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UPDATE 1-Altice-SFR performance gap widens in first quarter
May 11, 2017 / 7:28 AM / 7 months ago

UPDATE 1-Altice-SFR performance gap widens in first quarter

* Altice core profit up 9.5 pct; SFR’s down 5.1 pct

* SFR margin lowest since Drahi acquisition in 2014

* Deals with NBCUniversal, Discovery weigh on SFR profits (Adds shares reaction, analyst note, details)

By Mathieu Rosemain and Gwénaëlle Barzic

PARIS, May 11 (Reuters) - The performance gap between telecoms and cable group Altice NV and its listed SFR Group division widened in the first quarter, underscoring SFR’s difficulties in attracting customers despite heavy investments in infrastructure and content.

The holding company, founded by Franco-Israeli tycoon Patrick Drahi, said on Thursday that its quarterly profits in the United States grew ahead of a planned initial public offering (IPO) while those of SFR in France dropped, along with the number of customers in the country.

Altice’s core operating profit rose by 9.5 percent over the first three months of year to 2.24 billion euros ($2.43 billion), in line with a Reuters poll.

SFR’s contribution to that amount was 820 million euros, down by 5.1 percent from a year earlier. That figure compares with the 896 million euro core operating profit yielded by Altice USA over the same period, representing an increase of 31.2 percent.

Drahi is betting on the convergence of content providers and telecommunications operators to increase margins and compete better against newcomers such as Netflix and Amazon . He saw the announcement of AT&T Inc’s $85 billion acquisition of Time Warner Inc as an additional proof of this trend.

In France, SFR bought the English Premier League’s football rights for the three seasons starting in 2016, paying more than 300 million euros for them.

SFR also won the TV rights for soccer’s European Champions League for the period 2018-2021 period for an annual cost of 350 million euros, a source told Reuters on Thursday.

Still, evaluating the impact of such investments on customers’ choices remains difficult and recent spending on exclusive distribution agreements with NBCUniversal and Discovery weigh on SFR margins.

“Yes, we believe that content has an impact on our figures,” Altice’s chief executive Michel Combes said in a call with reporters. “It answers customers expectations, it clearly supports our pricing strategy,” he added.

SFR lost 351,000 mobile customers and 213,000 broadband customers in the first quarter compared with the same period a year ago.

The French unit’s quarterly core operating margin at 30.3 percent is the worst on record since Drahi bought SFR in November 2014, and far from an initial target of 45 percent.

“SFR’s fundamentals will likely remain difficult in 2017, as cost savings from headcount reductions are totally reinvested in content costs,” analysts for Raymond James said in a note to clients.

“The possible positive impact of the content strategy on customer trends remains unclear,” they added. ($1 = 0.9202 euro) (Reporting by Mathieu Rosemain and Gwenaelle Barzic; Editing by G Crosse and GV De Clercq)

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