Net profit down at France Telecom but share prices up

27th July 2004, Comments 0 comments

PARIS, July 27 (AFP) - France Telecom reported on Tuesday that net profit more than halved in the first half of the year owing to special factors 12 months ago, but it stood by its forecasts and analysts welcomed a firm operating performance.

PARIS, July 27 (AFP) - France Telecom reported on Tuesday that net profit more than halved in the first half of the year owing to special factors 12 months ago, but it stood by its forecasts and analysts welcomed a firm operating performance.

The net figure fell because the equivalent figure 12 months earlier had been boosted by a windfall, but the underlying performance pushed the shares up in mid-day trading.

However analysts expressed some concern over mobile telephone subscriptions and weakness in the fixed-line business.

Net profit in the first half was EUR 1.1 billion (USD 1.34 billion) from EUR 2.5 billion in the first half of last year when the results were boosted by a tax credit of EUR 3.3 billion.

The group stood by its financial forecasts for this year and next.

The state-controlled company was thrown into financial crisis two years ago after the Internet and high tech bubble burst and had to be supported with state-orchestrated help to overcome a debt mountain that earned it the title of the most-indebted company in the world.

The group said that at the end of June net debt was EUR 48 billion, up from EUR 44.2 billion at the end of 2003 owing to the application of new French accounting rules.

It intended to achieve a ratio of net debt to operating profit before write downs of 1.5-2.0. EU competition authorities told the company a week ago that it had to pay back about EUR 1 billion (USD 1.22 billion) because it had benefited from unfair tax advantages, a ruling the company and the French state hotly contest.

The European Commission also found that the company had unfairly benefited from expressions of state support two years amounting to EUR 9 billion which it has not used.

The commission argued that the statements underpinned the company's credit rating when it was sinking under debt, and thereby injected confidence.

However, even in the depths of the crisis, the company was reporting strong operating figures, and on Tuesday it said that in the first half operating profit before write downs rose by EUR 8.9 billion, or by 4.5 percent on a simple comparison or by 6.9 percent on a comparable asset base.

This meant that the company made a margin of 28.3 percent from 32.0 percent in 2002 and 37.5 percent in 2003.

Operating profit was EUR 5.3 billion, an increase of 13.5 percent on a straight comparison and of 12.8 percent on a comparable asset base.

First half sales rose by 1.4 percent to EUR 23.2 billion, or by 4.2 per cent compared with a target for the whole of the year of 3.0-5.0 percent.

Growth was driven by the mobile telephone subsidiary Orange and by the Internet arm Wanadoo, each of which increased sales by about 11.0 percent, the company said.

France Telecom stood by its forecast that sales would grow by 3.0-5.0 percent in 2004 and 2005 and that it was aiming for an operating profit before write downs exceeding EUR 18 billion in 2004 and an operating margin of 40 percent in 2005.

The price of France Telecom shares was showing a gain of 1.23 percent to19.68 euros in an overall market which had risen by 0.35 percent to 3,544.95 points on the CAC 40 index.

One analyst who declined to be named commented that there were no bad surprises.

Brokers CM-CIC commented that "the margins are better than expected" although the figures showed that Orange had continued to lose market share in France and Britain.

An increase of average revenue per subscriber had compensated for this.

The company was continuing to clean up its balance sheet and costs reductions were bearing fruit, they said.

CM-CIC also remarked that France Telecom was struggling to slow a decline of its fixed-line operations in France, undermining its commitment to reverse the trend.

At Merrill Lynch, analysts noted that the rate at which subscribers to Orange in Britain were dropping their subscriptions had risen to 26.1 percent and that Orange France had accounted for only 8.0 percent of new subscribers to mobile phone services in France.

© AFP

Subject: French news

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