FT’s 1H profits plummet 24.1% as fixed line falters

27 Jul 2006

France Télécom’s (FT’s) first-half net income fell by 24.1% to EUR2.759 billion, thanks in part to a drop in earnings at its fixed line telephone division where sales fell from EUR11.156 billion to EUR11.127 billion, and the affect of a one-off gain in 2005. Last year FT posted a one-off gain of EUR200 million related to its unit in the Lebanon. Group revenues reached EUR25.86 billion, up 1.4% on a comparable basis (+9.3% on a historical basis), and the gross operating margin was EUR9.47 billion. The company’s first-half operating profit slipped 18% to EUR5.33 billion, hurt by increased investment and fewer gains from asset sales. The company said it will not meet its full-year sales growth targets.

FT’s fixed line division is suffering the effects of intense competition in its home market and is seeing a similar trend emerging in Poland. In France, revenues from consumer services were down 1.8% at 30 June 2006 on a comparable basis (and 2.5% on a historical basis) due to lower prices and a downward trend in call traffic volumes as users switched network. On a more positive note, consumer broadband ADSL users continued to grow strongly. FT had 5.3 million French ADSL users at the end of June, compared with 3.7 million a year ago. Europe-wide, FT reported 8.5 million broadband accesses, up from 6.1 million previously. In Poland, the group saw a 52% year-on-year rise in ADSL users to 1.4 million, although Home Poland reported a small decline in overall revenues to EUR1.543 billion.

In the mobile arena, FT’s Personal Communication Services unit posted revenues of EUR13.429 billion, up 6.1% on a comparable basis (22.3%, historical), thanks to strong subscriber gains. It ended June with 88.7 million customers (32.8% y-o-y), and reported more than 2.9 million EDGE/UMTS users, up 87% on the start of the year.

Commenting on the results, Didier Lombard, the chairman and CEO of FT, said: ‘Our performance in the first half shows that our Group’s transformation is moving ahead according to plan. In an environment that remains highly volatile, we are deploying the strategy that will allow us to become Europe’s operator of reference for new telecom services. The adoption of Orange as the single brand for all our offers is a clear milestone and is already paying off. It paves the way for new services for consumers and businesses, enabled by the convergence of networks and usages. In this respect, the first offerings of the Product Factory we established at the beginning of the year are already available on the markets of the Group’s footprint. These new services will create value and allow us to strengthen our positions in Western Europe. In these markets, in a context of slower growth, the Group focuses on balancing profitability and market share. Meanwhile, our development in dynamic countries is also generating additional growth. We are confident in our ability to generate organic cash flow of 7 billion euros in 2006 thanks to cost reduction programmes and optimized investments, so as to sustain our margins within the range announced in January.’

France, Orange Group