Orange :1st half 2018 financial results

Press release

Paris, 26 July 2018

1^st half 2018 financial results

Accelerated growth in 1^st-half revenues, adjusted EBITDA and Operating Cash Flow confirms the 2018 objectives

The 1^st half confirmed the acceleration in revenue and adjusted EBITDA growth compared to the 1^st half of 2017, on a comparable basis.

• Revenues from all operating segments^[1] grew with a particularly strong contribution from Africa & Middle East, which rose 5.7%, and France, which increased 1.4%.
• The 3.3% growth in adjusted EBITDA in the 1^st half confirmed the objective of stronger growth in 2018 compared to that achieved in 2017 with, in particular, double-digit growth in Spain. Adjusted EBITDA for the telecom activities rose 3.9% while the adjusted EBITDA margin improved by 0.6 percentage points.
• With savings of 486 million euros in the 1^st half of 2018, the Explore2020 operating efficiency programme objective to realize 3 billion euros in gross savings over the 2015-2018 period was exceeded six-months early.
• CAPEX in the 1^st half was in line with the objective of 7.4 billion euros in CAPEX for the full year and reflects the Group's on-going efforts to provide the best fixed and mobile networks. At 30 June 2018, 4G mobile had more than 50 million customers (up 38% year on year) and over 29 million households were connected to very high-speed fixed broadband (up 26%).

The Group's strategy, focused on convergence and very high-speed fixed and mobile broadband, enabled us to continue to grow our client base in the 2^nd quarter in a very competitive environment:

• The increase in convergent offers up 9.0% year on year (10.7 million customers at 30 June 2018) and SIM cards linked to convergent offers up 12.0% (18.0 million) reconfirmed Orange's position as the leading convergent operator in Europe.
• Growth in fibre was very strong in the 2^nd quarter with 119,000 net sales in France (a record for a 2^nd quarter), 135,000 in Spain and a record 39,000 in Poland.

This strategy also enabled Orange to achieve growth in ARPO for convergence, Mobile Only and Fixed Only services in France and Spain.

2018 and mid-term outlook^[2]

Orange re-affirms its objectives for 2018:

• Growth in adjusted EBITDA greater than that achieved in 2017 on a comparable basis;
• Increased CAPEX, peaking at 7.4 billion euros in 2018;
• Growth in Operating Cash Flow greater than in 2017 on a comparable basis;
• The ratio of net debt to adjusted EBITDA for the telecom activities to be maintained at about 2x in the medium term to preserve Orange's financial strength and its investment capacity.

For 2019 and 2020, growth in adjusted EBITDA, a reduction in CAPEX and growth in Operating Cash Flow.

Commenting on the publication of the 1^st half results, Stéphane Richard, Chairman and CEO of Orange Group, said:

"The 1^st half results showed accelerated growth across all the Group's financial metrics. Revenues grew in all our regions while the strong acceleration in the Group's adjusted EBITDA, which rose 3.3% during the half, reinforced our strategy of differentiation on the basis of service quality and demonstrated our constant focus on operational efficiency.

Our investment strategy in fibre and 4G is reflected in the sharp increase in our very high-speed broadband customer base. Orange now has 50 million 4G customers with 13 million in Africa, twice as many as a year ago. In fixed very high-speed broadband, the customer base continued to show particularly strong growth enabling us to reach 5.5 million customers, almost exclusively in fibre.

The success of our convergent offers was clear yet again. With more than 10 million convergent customers, Orange confirms its position as the leading convergent operator in Europe. We are proud to have been a pioneer on convergence - now an industry standard - which we see as an excellent lever both for customer loyalty and value creation.

For this great performance I would like to thank all the teams across the Group who work hard every day to serve our customers and ensure Orange's success."

Key figures

• Half-year data

The presentation of segment information evolved in the 2^nd quarter of 2018 in line with the reorganisation of Orange's Executive Committee, effective since 2 May 2018. It now distinguishes Spain from other European countries. Historical data, comparable basis data and customer bases for 2017 have been restated to reflect this change.

* EBITDA adjustments are described in appendix 6.

• Quarterly data

* EBITDA adjustments are described in appendix 6.

