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Orange confirms annual targets as recovery takes hold

France's largest telecom operator Orange inched closer to a long-awaited recovery in the second quarter as customers shifted to high-speed mobile and broadband services, allowing it to confirm its annual profit, debt and dividend targets.

Quarterly sales stood at 9.89 billion euros, down 0.2 percent on a comparable basis but up 0.4 percent when the impact of regulatory changes is stripped out, marking the first increase since 2011.

Balint Porneczi | Bloomberg | Getty Images

Restated earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 0.4 percent to 3.29 billion euros, while the margin held stable at 33.3 percent.

The results were ahead of analysts' forecasts on revenue and slightly worse on EBITDA, according to a consensus provided by Orange.

The figures show that Orange is putting a brutal price war that begin in 2012 when low-cost operator Iliad entered the mobile market in France behind it and benefiting from ongoing major investments in faster networks. It signed up 76,000 new customers to mobile contracts on a net basis in the quarter, with more people using 4G mobile services that are priced at a premium.

Orange's nascent recovery reflects a broader trend among European telecom operators after five years of revenue declines because of regulatory pressure and tough competition. Analysts believe the sector is approaching an inflection point and see a return to top-line growth next year.

Orange shares have risen 5.7 percent this year, making it among the worst performers in the 22-component STOXX 600 European telecoms index, which is up 18.5 percent.

It was one of the best performers last year, however, as investors took heart from cost cuts and a budding recovery in France to send Orange shares up 57 percent compared to 7 percent for the index.

As part of its turn-around effort, Orange has been selling assets in mature European markets such as its British mobile operator EE, jointly owned with Deutsche Telekom, so as to expand in emerging markets.

It disclosed last week that it was in discussions to buy operations in four West African countries from Indian telecom group Bharti, which Deutsche Bank analysts said could be worth 1.2 to 1.5 billion euro.

Chief Financial Officer Ramon Fernandez said on Tuesday that due diligence was underway with Bharti and the group would know by autumn whether the deal would be completed.

Roughly half of Orange's revenue comes from French operations, with the rest split, more or less, among the rest of Europe, and emerging markets in Africa and the Middle East, plus an enterprise unit serving multinational companies.