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UPDATE 1-Orange pledges stable operating margins despite France woes
March 6, 2014 / 11:22 AM / 4 years ago

UPDATE 1-Orange pledges stable operating margins despite France woes

* Forecasts stable operating profit margins this year

* Shares rise on guidance, seen as positive

* France price war rages on (Adds share price reaction, details)

By Leila Abboud and Gwénaëlle Barzic

PARIS, March 6 (Reuters) - Orange shares jumped to a four-month high on Thursday after France’s largest telecom operator forecast stable margins this year and higher core profit than analysts were expecting.

Orange forecast earnings before interest, tax, depreciation and amortisation (EBITDA) of 12.1-12.6 billion euros for 2014, above the Thomson Reuters I/B/E/S poll average of 12.08 billion.

Results for last year, however, showed no let up of the pressure that Orange has faced since 2012 when low-cost player Iliad entered the mobile arena and sparked a price war.

Orange posted a 7.5 percent drop in EBITDA to 12.65 billion euros ($17.4 billion), and was able to offset about half of a the 1.95 billion decline in revenue via cost-cutting on everything from software to staff. It saved 929 million euro last year and pledged to continue those efforts.

Chief Financial Officer Gervais Pellissier said the group had returned at the end of 2013 to levels of commercial activity not seen since 2009, particularly in France.

The company won close to 700,000 additional mobile clients last year, giving it a subscriber base higher than it had before the arrival of rival Iliad’s low-cost Free Mobile service in January 2012.

Shares in Orange were 8.7 higher at 9.966 euros by 1014 GMT.

Iliad has helped turn France, where Orange earns half its revenue, from one of Europe’s most profitable telecom markets to one of its cheapest for consumers in the past three years.

In recent days, a takeover battle has emerged over Vivendi’s SFR mobile division, with Bouygues on Thursday unveiling a takeover offer for the business.

Orange’s sales in France fell 6.6 percent to 20.02 billion euros last year, even as it added mobile contract customers and rolled out superfast 4G services, while French core profit fell almost 8 percent to 7.13 billion.

Pellissier said he no longer wanted to predict when things would start to improve in the French market.

“Everything that is happening today in France around the possible consolidation of companies in the sector shows that we may be approaching the bottom,” he said, referring to the SFR auction.

He added that Orange supported in-market consolidation in general but declined to comment on how the SFR auction could affect the group.

Orange Chief Executive Stephane Richard told reporters at a news conference that consolidation was needed in the French telecom industry and that he had no preferred winner in the SFR auction, although he would closely watch the competitive impact of any deal.

Orange also proposed cutting its dividend for this year by 25 percent to 0.60 euros a share.

Jefferies analyst Jerry Dellis said the dividend cut could be a sign that Orange wanted to keep flexibility to do acquisitions, such as in Spain, where it could buy fixed or mobile rivals. Orange has said it would look at deals in markets where it was already present.

Orange achieved its main target for 2013 of 7 billion euros in operating cash flow.

Group net income nearly doubled to 2.13 billion euros because of fewer impairment charges last year.

Analysts had on average predicted 2013 sales of 41.2 billion euros, EBITDA of 12.65 billion, and net income of 2.69 billion, according to Thomson Reuters I/B/E/S estimates.

$1 = 0.7278 Euros Reporting by Leila Abboud and Gwenaelle Barzic; Editing by Andrew Callus

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