Orange hails stronger Q2 amid fiber splurge

Orange expressed some joie de vivre on Thursday as it reported an acceleration in revenue growth for the second quarter (Q2) of 2021.

The France-based operator reported a 2.6% increase in Q2 revenue to €10.55 billion (US$12.5 billion) on a comparable basis. That followed a more moderate rise of 0.5% in first-quarter (Q1) revenue, and a 0.2% drop in the fourth quarter of 2020.

Orange said growth was fueled in particular by equipment sales, which were up 18.4%, and IT and integration services, which rose 8.1%.

EBITDAal was still in decline, falling by 0.4% to €3.27 billion ($3.88 billion). However, Stéphane Richard, group chairman and CEO, said this represented a "near stabilisation of EBITDAal" following a 0.3% decline in Q1 and a 2.3% drop in Q4 last year.

Figure 1: Orange CEO Stéphane Richard said Africa and the Middle East, Europe, the B2B market, cyber defence, banking and Orange’s infrastructure are driving growth.
(Source: Orange)

In the first six months of the year, revenue increased by 1.5% on a comparable basis to €20.87 billion ($24.7 billion), while EBITDAal was 0.4% lower at €5.83 billion ($6.9 billion).

However, the group posted a net loss of €2.6 billion ($3 billion), which it blamed on an operating loss of €1.75 billion ($2 billion). That in turn was owing to the recognition of a goodwill impairment in Spain of €3.7 billion ($4.4 billion).

In terms of customers across the group, Orange said it now has 10.3 million fiber customers out of 51.8 million connectable households. The fiber-to-the-home (FTTH) client base rose 28% year-on-year, driven in particular by France and Poland. It also reported close to 1 million 5G customers with 5G offers available in six countries.

Orange pointed to the downward revision of the business plan in Spain, which it said reflects an increasingly competitive environment, "marked by the decline in average revenue per user and the expected lag in economic recovery due to uncertainties regarding the continuation of the health crisis."

Richard said Orange's growth engines, namely Africa and the Middle East, Europe, the B2B market, cyber defense, banking and Orange's infrastructure, "all have good momentum and we're beginning to gather the fruits of our investments. This allows us to reiterate with confidence our objectives for 2023."

The group is maintaining its outlook for 2021 of a stable but negative EBITDAaL, capex of €7.6 billion to €7.7 billion, and organic cash flow from telecom activities of over €2.2 billion.

Pain in Spain

A breakdown by market area once again reveals variable development across the board. Africa and the Middle East remained a growth driver, with revenue growth of 14.4%. Revenue in Europe as a whole increased by 6.1%, while the enterprise division grew by 2.3%.

France was again described as resilient, with revenue falling by 0.7%. France remains Orange's largest market, with revenue of over €4.54 billion ($5.4 billion) in Q2.

As already indicated, Spain remained a drain on group finances, although Q2 revenue fell by a lower rate of 2.7% compared to the 7.4% decline in Q1.

As well as suffering from the effects of the coronavirus pandemic, Spain is a highly competitive market with a strong convergence play from competitors. Orange said it is beginning to address the problems in this market by repositioning its offers.

For example, Orange Spain has simplified its processes and brands, removing the Republica Movil brand and focusing on Simyo and Amena for low-cost products.

Capex up on fiber spend

Orange is placing an even firmer focus on the deployment of FTTH, as reflected by the sharp rise in Q2 capex by 33.2% to €2.1 billion ($2.5 billion). The group also noted that capex rose by 22.8% in the first half, "driven by investments in fiber and in Africa and Middle East, in line with the objectives for 2021."

Indeed, Orange dialed up the rhetoric on fiber, with Richard pointing to the “accelerated transformation of our business model from copper to fiber.”

"France is going to be a fiber optic country," he said.

"Everyone will switch to fiber. France will be the most advanced country in Europe for FTTH," he claimed during the earnings call.

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The number of connectable FTTH households in France was up 35.5% at 26.1 million.

"Fiber continued to post very good commercial results with 353,000 net additions during the quarter. Over one year, Orange recorded nearly 1.5 million new FTTH customers, a 39.5% increase," Orange said.

Orange Poland has previously formed a partnership with Dutch pension fund APG that aims to speed the rollout and reduce the cost of its FTTH network throughout the country. Orange also plans to spin out its mobile towers into a towerco called Totem, and has created the Orange Concessions fiber unit in France.

Orange is nevertheless committed to reducing capex from 2022, and achieving a capex to consolidated revenue ratio of around 15% by the end of 2023.

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— Anne Morris, contributing editor, special to Light Reading