March 7, 2017 / 8:50 AM / a year ago

UPDATE 2-Iliad's profit boost gives it firepower for Italy

* Telecom operator hopes to launch in Italy by early 2018

* Shares rise, among top performers on Paris stock market

* Italian operators are the “most hated” in Europe-Niel (Adds Xavier Niel’s comments on Italy, background)

By Mathieu Rosemain and Gwénaëlle Barzic

PARIS, March 7 (Reuters) - French telecoms operator Iliad reported on Tuesday its biggest annual profit margin since the launch of its low-cost Free brand mobile service five years ago, giving it firepower for its next assault, on Italy.

The Paris-based group, founded and controlled by billionaire Xavier Niel, said it would step up investments in France in 2017 and 2018 and is readying to launch in Italy by early next year.

Free brand has been a pioneer in packages that combine broadband internet, television and fixed-line telephones and triggered a price war in the French mobile sector when it was launched in 2012.

Competition with Orange, SFR Group and Bouygues’ telecoms services remained intense last year but Iliad said it managed to boost profitability through a drop in costs tied to its roaming contract with Orange and increasing its mobile customers. It also saw a higher number of customers upgrading from its cheapest contracts to its higher-priced packages.

That helped it achieve an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of about 35 percent, its best performance since 2012.

Its shares jumped 4.6 percent after the results, among the top performers on the Paris stock market, as the company said it targets a consolidated EBITDA margin of more than 40 percent in France by 2020.

It will invest 1.4 billion euros-1.5 billion euros ($1.5 bln-$1.6 bln) in its home market in 2017 and in 2018, up from 1.3 billion euros in 2016, and aims to secure a quarter of the market in both high-speed broadband and mobile services, up from 24 percent and 18 percent respectively at present.

Building on his success in taking on established players in France, Niel now aims for Iliad to become Italy’s fourth mobile operator when two existing players merge, targeting a 15 percent share of that market.

“Italian operators are the most hated by consumers in Europe,” Niel said in a conference call after the results release.

“We have everything to create something with a little more transparency and a little more honesty,” he added, citing as an example the existence in Italy of monthly subscription contracts running for only 28 days instead of 30.

Iliad plans to launch in Italy in “late 2017, start of 2018”, Chief Executive Maxime Lombardini said in a telephone interview. Chief Financial Officer Thomas Reynaud said the group will spend about 100 million euros on the project this year.

Iliad signed an agreement in June with CK Hutchison and VEON to acquire some of their respective assets as the two groups want to merge their Italian subsidiaries.

Iliad’s core operating profit rose 12.5 percent to 1.675 billion euros last year ($1.8 billion), driven by higher margins at its mobile business, it said. ($1 = 0.9468 euros) (Reporting by Mathieu Rosemain and Gwenaelle Barzic; Editing by Sudip Kar-Gupta and Susan Fenton)

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