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France Telecom Posts Lower Revenues

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France Telecom reported first quarter 2013 revenues of €10.28 billion ($13.18 billion), which decreased 4.1% year over year. Excluding regulatory measures, revenues dropped 1.8% year over year due to the decline in mobile services revenues in France along with lower Enterprise segment revenues.

Adjusted EBITDA dropped 6.6% year over year to €3.124 billion ($4.00 billion), resulting in EBITDA margin of 30.4%, down 80 basis points from the year-ago quarter. Excluding regulatory measures, EBITDA declined 4.1% year over year and margins plunged 70 basis points.

Revenues by Key Markets

Revenues in France, the operator’s largest market, fell 6.17% year over year to €5.07 billion ($6.50 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, revenues decreased 3.4%.

Revenues in Spain grew 0.8% year over year to €989 million ($1.27 billion). Excluding regulatory measures, revenues increased 3.3% driven by growth in fixed broadband and mobile revenues.

Revenues in Poland were €786 million ($1.01 billion), down 7.2% year over year while exclusive of regulatory measures it fell 3.2% year over year.

Revenues from rest of the world grew 0.7% and increased 2.9% excluding regulatory measures year over year to €1.93 billion ($2.47 billion). Africa and the Middle East revenues grew 3.3% (excluding regulatory measures), led by growth in Côte d’Ivoire, Senegal, Guinea and Niger.

In Europe, revenues increased 2.6% (excluding regulatory measures) in the reported quarter, as smartphone sales and Internet usage improved in Belgium and Romania.

Revenues from the Enterprise segment slid 5.3% year over year to €1.64 billion ($2.10 billion). Revenues from International Carriers and Shared Services dipped 0.4% to €407 million ($521.7 million).

Subscriber Trends

As of Mar 31, France Telecom had 229.8 million total subscribers across its operating territories, reflecting a 2.6% year-over-year increase. The mobile customer base (excluding MVNOs) climbed 4.0% year over year to 171.8 million. The growth was primarily led by Africa and the Middle East, which generated 6.2 million additional customers, bringing the total to 82 million customers. The mobile customer base grew 1.3% to 26.8 million in France, 1.3% to 12.2 million in Spain, 1.9% to 14.89 million in Poland and 5.9% to 105.034 million in rest of the world.

Subscribers from fixed broadband services continued to grow, with a 3.0% increase in the first quarter to reach 14.9 million. The Digital TV (IPTV and satellite) subscriber base grew 13.0% to 6.043 million in Europe, mainly in France, Poland Slovakia and Spain.


In the first quarter, capital expenditures (CAPEX) rose 6.5% year over year to €1.150 billion ($1.47 billion). The company generated organic or operating cash flow (EBITDA–CAPEX) of €1.975 billion ($4.42 billion), down 12.9% year over year but consistent with the year’s target of €7 billion.


France Telecom maintains its projection for 2013. 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.

Our Take

We believe France Telecom is progressing well on its Conquests 2015 plan that will reinvigorate growth and restore profitability into 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, Telef (TEF - 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 #5 (Strong Sell).

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