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UPDATE 1-France's Iliad dials up higher profits, targets Italy launch before summer

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* Sees Italy launch "before summer"

* Sales up 5.6 pct to 4.9 bln euros

* Core profits up 15.8 pct to 862 mln euros

* Dividend up to 0.68 euros vs 0.40 euros (Adds detail, background)

PARIS, March 13 (Reuters) - Telecoms group Iliad on Tuesday reported higher annual sales and profits in 2017 last year, driven by growth in its customer base, and said it targeted further growth this year.

Iliad, majority-owned by its billionaire founder Xavier Niel, said annual sales in 2017 had risen 5.6 percent from the previous year to around 4.9 billion euros ($6 billion) - in line with forecasts.

Its core profits also rose 15.8 percent from last year to 862 million euros as its Free business topped 20 million subscribers. The company proposed a dividend of 0.68 euros per share for 2017, up from 0.40 euros last year.

Iliad's Chief Financial Officer Thomas Reynaud told Reuters after the results were posted that the company was in the last phase of preparing its Italy launch and expected to launch its service there "before the summer".

"We're in the final phase of preparing the launch," Reynaud said.

Iliad's 2012 launch sparked a price war in the French telecoms and mobile market, as Iliad set out to win business away from larger rivals such as Orange, Bouygues Telecom and Altice's SFR unit.

The Paris-based group has been a pioneer in packages that combine broadband internet, television and fixed-line telephones and is working on the next generation of its set-top box, dubbed Freebox, that is expected to be unveiled this year. Reynaud declined to give a more detailed timeline.

Iliad maintained its 2018 capital expenditure target of 1.4 billion - 1.5 billion euros, excluding spending on the purchases of frequencies and the launch of the new Freebox.

($1 = 0.8108 euros) (Reporting by Sudip Kar-Gupta and Gilles Guillaume; Editing by Richard Lough)