More detailed information is available on the Orange website in the "Investors / Results and Presentations" section.

www.orange.com

Comments on key Group figures

Revenues

Orange Group revenues were 20.262 billion euros in the 1^st half of 2018, an increase of 1.7% (338 million euros) on a comparable basis^[3].
In the 2^nd quarter of 2018, Group revenues increased 1.4% (up 141 million euros) on a comparable basis. Excluding equipment sales, which slowed in the 2^nd quarter, and the impact of the inclusion of ePresse and audiobook offers (less significant than in the 1^st quarter), revenues from services in the 2^nd quarter grew 1.3%, up more than 0.5 points compared to the 0.8% increase in the 1^st quarter.
Revenues from convergent offers, sold in all European countries, continued to grow steadily rising 10.7% in the 2^nd quarter. In the Africa & Middle East segment, growth also continued with mobile services revenues up 8.5% driven by data services and Orange Money.
The Group's IT and integration services recovered in the 2^nd quarter (up 11.9%). The Cloud and Orange Cyberdefense rose 18% and 14% respectively in the 1^st half.
Wholesale decreased 1.9% in the 2^nd quarter. The increase in fibre co-financing in France largely offset the decline in unbundling, services to international carriers and incoming mobile traffic (with prices for call termination decreasing in some countries). National roaming was stable overall: the significant decrease in France was offset by growth of the service in Spain and in Europe (Poland and Slovakia).

Customer base growth

There were 10.677 million customers for convergent offers across the Group at 30 June 2018 (up 9.0% year on year), including 6.097 million in France, 3.133 million in Spain, 1.137 million in Poland, 127,000 in Belgium and Luxembourg and 120,000 in Romania. The number of SIM cards linked to convergent offers is growing steadily, reaching 1.56 lines per convergent offer in France (up 3.1% year on year, 1.87 in Spain (up 1.7%) and 1.92 in Poland (up 2.8%) at 30 June 2018.
The growth in mobile contract customers remained solid with 77.3 million customers at 30 June 2018, up 8.2% year on year. Excluding machine-to-machine, there were 64.6 million mobile contract customers, an increase of 6.5% year on year. The total number of Group mobile customers was 199.0 million at 30 June 2018, up 1.2% year on year (2.4 million additional customers) on a comparable basis.
Orange Money had 38.7 million customers in the Africa & Middle East segment at 30 June 2018 (up 29% year on year) of which 13.6 million were active customers.
There were 19.687 million fixed broadband customers across the Group at 30 June 2018, an increase of 3.7% year on year. Very high-speed fixed broadband grew 37% to reach 5.486 million customers.
TV services had 9.209 million customers at 30 June 2018, up 6.3% year on year.

Adjusted EBITDA

The Group's adjusted EBITDA was 5.984 billion euros in the 1^st half of 2018, an increase of 3.3%, or 192 million euros, on a comparable basis.
The adjusted EBITDA for the telecom activities was 6.043 billion euros in the 1^st half of 2018, up 3.9% on a comparable basis (an increase of 224 million euros) and the margin was 29.8% (up 0.6 points compared to the 1^st half of 2017). This growth was generated by the remarkable performance of France, Spain, and Africa & Middle East.
In the 2^nd quarter of 2018, the adjusted EBITDA for the telecom activities was 3.408 billion euros, an increase of 3.4% on a comparable basis, with a margin of 33.5% (up 0.7 points).
The optimisation of the cost structure, as a result of the Explore2020 operational efficiency plan implemented in 2015, provided the flexibility necessary to support the commercial performance including the purchase of mobile equipment and the enrichment of content offerings.
In addition, the average number of full-time equivalent employees of the Group decreased 2.7% in the 1^st half on a comparable basis. The increase in the Group's labour expenses (up 1.4%) is principally related to the inclusion in the 1^st half of the 2018 portion of the programme to allocate free shares to employees (Orange Vision 2020).

Operating income

Orange Group's operating income was 2.350 billion euros in the 1^st half of 2018, an increase of 2.8% or 62 million euros compared to the 1^st half of 2017. It includes 2.417 billion euros of operating income from telecom activities and a 68 million euro operating loss from Orange Bank.
The growth in EBITDA of 234 million euros was partially offset by the 106 million euro increase in depreciation and amortisation, primarily in France and Spain, and by the recognition in the 1^st half of 2018 of an impairment on goodwill of 56 million euros related to Jordan.

