headstart, enabled us to become the #1 convergent operator in Europe. Orange has to date 10.7 million convergent B2C customers, with a 60% penetration rate in France, 86% in Spain and 54% in Poland. Let me remind you that convergence means lower churn and higher ARPU. For instance, we reached 6 points of churn differential between convergent and total fixed broadband customers in Spain and plus 3.2% quarterly convergent ARPU improvement in France.
Page 7, a few highlights on our CapEx strategy. As mentioned in the previous slides, in order to keep our competitive advantage in connectivity, we continued our investment efforts, amounting to €3.4 billion in H1 or 16.5% of telecom revenues, with an increase of €119 million year-on-year, mostly linked to investments in France, Spain and Africa Middle East. This level of investment is in line with our full year 2018 guidance at €7.4 billion.
In France, the growth in CapEx was mainly the result of our ambition to maintain the best networks, accelerating in 4G, now covering 98% of the population and in fiber, with a total of 10.3 million connectable homes. This is a 30% increase year-on-year. This semester, we also signed an agreement with Altice in France, extending to additional 2.9 million homes the shared efforts of rolling out fiber in the medium dense area. This agreement will enable lower CapEx at Orange, avoiding FTTH overbuild and securing regulation stability in an area called the Ami zone, meaning the medium dense areas, where Orange will be responsible for deploying fiber in 80% of the total of 13 million homes.
But we did not only invest in organic growth, we were also active in M&A, with selective and value creative operations, following our objectives to become a leader in IT and integration services. We secured the acquisition of an 86.7% stake in Business & Decision, a global consulting and systems integration group, leader in business intelligence and CRM. This new acquisition will be integrated in H2 2018. And in order to reinforce our leading position in the cloud computing services market in France and in Europe, we signed in July, an agreement to acquire 100% of Basefarm Capital. This acquisition would bring a new source of expertise and innovative technologies, particularly in data management, big data and multi-cloud services.
Let me now hand over to Ramon.
Thank you very much, Stéphane. So turning to Slide 9, you can see that in Q2, group revenues increased by €141 million. This is an increase of 1.4% year-on-year. If you exclude equipment sales, which were impacted by the Samsung S9 phasing and the effect of the ePresse and audiobook offers, which far lower in Q2 than in Q1, the service revenue trend showed a 50 basis points improvement compared to Q1, growing 1.3% compared to 0.8%, thanks to strong operational performance in all our geographies.
Convergent services, which are available in all of our European countries were the main contributor to top line growth, demonstrating the effectiveness of our approach. In Africa Middle East, mobile services are still the driver of growth, allowing to post a third quarter of growth at more than 5%. IT and integration services continues to contribute strongly to our results in B2B services, with cloud and security services posting a double-digit growth for another quarter, we're talking of plus 19% and plus 10%. And within the wholesale business, as you can see on this chart, we can observe opposite effects with positive contribution from increasing FTTH cofinancing in France, also the progressive end of the European roaming regulation impact, which almost offset the decrease of unbundling and national roaming in France and the decrease in international voice traffic towards the African markets.
Turning to the adjusted EBITDA of telecom activities, Q2 grew by 3.4%, it's an increase of €113 million, confirming the improving trend of the previous quarters. In Q2, excluding the impact of European roaming and ePresse and audiobooks in France, adjusted EBITDA would have grown by 3% on telecom activities. H1 adjusted EBITDA, still talking about the telecom EBITDA, growth was driven by the outstanding performance of Spain, growing by more than 10%; France, 5.1%; and Middle East Africa, plus 7.8%, and we'll come back to this in the next slides.
Thanks to our cost efficiency plans, we reached growth savings of €476 million in H1, of which €325 million in OpEx. We have already achieved with 1 semester in advance our €3 billion growth savings ambition for the 2015-2018 period. The impact of these efforts, together with the positive revenue trend contributed to fuel the EBITDA margin increased by 0.6 points year-on-year in H1. We are now at 29.8%, it was 29.2% in H1 2017.
Simplification, mutualization and digitalization of the pillars of this program of cost savings. For example, if you look at France, more than half of customer care interactions and 26% of commercial transactions were done through digital channels, together with continuous network automation process. And these efforts translated into net savings. 1/4 of the EBITDA growth in France comes from net savings, including the effects of our cost efficiency program. These efforts also allowed us to be more agile and to absorb the decrease of average full time equivalent employees by 2.7% at group level in H1. This figure is 4.7% in France.
Turning to Slide 11, you see that this performance led to a growing consolidated net income of €879 million, which was mainly the result of better adjusted EBITDA. We've seen this. Also, fewer adjustments than in H1 2017. The result also off a better financial results, notably related to less depreciation of BT shares than in H1 2017 and on the other side, we have more impairments in H1 '18 than in H1 '17 and more depreciation and amortization linked to higher CapEx.
Turning to Slide 12, in H1, we maintained a solid balance sheet. We have a net debt of telecom activities at €25.3 billion. This can be explained as follows: first, H1 is marked by an increase in the level of debt, given the seasonality of the activity and also by specific payments occurring in H1, so here nothing new. Secondly, this usual trend is amplified by our significant investment efforts to sustain value creation. And lastly, I remind you that we have put in an escrow account, €346 million in the context of the litigation with GE Cell. We appealed against the court decision and based on the jurisprudence of the Paris Court of Appeal, we are confident that the court should reduce the amount at stake.
Overall, our net debt to adjusted EBITDA ratio is in line with our guidance at 1.96. Our liquidity position remains strong, with €13.1 billion at the end of June, including €7 billion in cash; and our debt maturity profile remains balanced, with an average maturity of bonds longer than 7 years.
Let's now turn to our business review, starting with France on Slide 14. Total revenues grew in France for the fifth consecutive quarter at plus 0.6% in Q2, despite a very competitive market. Excluding ePresse and audiobook, Q2 revenue growth would have been plus 0.2% and our successful strategy focused on convergence and fiber-boosted retail services, excluding PSTN at plus 4.5%.
