Write-offs lead to record debt

5 Mar 2003

France Télécom has reported record net losses of EUR20.7 billion for 2002 after writing down in value a number of the EUR60 billion worth of investments made by former CEO Michael Bon. The company said losses soared from EUR8.3 billion in 2001 due mainly to EUR18.3 billion of write-downs in relation to Dutch corporate services unit Equant and a number of stakes held by mobile subsidiary Orange. France Télécom reported total revenues of EUR46.6 billion, up from EUR43 billion in 2001, whilst EBITDA rose 21% to EUR14.9 billion. Orange, 84% owned by France Télécom, recorded an 11% rise in revenues to EUR17.1 billion, and a marked 51% hike in EBITDA to EUR5.15 billion. However, Europe’s third largest mobile group reported net losses of EUR4.5 billion due to write-downs and impairment charges totalling EUR5.2 billion on its investments in Italian telecoms group Wind, Orange’s Swiss operations and Dutchtone in the Netherlands. In addition, last year the company wrote-off its EUR7.3 billion investment in German mobile operator MobilCom and in December 2002 closed its Orange Sweden operations at a cost of EUR252 million.

CEO Thierry Breton, who replaced Michael Bon six months ago, is concentrating on reducing costs and has made plans to sell up to EUR15 billion worth of new shares to cut France Télécom’s debilitating debt burden, which stood at EUR68 billion at the end of 2002, down EUR2 billion from mid-year. France Télécom shares have more than doubled in value since Breton took over, but the current price of EUR19 is a mere fraction of their March 2000 high of EUR219 euros; that valued the company at over EUR220 billion, around ten times today’s worth. Moody’s Investors Service has said it will cut the company’s rating to junk if Breton fails to deliver within twelve months. During his brief tenure, Breton has raised sufficient funds in the bond market to avoid further borrowing and put the company on target to meet EUR30 billion of debt payments due this year and next.