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Orange Touts Q2 Sales Recovery

Iain Morris
7/28/2015

French telecom incumbent Orange has touted a return to underlying revenue growth in the second (April-to-June) quarter for the first time since 2011, saying the performance puts it firmly on track to achieve its full-year targets.

Although revenues fell by 0.2%, to about €9.9 billion (US$10.9 billion), compared with the same period last year, Orange (NYSE: FTE) claimed they would have risen by 0.4% were it not for adverse regulatory measures.

EBITDA similarly fell by 0.4%, to €3.3 billion ($3.7 billion), but would have grown by 0.9% without the effects of regulation, said the operator.

CEO Stéphane Richard expressed confidence in Orange's ability to generate €11.9-12.1 billion in EBITDA this year -- compared with €12.19 billion ($13.5 billion) in 2014. "We are fully comfortable with this target, especially thanks to continued efforts on cost structure," he told analysts during an earnings call.

Orange managed to reduce indirect costs by €156 million ($172 million) during the first six months of the year, compared with the first half of 2014, helping it achieve an EBITDA margin of 29.7% -- only slightly lower than the 29.9% it reported this time last year.

This year is expected to mark something of a nadir for the operator, in terms of the EBITDA performance, before it returns to growth in 2016.

Under a new strategic plan dubbed Essentials2020, Orange intends to spend €15 billion ($16.6 billion) on network improvements between now and 2018 as it strives to rekindle its fortunes, and capital expenditure accordingly rose by 6.5% in the first half, to about €2.7 billion ($3 billion), compared with the same period last year. (See Orange Earnings Dip on Price Competition.)

Table 1: Orange's Headline Figures (€M)

Q2 2015 Q2 2014 YoY change
Revenues 9,885 9,907 -0.2%
−France 4,763 4,803 -0.8%
−Spain 920 943 -2.5%
−Poland 737 754 -2.3%
−Belgium and Luxembourg 304 312 -2.5%
−Other European countries 409 402 1.8%
−Intra-Europe eliminations -1 -1 -
−Africa and Middle East 1,159 1,109 4.5%
−Enterprise 1,626 1,633 -0.5%
−International carriers and shared services 494 472 4.7%
−Intra-Group eliminations -527 -521 -
Restated EBITDA 3,290 3,302 -0.4%
−as % of revenues 33.3% 33.3% 0 percentage points
Capex (excluding licenses) 1,482 1,353 9.5%
−as % of revenues 15.0% 13.7% 1.3 percentage points
Source: Orange

The results appeared to come in ahead of analyst expectations, sending Orange's share price up by 2.7% on the Euronext Paris Exchange by lunchtime on Tuesday.

Investors may have been especially encouraged by Orange's performance in France, which still accounts for nearly one half of its overall sales and has been hit by a price war in the mobile market in the last few years.

Revenues in France fell by just 0.8% in the second quarter, after dropping by 1.8% in the first, suggesting price-based competition may be easing.

Conditions also appeared to improve in Spain, Orange's second-biggest geographical market, where second-quarter revenues fell 2.5%, to €920 million ($1.02 billion), after declining by 5% in the first quarter.

Executives attributed the improvement to the success of Orange's converged-services offerings, noting that 81% of fixed broadband customers are now on such plans, up from 75% a year earlier.

Even so, Orange expressed continued unhappiness with the content situation in Spain following the takeover of pay-TV player Canal Plus by telecom incumbent Telefónica earlier this year.

"Telefónica holds close to an 80% share of the pay-TV market following its acquisition and only half of Telefónica's exclusive content is made available to competitors," said Jean-Pierre Vignolles, the chief executive of Orange Spain . "We are not happy with the regulatory framework."

Vignolles' comments echo remarks made earlier this week by Vodafone Group plc (NYSE: VOD) CEO Vittorio Colao, who complained that exorbitant fees for content rights represent a barrier to competition in Europe's pay-TV markets. (See BT Split Could Spur Vodafone to Invest in Fiber – Colao.)

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