Spanish surprise fails to halt France Telecom Orange slide

France Telecom Orange reported slightly downbeat full-year 2011 results, despite a surprising increase in revenues from Spain.

Group revenues fell 1.6 percent year-on-year to €45.3 billion while profit remained flat at €3.8 billion, excluding the impact of discontinued operations.

The company’s Spanish business unit reported a 4.5 percent rise in revenues to €4 billion – an impressive performance given the country's troubled economy that has caused losses at rival operators.

 

FTO said growth there was driven by increases in the contract customer base, data penetration and MVNOs.

“I am more convinced than ever that Orange, which has returned to fighting form, will set itself even further apart in the months to come by relying on its excellent fundamentals: its networks, its capacity for innovation and, of course, the teams which serve our customers,” CEO Stephane Richard (pictured) said in a statement.

The France-based operator increased its overall customer base to 226.3 million, led by rapid growth in mobile services in Africa and the Middle East.

However, its Rest of the World business unit registered a 0.9 percent decrease overall to €8.8 billion.

Sales were also down in its home market of France – they fell 3.3 percent to €22.5 billion – although mobile revenues increased by 0.8 percent to €10.9 billion.

Revenues were also down in Poland – they declined 4.1 percent to €3.6 billion – and enterprise, which fell 1.6 percent to €7.1 billion.

Against these declines, FTO continued to invest; capex increased 3.3 percent y-o-y to €5.8 billion.

The company’s networks were the main beneficiaries, capturing 55 percent of the overall capex budget. Customer premises equipment, such as set top box upgrades, saw the highest rise in capex during the year.

FTO is also hoarding cash – it has €8.6 billion, up from €4.9 billion in 2010, in preparation for what CEO Stehpane Richard said would be a “much tougher” 2012 than initially expected.

He highlighted forecasted downgrades on countries in which the company operates, continued regulation and competition as the main challenges.

Such problems are unlikely to arrest a worrying decline in the company’s share price – it fell 25 percent in 2011 and has fallen further since the turn of the year.

Savings are, consequently, on the agenda. The BUYIN procurement joint venture FTO established with Deutsche Telekom, for example, is expected to deliver opex savings of €200 million this year.

The company added it had no significant cash allocated to further acquisitions.

Instead, Richard promised to continue to spend in house; he said the company would double its investments in FTTH during 2012.

The company also played down the impact that the launch of rival Free Mobile has had on its business.

FTO said its mobile subscriber base had declined by 201,000 as of 15 February – Free launched on 11 January – which represented 0.7 percent of its total mobile customer base in France.

Encouragingly, Richard said the company would focus on quality of service (networks, shops, call centers, field intervention) to differentiate and justify a price premium on its core offers.

However, growth in the short term looks hard to come by; FTO said using its SOSH digital mobile brand as a “retaliation tool”, a focus on value management, increases in fixed line revenues and cross selling would drive growth.

A steady, unspectacular year would appear to be the best the company can hope for.

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