As already mentioned, France posted a very strong adjusted EBITDA growth at 5.1% in H1, supported by the growth of revenues, but also net cost savings. Convergence drove our solid performance. Our convergent B2C broadband customer base increased by 6.8% year-on-year. We know these convergent customers represent 60% of our total B2C broadband customer base, along with the improvement of the customer mix as all convergent broadband net adds were done on premium offers. The increase in the number of mobile lines per convergent contract, together with the improvement in the customer mix brought an increase in convergent ARPO, reaching now €0.638 per month versus an increase of 3.2% year-on-year. We have a convergent service revenues up by 11.4%. Both mobile only and broadband only ARPO are also growing year-on-year. And even if we exclude the ePresse and audiobook impacts, if you look at them, these ARPOs on a sequential basis, there were also growing by respectively, $0.10 for mobile and $0.40 for broadband, excluding once again, the ePresse impact. This is once again, thanks to a better mix of our mobile-only customers and to the fiber penetration and TV VOD services. So a very good performance in this competitive markets to get all these ARPO going upwards. Total wholesale decreased by 1.3% year ago. This was the result of a continuing decrease in national roaming, while fixed wholesale service revenues grew, thanks to FTTH coinvestment.
Let's have a look at our commercial performance on Slide 15 in France. We booked 136,000 mobile contract net adds, compared to 111,000 in Q2 2017. This is also a strong performance in the context of the heavy promotional activity in the low end of the market. Our segmented market approach allowed us to post excellent results at the high end and low end of the market with such plans. Our strategy based on differentiation for quality and premium services is bearing fruits as the premium mix is improving by 3 points year-on-year.
In fixed broadband, we added 36,000 broadband customers this quarter. This is also a very solid performance in a four-player market, considering that we had very limited recourse to promotions compared to the market. In FTTH, we added 119,000 customers this quarter, leading to a total base of 2,250,000 customers. We now have a base of 10.3 million FTTH connectable homes in France. This is an increase of 40% year-on-year.
Let's now turn to Spain, where we continue to deliver, Page 16, an impressive performance with double-digit growth and adjusted EBITDA and operating cash flow, respectively growing at plus 10% year-on-year and plus 18%. This clearly confirms a strong #2 position of Orange in the Spanish market. Revenue was impacted by the 36% cut in mobile termination rates implemented in February. If you exclude this regulatory effect, Q2 revenue grew at 1.8 -- I mean, what is shown here at 1.8% would have been 2.7%; and retail services grew at the same pace as in Q1, that's plus 2.7%. This strong financial performance came as a result of our successful strategy, focused on convergence and fiber and our value approach is illustrated also in Spain as in France by the positive trend of ARPO that grew year-on-year for at the same time convergent, fixed-only and mobile-only customers.
Fiber coverage in Spain reached 12.7 million households, allowing Orange Spain to post solid net adds, with plus 135,000 in Q2, reaching a total of 2.6 million customers or 62% of our broadband base. On mobile, in Spain, we were back to competitive intensity throughout Q2, with heavy promotions. In this context, we demonstrated strong resilience, with the mobile contract base, excluding M2M growing by 1.2% at the end of H1 and a churn rate, which is decreasing quarter-on-quarter for the second quarter in a row since the peak reached in Q4 2017, we're now around 20%. Orange Spain continues to be the leader in 4G customers, with 59% of the mobile customer base using 4G.
Turning to Europe, which is now on this single page concentrating Poland, Belgium, Luxembourg, Romania, Slovenia and Moldova. In this segment, total revenues grew by 0.3% this quarter, supported by positive momentum in retail services, up 2% in Q2. It was 1.1% in Q1, and it was minus 1.1% over full year 2017. This trend in retail services reflects our ongoing focus on convergence, with revenues from convergence, which now account for 13% of retail services. These retail services are maintaining a strong growth rate this quarter. It's nearly 60%, in fact, 58% following a growth of 60% in Q1 and 54% in full year 2017.
This focus on convergence in Europe is also visible in our commercial performance, with steady growth in both our contract mobile and fixed broadband customer bases, supported also by the ongoing improvement in the share of convergent contracts. From country perspective, this quarter's most notable change in year-on-year revenue trend was slowdown in equipment sales in Romania because of a different phasing and the launch of some flagship terminals compared to last year. And if you look at profitability, the trend in adjusted EBITDA improved significantly to minus 2.8% this semester compared to minus 7.7% over 2017. And despite the loss of high margin, and the [indiscernible] revenues in Belgium. This improvement in the EBITDA trend comes as a result of both a better revenue trend, so we have plus 1.2% in H1. It was only plus 0.4% in full year 2017, and also a better OpEx trend. They are only increasing by 2.7% in H1 compared to 3.6% in full year 2017. This improvement is particularly clear in Poland, where the adjusted EBITDA has been growing by 3.8% this semester compared to minus 11.7% over the full year 2017, so a very good performance, which is of course, consistent with Orange Poland's guidance of an adjusted EBITDA stabilizing in 2018.
Let's now turn to Africa and the Middle East, which continued the good dynamics started in H2 2017, with revenues increasing by 5.2%. And so this puts us to 5.7% in H1 2018. This growth is driven by the strong performance of retail at 7.7%. This drives us to plus 8.1% growth in retail in H1, strengthened by data, data monetization, which contributes to approximately 2/3 of this growth. Also, Orange Money on an ongoing very strong growth. It's 46% growth here. And also supported by the stabilization of voice, thanks to abundance offers, which have been launched.
Most countries in the region grew by more than 5% on new operations before acquisitions of 27 -- 2016 contributed to 1/4 of this growth. Also, good to see that Egypt, Cameroon and Morocco have high-growth rates, more than 8% in Egypt, for instance; close to 8% in Cameroon; to 5% in Morocco, so very nice results. Senegal also posting high-growth rates. In Ivory Coast, there was a fire -- a chemical fire in an important technical site and also the increased request related to customer identification process, which had an impact on growth. So in Côte d'Ivoire, group revenue growth was only at 2% in Q2 compared to a higher figure in Q1, and this leads us to a 3.5% growth in H1. More than 40% of this very solid revenue growth in Africa/Middle East translates into EBITDA growth, a strong growth, 7.8% in H1, thanks also to an efficient cost monitoring and to some favorable nonoperating items such as assets disposals.
