French telecom giant France Telecom (FTE) has reported results for full year 2009 with earnings per ADS of $1.58 missing the Zack Consensus Estimate of $2.65.
Net income fell 26% year-over-year to €3 billion (US$4.18 billion), largely due to a €964 million (US$1.3 billion) charge stemming from a dispute with EU competition authorities related to an illegal tax exemption received by the carrier prior to 2003. The bottom-line was also hit by lower mobile termination rates (inter-operator fees) in key markets.
Revenue
France Telecom, which operates one of world’s leading telecom brands “Orange”, reported a consolidated revenue of €45.94 billion (US$64 billion), down 3.7% year over year, missing the Zacks Consensus Estimate of US$74 billion. For the fourth quarter, revenue fell 5.8% to €11.54 billion (US$17 billion).
, The revenue decline was primarily due to unfavorable exchange rate fluctuations (British pound versus Polish zloty and the Romanian lei). Revenue was also hurt by the recession-driven discontinuation of landline phone use by customers.
EBITDA & Margin
The operator reported EBITDA (restated) of €16.33 billion (US$22.8 billion) in 2009, which declined 4.4% from 2008, resulting in a fall in EBITDA margin to 35.5% from 35.8%. This decline is a result of stringent price regulation and adverse currency exchange swings.
Revenue by Key Markets
Revenue in France, the company’s largest market with 51% of group sales, declined 0.4% year-over-year to €23.6 billion (US$33 billion) in 2009. For the fourth quarter, revenue fell 2.3% to €5.9 billion (US$8.7 billion). The decline is largely due to erosion in the legacy fixed-line business, partly offset by growth in wireless and data services.
The UK, the company’s second-largest market, posted a 13.8% year-over-year decline in revenue to €5.1 billion (US$7.1 billion) as a result of beleaguered economic conditions, adverse exchange rate impact and regulatory pressure. Revenue for the fourth quarter fell 8.5% to €1.29 billion (US$1.9 billion).
France Telecom’s UK operation (Orange UK) remains challenged by the cutthroat price competition as bigger rivals like Telefonica‘s (TEF) O2 UK and Vodafone (VOD) continue to boost their market shares. Revenue in Spain and Poland fell by 4.4% and 26%, respectively, in 2009.
Subscriber Trends
At the end of 2009, the company had 192.7 million subscribers across its vast operating territories, a 5.7% year-over-year increase, equating to 10.4 million net additions. The total cellular customer base grew 8.8% year-over-year to 132.6 million. Wireless subscriber accretion in 2009 was healthy with 10.8 million net additions (3.8 million added in the fourth quarter).
m The company’s European subscriber base increased 25% year-over-year to 4 million (including 2.4 million in France). Momentum for ADSL broadband Internet also remains strong with a 4% year-over-year growth in the total customer base to reach 13.5 million at the end 2009.
Broadband usage was healthy as the Digital TV subscriber base increased 53% year over year to 3.2 million, while the VoIP customer base increased 17% to 7.6 million.
Dividend & Cash Flow
France Telecom remains committed to its dividend policy with a distribution rate of 45% or more of organic cash flow. The carrier reported a 4% annualized increase in organic cash flow in 2009 that reached €8.35 billion (US$11.6 billion). The Board of Directors will propose a dividend of €1.40 per share for 2009 at the General Meeting of Shareholders on June 9, 2010.
Outlook & Action Plans
France Telecom has released its 2010 guidance and expects revenue (excluding the impact of regulatory measures) to remain stable year-over-year. Capital expenditure, as a proportion of revenues, is forecasted at roughly 12%, taking into account the investment of €100 million (US$139 million) in fiber optics in France.
The company expects to generate €8 billion (US$11.2 billion) in organic cash flow in 2010. The company remains firm in its aggressive cost-cutting initiatives as it aims to prevent EBITDA margin from further declines and to cope with the tighter regulatory environment.
France Telecom will continue its debt reduction policy as it seeks to achieve a net debt to EBITDA ratio of less than 2. Moreover, France Telecom will continue to pursue acquisitions in high-growth markets.
To strengthen its foothold in the UK’s wireless market, France Telecom is merging its Orange UK operation with Deutsche Telekom‘s (DT) subsidiary T-Mobile UK (fourth-largest mobile carrier in the UK) in a 50-50 joint venture. The combined entity would dethrone O2 UK as the largest wireless operator in the UK with a roughly 37% market share. Orange UK is currently the third-largest operator in the British mobile market with a roughly 21% share.
Orange UK recently launched Apple‘s (AAPL) iPhone (3G and 3GS) in the UK. The iPhone represents a significant opportunity for the company to further bolster its presence in the UK’s mobile market by attracting new high-end subscribers.
Read the full analyst report on “FTE”
Read the full analyst report on “TEF”
Read the full analyst report on “DT”
Read the full analyst report on “VOD”
Read the full analyst report on “AAPL”
Zacks Investment Research
