) 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.
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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
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 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 &
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
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
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.
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
Telecom Italia S.p.A
Vodafone Group Plc.
) might also restrict the upside potential of the stock.
France Telecom holds a Zacks Rank #2 (Buy).