Net income

Orange Group had a consolidated net income of 879 million euros in the 1^st half of 2018, compared to 724 million euros in the 1^st half of 2017.
The 155 million euro increase was primarily due to the 116 million euro improvement in net finance costs and the 62 million euro increase in operating income, partially offset by a 23 million euro increase in the corporate tax charge.

CAPEX

Group CAPEX was 3.369 billion euros in the 1^st half of 2018, an increase of 3.7% compared to the 1^st half of 2017, on a comparable basis. Given the normal seasonality for CAPEX, the level of investment in the 1^st half is in line with the objective of 7.4 billion euros in CAPEX for the full year 2018. The CAPEX rate for the telecom activities, as a percentage of revenues, was 16.5% in the 1^st half of 2018 (up 0.3 points compared to the 1^st half of 2017).
The Group accelerated its fibre deployment: the increase in gross investment was offset by the co-financing received in France and Spain while Poland continued to deploy its fibre network. At 30 June 2018, the Group had 29.2 million households connected to very high-speed^[4] broadband (an increase of 6.1 million or 26.1% year on year), including 12.7 million in Spain, 10.3 million in France, 2.9 million in Poland and 2.4 million in Romania (following the network sharing agreement with Telekom Romania).
Investment in 4G et 4G+ mobile services was sustained with an acceleration in the deployment of 4G sites in France, Spain and Africa & Middle East (notably, Côte d'Ivoire, Senegal, Morocco and Jordan). At 30 June 2018, population coverage for 4G was 98.0% in France (up 6.0 points year on year), 96.5% in Spain (up 3.6 points year on year), 99.8% in Poland, 99.7% in Belgium, 95.1% in Romania, 90.5% in Slovakia and 98.0% in Moldavia.

Changes in asset portfolio

In June 2018, Orange acquired 62.72% of the share capital of Business & Decision, a specialist in Data and Digital, Business Intelligence (analysis of structured corporate data) and Customer Relationship Management. Orange also signed mutually-binding options for the acquisition of a further 4.88% of the capital and on 29 June launched a friendly public offer for the remaining shares. Following the offer, as of 19 July 2018 the Group held 81.82% of the capital.
On 16 July 2018, Orange announced the signing of a contract to acquire 100% of the capital of Basefarm Holding AS, a major player in cloud infrastructure and critical application services in Europe. The acquisition strengthens the position of Orange Business Services, which is already the leader in the market for cloud computing services in France and a significant player in Europe.

Net financial debt

Net financial debt for Orange Group's telecom activities was 25.273 billion euros at 30 June 2018 compared to 23.843 billion euros at 31 December 2017, principally related to the seasonality of certain disbursements^[5], and the increase in investment. The 1^st half of 2018 also included the deposit of 346 million euros in connection with litigation with Digicel^[6].
With a ratio of "net financial debt to adjusted EBITDA for the telecom activities" of 1.96x at 30 June 2018, the Group maintained a solid balance sheet, enabling it to pursue its investment strategy in line with its objective of a ratio of net debt to adjusted EBITDA from telecom activities of about 2x in the medium term.
Items related to the change in net financial debt and to the ratio of net debt to adjusted EBITDA from telecom activities are presented in appendix 4.

Dividends

Confident in the Group's momentum and financial strength, the Board of Directors will propose at the 2019 Annual General Meeting the payment of a dividend of 0.70 euros per share for the full year 2018. The dividend increase of 0.05 euros will be included in the interim dividend (0.30 euros per share), which is expected to be paid on 6 December 2018^[7].

Review by operating segment

France

In France, revenues grew for the fifth consecutive quarter, increasing 0.6% in the 2^nd quarter.

The 2^nd quarter of 2018 benefitted from the favourable impact of the inclusion of audiobook offers, launched on 17 May. Excluding this impact, revenues grew 0.2% in the quarter, driven by continued growth in convergence and fibre.

