France Telecom net income tumbles 79% on writedowns

Net income at France Telecom has tumbled by 79%, to €820 million ($1.1 billion), for the 2012 financial year, with writedowns on investments in Poland, Egypt and Romania largely to blame for the sharp decline.

The French incumbent has also reported a 2.7% decrease in revenues, to €43.5 billion, as tough competition in its domestic market and adverse regulatory measures took their toll.

Net income at France Telecom has tumbled by 79%, to €820 million ($1.1 billion), for the 2012 financial year, with writedowns on investments in Poland, Egypt and Romania largely to blame for the sharp decline.

The French incumbent has also reported a 2.7% decrease in revenues, to €43.5 billion, as tough competition in its domestic market and adverse regulatory measures took their toll.

In a statement that referred to “a particularly turbulent 2012”, chief executive Stephane Richard confirmed earlier expectations that operational cash flow will fall to “over €7 billion” in 2013, from about €8 billion in 2012.

The economic situation and price war in most European countries have “necessitated an acceleration in the Group’s transformation programme,” said Richard.

Besides lowering its cost base in 2013, the operator is aiming to generate revenue growth in mobile data services of at least 10% across the Group.

It also plans to stabilize its share of the French mobile market, which accounted for a quarter of its revenues in 2012, “at a level above 35%”.

France Telecom (Paris, France) was forced to unveil a series of new, low-cost tariffs to defend its market share after Iliad (Paris, France) began a price war on becoming the country’s fourth mobile-phone provider in early 2012.

Although France Telecom grew its operations in Africa and the Middle East – reporting a 10% increase in its customer base in those regions – its performance there was not strong enough to offset the decline in Europe.

In Poland, revenues fell by 4.1%, to €3.4 billion, due largely to price-based competition, and the operator suffered additional misfortune when it failed to win any of the 1800MHz spectrum recently tendered by the government.

That will increase the pressure on the Polish subsidiary to obtain 800MHz licenses in a frequency sale scheduled to happen later this year.

Last year, the company spent €5.8 billion in capital expenditure – 1.7% more than in 2011 – on the rollout of fiber-to-the-home and 4G networks, largely in France, but its financial report provided no details of capital-expenditure plans in 2013.

The company did, however, say that it wants to extend 4G networks to cover 30% of the French population by the end of the year.

The company is aiming to reduce net debt to just two times earnings before interest, tax, depreciation and amortization (EBITDA) by the end of 2014, from a ratio of 2.17 currently, which will make it difficult to increase expenditure.