Orange dials down on diversification after banking retreat

Orange Group only recently admitted defeat in its efforts to disrupt Europe's financial services market, entering into exclusive negotiations with BNP Paribas about the transferral of customers and assets from Orange Bank in France and the takeover of banking activities in Spain.

The move certainly represents a setback for the group in terms of efforts to diversify beyond its core market of telecoms and networks. What's more, the demise of Orange Bank in Europe seems to have put a dent in its confidence to tackle new projects in adjacent sectors, at least for the time being.

During Wednesday's earnings call to discuss the operator's financial performance in the first half and second quarter of 2023, Christel Heydemann, Orange's CEO since April last year, was asked if she might consider using freed-up cash from Orange Bank for another project on which she would be able to put her own stamp. Orange Bank was very much a pet project of former CEO Stéphane Richard.

Although she was careful to spell out the many opportunities that lie ahead for Orange in its existing businesses, Heydemann conceded that there is "no big bet in terms of new opportunities." As previously suspected, she largely intends to focus on what Orange knows best: providing telecoms services to individual customers and businesses.

"First and foremost, we are very focused on the execution of our 'Lead the Future' plan, and we have many innovations and many things that we are investing in," she said. Here, she highlighted the operator's core infrastructure and services business, as well as Orange Innovation and the enterprise segment under Orange Business, with a particular focus on cybersecurity.

Orange Business turnaround is a two-year job

Orange Business is another underperforming area of the group, but here Heydemann has chosen to implement a transformation process that would shift the focus to more profitable areas of the business and reduce the reliance on legacy offerings such as voice communications.

In April, Jean-Michel Thibaud, interim executive director for finance, performance and development at Orange, confirmed only that the process was underway, pointing out that strong growth in Digital & Data as well as Orange Cyberdefense was at least able to more or less offset the continuing decline in the legacy business.

Fast forward to July, and Orange Business clearly still has some way to go before it turns the situation around. While enterprise revenue increased by 2.4% in Q2 to €1.99 billion (US$2.2 billion), and by 0.8% in the first half to €3.94 billion ($4.4 billion), earnings before interest, taxes, depreciation and amortization after leases (EBITDAaL) fell by a whopping 16.7% in the first six months of the year to €311 million ($344 million).

According to Orange, this decline is at least an improvement on the 18.8% drop in enterprise EBITDAaL in 2022.

"First-half EBITDAaL was in line with the expected trajectory given the recovery launched in the first half which will take time to materialize," the group said in its results statement. "For example, the voluntary departure plan envisaged, which could lead to the reduction of some 650 jobs in France, should only significantly improve EBITDAaL from 2024."

According to Aliette Mousnier-Lompré, CEO of Orange Business, this "deep transformation" of Orange Business will take about two years. She said that the objective for 2023 was "first to stop the bleeding and also to implement structural changes that will fuel our future recovery."

"That's why you see I would say very modest impact at this stage in H1 2023 … but this is fully matching our target for this period. And we are in line with our plan," Mousnier-Lompré added.

Overall, Heydemann clearly wanted to send a message of confidence to the market, with expectations of improvement in the second half of the year following recent price increases for fixed and mobile services.

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In the first half of the year, group revenue improved by 2% to €21.54 billion ($23.8 billion), while EBITDAaL rose slightly by 0.8% to €5.89 billion ($6.5 billion).

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— Anne Morris, contributing editor, special to Light Reading