Retail services revenues increased 1.6% in the 2^nd quarter of 2018. Excluding traditional telephony services (fixed-only narrowband), these revenues increased 4.5%. Equipment sales slowed in the 2^nd quarter 2018 (down 0.9%) due to the lack of major launches in the 2^nd quarter compared to the 2^nd quarter of 2017, which was rich in new offerings.

Despite the intense promotional environment which continued in the 2^nd quarter, particularly in the entry-level segment, Orange France's customer base continued to grow: up 4.0% year on year for mobile contract customers (19.040 million customers at 30 June 2018) and up 2.6% for fixed broadband (11.321 million customers). Fibre, with 2.249 million FTTH^[8] customers at 30 June 2018, increased 33.0% year on year.

Revenues from convergence  rose 11.4% in the 2^nd quarter of 2018, driven by steady growth in the customer base: the number of SIM cards for convergent offers reached 9.5 million at 30 June 2018 (up 10.2% year on year), while convergent fixed broadband customers rose to 6.1 million (up 6.8% year on year). Additionally, convergent ARPO grew 3.2% in the 2^nd quarter after increasing 5.3% in the 1^st quarter. Excluding revenues from ePresse offers and audiobooks, convergent ARPO grew 2.3% in the 2^nd quarter, identical to the 1^st quarter increase.

Mobile Only revenues decreased 2.7% in the 2^nd quarter of 2018. The decline in the customer base (down 5.4% year on year), which principally related to customer migration towards convergent offers, was partially offset by the 2.3% increase in Mobile Only ARPO (after rising 2.8% in the 1^st quarter), with a favourable shift in the customer mix with a less significant decline in contract customers compared to prepaid.

Broadband Fixed Only revenues rose 0.7% in the 2^nd quarter of 2018 driven by 2.6% growth in ARPO, while the Fixed Only broadband customer base fell 1.9% year on year (5.2 million customers at 30 June 2018). Fixed Only narrowband revenues^[9] continued their downward trend, declining 12.2% in the 2^nd quarter of 2018.

Wholesale declined 1.3% in the 2^nd quarter of 2018 after a 2.9% decline in the 1^st quarter: the continued decrease in national roaming was partially offset in the 2^nd quarter by the substantial growth in revenues from fixed services connected to the co-financing of fibre from other operators.

France recorded record growth in Adjusted EBITDA of 5.1% in the 1^st half of 2018 while the adjusted EBITDA margin (36.5%) improved by 1.3 percentage points compared to the 1^st half of 2017. Revenue growth (up 1.4%) was accompanied by a reduction in operating expenses (down 0.7%), mainly related to savings achieved in connection with the Explore2020 operational efficiency plan.

CAPEX was up 3.6% in the 1^st half of 2018. Investments in the 1^st half also benefited from the co-financing of fibre by other operators. Orange France had a total of 10.3 million connected households at 30 June 2018 (up 2.4 million households in one year). Investment in 4G also rose with the rollout of new sites: at 30 June 2018, 4G coverage reached 98.0% of the population, up from 95.9% at 31 December 2017 (up 2.1 percentage points in the first half).

Spain

In the 1st half 2018 Orange Spain's value strategy delivered double-digit growth in adjusted EBITDA (up 10.1%) and in operating cash flow (up 18.5%), confirming Orange's position as the second-largest operator in the Spanish market.
Revenues rose 1.8% in the 2^nd quarter of 2018, after a 4.3% increase in the 1^st quarter. The 2^nd quarter saw a slowdown in equipment sales (down 0.4% in the 2^nd quarter, after an 11.3% increase in the 1^st quarter) while retail services grew 2.7% in the 2^nd quarter, matching the growth rate of the 1^st quarter.
Customer base growth was affected by strong competition in the entry-level segment for mobile and fixed broadband. The number of mobile contracts^[10] (11.5 million customers at 30 June 2018) was stable compared to the end of March 2018 and rose 1.2% year on year. The erosion of the fixed broadband customer base continued, down to 4.1 million customers at 30 June 2018, a 1.3% decrease year on year.
In contrast, fibre growth remained very strong, with 135,000 net sales in the 2^nd quarter and 2.563 million customers at 30 June 2018 (up 31.6% year on year). Fibre represented 62.2% of the fixed broadband customer base at that date, up 15.6 percentage points year on year. The rollout of 4G continued, with 9.5 million customers at 30 June 2018, up 10.3% year on year.
Convergence revenues rose 3.1% in the 2^nd quarter, after increasing 7.0% in the 1^st quarter of 2018. The customer base reached 3.133 million customers at 30 June 2018, growing 1.3% year on year, and convergent ARPO rose 0.8% in the 2^nd quarter against a backdrop of intense competition. Convergent customers represented 85.5% of the consumer fixed broadband customer base at 30 June 2018, up 3.0 percentage points year on year.
Mobile Only revenues rose 2.6% in the 2^nd quarter of 2018, after a decline of 3.2% in the 1^st quarter. They benefited from the 4.2% growth in Mobile Only ARPO, after a 1.0% decrease in the 1^st quarter, notably with a favourable change in the customer mix as the decline in the number of contract customers was significantly less than for prepaid.

