Iliad signals weaker cash flow as it steps up 5G spending

By Sarah Morland and Boleslaw Lasocki

(Reuters) - Iliad flagged a cut in its free cash flow target for this year as the French telecoms group steps up its spending on 5G networks, sending its shares sharply lower on Tuesday.

The company, controlled by billionaire Xavier Niel, said it would announce a new target in September, but did not say how much it planned to invest in next-generation mobile networks.

"The consequence of this is that we have a big uncertainty on the free cash flow for this year, since they're not yet capable of being clear on how much they will invest," said Stifel analyst Stephane Beyazian.

The uncertainty drove Iliad's shares down over 10% to a one-year low of 136.6 euros, the worst performance on Europe's STOXX 600 index, and wiping nearly 910 million euros ($1.1 billion) off its market capitalisation.

To help ramp up spending on 5G, Iliad said it aimed to sell its 30% stake in On Tower France, which it expects to fetch at least 600 million euros by the end of 2021 - though proceeds would mainly be used to cut debt.

Iliad's first-quarter revenues in France and Italy narrowly missed analysts' expectations, though in Poland - which Iliad entered late last year - it beat forecasts and added 8,000 new customers.

The coronavirus pandemic pushed Iliad to postpone its Italian broadband launch until after the summer, although it predicted it would turn a profit from the country in the current quarter, sooner than previously expected.

Iliad, which also faces potential supply issues from a global shortage in semiconductor chips, had previously guided for 2021 French operating free cash flow of around 900 million euros.

Shares also fell at Iliad's main French rivals and British mobile operator Vodafone, the latter of which also warned of more spending to come.

($1 = 0.8187 euros)

(Reporting by Sarah Morland and Boleslaw Lasocki in Gdansk. Editing by Mark Potter)