Orange Capex to Peak at €7.4B in 2018
Orange plans to increase spending to a peak of €7.4 billion (US$8.7 billion) next year as it continues to invest in the deployment of higher-speed networks.
The forecast implies that capital expenditure will rise from about €7 billion ($8.3 billion) last year and an anticipated €7.2 billion ($8.5 billion) in 2017. Orange had originally planned to spend €7.1 billion ($8.4 billion) this year but raised its guidance in May, when Ramon Fernandez, the company's chief financial officer, said that additional funds would go toward the rollout of fiber networks in Spain. (See Orange Sees 'Peak' Capex in 2018/19, Ups 2017 Guidance.)
As reported by Light Reading at the time, Fernandez then predicted that capital expenditure would peak in 2018 or 2019 before starting to decline. The company tweaked that guidance in a strategy update published today, indicating that it expects capital expenditure to start declining in 2019, despite the likely arrival of 5G technology in 2019 or 2020.
Orange (NYSE: FTE) also today claimed to be ahead of various operational and financial targets thanks to its investment program and efforts to improve efficiency.
On the infrastructure front, the operator now expects to cover 20 million French households with fiber-to-the-home (FTTH) networks by 2021, a year earlier than previously planned. In Spain, where it has accelerated its rollout, it aims to reach 16 million households with FTTH networks by 2018, up from an earlier target of 14 million.
Orange says it aims to be a leader in the 5G market without adversely affecting the ratio of capital to expenditure revenues, which stood at roughly 17% in 2016. In markets where it operates both fixed and mobile networks, Orange expects this ratio to fall to about 15% in 2022.
The company does not provide any sales guidance, but its update lends weight to the industry view that 5G technology will be deployed at a relatively slow pace, co-existing with older network technologies for many years. Telcos such as Orange are likely to focus their initial 5G efforts on serving more densely populated urban communities or specific vertical markets.
On the efficiency side, Orange today said it had exceeded a gross savings target of about €3 billion ($3.6 billion) in cuts over the 2015 to 2018 period. It now plans to achieve additional savings of about €1 billion ($1.2 billion) over the 2019 to 2020 period through the use of digital technologies, "simplification" and what it calls "resource pooling."
The wording suggests further staff cutbacks are planned. Orange slashed about 3,000 jobs between January and September, according to its last earnings report, and staff numbers have fallen from nearly 170,500 at the end of 2012 to around 152,300 today.
Orange is now anticipating a return to growth in operating cash flow (or adjusted EBITDA minus capital expenditure) this year. It is also guiding for an increase in adjusted EBITDA of about 2% in 2017.
Last year Orange generated about €12.7 billion ($15 billion) in adjusted EBITDA.
— Iain Morris, News Editor, Light Reading