Fixed Only revenues were up 0.6% in the 2^nd quarter of 2018, after rising 0.9% in the 1^st quarter. The growth of targeted offers on the enterprise market offset the decline in Broadband Only revenues resulting from the reduction in the customer base (down 9.0% at 30 June 2018 year on year), even as Broadband Only ARPO increased 3.9% over the quarter.
Wholesale fell 0.6% in the 2^nd quarter 2018, after a 5.7% increase in the 1^st quarter, tied to a further decline in international carrier services and incoming mobile traffic due to the reduction in call termination prices since mid-February 2018, whereas broadband access (xDSL and FTTH) continued its fast growth.

Adjusted EBITDA for Spain was up 10.1% in the 1^st half of 2018, while the margin (29.7%) improved 1.9 percentage points from the 1^st half of 2017, driven by improved revenues and stable operating expenses. Higher commercial expenses (cost of terminals sold and content purchases) were offset by the drop in interconnection costs.

CAPEX increased 7.3% in the 1^st half of 2018, supplemented by co-financing from other operators. These resources enabled the acceleration of the rollout of fibre and the 4G network to meet growing mobile traffic. At 30 June 2018, Orange Spain had a total of 12.7 million connected households (an increase of 2.0 million households in one year), and 4G coverage reached 96.5% of the population (up 3.5 percentage points in one year).

Europe

Europe includes Poland, Belgium, Luxembourg, Romania, Slovakia and Moldova^[11]. In the 1^st half, convergence drove the growth of retail services.
Revenues rose 0.3% in the 2nd quarter after rising 2.0% in the 1^st quarter on a comparable basis. Retail services grew by 2.0% in the 2^nd quarter, after growing 1.1% in the 1^st quarter, while equipment sales slowed in the 2^nd quarter.
Convergence continued to grow quickly, rising 57.8% in the 2^nd quarter, after increasing 60.1% in the 1^st quarter. This increase was driven by the expansion of the convergent customer base for both mobile, which rose 49.2% year on year with 2.7 million SIM cards at 30 June 2018, and fixed, up 45.0% with 1.447 million fixed broadband accesses at 30 June 2018, mainly in Poland, Belgium and Romania. Convergence represented 54.8% of consumer fixed broadband access in Europe at 30 June 2018, versus 42.2% the previous year (up 12.6 percentage points).
Mobile Only revenues declined 3.6% in the 2^nd quarter, after decreasing 2.7% in the 1^st quarter, reflecting a decline in the Mobile Only customer base (down 3.0% year on year), linked to the success of convergent offers, particularly in Poland.
Fixed Only revenues, generated mainly by Poland, fell 6.5% in the 2^nd quarter after dropping 9.9% in the 1^st quarter, representing a 3.4 percentage point improvement between the 1^st and 2^nd quarter.
IT and integration services continued their strong growth in the 2^nd quarter rising 33.8%, mainly driven by the Polish enterprise market, after a 24.6% increase in the 1^st quarter.
Wholesale was up 2.3% in the 2^nd quarter of 2018 after rising 3.8% in the 1^st quarter: the increase in visitor roaming in Belgium and Romania and national roaming in Poland and Slovakia was partly offset by the decline in MVNOs in Belgium.