I am closing with the Enterprise segment before turning back to Stéphane. So looking at enterprise on Slide 19, then. Q2 revenue trend improved, with growth of 1.3% in Q2 after minus 1.3% in Q1. So this results in stabilizing revenues over -- of the first semester. Sustained growth in IT and integration services mostly compensated the erosion in voice in Q2. Cybersecurity and cloud continued to deliver double digits revenue growth, plus 14%, with cyber defense; plus 18%, with cloud. Data services were also more resilient this quarter, slightly eroding at minus 0.9%. It was minus 3.4% in Q1, and this is mostly thanks to a good performance in IP VPN services, mainly in wide area networks. Fixed voice and mobile service revenue remained under pressure in Q2, respectively, eroding by 6.5% and 1.3%. Although the commercial performance significantly improved in mobile, with plus 46,000 contract net adds.
As a result, H1 adjusted EBITDA decreased by 4.9%. This is a result of margin pressure in legacy services and also a change in revenue mix, with a greater share of lower EBITDA margin on IT and integration contracts. But we have also, of course, to remind that this comes with much lower CapEx requirements.
Thank you, Ramon. Let me now end this introduction with our guidance for the rest of the year, practically with this very solid set of results, we fully confirm our guidance for 2018 that's -- I want to remind you, number one, to deliver a group adjusted EBITDA growing faster in 2018 compared to 2017; second, CapEx will reach a peak at €7.4 billion in 2018; three, operating cash flow will grow faster in 2018 compared to 2017; and four, we will keep the solid balance sheet, with a net debt to adjusted telecom EBITDA ratio around 2.
Regarding the dividend for fiscal year 2018 as already announced, we will propose in the 2019 AGM, a dividend of €0.70. This is up €0.05 versus 2017 and pay a €0.30 interim dividend on December 6, 2018.
And finally, regarding our M&A policy, we confirm our very selective approach aimed at strengthening our existing footprints in our core telecom business or entering into consideration when we have an opportunity and supporting Orange's diversification into new services as illustrated recently by the Business and Decision and Basefarm acquisitions.
So this is the end of our presentation. And now, myself and the team around me, are available to answer any question that you might have.
[Operator Instructions]. We will now take our first question from Daniel Morris from Barclays.
I've got two please. First of all, I was interested to note the 3-percentage-point improvement in the higher mix you're seeing in France. I just wondered is there anything looking forward that your competitors doing around fiber-to-the-home or new content launches? And I guess, I'm thinking Champions League over the summer that might impact that relative momentum in 2H and beyond. And related to that, how are you thinking about the need of Champions League content, specifically? Second question is on the Enterprise segment, can you talk about the gross margin contribution you're seeing from IT and cloud services, both pre and post-acquisition of those service providers you mentioned on the call? And related to that, are future acquisitions pipeline in terms of IT services, is that still there for you? And do you have any interest in doing bigger or more transformational IT deals?
All right. I'll ask first Fabienne Dulac, who's in charge of our operations in France to answer the first question.
Good morning. In context, very aggressive side by Stéphane and Ramon, we succeed to have very good performance on the high-end market. The high end represents more than 100% of our net add on mobile, on broadband only, mobile only, fixed only and on convergence. So we reached and we record an improvement of our high-end customer mix. That grew by 3 points on the mobile year-on-year and 2 points set on the broadband year-on-year. It's -- I want to insist it's a very good performance in the context, very aggressive. And you know how the price were very low in this [indiscernible].
Well, maybe regarding the second element of your question, the content component of our market dynamic and the situation created by the Champions League attribution of rights. What I can tell you is that today, we have the best possible offer in terms of contents and pay-TV contents in the French market, thanks to all the distribution agreements that we have, we [indiscernible]. Please note that we have recently renewed our distribution contract with Dean for the next in 3 years. Now regarding the Champions League, we are still in talk with Altice regarding the possible distribution of this -- of those contents. Still no agreement, but I would say that we are relatively comfortable about the prospect because our TV base is in France, which is as you know, the largest in DSL on our fiber access, makes us relatively difficult to ignore, I would say in the distribution strategies, so we have no stress regarding the way we will be able to give the best possible access for our customers to those rights. And this is also an opportunity for me to just remind that we have no strategy to enter into the spots rights or pay-TV business. We were not participating in the recent auction of National Football League, and we are very happy about that. Second question regarding OBS EBITDA margin, I'll ask Helmut Reisinger, who is the new CEO of OBS.
Yes, this is Helmut Reisinger speaking. With relates to the -- what relates to the EBITDA contribution, we have a typical EBITDA contribution today on the IT and integration services in line with the market, which is between 10% to 15%. Today, IT and integration services, as you can see from the numbers we present, close to 30% of our business, with have a growing share. The reason why the EBITDA overall in OBS is not showing a positive trend is because we have a big part of legacy telco services that come with a higher EBITDA margin, and this is the transformation we are driving, I think, quite successfully. Already, my predecessor has put in place with full support of our Chairman, the strategy to go into growth areas, IT and integration services split into cloud applications as well as CyberDefense. And we did, and I'll come to the second part of your question, we did targeted acquisition as you know in CyberDefense space that allowed us to be now #1 in the CyberDefense space in France. Coming to your second question, clearly that means also we want to extend this leadership position also outside of France. So yes, we have a pipeline on this topic. In terms of cloud, you've seen the acquisition of Basefarm that was mentioned already, also here. This is complementary to us, and we hope that we can gain a lot from synergies also from Basefarm acquisition, because they have a very good automated platform also in terms of delivery of those cloud services that goes more and more into hybrid cloud. And on the application space, this is the data science and data management topic. Also here, we have done the acquisition of Business and Decisions. Also this should help us to foster the margin position and the EBITDA overall in the Enterprise segment and continue to fuel the growth.
