France Telecom has announced slightly worse 2000 results than expected.
France Telecom today announced its 2000 results, revealing that its net profit rose by 32% to E3.66 billion and that its net debt rose from E14.6 billion to E61 billion. Its EBITDA rose from E9.61 billion to E10.81 billion. But while the net profit growth looks impressive, it was below analysts’ forecasts of 34%. And the company’s flagship mobile operator Orange made a net loss of E1.32 billion, more than the expected E1.25 billion. FT shares stayed flat on the news.
All in all, France Telecom seems to be doing rather better than most European telcos. While the Orange float suffered from market conditions, it still brought in E10 billion towards cutting debt whilst leaving FT with 85% of the mobile group. It also recently refinanced its debt successfully with the largest corporate bond issue ever. As long as France Telecom can sell off some of its minority stakes in low-synergy companies such as Bull, Sema and Sprint, it should be able to reduce its debt to E30 billion within two years despite paying to build its 3G mobile networks.
But while it looks likely to escape the potentially dire fates awaiting BT and KPN, will the group’s new investments actually start to make money? At present, almost four fifths of profits come from its regulated French fixed-line telecoms business, where margins are declining due to competitive pressure. The heavy debt, meanwhile, is from investment in Orange and in Internet through its Wanadoo subsidiary, which lost E102 million this year following various acquisitions including the UK’s Freeserve.
There’s some good news. Orange made its first operating profit this year, of E383 million compared with losses of E111 million last year. And Wanadoo is expected to be profitable on an EBITDA basis by Q4 2002, earlier than originally predicted. But it will be a long time before the group’s diversifications outstrip its original business. Datamonitor believes it will take European 3G operators seven years to break even on their investments.
