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France Telecom Sees Lower Revs

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France Telecom reported fourth-quarter 2012 earnings on revenues of €10.92 billion ($14.16 billion), which decreased 3.2% year over year.  Excluding regulatory measures, revenues dropped 1.1% year over year due to the decline in mobile services revenues. This was partly compensated by national roaming contracts signed with the new market players.

For the full year, revenues decreased 2.7% year over year to €43.52 billion ($55.96 billion). Excluding regulatory charges, revenues decreased 0.6% year over year.

Adjusted EBITDA dropped 8.8% year over year to €3.14 billion ($4.07 billion), resulting in EBITDA margin of 28.7%, down 180 basis points from the year-ago period. Excluding regulatory measures, EBITDA declined 6.5% year over year and margins plunged 170 basis points.

For 2012, adjusted EBITDA declined 7.4% on a comparable basis as well as 5.3% excluding regulatory measures to €13.79 billion. This resulted in EBITDA margin of 31.7%, down 1.6% on a comparable basis and excluding regulatory measures.

Revenues by Key Markets

Revenues in France, the operator’s largest market, fell 5.7% year over year to €5.33 billion ($6.91 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 decreased 3.0%.

Revenues in Spain fell 0.1% year over year to €1.01 billion ($1.31 billion). Excluding regulatory measures, revenues increased 2.5%, driven by growth in fixed broadband and mobile revenues.

Revenues in Poland were €847 million ($1.10 billion), down 6.3% year over year while exclusive of regulatory measures it fell 4.2% year over year.

Revenues from rest of the world fell 1.9% and increased 4.2% excluding regulatory measures year over year to €2.09 billion ($2.71 billion). Africa and the Middle East revenues grew 4.2% (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 Romania.

Revenues from the Enterprise segment slid 2.7% year over year to €1.79 billion ($2.32 billion). Revenues from International Carriers and Shared Services increased 0.1% to €415 million ($538.3 million).

Subscriber Trends

As of Dec 31, France Telecom had 230.7 million total subscribers across its operating territories, reflecting a 3.0% year-over-year increase. The mobile customer base (excluding MVNOs) climbed 4.5% year over year to 172.4 million. The growth was primarily led by Africa and the Middle East, which generated 7 million additional customers, bringing the total to 81.6 million customers. The mobile customer base grew 0.4% to 27.2 million in France, 1.5% to 11.8 million in Spain, 1.6% to 14.9 million in Poland and 5.7% to 105.4 million in rest of the world.

Subscribers from fixed broadband services continued to grow, with a 3.4% increase in 2012 to reach 14.9 million. The Digital TV (IPTV and satellite) subscriber base grew 15.0% to 5.91 million in Europe, mainly in France, Poland Slovakia and Spain.


In 2012, capital expenditures (CAPEX) rose 1.7% year over year to €1.82 billion ($2.34 billion) in 2012. The company generated organic or operating cash flow (EBITDA–CAPEX) of €7.97 billion ($10.25 billion), down 13.0% year over year but consistent with the year’s target of reaching €8 billion.


The company projects operating cash flow of over €7 billion for fiscal 2013. In addition, it expects net debt/EBITDA ratio of approximately 2  by the end of 2014. In terms of dividend payment, the company plans to pay the remaining 0.20 euro per share of 2012 in cash on Jun 11, 2013.  For 2013, the company expects to pay a minimum dividend of 0.80 euro per share and an interim dividend payment of 0.30 euros per share in December.

In 2013, the company targets to generate approximately 10% revenue growth in its mobile data services with France’s market share in the segment rising to more than 35% and reaching 30% of the population with 4G coverage by year-end 2013.

In Africa and the Middle East, the company expects to have 8 million more Orange Money customers, sell 12 million devices and reduce churn rates by 20% this year.

Further, in the Enterprise segment, the company expects revenue growth of more than 30% year over year in cloud computing with double-digit revenue growth in the emerging markets.

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, lingering weakness in domestic economic conditions, sustained fixed access line erosion, labor concerns, lower mobile termination rates and unfavorable regulatory measures across its key European markets are risks to the company’s performance. Intense competition from Bouygues, Deutsche Telekom AG (DTEGY - Free Report) , Telecom Italia S.p.A (TI - Free Report)   and Vodafone Group Plc. (VOD - Free Report) might also restrict the upside potential of the stock.

France Telecom holds a Zacks Rank #2 (Buy).

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