We will now take our next question from Nicolas Cote-Colisson from HSBC.
Just follow up on the Enterprise segment. Can we have an update on the timing of the French regulator action to make the connectivity market more competitive? And how you're reacting to this? And also, how long do you see the transformation program you just mentioned could get you to stability, by far, enterprise? And just a quick question on France FTTH and the retail market and just relatively weak net add performance in Q2. I was wondering if there was any particular reason for this beyond the competitive market? Do you find it generally more complex to migrate your own ADSL base after you got the full set of this?
All right. So on the first point, maybe I'll ask Gervais, who is the -- also the Chairman of OBS working with Helmut regarding this specific situation in France.
So regarding B2B, if you remember, we see a competition authority took a decision now more than two years ago. This decision has been transforming to on implementation decision, which is supervised by the telecom regulator. And we are clearly in the process to meet the requirements for the internal reorganization of our processes, especially the clear separation between intervention, between field engineering installation and sales and sales support. And this is a long going process between the teams of French business services, the teams of Orange France. This process is today, underway, shall be fully operating by the beginning of 2019, and we are clearly and there's a scrutiny of the accept, which is clearly following this process. And you know that if we don't meet the deadlines, we might get additional fines. Regarding the rest, there is also an adaptation of the wholesale offer and maybe my colleague from wholesale, Johan Balijon can process the new dimensions of the wholesale of France.
So good morning. So yes, we are committed to deploy a wholesale offer to B2B [indiscernible] and for FTTH this stream offers and all of the effort concerning for this B2B segment. So at the moment, we are fully on track. There are some of the first coming from competitors of Orange, but however we didn't see any risk in regards of our commitment to accept and to our wholesale revenues and retail revenues.
Thank you, Johan. Regarding the second question, to be honest, I don't see really how you can consider the fiber net adds in France in the second quarter as weaker, in so far as it is the best quarter in fact for a second quarter in fiber net adds ever. As you know in this market, there is a form of seasonality. We realized 119,000 net adds in fiber-to-the-home this quarter. And so it's in no way a bad or weaker performance. And let me just remind you that in medium dense areas, which is now the place where we are accelerating the deployments, our FTTH customer base grew by 50% year-on-year in this second quarter 2018. And well we -- in absolute numbers, we still don't see any measured impact from the acceleration of other competitors, especially freight. And maybe last figure to maybe enable you to have a clearer view on this market, if you consider the connectable homes basis that has been built by Orange, if you now take into account retail customers and wholesale customers, we have 57% of this FTTH network, which is occupied, if I may say so, either by retail or by wholesale customer, which is a very good ratio and relatively stable. Fabienne, do you want to maybe add something on the fiber market?
On the fiber, on the broadband, maybe overall, you're right, and I agree. We are very satisfied by the result we recorded on the broadband commercial performance because I would like to remind you, it was a very aggressive and competitive market, with a strong promotional intensity. Just to remember, you have 3 operators with ADSL of starting at €5 to €10 and FTTH offers at €10 to €15, it's the lower price we have ever seen on this market. And even this context, we booked 90% of add above €20 for range. So that explains, we are very satisfied because we both reached volume and value on the broadband, where the battle was very, very tricky this quarter. So Orange, I am sure is the only one player to increase both in terms of customer base, client base and ARPU during this Q2.
We will now take our next question from Stephane Beyazian from Raymond James.
One question on the business in France. The revenues last year, I think was supported by fiber cofinancing and revenues are a little bit softer this year, so I guess, there are some regulatory impact behind. But can you elaborate just a little bit on the different moving parts for the operation in France? And my second question, just coming back on the enterprise business again. I can totally see the rationale of the telecoms and IT convergence. But I think it's fair to say that European telcos haven't been very good in the past decade in terms of selling ITC, I would argue. And I was wondering whether how you're going to integrate all of these assets together and whether you're going to have a specific approach to the market in terms of branding, are these companies like Basefarm or Business & Decision will stay autonomous? Or will they be total integrated within Orange business services? So any comment there could be interesting.
Stéphane, so the first question, I'll ask Shoho Bareck [ph] who is the Head of the Wholesale Business.
Unidentified Company Representative
So you are right, so the wholesale business decreased in H1 by 2.1% in H1 globally, but only 1.3% in Q2. Please note that in fact, we are -- despite this decrease, we are ahead of our forecast. Ramon mentioned a decrease of the additional roaming agreement and bundling activities and copper bundling activities in France. We are increasing revenues on copper fiber -- sorry, an optical fiber as this growth optical fiber doesn't offset the decrease in H1, but it's growing. You know that in fact, we have a better reserve in Q2 than in Q1. And for the second semester, we expect a solid performance, where with stable revenues compared to H2 of 2017 due to the acceleration of optical fiber network and the confinements in optical fiber networks.
Now I'll ask maybe Helmut to elaborate a little bit on our strategy in the B2B business and these targets to accelerate in the migration from a purely connectivity business with more balanced mix of businesses between connectivity and IT services. Helmut?
I'll try to answer it as best as I can. First, well there might have been some doubts in European telcos, but I do believe that OBS in this sense is a success story. I'll give you one example that we have made public as well to go together with European space agency, we are providing a very business-critical private cloud across Europe for this entity. And we've done it successfully. And also in line with the contractual commitments in this very sensible areas. As you know, the good areas that we have defined is the application business, it's the cloud area and if the CyberDefense. And you're right that the telco is that the around the room as we would say here in Paris with the IT space. And if you look to the recent contracts that we have signed, we've also indicated that on the telco space, it's changing towards software-defined networking, and we've announced also the successful closing of a big contract, where we will transform 1,500 sites for Siemens globally, managed by Orange business services into software-defined networking. What has been stated very clearly from lots of our customers is what they see critical at Orange Business Services that we are able to do a carrier-grade integration capabilities. I believe that it's not only about IT grade, it's about carrier grade reliability that the customers on the multinational scene are looking for.
