), the world's largest telecommunications carrier in Paris,
reported first half 2012 earnings of €0.65 per share ($0.84 per
share), down from €0.73 per share earned in the year-ago period.
Net income slipped 8.9% year over year to €1.91 billion ($2.48
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Revenue decreased 1.9% year over year to €21.84 billion ($28.34
billion). Excluding regulatory measures, revenues inched down 0.1%
year over year due to weak revenues in other European countries, in
particular France that were offset by steady growth in Africa and
the Middle East as well as Spain.
Adjusted EBITDA dropped 6.7% year over year to €7.0 billion ($9.1
billion), resulting in EBITDA margin of 32.1%, down 160 basis
points from the year-ago period. Excluding regulatory measures,
EBITDA declined 5.3% year over year.
Revenues by Key Markets
, the operator's largest market, fell 4.5% year over year to €10.83
billion ($14.0 billion), largely due to lower traditional telephone
services, partly offset by the success of segmented offers (Open,
Origami and Sosh) and popularity of smartphones. Excluding
regulatory measures, revenue was down 2.0%.
rose 2.4% year over year to €1.9 billion ($2.6 billion) mainly
attributable to continued growth in fixed broadband services and
the rapid development of Internet browsing on mobiles. Excluding
regulatory measures, revenue increased 4.8%.
were €1.69 billion ($2.2 billion), down 2.3% year over year and
1.1% excluding regulatory measure. Continued migration from
fixed-line phones to mobile is suppressing revenues from the
rest of the world
grew 1.6% and 2.8% excluding regulatory measures year over year to
€4.14 billion ($5.4 billion). Africa and the Middle East revenues
grew 6.2% (excluding regulatory measures), led by growth in Côte
d'Ivoire, Cameroon, Senegal and new African operations.
In Europe, revenues remained flat (excluding regulatory measures)
in the first half of the year, as mobile sales improved in Belgium
and contract customers increased in Romania. Further, higher data
sales and an expanded customer base led to a 2.1% (excluding
regulatory measures) increase in revenues from the Dominican
Revenues from the
segment slid 2.6% year over year to €3.49 billion ($4.5 billion),
primarily due to a sharp decline in legacy networks services, which
was partially offset by growth in the other businesses. Revenues
International Carriers and Shared Services
increased 6.9% to €817 million ($1.1 billion).
As of June 30, France Telecom had 224.2 million total subscribers
across its operating territories, reflecting a 3.5% year-over-year
increase. Mobile customer base (excluding MVNOs) climbed 6.2% year
over year to 165.7 million, primarily attributable to a 13.9%
growth in Africa and the Middle East to 76.3 million customers. The
mobile customer base rose 2.8% to 11.7 million in Spain, 1.5% to
14.8 million in Poland and 8.9% to 99.7 million in rest of the
world. These increases were partly offset by a 1.2% decline to 26.3
million in France.
Subscribers from fixed broadband services continued to grow, with a
4.7% increase in the first half to reach 14.7 million. The Digital
TV (IPTV and satellite) subscriber base grew 19.7% to 5.5 million
in Europe, mainly in France, Poland, Belgium and Slovakia.
France Telecom reduced its net debt to €31.18 billion at the end of
June 2012 from €32.33 billion at the end of June 2011. Net
debt-to-EBITDA ratio was 2.11 compared with 2.09 in the year-ago
Capital expenditure (CAPEX) nudged up 1.0% year over year to €2.46
billion (11.3% of first half 2012 revenue). The company generated
organic or operating cash flow (EBITDA-CAPEX) of €4.54 billion,
down from €5.07 billion in the year-ago period.
Based on first half results, France Telecom will pay an interim
dividend of €0.58 per share on September 12.
Given the economic uncertainty and competitive pressures, France
Telecom continues to expect dividend distributions on operating
cash flow generation. The company would return 40-45% of operating
cash flow to shareholders in the form of dividends in fiscal 2012
The company projects operating cash flow of €8 billion for fiscal
2012. Additionally, France Telecom maintained its net
debt-to-EBITDA ratio target of 2 over the medium term.
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
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 spA
Vodafone Group Plc
) might restrict the upside potential of the stock.
We are currently maintaining our long-term Neutral rating on the
stock. For the short term (1-3 months), France Telecom holds a
Zacks #4 (Sell) Rank.