French telecom operator Numericable-SFR has raised its medium-term profitability target after beating earnings expectations for the first three months of the year.
The operator, which is France's second-biggest after incumbent Orange (NYSE: FTE), saw adjusted EBITDA grow by 21%, to 930 million ($1.05 billion), compared with the first quarter of 2014, even though revenues sank by 4.6%, to 2.74 billion ($3.08 billion), over the same period.
Boosted by non-recurring financial and tax income, net profit soared from 35 million ($39.4 million) in the first quarter of 2014 to 816 million ($917 million), but would have been 132 million ($148 million) excluding those receipts.
Thanks to those efforts, EBITDA easily beat analyst expectations of about 850 million ($956 million), according to a Reuters report, persuading Numericable-SFR to announce more bullish financial targets.
It now expects to achieve an EBITDA margin of "above 45%" in the medium term, having previously aimed for 40%, and also reckons it will exceed its original objective of realizing 1.1 billion ($1.24 billion) in "annual gross synergies" by 2017.
Markets responded warmly to the update, despite the fall in sales, and Numericable-SFR's share price had risen by around 3.3% in trading on the Euronext Paris exchange this morning.
Meanwhile, shares in Altice rose by about 6% on the Euronext Amsterdam exchange.
Expounding on the results, Numericable-SFR said it had chosen to focus on catering to higher-spending customers rather than increasing its share of the overall market.
In the mobile sector, the operator had 22.5 million customers at the end of March -- 2.5% fewer than a year earlier -- but claimed average revenue per postpaid user had stabilized at 25.5 ($28.7) per month in the first quarter.
Investors will be watching closely to see if this holds true as Numericable-SFR begins to sell more quad-play packages comprising bundles of fixed, mobile, broadband and TV services.
In other markets where they have proven popular, quad-play offerings have tended to have a dilutive impact on average revenue per user (ARPU), with operators forced to sell bundles for less than the sum total of standalone services.
Like others targeting this opportunity, however, Numericable-SFR could hope to increase average customer spending by providing new services to existing subscribers.
At its fixed-line operation, Numericable-SFR increased its number of high-speed customers by 6.7%, to 1.6 million, compared with the first quarter of 2014, but saw its ADSL business shrink by 4%, to 4.9 million, over the same period.
The operator warned the ADSL operation would continue to hemorrhage subscribers in 2015 as consumers turn to higher-speed offerings.
But ARPU rose by 0.9% across the entire fixed-line business, to 34.3 ($38.6) per month, thanks to the adoption of higher-speed services.
Numericable-SFR plans to extend fiber networks to 7.7 million homes in France by the end of this year, up from 6.7 million today, and to reach 12 million by the end of 2017 and 15 million by the end of 2020.
It is also determined to expand the coverage of its 4G network to 70% of the population by the end of the year, 90% by the end of 2017 and 99% by the end of 2020. The 4G network was available to 50% of the French population at the end of last year, according to Numericable-SFR's 2014 financial report.
In line with those ambitions, the operator spent 400 million ($450 million) in capital expenditure over the January-to-March period, 27% more than in the same quarter of 2014. As a percentage of sales, capex rose from 11% to 14.6% over the same period.
Numericable-SFR claims to have the most extensive fiber footprint in France but it is being hotly pursued by its network rivals and lags both Orange and Bouygues Telecom when it comes to 4G coverage.
Table 1: Service Availability Claims
|Fiber footprint (millions of homes passed)||4G coverage (% of population)|
Iain Morris, , News Editor, Light Reading