Iliad Plans Next Assault on French Rivals
Iliad, the boisterous tyke of the French telecom market, will aim to grow its earnings by a tenth this year after hitting a 4 billion (US$4.25 billion) annual revenue target one year earlier than planned.
Majority owned by French billionaire Xavier Niel, Iliad (Euronext: ILD) operates under the Free brand and has caused mayhem for France's older mobile operators -- Orange (NYSE: FTE), SFR and Bouygues Telecom -- since entering the market in early 2012 with a series of cut-price offers. (See Eurobites: Free's Price Drop Spooks Rivals.)
Before then Iliad was known solely as a fixed broadband player, but it now claims to have captured a 15% share of mobile customers in the three years since it launched mobile services.
Announcing financial results for 2014 earlier today, Iliad revealed that revenues had grown by 11.2% in 2014, to 4.17 billion ($4.43 billion), while net profit was up by 4.9%, to 278 million ($296 million).
Iliad's share price had edged up 0.7% on the Euronext Paris exchange by 2.30 p.m. local time, while the groups controlling its rivals all witnessed declines -- 0.7% for Orange, 2.3% for Numericable-SFR and 2.3% for Bouygues.
Table 1: Iliad Feels Epic
|Profit from ordinary activities (M)||569.5||540.9||5.3%|
|Profit for the period (M)||278.4||265.4||4.9%|
These results mean the operator has already beaten a target set in March 2011 of generating 4 billion ($4.25 billion) in annual revenues by the end of 2015.
Buoyed by that performance, Iliad is now aiming to increase EBITDA (earnings before interest, tax, depreciation and amortization) by 10% this year and to achieve an EBITDA margin of 40% by the end of the decade. Its EBITDA grew by 6.6%, to 1.28 billion ($1.36 billion), in 2014, giving it an EBITDA margin of 30.8%.
Iliad has also unveiled longer-term ambitions of capturing one quarter of the French mobile phone market and the same share of the country's fixed broadband sector. Iliad claimed to serve 23% of the broadband market in its recent financial report.
Although Iliad still derives most of its revenues from fixed broadband services -- about 62% in 2014 -- its younger mobile operation has recently been the engine of growth.
Revenues from mobile services rose by 28% in 2014, while those from landline activities were up just 2.7%.
Rival Bouygues, which operates France's third-biggest mobile network, has been responding to Iliad's mobile assault by taking the fight on to broadband turf, and it appears to have enjoyed some success on this front. While Iliad could manage only 228,000 net broadband additions in 2014, Bouygues added more than 400,000 broadband customers.
Not to be outdone, Iliad earlier this week launched a new set-top box that uses Google's Android TV software and will support ultra-high-definition technology, although Bouygues has reportedly announced plans to make a similar Android-based device available in the next few weeks.
While the price war in France's mobile market has recently eased, Iliad's mobile rivals are still reeling from the impact of earlier moves by the Niel-owned upstart.
Incumbent operator Orange noted a 4.5% drop in mobile revenues in France in its fourth (October-to-December) quarter, compared with the same period of 2013, because of price-based competition -- although this did mark an improvement on declines of 6.1% in the third quarter and 8.9% in the first half of 2014. (See Orange Feels European Squeeze.)
Consolidation in the French mobile market could provide further relief, with cable group Altice -- the owner of Numericable-SFR -- reportedly eyeing a takeover of Bouygues. A merger between SFR and Bouygues would obviously leave France with just three mobile network operators, but it could face resistance from regulatory authorities keen to preserve a four-player set-up. (See Eurobites: Numericable Funds SFR Buy With 4.7B Rights Issue.)
If Iliad has an Achilles heel, it is perhaps in the 4G area. Its network reached just 40% of the French population at the end of 2014, compared with 74% for Orange, 71% for Bouygues and 50% for SFR.
Iliad aims to reach 60% of the population by the end of the year but this would still leave it some way behind Orange and Bouygues -- even if those players made no investments in coverage expansion whatsoever -- while SFR aims to reach 70% of the country by the end of 2015.
On the plus side, Iliad may have some flexibility to raise capital expenditure and pursue more ambitious goals. It has been funding network rollout through free cash flow from its ADSL operations, which rose by 15.8%, to 737 million ($784 million), in 2014.
Iliad has also taken on little debt compared with most other European operators. Its net debts worked out at just 0.84 times EBITDA in 2014.
Iain Morris, , News Editor, Light Reading