Bloomberg News

France Telecom Quarterly Profit Falls as Sales Slide at Home

October 27, 2011

(Updates with CFO comment in fourth paragraph.)

Oct. 27 (Bloomberg) -- France Telecom SA, the owner of the Orange mobile-phone brand, said third-quarter profit fell 6.2 percent before some items as a revenue decline at home offset growth in Spain and some African countries.

Earnings before interest, taxes, depreciation and amortization slid to 4 billion euros ($5.6 billion) from a restated 4.26 billion euros a year earlier, France’s largest telephone company said today in an e-mailed statement. Revenue dropped 3 percent to 11.3 billion euros.

Chief Executive Officer Stephane Richard, who took over in 2010, is seeking to reduce Paris-based France Telecom’s dependence on sluggish European markets through asset sales on the continent and acquisitions in Africa. The company today said it expects its full-year operating cash flow to be “slightly” more than 9 billion euros, compared with a previous forecast of that amount.

Its reliance on customers with long-term subscriptions -- who make up about 80 percent of Orange’s clientele in France -- has given France Telecom the confidence to increase the target, Chief Financial Officer Gervais Pellissier said on a conference call. Pellissier is taking on the additional role of CEO Delegate, a position that makes him second-in-command to Richard, the company said yesterday.

Telekom Austria, Swisscom

France Telecom rose 1.1 percent to 13.26 euros at 9:11 a.m. in Paris, while the CAC-40 Index gained 3.9 percent.

Compared to weak recent results or outlook downgrades from European mobile operators such as Royal KPN NV, Swisscom AG, and Telekom Austria AG, France Telecom’s upgraded cash-flow forecast is a “slight positive,” said Tarkan Cinar, an analyst at WestLB AG in Dusseldorf.

Revenue from France fell 4.7 percent in the quarter, while sales in Spain climbed 4.8 percent. In Africa and the Middle East, where the company has operations in countries including Kenya and Cameroon, underlying revenue climbed 6.1 percent excluding Ivory Coast and Egypt.

The first major asset sale of Richard’s tenure as CEO -- that of Orange Switzerland -- may wrap up by the end of this year, and be valued at about 2 billion euros, people familiar with the situation have said. France Telecom this month agreed to acquire the fourth-largest mobile operator in the Democratic Republic of Congo.

Rising Network Costs

M&A activity in Africa and the Middle East is likely to slow down for France Telecom after that deal, and acquisitions of operators in Morocco and Iraq over the last year, which collectively put the company on track to meet a target of doubling emerging-market sales by 2015, Pellissier said.

Closer to home, France Telecom has struggled with the impact of rising network costs required to accommodate a surge of traffic to sites such as Google Inc.’s YouTube, and joined rivals including Telecom Italia SpA and Telefonica SA in demanding a new financial relationship with Google and Apple Inc. to compensate.

Telecommunications regulators have so far stayed out of the dispute, leaving operators and the Internet companies to work out arrangements, which may focus on technical tools to reduce the impact of high-bandwidth services.

Hutchison Whampoa Ltd., the Hong Kong-based owner of mobile operators in countries including the U.K. and Italy, is in talks to acquire Orange Austria, one of the France Telecom units that have been targeted for sale, people familiar with the situation said this week.

--Editors: Kenneth Wong, Thomas Mulier

To contact the reporter on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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