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Orange Records Lower Earnings in 1H14, Revenues Decline Y/Y

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Orange (ORAN - Free Report) reported first-half 2014 earnings per share of 28 euro cents (approximately 38 cents) which dropped from 40 euro cents (approximately 53 cents) earned in the year-ago period. The company witnessed significant revenue decline across its markets which pushed earnings down this season.

In the first half of 2014, the company recorded revenues of €19.592 billion, (approximately $27 billion) down 3.6% on a comparable basis. Excluding regulatory measures, revenues dropped 2.6% year over year due to the decline in mobile services revenues in France, Poland and lower Enterprise segment revenues.

Adjusted EBITDA dropped 3.5% year over year to €6.1 billion (approximately $8 billion), resulting in EBITDA margin of 31.3%, unchanged year over year. Excluding regulatory measures, adjusted EBITDA declined 2.7% year over year and margins remained flat.

Revenues by Key Markets

In the second half of 2014, revenues in France, the operator’s largest market, fell 4.6% year over year to €9.614 billion (approximately $13 billion). Excluding regulatory measures, revenues decreased 4.4%.

Revenues in Spain dropped 5% year over year to €1,920 million (approximately $2,632 million). Excluding regulatory measures, revenues fell 0.8%.

Revenues in Poland were €1,456 million (approximately $1,996 million), down 6.7% year over year, while exclusive of regulatory measures, it fell 3.6% year over year due to competitive pressure.

Revenues from rest of the world dropped 0.5% year over year to €3,661 million (approximately $5,019 million). Excluding regulatory measures, revenues increased 1.1% year over year. In Africa and the Middle East, revenues grew 9.2% driven by Côte d’Ivoire, Mali, Guinea and Senegal, while in Europe, the revenue trend improved in the second quarter with declines limited to 5.7%, after a fall of 8.4% in the first quarter, excluding the impact of regulatory measures.

In the Enterprise segment, revenues fell 2.7% year over year on a comparable basis and excluding regulatory measures to €3,139 million (approximately $4,303 million). The decline was due to the impact of pricing competition and a sluggish European economy.

Revenues from International Carriers and Shared Services dropped 0.5% year over year to €864 million ($1,184.5 million).

Subscriber Trends

As of Jun 30, Orange had 236.2 million total subscribers across its operating territories, reflecting a 2% year-over-year increase. The mobile customer base (excluding MVNOs) climbed 5% year over year to 178.7 million. Subscribers from fixed broadband services continued to grow, with a 4% increase at the end of the year to 15.7 million.


Capital expenditures (CAPEX) at the end of June 2014 were €2.501 billion (approximately $3,428 million), up 3.1% from June 2013-end.  The CAPEX to revenue ratio stood at 12.8%, an increase of 80 basis points.


For 2014, the company projects net debt/EBITDA ratio of approximately 2x. In addition, the company will pay 60 cents per share in dividends in 2014. The company expects adjusted EBITDA between €12 billion and €12.5 billion for 2014. Adjusted EBITDA margin for 2014 is expected to remain stable compared to 2013.

Our Take

We believe Orange is progressing well on its Conquests 2015 plan that will reinvigorate growth and restore profitability into the business. Strengthening of the domestic footprint and expansion into emerging markets are fueling the company’s growth story. Further, a strong balance sheet and healthy dividend payout bode well for growth.

Nevertheless, lingering weakness in domestic economic conditions, sustained fixed access line erosion, labor concerns, lower mobile termination rates and unfavorable regulatory measures across the company’s key European markets are risks to its performance. Intense competition fromTelef (TEF - Free Report) , Telecom Italia S.p.A (TI - Free Report) and Vodafone Group plc (VOD - Free Report) might also restrict the upside potential of the stock.

Orange holds a Zacks Rank #4 (Sell).

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