* Holds operating margin steady despite sales drop
* Q1 EBITDA fell 3.8 pct to 3.02 bln, in line with forecast
* Shares rise 4.6 pct, hit highest in nearly two years
* CFO sees fewer acquisition targets, no rush on Spain
* Open to talks with Bouygues on network sharing, wholesale
(Adds shares, analyst comment)
By Leila Abboud and Gwénaëlle Barzic
PARIS, April 29 France's biggest telecom
operator Orange SA has continued cutting costs on
everything from staff to mobile phone marketing, allowing it to
hold profit margins steady despite lower sales across its major
Its shares jumped more than 4 percent to their highest in
nearly two years.
The group on Tuesday posted first-quarter sales and
operating profit that met expectations and confirmed its goal
for core earnings or EBITDA of between 12 billion euros ($16.6
billion) and 12.5 billion this year.
Group EBITDA fell 3.8 percent to 3.02 billion euros in the
quarter, yielding a steady operating margin of 30.8 percent.
Finance chief Gervais Pellissier said the worst of the
mobile price war that has raged in France since low-cost player
Iliad launched a mobile service in January 2012 was
past and noted margins were stablising after five straight years
"We are maybe not totally out of the tunnel but we do see
positive trends," Pellissier said, adding that French telecom
operators were switching from across-the-board price cuts to
more traditional sales and promotions.
Jerry Dellis, analyst at brokerage Jefferies, said in a
research note: "Today's results demonstrate encouraging progress
towards the key aspect of guidance that management issued back
in March, namely stabilisation of the group EBITDA margin."
With pressure strongest in Orange's key markets of France
and Poland, first-quarter sales fell 3.8 percent to 9.8 billion
euros on a comparable basis, excluding a 333 million euro charge
to settle litigation with rival Bouygues and other
Orange continued cutting costs, achieving 267 million euros
in savings, with 76 million euros coming from staff costs and 70
million from lower so-called "termination" fees, charged when a
mobile phone call moves from one network to another - a trend
that is set to benefit the European telecom sector this year.
One bright spot was Spain, where Orange has been adding
mobile customers as it competes with leader Telefonica
and second-placed Vodafone, which recently bought cable
operator Ono to expand into fixed telephone and broadband.
To figure out a response, Orange hired Bank of America
Merrill Lynch to advice it on its strategy in Spain, including
the possible acquisition of smaller competitor Jazztel,
people familiar with the matter said in March.
But Pellissier said there was "no urgency to move" after the
Vodafone-Ono deal, because Orange could negotiate wholesale
agreements or partnerships to build high-speed broadband with
Telefonica or Vodafone.
"We see fewer acquisition opportunities compared to March,
but we will remain attentive to consolidation in European
countries where we are already present in mobile and not in
fixed," he said.
Orange shares were up 4.5 percent at 11.32 euros by 0909 GMT
- the biggest gainers in France's blue-chip index - as
investors bet on the group's recovery. The stock rose as high as
11.44 euros, its highest since August 2012.
Orange's 26 percent rise so far this year is the
third-steepest in Europe's telecom index, which is down
0.5 percent in the same period.
In a radio interview, Orange Chief Executive Stephane
Richard listed Romania, Belgium and to a lesser extent Spain as
places where the company could buy fixed assets to complement
its mobile operations.
Pellissier added that Orange was open to discussing
wholesale agreements in broadband or network sharing with French
rival Bouygues, which has a network sharing deal with Vivendi's
"We are the biggest wholesale provider in France and we're
open to all forms of cooperation that allows us to grow our
sales," said Pellissier. "If Bouygues knocks on our door, we are
open to talking with them."
($1 = 0.7223 Euros)
($1 = 0.7223 Euros)
(Reporting by Leila Abboud and Gwenaelle Barzic; Editing by