No Holds Barred on Capex for Drahi
One of Europe’s most powerful entrepreneurs, Patrick Drahi, has made an about turn in his strategic approach to multinational telecommunications firm Altice’s fortunes. A year ago, the Frenchman’s outlook was all about cost reduction by curtailing almost every aspect of his company’s operations
. Drahi has amassed a personal net wealth of billions of euros, and was successful at remodeling Altice to become the poster child of profitable turnarounds.
Now, however, he has decided to do a 180 and is stepping up expenditure in order to regain the trust and confidence of shareholders. He is focusing his attention on alternative investments by providing subscribers with exclusive material such as sport and improved service. To do so, he needs to spend money – lots of money. It has been estimated that he will spend €800 million in capital expenditure through to 2017 at Altice, specifically within the Numericable-SFR in France. Capital expenditure will rise by 20% of retail sales in the years 2017/18, from a figure of 16.8% in 2015. SFR currently ranks poorly in terms of mobile telecommunications, and the company is determined to improve its services to be competitive at the highest level. It is expecting to extend its broadband service to 22,000,000 homes within the next six years.
Must Spend More to Win Shareholder Confidence Back
Patrick Drahi was compelled to act after share prices at his company took a big hit in late 2015. Revenues declined to €17.5 billion (-3.2%) with no evidence of growth returning anytime soon. The company is performing poorly in France, where it comes in third behind Bouygues and Orange. In order to generate the confidence needed among investors, expenditure must increase and he must be able to show that he can build up the business as well as he can break it down. Fibre-optics, for example, is replacing copper lines, and this requires significant investment from companies like Altice.
The problem in Europe is that the deflationary economic times are leading to a lack of confidence in the ability of companies to generate returns on investment. Now, all eyes will be on the billionaire businessman to see whether he’s capable of building foundations for growth as successfully as he has been at cost-cutting!