And with regards to integration concept, now we have to await the closing of the Basefarm transaction. We have to go to a certain process in Germany that has been handled and is ongoing. We believe that the closing shall happen certainly towards end of Q3 or beginning of Q4, and we will keep the necessary entrepreneurial autonomy, while leveraging on the synergistic platforms that we are using together. There is one cloud platform delivery because we need to have operational excellence, but also giving entrepreneurial autonomy for this team that is covering 5 countries for us in the future also in terms of cloud-critical services through enterprises.
We'll now take our next question from Andrew Lee from Goldman Sachs.
I had a question on convergence, the question [indiscernible] advances on cross border M&A, so just convergence and the tailwind you've shown. Just wanted to get more color on how you think about how sustainable that is? So what tailwind do you think you're roughly getting to EBITDA growth from your convergence uptake? And is that how you think about anything you can give on that. And how much further is that to go from convergence benefit in France? So are we nearing peak penetration of convergence and then your customers exhibiting lower share and higher share in all the same share conversion customers couple of years ago. And in the second question just a reiteration really probably from you on your interest in cross-border M&A. There has been for speculations particularly interested in Portugal. I know you've been very clear, you don't see rationale for cross-border M&A very recently. But just wanted to check in on that.
Okay. So maybe Ramon for the first question and one -- and Fabienne will complement.
Yes. I think your question has been not only focused on France probably, but as a more general question on -- in Europe essentially. I think what is -- so since the first quarter of 2017, we provide you with the figures in terms of watching how convergence is delivering more customers, more revenues, more ARPU, except in Poland where we are still at the time of early stages of convergence, even if it is progressing rapidly, and so we are close to getting a positive evolution also on the convergent ARPO in Poland. Of course, in terms of churn, and you know the methodology we are using is in fact kind of underestimating the positive impact of ARPO -- of churn, sorry, because we calculate the churn of a convergent customer with the churn of our total customer base. If we would be comparing the churn of a convergent customer to nonconvergent customers, the difference would not be 2 to 3 points in France, for instance, but higher than 6 points, and it will be the same in other countries.
So all these metrics are always on the positive trend. And as a result, in fact of this growing share of convergence, which is now 86% of our broadband customer base in Spain, 60% in France and close to 55% in Poland, you are seeing a very strong increase in EBITDA in Spain, still over 10% growth compared to the 17% we had last year and this is typically a totally convergent market. In France, you have more than 5% increase in EBITDA this first half, and it's not totally without link with the penetration of convergence because convergence brings you new customers, roughly 80% of our new convergent customers in France, for instance, are either new mobile customers, it has been the case for now quite a while, and it's not changing. In Poland, as I said, we have a positive figure in EBITDA, and it's not totally by chance. It's the first time for quite a long time, and it's a time where convergence is picking up with the rollout of fiber in Poland, which is sustaining more customers, better prices, et cetera.
So I think this whole move of convergence is really putting us in Europe, and I could talk also of what's happening in Belgium through the regulated access to cable where regulation by the way, in terms of accessing the fixed network has been improved, and it's good news. I could talk about Romania, where we are also making a good success in developing our convergent offers. So this is really key. And for whole European market, in fact it's going in this direction, and it's a choice that we have made a few years ago, which is paying off now. We are the #1 convergent operator in Europe, with more than 10 million convergent customers. We are the #1 player in terms of FTTH, and this is to support growth, both in revenues and EBITDA in operating cash flow. It is supported by investments, yes, but it's really creating venue. So we have really no question about this. It is putting us in the -- in a winning seat and really, building the future.
Fabienne, maybe one word on the French market.
In France, convergence is a pillar of our strategy. It drove our performance maybe two figures. 60% of our total customer base is convergent. It's grew 6.8% year-on-year, and it's very important because as I explained in the past, it's a level of acquisition, and I want to recall one figure. 79% of new convergent customer is still new on the mobile or on the broadband. So it's still a level of acquisition. It's a level of retention, we have a better churn rates. We reached 6-point of churn differential between convergent and total fixed broadband customers, and it's an absolute level, and you will know all the strategy we have around diversification and offer new services for customers is more efficient behind convergent offer. So it's for us, very important in this very aggressive market to be less sensitive to promotion, aggressiveness, aggressivity from competitors, and it's very important for us because it's not over and the strategy we have, we will pursue, and we will continue and we will continue in coming quarter the penetration of convergent in our customer base.
Thank you, Fabienne. Regarding your second question on cross-border M&A and namely Portugal and Italy, what I can tell you is that we are currently not working on any of topic regarding telecom cross-border M&A in Europe. As far as I know, there is no asset on sale in Portugal, neither by the way, in Italy. Regarding the Italian market, I think no one can really say that this is a quite yet calm and predictable market, so very far from being an opportunity for an investor. And as you know, we have clearly said that we want to focus in terms of M&A on 2 topics. The first is in market consolidation when we can enter into such an opportunity. And the second is to accelerate in the implementation of our strategy in the B2B parts of our business. And maybe last one is to tell you that in Africa and the Middle East, M&A or what you can call cross-border M&A can also create value. If you look at the contribution of our last acquisitions in Africa and the Middle East to the growth of this segment, you will see that 1/4 of the growth comes from recent acquisitions especially Burkina Faso. So there is at least an area for us, Africa and the Middle East. We are very selective, of course, in value-creative M&A, can be interesting and attractive.
We will now take our next question from Nick Delfas from Redbird.
So can you just offer any perspective on how you see the developments in the French markets in terms of the potential for consolidation? Obviously it's an area of intense interest. Do you think that thing could be feasible? Or are you planning for maintenance of the status quo?
