Orange posted third-quarter results that were slightly higher than forecast as France's largest telecom company cut costs more rapidly than expected and customers signed up for faster 4G mobile services. France's No 1 mobile firm believes the sector still needs mergers to cope with fierce price competition but an Orange executive said it would not move first, three months after it dropped a bid for No 3 mobile company Bouygues SA.
"We are not the ones suffering the most from the absence of consolidation," Chief Financial Officer Ramon Fernandez told investors on a conference call. "We are not going to lead on this, we will be looking at evolutions." Other French players are SFR, which Vivendi agreed to sell to Numericable in April - a deal still pending regulatory approval - and new entrant Iliad, which has brought stiff price competition to the market since 2012.
Orange posted quarterly revenue of 9.81 billion euros ($12.4 bln), slightly ahead of an analyst consensus forecast of 9.71 billion. Restated earnings, excluding one-time items and some costs, was 3.245 billion, broadly in line with expectations. "Orange's commercial momentum remained high in the third quarter of 2014 across all our operations, fuelled by our ongoing investment efforts" in fixed and mobile broadband, Orange Chairman and CEO Stephane Richard said in a statement.
However, Orange cautioned that it expected to see further declines in average revenue per user (ARPU) from mobile and fixed-line customers in France next year, albeit at a slower rate than in 2014. Shares in Orange, the former French telephone monopoly which is 25 percent owned by the state, rose 3 percent to 11.24 euros following the results. The stock has outperformed European peers this year by making progress in stabilising its business and speculation about further market consolidation, rising 25 percent compared with just over a 1 percent rise in the European telecom sector index. "Overall, we see Orange results as encouraging especially in its domestic market where it seems that the worst phase of revenue erosion owing to the intense competition is over," brokerage Espirito Santo said in a note to clients.
COSTS CUTS AHEAD OF TARGET Orange confirmed it expected to meet its full-year 2014 target for restated earnings, excluding one-time costs tied to legal expenses, asset disposals and restructuring expenses, in a range of 12.0-12.5 billion euros and to return its ratio of net debt to about two times restated earnings. Within these financial constraints, Orange also reaffirmed that it was pursuing a policy of selective acquisitions, concentrating on markets where it is present.
After calling off talks about a possible bid for Bouygues, it agreed to pay 3.4 billion euros for fixed-line carrier Jazztel Plc to shore up its mobile operations in Spain. CFO Fernandez downplayed any immediate ownership change for the United Kingdom's largest mobile phone company EE, which it runs jointly with Deutsche Telekom. There has been recurring speculation that Orange and Deutsche might seek to list shares in the business. Fernandez said "the best option" for Orange and Deutsche was to maintain the current capital structure, but all options remained open.
During the third quarter, Orange slashed its operating costs for everything from marketing to office space by 333 million euros, beating its 300-million-euro goal for the year as a whole three months earlier than it said it would. Throughout the year, Orange has been looking to offset tough competition, falling prices and declining revenues across its major markets of France, Spain and Poland by cutting costs.
By contrast, its African and Middle East markets, which include just over half Orange's customers, posted revenue growth of 6.4 percent in the quarter, led by Egypt, Guinea, Mali and Ivory Coast. These non-European regions have added 10.7 million subscribers so far this year to the 94.3 at the end of 2013. The decline in sales at its French mobile business slowed to 6.1 percent in the quarter from 8.9 percent in the first half. Orange added 220,000 net mobile contracts during the period, 60 percent of which were based on premium packages including its 4G service. Orange expects to have 3 million customers in France signed up for faster 4G services by the end of 2014. But third-quarter average revenue per user fell to 23.0 euros from 26.3 euros a year earlier. Average revenue per broadband customer slipped to 33.4 euros from 34.1 euros. Margins in the latest quarter were 33.1 percent, flat from a year earlier, but significantly better than a low-point of 28.1 percent in the last three months of 2013, when price competition in the French market cut deeply into profits.
Comments
Comments are closed.