04 Dec Orange Targets euro 1B in Savings & Bigger Enterprise Role | Light Reading
Orange is targeting 1 billion ($1.1 billion) in cost savings and earnings growth of between 2% and 3% as part of a new five-year strategy under which it is eyeing expansion in IT and financial services and the beefing up of its businesses in Africa and the Middle East.
The Engage2025 plan, announced earlier today, points to a much bigger role for its enterprise business with the rollout of 5G networks and launch of related services in areas including the cloud, cybersecurity, data analytics, edge computing and the Internet of Things.
By 2023, Orange aims to generate about half its enterprise revenues from these new connectivity and IT services, including more than 1 billion ($1.1 billion) in the cybersecurity market alone.
The latest plan reflects the shifting priorities for the French operator, which faces a slowdown in more developed consumer markets and reported year-on-year sales growth of just 0.4% across its entire business for the first nine months of this fiscal year, to around 31.2 billion ($34.6 billion).
The enterprise business, which generated about 5.7 billion ($6.3 billion) in sales over that period, managed an increase of just 1%. But its revenues from IT and integration services are growing fast and were up 7% for the first nine months of 2019, to about 2.1 billion ($2.3 billion).
Like other service providers, Orange is positioning 5G and the “edge” as major opportunities to boost sales in the enterprise sector, where emerging applications in areas such as factory automation, healthcare and autonomous vehicles may require capabilities that older network technologies cannot deliver.
Orange said it would also continue to position its operations across Africa and the Middle East as an engine of growth. That region delivered revenues of about 4.2% for the first nine months, up 6.3% year-on-year, and Orange is targeting sales growth of 5% over the 2020-23 period.
Under the Engage2025 plan, that business will include around 900 million ($997 million) in revenues from Orange Money services in 2023, which have already taken off in markets that lack access to traditional payment services and banking infrastructure.
Orange said it would launch banking services in Africa and the Middle East next year and introduce those services in all European countries where it has a presence by 2025. Orange Bank, its fledgling banking business, has now attracted about half a million customers since launching an operation two years ago.
In Europe, the goal for the banking business is to break even by the end of 2023, when Orange expects to have 5 million customers and to generate about 400 million ($443 million) in net banking income. By the same date, the operator aims to capture 10 million banking customers in Africa and to generate net banking income of about 100 million ($111 million).
But the operator’s forecasts are tempered by the situation in more developed, mainstream markets, where it continues to face tough competitive and regulatory challenges.
In France, its biggest individual market, it is guiding for moderate growth in services revenues in the 2020-23 period, while the Spanish business — Orange’s second-largest subsidiary — aims to return to growth in 2021 after revenues fell 1.2% for the first nine months of 2019, to 3.9 billion ($4.3 billion).
Orange is hopeful that investments in artificial intelligence and data analytics will lead to cost savings and an improved customer experience. By 2023, it says, the number of calls to European call centers will have dropped by 55% thanks to growing use of digital tools. It also believes artificial intelligence will help it to slash the cost of building and maintaining networks.
Through various cost-saving initiatives, Orange thinks it can reduce annual indirect costs by around 1 billion ($1.1 billion) by 2023. Besides investing in automation and digital tools, it has raised the prospect of sharing fiber infrastructure, as well as towers, with other service providers and public-sector authorities.
It is also setting up towercos in most European countries and today announced the 260 million ($288 million) sale of 1,500 “non-strategic sites” in Spain to Cellnex, a dedicated towers company.
The cost-saving plans, which seem critical to Orange’s earnings targets, are likely to fuel concern about job cuts throughout the organization. Orange has cut more than 6,000 jobs in the last two and a half years and had 147,571 employees on its books at the end of September.
Among the financial objectives is a target of generating between 3.5 billion ($3.9 billion) and 4 billion ($4.4 billion) in organic cash flow in 2023, compared with more than 2 billion ($2.2 billion) this year.
Iain Morris, International Editor, Light Reading