France Telecom Profit Falls on $2.5 Billion Impairment Costs

France Telecom SA, the former French phone monopoly fighting discounters at home, said a 1.84 billion-euro ($2.5 billion) writedown on units in Poland, Egypt and Romania dragged down its 2012 profit.

Full-year net income fell to 820 million euros on the impairment of assets, compared with 3.9 billion euros a year earlier, and sales fell 3.9 percent to 43.5 billion euros, the Paris-based carrier said today in a statement.

“We don’t expect 2013 to be particularly easy,” Chief Executive Officer Stephane Richard said at a press conference. “Our ambition is to create value with new services and speedier transfers -- those are some of the ways to exit the low cost spiral that we’ve been thrown into in France and some other markets for more than a year.”

Iliad SA’s Free and Vivendi SA’s SFR unit have slashed prices to win French customers while France Telecom has bet on speedier mobile-phone packages to charge more. Such a strategy has so far proved fruitful for U.S. carriers by boosting phone bills. The carrier stabilized its market share in France in the fourth quarter, at 37.3 percent of the mobile market, despite aggressive price cuts by its rivals.

France Telecom shares fell 2.3 percent to 7.55 euros at 3:32 p.m. in Paris after rising as much as 3.5 percent.

France Telecom confirmed operating cash flow -- earnings before interest, taxes, depreciation and amortization restated for some items, minus capital expenditures -- will be more than 7 billion euros this year, down from 8 billion euros in 2012. The company will stick to its plan to save cash with an 80-cent dividend for 2012 and 2013 to help maintain its debt profile.

Price Wars

“We’re less optimistic than we were a few months ago about seeing price wars end in France,” Chief Financial Officer Gervais Pellissier said during a conference call today. “We’re confirming our operating cash flow will stabilize or rebound in 2014 on the back of better revenue outside of France and cost cuts in France.”

France Telecom, which has said it will look at what assets it can sell to finance any acquisition opportunities, reached an agreement this month to sell its 20 percent stake in Portuguese unit Sonaecom SGPS SA to its holding company. The sale should bring in 100 million euros in cash, Pellissier said today. TeliaSonera AB’s Yoigo unit in Spain is among the assets France Telecom has said it’s interested in buying.


France Telecom and partner Deutsche Telekom AG are weighing an initial public offering of a minority stake in their EE wireless venture in the U.K., Pellissier has said.

“We’re looking at putting a small part of EE, maybe 15 or 20 percent, on the market at the end of 2013 or beginning of next year,” Pellissier said. “Depending on British market conditions as well as EE’s first-half earnings, we’ll judge whether an IPO is fit.”

EE, the first operator to introduce speedier 4G mobile service in the U.K., last month cut its prices ahead of an auction that will make the technology available to competitors. The unit yesterday said its mobile service revenue fell 3.9 percent in the fourth quarter.

Pellissier said in December France Telecom’s market valuation, of about 20 billion euros, is excessively low and doesn’t accurately reflect either its earnings projections or its ability to generate cash.


The Paris-based company’s 889 million-euro Poland impairment accounted for the bulk of the cost. France Telecom-controlled Telekomunikacja Polska SA, Poland’s largest carrier, cut its dividend plan this month for the second time in four months after fourth-quarter profit and revenue slumped.

France Telecom isn’t alone among European phone companies struggling with wireless rivalries and fewer fixed-line customers. Teleco SpA wrote down its stake in Telecom Italia SpA by about 900 million euros, according to a person familiar with the matter yesterday, the fourth reduction in four years for Italy’s biggest phone company. In November, Deutsche Telekom AG reported a 7.4 billion-euro writedown on its T-Mobile USA unit. That same month, Vodafone Group Plc took a 5.9 billion-pound writedown on assets in Italy and Spain.

Shares of France Telecom, the worst performer on France’s CAC 40 Index last year, fell 32.4 percent during the past 12 months.

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