Orange Climbs as Cost Cuts Seen Stemming Ebitda Decline

Orange SA (ORA) rose the most in more than five years after France’s largest phone company said a key profit measure may not fall this year as it steps up cost cuts.

The stock surged 8.6 percent to 9.95 euros at 11:24 a.m. in Paris, the steepest gain since Oct. 13, 2008.

Orange’s restated earnings before interest, taxes, depreciation and amortization will be 12.1 billion euros ($16.6 billion) to 12.6 billion euros this year, the Paris-based company said in a statement today as it reported earnings. The forecast means profit by that measure may not decline for the first time in at least five years.

“We’re in a landing phase that will allow us to stabilize Ebitda in 2014,” Chief Executive Officer Stephane Richard said on a conference call. “We’ll continue our efforts on costs in the coming months.”

In France, where Orange garners about half of its revenue, Richard is seeking to reverse a slide in rates after discounter Iliad SA became the fourth mobile carrier in 2012. Vivendi SA (VIV), owner of France’s No. 2 operator SFR, said yesterday it received two bids for the unit, including one from Bouygues SA (EN) in what could become a driver for consolidation in the country’s overcrowded phone market.

SFR also attracted an offer from Altice SA, the cable holding company backed by billionaire Patrick Drahi that’s the parent of Numericable SA.

“The movements we’re seeing towards consolidation show prices are nearing bottom in the French market,” Chief Financial Officer Gervais Pellissier said on a conference call.

Dividend Cut

Orange aims to slash enough costs this year to make up for about three-quarters of pressure on sales, Pellissier said. That compares with savings that offset about half of Orange’s revenue decrease in 2013, and 10 percent the year before.

Orange also said today it will cut its 2014 dividend to 60 cents a share, compared with 80 cents last year.

Revenue fell 6.4 percent to 10.2 billion euros last quarter, below the 10.3 billion-euro analyst estimate compiled by Bloomberg. In the full year, sales dropped 5.8 percent to 41 billion euros while restated Ebitda fell to 12.6 billion euros, the company said.

‘Reasonably Optimistic’

To boost revenue and earnings, Orange in the past four years has expanded in African and Middle Eastern countries like Egypt, Mali and Iraq. More recently, it has intensified a search for acquisition targets in Spain, people familiar with the matter said last month.

In an interview last week, Richard said Orange would refrain from doing large cash deals, though consolidation in Spain would make sense and may call for more “innovative schemes.”

Orange and SFR’s French mobile-service sales totaled 3.5 billion euros in the third quarter of 2013, about 20 percent less than the same period in 2011, according to data compiled by Bloomberg.

“We remain reasonably optimistic that 2014 should prove less painful for operators than either 2013 or 2012,” CreditSights Research analysts wrote in a note before the earnings release. Still, they said consolidation in France won’t drive “material market repair” this year.

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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