Well, my view is that the likelihood of consolidation in France is low. Because in fact, I would say the nature, the history of the players in the French market makes it very unlikely and difficult to find a way to consolidate. So we don't expect anything in the short term. And at least it's almost impossible to imagine that Orange could take France role in such -- in market consolidation because of our size and because of also the size of the French operations for us in Europe that would probably lead to European commission scrutiny, antitrust in for any kind of operation. So Orange will not be a front leader, and I am realistic enough and honest enough to tell that I don't see anything in the very short term. Now in the medium term, the medium term could be, let's say, from 2019, I still think very strongly that the economics of the French market will make consolidation unavoidable. Because if you look at the performance, both economic, financial generating free cash flow and markets also dynamics of the French market, I still think that it will not be sustainable for -- in the long term for 4 players to be in the French market. Today, you have 2 of those 4 players that are not producing any cash in their French operations. In the same time, we have a lot of CapEx to do -- to make, especially for fiber, so I still think that's in market consolidation will hucker, but not in the short term.
I'll just make -- I have two follow-ups on that. On the one hand, where we've seen there's blocks and the U.K. and in Denmark, the deal is not happening, prices then go up to solve that cash flow problem. I mean, is that not a potential outcome of no consolidation if the competitors have to change strategy with regard to whether pricing their products? And then the second question was I just wanted to clarify, you're saying that an involvement of Orange in the deal would lead to European dimension? I am not entirely clear. Is that a change from previous understanding, because I think obviously, you're quite close to the threshold for European dimension?
Well, of course, you're right, we'd be very happy to see, I'd say the -- a more rational answer to the 4-player situation in the French market, leading to, let's say, a more sensible behavior in term of pricing. By the way, this is exactly the way we at Orange are trying to do, are trying to behave because our strategy as you know is to build an advantage in this market on our investment, on the quality of the networks, on the quality of the service, on the quality of the customer experience. And in fact, everything we are -- we do in France is to protect ourselves and to protect our customer bases and to protect our results from, let's say, irrational and short term pricing behaviors that we see in the market. So we are clearly taking a leading role in trying to turn this market back to a more sensible and rational pricing situation. No, of course, we do not act on behalf of the other ones. And once again,, if there is no consolidation in the short term in France at least, we hope that the market dynamic will maybe come back to a less education, less promotions and a little more, if not stable, but at least predictable pricing strategy. Now regarding what I mentioned, what I wanted to tell you is that Orange as a front player, let's say, in consolidation scheme today regarding the -- as you know, the rules between the national and the European antitrust. If we were once again, the front role of consolidation, we would be under European scrutiny. This doesn't mean that we cannot take part in consolidation scheme, for instance, by taking some assets, if we had to do that. So we are still fully ready and available to facilitate or to take part in any possible way to facilitate consolidation deal. But today, it is true that it would be difficult for us to initiate a consolidation deal. For instance, in the way we try to do it two years ago.
We will now take our next question from Nawar Cristini from JPMorgan.
I have two questions please. Firstly, on the guidance, the EBITDA delivery has been ahead of [indiscernible] expectations, both in Q1 and Q2. So with this in mind, how should we think about the guidance and also about France's expectations of 2.8% for the full year? And my second question is about Spain, so we saw sequential slowdown of the top line trends in there. And within the mix actually, retail was stable sequentially but wholesale deteriorated. So it would be helpful if you could walk us through how should we think about the dynamics between retail and wholesale in the Spanish topline growth, both in H2 and also for next year.
So Ramon, for the first question. I'll ask, who is in the call for the second question.
Okay. So on the guidance, the commitment and I know you know this is to see an acceleration of growth in EBITDA and operating cash flow compared to 2017. As you've seen, we are well on track. Regarding what consensus is seeing for the full year, I would only say that what we have been seeing in the first half is fully consistent with what you all are expecting us to do in full year. So we will see what is the final result, but we are very confident that we can deliver our commitment, and we don't have an issue with what you guys are seeing today.
Laurent on the dynamics -- for the wholesale dynamics in Spain.
Yes, obviously the retail is remaining the same growth Q2, Q1. It's driven by fiber, it's driven by convergence and content strategy and having the full for the next semester is going to help us again in this strategy for value and also our multi-brand strategy, which is allowing us to protect the Orange values segments. So basically, what is driving the slowdown in terms of revenue usually the international traffic, and it's the equipments and international talking as you know are not key contributors to the EBITDA, so there is no impacting the EBITDA. And national traffic is obviously driven by the market, and we cannot do a lot on that and on equipment, you have to keep in mind that we are already setting more terminals in Vodafone and telephonic altogether so basically again, we don't expect growth there in the equipment segments. So we remain focused on value creation, and we are maintaining the same strategies, which is driven by the investments fiber, the migration of the ADSL customers benefit that we have in the values and in term of the churn as we can expect from adding convergent and home fiber.
We will now take our next question from Nicolas Didio from Berenberg.
Two questions. The first is on Spain and the football. I mean, there's a clear divergence with products regarding the football rights. So just I just wanted to know, where do you think it's coming that divergence of views on the monetization of order for the rights? Is it the current structure of your business that makes the equation different on your side? Or it's just different perspective in terms of how the market will evolve? And the second question is regarding Orange Bank, we don't have any I think, kind of the data on the number of customers. I just wanted an update on this. And maybe you're trying to assess how much you believe the EBITDA into the positive EBITDA trend in France considering that a lot of what you're doing in bank is helping France. So shall we at some point, merge the EBITDA loss of French bank into the French segment?
Okay. Laurent, the first question on Spain football rights?
On football, football is not the only theme where we don't have the same uses, Vodafone, fiber is another one also right, because we are maintaining investment in fiber, which is not product in there. If we're talking about football basically, it's just a key content for us. It's driving the value strategy for Orange. So if you look at the penetration that we have in our portfolio, we have something like 65% of our customers on TV, on pay-TV, which are looking at football and paying for football. So strong penetration. I think Telefonica is around 80% of its portfolio, which is paying for football. Vodafone is on the rich penetration of roughly 35% of its full TV, pay-TV portfolio. So basically because the way the rights are located internal cost is more based on pay-TV market share. So basically were Vodafone, they have the same customer base in term of football, roughly 400,000 customers ourselves, and they are paying the double of ourself.