The trend in adjusted EBITDA in Europe improved to a 2.8% decline in the 1^st half of 2018 compared to a 7.7% decline in full-year 2017, on a comparable basis. Adjusted EBITDA remains impacted by the loss of MVNO contracts in Belgium and the lower roaming prices in European countries that took effect in July 2017.

CAPEX was up 5.1% on a comparable basis, as fibre continued to expand, particularly in Poland and Romania, and 4G coverage improved in Central Europe. At 30 June 2018, Europe had a total of 5.9 million connected households (including 2.9 million in Poland and 2.4 million in Romania) and 4G coverage was at 99.8% of the population in Poland, 99.7% in Belgium, 95.1% in Romania, 90.5% in Slovakia and 98.0% in Moldova.

Africa & Middle East

Africa & Middle East continued the momentum that began in the 2^nd half of 2017 with revenues rising 5.2% in the 2^nd quarter of 2018 and 5.7% over the 1^st half of 2018.
Mobile Only services grew 8.5% in the 2^nd quarter of 2018 on a comparable basis after rising 9.4% in the 1^st quarter. Growth in mobile data services remained very strong and accounted for more than two-thirds of the growth in Mobile Only services, driven by 4G^[12] with 12.9 million customers at 30 June 2018. In addition, Orange Money revenues grew 46% in the 1^st half, with 38.7 million customers at 30 June 2018, of which 13.6 million were active customers. Mobile voice services stabilised with the development of abundance offers in an increasing number of countries.
The 2^nd quarter of 2018 in Côte d'Ivoire was marked by stricter verification criteria for customers and damage caused by the 30 April 2018 equipment room fire in Abidjan. These events limited the growth of the Côte d'Ivoire group to 2.0% in the 2^nd quarter after posting 4.9% growth in the 1^st quarter.
In the Africa & Middle East segment the mobile customer base reached 117.4 million at 30 June 2018, a year-on-year increase of 0.8%. There was strong growth in the number of contract customers^[13] up 28.0% year on year to 12.4 million at 30 June 2018, driven principally by Egypt. The 2^nd quarter of 2018 was impacted by the change in the regulatory framework for indirect distribution in Egypt, resulting in a decrease of 1.5 million net sales over the quarter, and the rationalisation of the acquisition policy in Mali, resulting in a 3.6 million decline.
Wholesale dropped 6.2% in the 2^nd quarter of 2018 after a 6.9% decline in the 1^st quarter on a comparable basis. The implementation of international corridors and the development of national abundance offers helped stabilise the decline in Wholesale.

Adjusted EBITDA for Africa & Middle East rose 7.8% in the 1^st half of 2018 on a comparable basis, and the margin (31.4%) improved 0.6 percentage points compared to the 1^st half of 2017. The growth in revenues and, to a lesser extent, the decrease in interconnection costs, offset the increase in labour expenses and technical maintenance costs tied to network expansion.

CAPEX was stable overall in the 1^st half of 2018, up 0.7% on a comparable basis. The increase in investment related to the expansion of 4G networks, particularly in Jordan, Morocco, Senegal and Côte d'Ivoire, and to fibre, mainly in Jordan and Morocco, was offset by a drop in other investments, including in 3G and property.

Enterprise

The trend in revenues improved thanks to solid growth in IT and integration services.

Revenues from the Enterprise segment grew 1.3% in the 2^nd quarter of 2018 after declining 1.3% in the 1^st quarter on a comparable basis.

IT and integration services posted 9.7% growth in the 2^nd quarter of 2018 after rising 0.4% in the 1^st quarter. Excluding equipment sales, which were more important in the 2^nd quarter, revenues from IT and integration services rose 8.0% in the 2^nd quarter, after rising 4.2% in the 1^st quarter. Growth continued to be driven by Cloud services, which were up 18% in the 1^st half, and security services, which rose 14%. In addition, integration services benefited from the signing of new contracts in the 2^nd quarter.

Voice services were down 4.6% in the 2^nd quarter of 2018 after declining 1.6% in the 1^st quarter. The downward trend in traditional fixed-line telephony (a 6.3% decrease in the 2^nd quarter) was coupled with a slowdown in Voice-over-IP and customer relationship services (contact number services), following strong growth in the 1^st quarter.

