) 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
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 &
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
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
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
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
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
Vodafone Group Plc
) 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.
FRANCE TELE-ADR (FTE): Free Stock Analysis
TELECOM ITA-ADR (TI): Free Stock Analysis
VODAFONE GP PLC (VOD): Free Stock Analysis
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