Back to top

Analyst Blog

France Telecom reported third-quarter 2012 earnings where revenue decreased 3.5% year over year to €10.76 billion ($13.9 billion). Excluding regulatory measures, revenues inched down 1.1% year over year due to weak revenues in other European countries, particularly in France that were offset by steady growth in Africa and the Middle East as well as Spain.

Adjusted EBITDA dropped 7.3% year over year to €3.65 billion ($4.71 billion), resulting in EBITDA margin of 33.9%, down by a significant 140 basis points from the year-ago period. Excluding regulatory measures, EBITDA declined 4.3% year over year.

Revenues by Key Markets

Revenues in France, the operator’s largest market, fell 5.4% year over year to €5.28 billion ($6.82 billion), largely due to lower traditional telephone services, partly offset by the success of segmented offers (Open, Origami and Sosh) and the popularity of smartphones. Excluding regulatory measures, revenue was down 2.4%.

Revenues in Spain fell 1% year over year to €1.02 billion ($1.32 billion). Excluding regulatory measures revenue increased 2.2%.

Revenues in Poland were €840 million ($1.08 billion), down 5.5% year over year while exclusive of regulatory measures it fell 3.4%. Lucrative promotional offers by other carriers have slowed down revenue growth in the country.

Revenues from rest of the world grew 0.6% and 3% excluding regulatory measures year over year to €2.04 billion ($2.63 billion). Africa and the Middle East revenues grew 4.6% (excluding regulatory measures), led by growth in Egypt & Ivory Coast.

In Europe, revenues inched up 1.3% (excluding regulatory measures) in the reported quarter, as mobile sales improved in Belgium and Moldova.

Revenues from the Enterprise segment slid 2.9% year over year to €1.72 billion ($2.22 billion). Revenues from International Carriers and Shared Services increased 3.9% to €391 million ($504.9 million).

Subscriber Trends

As of September 30, France Telecom had 227.2 million total subscribers across its operating territories, reflecting a 3.1% year-over-year increase. Mobile customer base (excluding MVNOs) climbed 4.6% year over year to 168.8 million, primarily led by Africa and the Middle East, which generated 2.5 million customers. The mobile customer base grew 0.2% to 26.6 million in France, rose 2.1% to 11.9 million in Spain, 1% to 14.8 million in Poland and 7.6% to 102.4 million in rest of the world.

Subscribers from fixed broadband services continued to grow, with a 4.1% increase in the third quarter to reach 14.8 million. The Digital TV (IPTV and satellite) subscriber base grew 17.5% to 5.7 million in Europe, mainly in France, Poland Slovakia and Belgium.


Capital expenditure (CAPEX) fell 1.9% year over year to €1.24 billion. The company generated organic or operating cash flow (EBITDA–CAPEX) of €2.41 billion, down from €2.67 billion in the year-ago period.


The company projects operating cash flow of €8 billion for fiscal 2012 while it expects to generate operating cash flow of more than €7 billion for fiscal 2013 and 2014. Additionally, France Telecom will maintain its net debt-to-EBITDA ratio target of 2 by the end of fiscal 2014. Moreover, the company also plans to pay a dividend of €0.80 per share to its shareholders in 2012 and 2013.

Our Take

We believe France Telecom is progressing well on its Conquests 2015 plan that will reinvigorate growth and restore profitability in the business. Strengthening domestic footprint and expansion into emerging markets are fueling the company’s growth story. Further, a strong balance sheet and a healthy dividend payout bode well for future growth.

Nevertheless, persistently weak domestic economic conditions, sustained fixed access line erosion, labor concerns, lower mobile termination rates and unfavorable regulatory measures across its key European markets and intensifying competition from Bouygues, Telecom Italia S.p.A (TI - Snapshot Report) and Vodafone Group Plc (VOD - Analyst Report)  might restrict the upside potential of the stock.

We are currently maintaining our long-term Neutral recommendation on the stock. For the short term (1–3 months), France Telecom holds a Zacks #3 (Hold) Rank.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.55 +11.64%
CHINA BIOLO… CBPO 55.57 +7.40%
BITAUTO HOL… BITA 96.14 +5.58%
LUXOFT HOLD… LXFT 38.77 +3.64%
INSITE VISI… INSV 0.30 +3.41%