Altice has reported a slight decline in sales last year despite a sharp rise in underlying earnings, prompting further concern about the sustainability of the cable company's strategy of boosting profits by slashing costs.
Owned by French-Israeli billionaire Patrick Drahi, Altice has developed a reputation for ruthless cost cutting at the various businesses it has acquired in the last couple of years. But its focus on the bottom line led to a fall in customer numbers in the fiercely competitive French market over the first nine months of 2015.
While full-year EBITDA rose by 17.6%, to €6.67 billion ($7.4 billion), revenues shrank by 0.1%, to about €17.5 billion ($19.4 billion), with sales at the French unit -- by far Altice's largest -- falling by 3.5%, to €11 billion ($12.2 billion).
In the meantime, the company has been taking on eye-watering levels of debt to fund takeovers, including last year's $9.1 billion takeover of US cable company Suddenlink Communications and the $23.4 billion move for French mobile operator SFR in 2014.
As it attempts to overcome regulatory opposition to its $17.7 billion takeover of Cablevision Systems Corp. (NYSE: CVC), another US cable operator, Altice saw net debt soar to about €35.6 billion ($39.5 billion) at the end of 2015, from about €24 billion ($26.6 billion) a year earlier. (See Analyst Sounds Warning on Altice/Cablevision Deal and Altice Confirms $17.7B Bid for Cablevision.)
That puts net debt at around 5.3 times Altice's EBITDA over the last 12 months -- a figure that is about twice the target for most of Europe's biggest operators. (See Altice Restructures to Support Takeover Moves.)
Investor concern over the latest set of results was reflected in a drop of around 5% in Altice's share price in Amsterdam this morning.
Even so, the company went some way towards addressing those concerns in the final three months of the year, when a burst of advertising activity translated into 54,000 net mobile additions, including 140,000 postpaid customers, in France.
Altice operates France's second-biggest phone company, behind market leader Orange (NYSE: FTE), having merged SFR with Numericable, a cable operator it already owned.
The net adds figure compared with a loss of 799,000 in the year-earlier quarter but could not make up for subscriber defections in the first nine months of 2015: Numericable-SFR finished the year with a total of 15.1 million customers, down from more than 16.2 million in December 2014.
The operator's performance was more encouraging in France's broadband and TV markets. It finished 2015 with a total of 4.84 million "revenue-generating units" at its fiber business, up from about 3.6 million a year earlier.
Altice faces tough competition from rivals Orange, Bouygues Telecom and Iliad (Euronext: ILD), all of which are similarly pursuing a convergence strategy of operating both fixed and mobile networks and offering the full array of communications services to French consumers.
Nevertheless, Altice expects the French revenue trend to improve in 2016 and is also guiding for improvements in Group sales as well as "mid-single digit growth" in adjusted EBITDA this year. (See Altice Sees Brighter Days in 4-Player France.)
Key to those improvements will be the investments Altice is making in its fixed and mobile networks in France. Capital expenditure in the country rose by 23% in 2015, to around €2.3 billion ($2.6 billion), with the 4G network reaching 64% of the population in December, up from 33% a year earlier, and its fiber network passing 7.7 million homes, compared with 6.4 million at the end of 2014.
Overall capital expenditure rose from about €3 billion ($3.3 billion) in 2014 to nearly €3.6 billion ($4 billion) in 2015.
In its other big markets of Portugal and the US, Altice had similarly mixed fortunes. Restructuring activities led to a 7.3% drop in revenues at Portugal Telecom SGPS SA (NYSE: PT), to around €2.3 billion ($2.6 billion), while the EBITDA margin rose from 36.9% to 41.2% over the same period.
The US business reported a 24% increase in revenues, to nearly €2.2 billion ($2.4 billion), and a 29% rise in EBITDA, to €889 million ($986 million).
"During 2016 we will continue to be very focused on further improving operational and financial performance, integrating the businesses we have acquired and pursuing the efficiency targets we have set out," said Dexter Goei, Altice's CEO, in a company statement.
— Iain Morris, , News Editor, Light Reading