Iliad reported disappointing first-quarter results, with fixed revenues down 1.6 percent. The company points to the weak spots, presumably the result of competitors Altice and Bouygues scrambling to overcome Iliad's assault on the mobile market, which started way back in 2012. Iliad is quick to take action, on several levels, and appears determined to regain its growth profile and prevent permanent damage to its brand image. For now, investors are abandoning ship, leading to a share price drop of around 17 percent.
Iliad's reporting, in its interim Q1 statement, is limited to revenues and operational data. Under pre-IFRS 15 reporting, revenues are up 0.4 percent, but landline growth was negative (-2.0%), which is a first in Iliad's history. And mobile growth dropped to an all-time low of 3.6 percent. Iliad's explanation for this:
- Landline: competition, promotions, a drop in subscribers (a first), higher VAT.
- Mobile: a drop in SMS revenues, higher VAT.
Iliad was further forced to slightly raise its 2018 capex budget to EUR 1.55 billion (from earlier guidance of EUR 1.4-1.5 bn). Its important 40 percent EBITDA margin target for the French market by 2020 was maintained.
Iliad is taking radical action at different levels:
- Management (CEO, CFO) changes.
- Launching a new sales and marketing approach, around new offers, better promotions, a pro-active loyalty and retention policy, increased segmentation of distribution channels, acceleration of the migration of free subscribers to the Mobile Unlimited plan, ongoing investments in FTTH and a refocus on innovation, with a new Freebox coming within four months.
Operational targets are largely unchanged. And the launch of the Italian business is imminent.
Iliad's turn again
With its entry in the mobile market, Iliad wreacked havoc from early 2012. Consolidation, i.e. the sale of Bouygues Telecom, hasn't worked out, nor did the latest rumor of a sale of Altice (SFR) to Bouygues. This ultimately forced Orange, Altice and Bouygues to come to terms with the new market reality, in which Iliad forces prices down. And now it's Iliad's turn to regain its image, carefully built around simple, cheap and innovative products and services. Of course, this is easier said than done and carries a certain amount of risk.
Upside from international expansion
Iliad's expansion into Italy, plus the recent takeover of Eir, in conjunction with founder Xavier Niel's NJJ Capital, not to mention NJJ Capital's move into Salt in Switzerland, creates what could evolve into a pan-European challenger. For the longer term, this may provide some upside for Iliad in the form of scale benefits. This too carries a level of risk, also because further international expansion may prove expensive.
