France Telecom Cuts Dividend, Hoards Cash Amid Debt Crisis
February 23, 2012, 1:07 AM ESTBy Marie Mawad
(Updates with CFO comments starting in third paragraph.)
Feb. 22 (Bloomberg) -- France Telecom SA, Europe’s highest- yielding former telephone monopoly, cut its dividend forecast and backed off from a promise to buy back shares, as it hoards cash amid the region’s debt crisis.
The 2012 payout will be in a range of 1.21 euros to 1.35 euros a share, Chief Financial Officer Gervais Pellissier said, scrapping a previous projection for 1.40 euros. Operating cash flow will be about 8 billion euros ($10.6 billion) this year, declining from 9.3 billion euros in 2011.
“The economy is worse than we had expected last year. French sovereign debt was downgraded,” Pellissier said on a conference call today. “We think a strong balance sheet is key in this context. It’s become our main goal.”
Following Telefonica SA and Telekom Austria AG, the Paris- based operator of the Orange mobile-phone network became the latest phone company to back away from dividend forecasts. France was among European countries whose AAA ratings were cut by Standard & Poor’s last month, leaving Germany the euro-area’s only stable AAA. Deutsche Telekom AG is scheduled to report earnings tomorrow, followed by Telefonica on Friday.
More Cuts?
“The dividend cut is a positive step by France Telecom as it still continues to be very attractive for investors compared with companies from other industries,” said Alberto Espelosin, who helps manage about 6 billion euros including France Telecom shares at Zaragoza, Spain-based Ibercaja Gestion. “Deutsche Telekom and Telefonica could announce more dividend cuts this week.”
France Telecom gained 1.4 percent to 11.60 euros at 9:05 a.m. in Paris. The stock had declined 29 percent in the 12 months before today, trailing peers including Vodafone Group Plc, Deutsche Telekom and Telefonica. The Bloomberg Europe Telecommunication Services index declined 15 percent in the same period.
The French operator had a dividend yield of 12.2 percent based on yesterday’s closing price, compared with a European industry average of 7.8 percent.
Asset Sales
France Telecom, which competes with Vivendi SA’s SFR in its home country, said it had pushed back a plan to use proceeds from recent asset sales to repurchase stock. As it refocuses business on emerging markets, the company began a review of its European portfolio last year and has agreed to sell units in Austria and Switzerland in the past months.
“The financial circumstances are such that we cannot afford it today,” Pellisier said. “It doesn’t mean there won’t be a share buyback. It just means there won’t be one in 2012.”
The French company expects pricing pressure will continue in 2012 in its home market, where it generates almost half of total sales, after Iliad SA began a discount service last month under the Free brand. France Telecom said today as of Feb. 15 it had lost 201,000 subscribers, or about 0.7 percent of Orange’s total customer base in France.
Fourth-quarter earnings before interest, taxes, depreciation and amortization fell 3.9 percent in 2011 to 3.47 billion euros, France Telecom said. Sales slipped 2.6 percent to 11.43 billion euros. Analysts had predicted Ebitda of 3.42 billion euros on sales of 11.38 billion euros, according to data compiled by Bloomberg.
Analysts project 2012 Ebitda of 14.2 billion euros on sales of 44.1 billion euros, according to Bloomberg data.
France Telecom expects its footprint in the Middle-East and Africa should generate growth comparable to the 6.8 percent reported in 2011, excluding Egypt and Ivory Coast. “This year the growth in emerging markets was erased by the political turmoil in Egypt and Ivory Coast,” said Pellissier.
The company may spend about $2 billion to buy most of billionaire Naguib Sawiris’s stake in their Egyptian wireless venture and delist the operator. France Telecom this month reached a preliminary agreement with Sawiris’s Orascom Telecom Media & Technology Holding SAE over Egyptian Co. for Mobile Services, the operator known as Mobinil.
--With assistance from Manuel Baigorri in Madrid. Editors: Kenneth Wong, Simon Thiel
To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
