Orange Targets Polish Turnaround in 2018
Scan Orange's financial results for the first six months of this year and the figures for its Polish business show up like an ugly blemish. (See Eurobites: Orange Returns to Growth in France.)
While the French operator reported sales growth for every one of its other regional and country markets, it saw revenues dip 0.9% in Poland, to 1.33 billion ($1.6 billion), compared with the year-earlier period.
That is not so bad, you ruminate, before moving your eyes further down the page. Earnings (before interest, tax, depreciation and amortization) tumbled 7.4% over the same period, to 367 million ($437 million). Once again, every other regional or country division managed growth at this level.
Orange (NYSE: FTE) is desperate to get its Polish business performing as strongly as others. That is hardly a surprise. Battered by line losses at its fixed-line division (formerly the state-owned monopoly), and hemorrhaging customers at its prepaid mobile unit (due partly to regulatory moves), Poland still represents Orange's third-biggest country market by sales. Today, the operator unveiled a new strategic plan, branded Orange.one, that it hopes will make Poland a source of pride instead of a point of embarrassment.
The headline targets are to stabilize EBITDA next year and grow it starting in 2019, by which point it also aims to have stabilized sales. It expects to see a return to revenue growth in 2020, and plans to slash "underlying indirect costs" by 12-15% in 2020 compared with the figure for 2016.
This will not be easy. To reach those financial targets, Orange reckons it will have to capture between 1 million and 1.5 million additional "convergent" customers -- that is, customers taking a bundle of fixed and mobile services -- by the end of 2020. This would more than double the number of customers using those products, which reached 858,000 at the end of June. But it will mean adding more than 70,000 convergent customers every quarter for the next 14 quarters.
The good news is that Orange picked up as many as 120,000 customers in the second quarter, up from 72,000 additions in the first. If it can maintain or increase its momentum, it could hit this target even earlier than planned.
On the customer front, Orange also needs to shift more customers over to higher-speed and more lucrative broadband products. The goal here is to have five or six times as many fiber customers by the end of 2020 as it served at the end of June, when the number reached 145,000.
Achieving this particular target will be harder. Orange added another 28,000 fiber customers in the April-to-June quarter. But to reach the magic number of 725,000 by the end of 2020, it will have to add more than 41,000 each quarter between now and then.
Even so, the operator has been investing heavily in the rollout of a high-speed fiber network, and it now aims to cover more than 5 million households with these services by the end of 2020, up from about 1.5 million at the end of 2016. Having invested about 2 billion Polish zloty ($560 million) -- or 17% of revenues -- in "adjusted" capital expenditure last year, it plans to spend between PLN2 billion ($560 million) and PLN2.2 billion ($620 million) this year and next, and another PLN2 billion in 2020. Over that three-year period, about PLN2.8 billion ($790 million) alone will go into fiber.
As if all that were not enough, Orange also plans to add between 300,000 and 600,000 TV customers between now and 2020. It had 792,000 at the end of June. On the business side, meanwhile, it wants 55% of SOHO/SME customers to be using convergent services by the end of 2020, up from about 24% now, and aims to grab another 600,000 mobile customers by the same date. That would give it about 3 million mobile customers in the business market in total.
Like other markets in the region, Poland is home to numerous service providers fighting over consumer and enterprise business. Growth opportunities in telecom are scant. Conscious that revenues from traditional services will continue to wane, Orange is looking to profit from moves into energy, mobile banking and IT services. But investors' best hope is probably that shrewd management, and Orange's willingness to invest in infrastructure and new digital systems, can deliver modest gains over the next couple of years. (See Hold-Up at Orange Bank: Launch Hits Buffers.)
"We will need better execution, clearer focus and more speed and agility," said Jean-Francois Fallacher, Orange Poland's CEO, in published comments accompanying today's announcement. "We need to improve our operating efficiency, by focusing only on activities that generate value and by optimizing our cost structure."
Such remarks could apply to many telcos in both Europe and other parts of the world. But few of those companies have aired their financial and subscriber targets to the same extent as Orange. If it can pull off a turnaround, it could end up as a valuable case study for others.
Iain Morris, , News Editor, Light Reading