Data services posted a decline of just 0.9% in the 2^nd quarter of 2018 thanks to an improvement in revenues from IP-VPN services, following a 3.4% decrease in the 1^st quarter. IP-VPN services counted 355,000 access operations at 30 June 2018 (a 0.5% increase year on year).

Excluding mobile equipment sales, which slowed, the trend for Mobile improved in the 2^nd quarter of 2018, with a favourable evolution in roaming revenues. The number of contract customers^[14] was 2.834 million at 30 June 2018 (up 4.6% year on year), and the number of machine-to-machine SIM cards continued to grow strongly (up 15.1% year on year).

Adjusted EBITDA for the Enterprise segment in the 1^st half of 2018 declined 4.9% on a comparable basis, reflecting margin pressure for traditional services and the impact of the growing share of lower-margin IT and integration services on the revenues.

CAPEX for the Enterprise segment was down 3.0% in the 1^st half of 2018 on a comparable basis with the optimisation of expenditure tied to customer contracts.

International Carriers & Shared Services

Revenues from International Carriers and Shared Services fell 5.9% in the 2^nd quarter of 2018 on a comparable basis, in connection with Wholesale, with a decline in voice services to international carriers, particularly to destinations in Africa.

Other revenues increased 4.8%. These relate to the laying and maintenance of submarine cables, audiovisual content (OCS and Orange Studio), Sofrecom (consulting) and Viaccess (secure-TV access), increased by 4.8%.

Adjusted EBITDA was down 13 million euros compared to the 1^st half of 2017 on a comparable basis. The decline in revenues and increase in labour expenses were partially offset by reduced service fees and interconnection costs.

CAPEX increased 7.8% in the 1^st half of 2018 due to the construction of the submarine cable linking French Guyana, Martinique and Guadeloupe.

Orange Bank

Net banking income for Orange Bank, which was 26 million euros in the 1^st half of 2018, declined 12 million euros compared to the 1^st half of 2017, mainly due to customer acquisition costs for the new banking and digital offer launched on 2 November 2017 in metropolitan France.

Operating income in the 1^st half of 2018 was -68 million euros versus -28 million euros in the 1^st half of 2017. This change reflects the decrease in net banking income and increase in operating expenses related to the development of the business.

CAPEX, which was 20 million euros in the 1^st half of 2018, was down 5 million euros compared to the 1^st half of 2017.

Schedule of upcoming events

• 25 October 2018: third-quarter 2018 results

Contacts

Disclaimer

This press release contains forward-looking statements about Orange. Although we believe these statements are based on reasonable assumptions, they are subject to numerous risks and uncertainties, including matters not yet known to us or not currently considered material by us, and there can be no assurance that anticipated events will occur or that the objectives set out will actually be achieved. Important factors that could cause projected results to differ from actual results include, among others: the inappropriate release or modification of individual customer data, risks associated with the development of banking activities and mobile financial services, exposure to geopolitical risks, macroeconomic factors as well as regulatory or corruption risks, the risk of not being able to maintain control over customer relations when facing competition with OTT players, the success of Orange's strategy of diversification to develop new steams of growth, network or software failures due to cyberattacks, fraudulent activity that could target Orange or its customers, its dependence on a small number of important suppliers, damage to networks caused by natural disasters or intentional interference, risks associated with the brand strategy, Orange's ability to retain the necessary skills given the high level of employee retirements and changes in its offers, possible adverse health effects associated with exposure to electromagnetic fields from telecommunications equipment, various human factors linked to the safety of people and psycho-social risks, the results of litigation regarding regulations and competition, the terms of access to capital markets, interest rate or exchange rate fluctuations, Orange's credit ratings, changes in the assumptions underlying the accounting value of certain assets resulting in their impairment, and credit risks or counterparty risks on financial transactions. More detailed information on the potential risks that could affect our financial results is included in the Registration Document filed on 4 April 2018 with the French Financial Markets Authority (Autorité des marchés financiers - AMF) and in the annual report on Form 20-F filed on 4 April 2018 with the U.S. Securities and Exchange Commission. Other than as required by law, Orange does not undertake any obligation to update them in light of new information or future developments.