So basically because I have not been able to push the penetration of football at the right level, they are paying by customers the football. Will they take the decision to quit about the people? Not because they remain with the league next year but obviously that's a strategy in which we don't think this is a right one at least for Orange because before Orange perspective we're going to be able to compete head-to-head with Telefónica, and we've demonstrated in the past that we've been very effective in terms of capturing customers from Telefónica with the contents that we have in Orange. And we are better off in terms of competition with Vodafone because we're going to be able to protect a very segment rate to be content including football, and we don't want to compete in the low-cost segments. And obviously this is edging us in the perspective of the low-cost segments. So in our view, this is giving us more opportunities. In fact if we look at it, the fact that Vodafone is getting out of the football, yes, it's an increase in term of cost, but we are taking 20% of the increase of cost, 80% is going to Telefónica and opportunity to capture from the 400,000 customers of Vodafone is probably 50%, so 20% of the cost, 60% of the benefit.
Thank you, Laurent. Ramon, on the EBITDA points and impact on the French EBITDA.
So yes, you're right. We're not giving on the quarterly your half year basis revenue figures in terms of the addition of new customers in the back because honestly, doesn't make much sense to follow this on an ongoing into long-term project, and so we gave initially the first figures and then we are building the bank, we are doing well, we are working on new project and Laurent Paillassot is talking before me. We will open a branch of Orange Bank in Spain in 2019, so we are really working according to plan. We have launched our consumer credit loans in March, and so a lot is going on and more generally speaking, I must say, a lot is going on in terms of mobile financial services in Orange, which is one of the key diversification roads we have decided to embark on. And we also by the way, we had planned with Perdelus who joined the group recently to have a dedicated event before the end of the year, to have a more general dedicated time to talk about these issues. In Europe, a lot is going on.
In Romania, for instance, two weeks ago, there was an upgrade of the Orange Money services in Romania very interesting things going on. In Africa, there is also with Orange Money strong growth but also some complementary projects with banking services, which are on the road map. So the Orange Bank project is -- went on track, working well. Should we, as you suggest, looking at France, merge the kind of negative EBITDA of the early years, should we merge these negative figures into the Orange EBITDA? Honestly, we could do so, but it would just take away some information, which probably would like to have. And I don't think it will help you to have a clearer view of what's going on. So there is roughly a €60 million negative EBITDA in the Orange Bank this first half, which is perfectly on track with the figures we were giving as a preview for 2018. And I think it's a better to have these both figures to be under review. At the same time, I think your question just points to a good point, which is that Orange Bank is the Orange telecom bank project, and so there is the synergies also working, and it is true that this project in mobile banking is also supporting the telco activities in terms of acquisition of new customers, in terms of retention. And so it's a global project. It's not only by chance that as a telecom operator, we have decided to embark in mobile financial services. There is a lot of synergies, and so this is going to be built over time. But honestly, I think for all of you, it's clearer to keep two sets of figures.
We will now take our next question from Frederic Boulan from Bank of America.
Firstly, just a follow up on Spain, so pretty stable service revenue growth. Can you comment on how you see that evolving, considering the competition in the market? We've seen that pushing to the brand in [indiscernible] segments more retention efforts on Vodafone. So do you think you can keep the strategy focusing on the higher end? Losing a bit of subs, but developing solid ARPO and keep that revenue dynamic? Secondly on your overall CapEx guidance that you reiterated today, if you could explain a bit more the impacts of the new deals, I mean generally on your CapEx profile, in the context of the guidance of CapEx decrease from 2019.
All right. Laurent, the first question, please?
Well on 02 it's a little bit early to say what's going to be impact. Our understanding that it's going to be helping Telefónica and Movie Star, to protect Movie Star in the low end of the segment. So we expect them to be more using it to protect their portfolio rather than being aggressive. I think we already have very strong competition in the low end of the segments. As you know, we are competing ourselves as Orange with three brands, we're using [indiscernible] in the low end segment, we are using Jazztel, which is a brand for Orange and basically that's the way we are protecting the value. We are not very aggressive in terms of promotions we've done. We're not doing second lines for free are some other players on the market. So basically, we are remaining focused on the potential for growth is value. Where does it comes from? Well, we remain with this leading position in 4G, but we are really we remain with 40% penetration on the portfolio of mobile, which can go to 4G, which is giving ARPU usage a lot, we are also, I would say, 2.6 million customers in fiber, so you have also 40% of growth that we can translate from ADSL customers, which goes with higher ARPU, higher royalties. Therefore, all the drivers that are driving the growth in Spain remained there. It's true that we're not going to compete head-to-head and promotions, but I don't think we don't need to because it doesn't make any sense. We are have a very powerful brand. Overreacting with Jazztel will be driving competition and prices very low, we don't want to do that, so we are trying to be I would say, reasonable in the market and our results compared to competition. If you look at Telefónica and Vodafone's over the last I would say 10 semester, demonstrating that it's the right strategy.
Thanks, Laurent. Ramon, on the impact of the new deal on CapEx.
Yes. I would love that you would in fact enlarge your question on the new deal. Because as we have said since the start, but it's a point that we -- I think it would be good to spend just an extra minute on this. The new deal is a commitment of for telecom players in the French market to accelerate investment to cover with 4G, a number of areas, which have been covered over time but at a slower pace. So it's an acceleration of investment, the new deal. This is the one thing. The other thing is probably more interesting or should be more interesting. The other thing is that for the first time, as far as I know, for the first time, our government has decided to extend for 10 years, the licenses, rights without having us to pay spectrum fees, which for us, will be savings of roughly €800 million. So this new deal is an acceleration of investment, investments that we had largely planned to do, but we are accelerating. And over time, it would have been done. And in front of what we would have been doing in any case, we have a benefit of €800 million savings.
