Orange confirms 2014 earnings target after 'encouraging' first 6 months

Orange may not yet be fully out of the woods, but the company remains confident that the race to the bottom in terms of pricing is coming to an end and is maintaining its EBITDA target for 2014.

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Orange CEO - Stephane Richard

"We're seeing the end of a cycle; consumers are less attracted by low-price offers," Gervais Pellissier, CFO of Orange, said on a conference call to discuss the results, according to Bloomberg. "We're grabbing high-end customers in mobile and in fixed--that's how we want to fight the battle."

The company confirmed its target of achieving restated EBITDA of between €12 billion and €12.5 billion for the full year of 2014. The restated EBITDA margin for 2014 should remain stable compared to 2013. In the first half of 2014, the restated EBITDA margin was 31.3 per cent and was unchanged from the first half of 2013 on a comparable basis. Restated EBITDA for the first half reached €6.14 billion.

Jefferies analysts said Orange was firmly on track in the second quarter of the year, noting that second-quarter EBITDA was 1.2 per cent ahead of consensus, driven by lower revenue decline and strong cost cuts in France. While Spain was weaker following the transition to SIM-only plans and multi-service bundles, the trend here is expected to improve in the second half of the year.

"Further evidence of operating resilience should lend more credibility to Orange's value credentials in our view," Jefferies added.

Commenting on the results, which he described as "very encouraging for the future of our group," Orange CEO Stephane Richard said the company has been able to maintain its commercial momentum "despite a hyper-competitive environment" largely due to the investments it has made in fibre and LTE networks.

"The quality of Orange's fixed and mobile networks is widely recognised and this has allowed us to differentiate ourselves even more. It is clear that consumers are not just focused on price but are also sensitive to quality and service," Richard said.

Orange also plans to accelerate its cost-cutting efforts in the year ahead, increasing its target for the reduction in indirect costs to €300 million this year from an initial target of €250 million. It said operating costs in the first half of the year were reduced by €511 million, offsetting 70 per cent of a 3.6 per cent year-on-year drop in revenue on a comparable basis. The company said the decline would have been 2.6 per cent if the impact of regulatory measures were excluded.

Jefferies said it appeared that group revenue trends could be stable but might not improve over the second half, "with the regulatory tailwinds from 1H14 unwinding in 2H."

Orange is still recovering from the competition created by Free Mobile, the Iliad-owned mobile operator that entered the French market in 2012 with some very low-cost offers, sparking a price war that continues to have repercussions for all market players, including Bouygues Telecom and SFR.

In the meantime, Altice has agreed to buy SFR from Vivendi and merge it with Numericable, while Bouygues Telecom has launched more aggressive fixed prices on the market and introduced a cost-cutting plan involving more than 1,500 job cuts.

According to Reuters, Richard still maintains that a consolidation of the French mobile market is possible.

Orange also said the group is pursuing a policy of selective acquisitions by concentrating on markets in which it is already present.

For more:
- see the results statement from Orange
- see this Reuters article
- see this Bloomberg article

Related Articles:
Altice raises stake in Numericable to 74.6 per cent
Orange CEO calls on rivals to drive consolidation in France
Orange, Bouygues pour cold water on consolidation hopes in France
Numericable agrees to buy Virgin Mobile France for €325M
Orange comes top while Free lags behind in French regulator's network review

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