I know it is not on the same line, I know that it's a bit difficult to accept for some of you, but it's a fact. And I think we should all look not only at the CapEx line, but also to other cash and to the value which is being created, not only through CapEx, but also for this mix. And the kind of, I don't know how to name it, but the nice move of the government in France, which says, okay, I want to have more connectivity, and I'm ready to renounce to some fiscal revenues despite the situation of the fiscal situation. So we should look at it in terms of cash out, and it is a very nice cash out deal, this new deal. Now all this being said we said, we said and we confirm that 2018 will be the peak in CapEx at group level. This is what we said, this is what we have been reiterating. But then overall, when we look at the sequence of the following years, never forget what this deal is bringing in terms of cash savings because this is the real value, which we are creating.
Taking another example to show how also careful we are with CapEx. Stéphane explained in his introduction that the recent deal in France in the medium dense area [indiscernible] where we have split decided, which is going to alleviate the level of CapEx that we would have been doing. Otherwise, we had 87% of the market share in the medium dense area up to now. It will be 80% because we have accepted in this discussion with to have the split in the 2.9 million households, which had not yet been split between us. So you see, we are very cautious about CapEx. We have lien CapEx exercise, which is working full speed. Everybody in the company is mobilized on this. Trust me, it's very interesting by the way, you should come to our hackathons, great ideas to have the best impact with the less euros. So we are very focused on CapEx, very much focused on CapEx. But please also be focused on the other elements, which are creating value for the company.
We will now take our next question from Jakob Bluestone from Crédit Suisse.
I had a question on consumer line loss in France. If I look at the numbers that you published for consumer line loss, you lost just over 100,000 consumer lines this quarter. It should have been creeping up a little bit, last year in '17, you lost sort of 250,000 lines year-to-date, in the first 6 months, you lost about 200,000. It looks like there's an increase happening in your consumer line loss. I was wondering if you could maybe give a little bit of color on what's going on there. Is it just the pickup in competitive intensity we've seen this year? Or is there something else going on, rising fixed law substitution or something along those lines? So any color you could give on that would be very useful.
All right. So if I understand, you are talking about unbundling lines, right?
It's actually the total consumer lines, so the -- so 15.6 million retail lines that you have in your France fixed segment. So I think [indiscernible].
In the fixed market?
Yes. If I understand your question, I confirm, we have a good result still on the consumer lines, and we have a 6 million customer base on this market and we maintained even the performance under fiber and the ADSL this customer base and the result -- the financing results.
[Indiscernible] offline, maybe a slight different question. Are you seeing any signs of rising fixed mobile substitution in France? Are you seeing more people go mobile-only?
Not so much. Not so much than the other country. No.
We will now take our next question from Thomas Coudry from Bryan Garnier.
I will limit it to one. Coming back a little bit to the market structure in France and having in mind the future 5G deployments, it seems to me like the government and the public authorities are a little bit worried that 5G deployment might not go as quickly as they would hope probably. Having this in mind, I wanted to see how do you -- and I've heard also about the need to upgrade 20,000 antennas in France and 20,000 and have 5,000 new sites deployed for the 5G. Could you please comment on the outlook that you have in terms of safe 5G impact in terms of CapEx and deployment? And more importantly, given these interrogations regarding 5G and the market structure in France, do you think that additional network sharing in France could be a solution to solve these market structure issues? And in particular, would you be willing to enter with another player in the market into network sharing, I'm talking about mobile here, of course, network sharing agreements such as the one that we have seen with telecom and FSR, for example.
All right. So regarding 5G. As you know, we have a regulator in France who would like to make interviews and explaining to the world that we are not investing enough, which might not be your point of view on the French market, and explaining well before -- I mean,, the appropriate timing that we might be late in 5G deployment. Our view is that today, we are perfectly preparing the arrival of 5G. We are currently experiencing in several locations in France 5G networks. So from a technical point of view, we are fully ready to initiate 5G. Number two, to deploy 5G, we will need some additional spectrum as you know and maybe instead of making interviews, the regulator could try to organize this option of the necessary spectrum on time. So this will probably take place next year. So we are very comfortable about the way we will be able to prepare the arrival of 5G in France. And I think there is nothing to worry about for our domestic entry. In terms of CapEx, and I will let Helmut also make any useful addition on that. But I just want to remind everyone that our view is that 5G will not mean significant additional CapEx for us in the coming years. This is what we have constantly said and explained to the market, and this is still our view.
Yes, just maybe to confirm what Stephane just said. I mean, fundamentally our views did not change to compared to what we said in Investor Day in December in London. So you can take all what we said in December. There is no change. So and just to give an extra figure, I mean, when you look at France for instance,, more than 90% of our mobile sites are connected with fiber. And so we are with the new deal also, the 4G densification, we are more or less, getting 5G ready in France with all these current investments. And so the extra gem of 5G is not going to be really an extra gem. We are preparing ourselves.
Maybe last word about network sharing, which was the second part of your question. Well, first as you know in the French market, there is today network sharing deal between we as FSR, which is now well done. And so we have a market in France with big structural, I would say, network sharing agreement. Now regarding Orange, we are doing network sharing in a number of countries, in Europe and in Africa and the Middle East. In France, we have a specific situation. We are the largest. We have the best network. This is a big advantage for us. We are constantly working in strengthening this advantage. And so I think, everyone should really think deeply before doing anything with this asset.
And we are not prepared to lose this advantage or to even share anything of this advantage with any of our competitors. So there is no network sharing agenda in France for us because of this situation. Of course, I'm talking about wireless networks because to some extent, we share very largely the fiber-to-the-home network, thanks to cofinancing and the regulatory frame of fiber deployment in France. But this is the situation, so I don't think that it would be necessary in Orange's interest to really open its network, especially in the new generation of wireless networks. As you know, we are seriously keeping our advantage in 4G, with 98% of coverage today, which is a big well asset for us, an advantage in the market. And we do not plan to lose this or share this. Well, thank you, everyone, for your questions and myself and the team wish you a very good day, and a very good summer. Thanks.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.