France Telecom's results hammered by domestic price war and writedowns

France Telecom (FT) said its 2012 profits were heavily impacted by the ongoing price war in its domestic market and writedowns totalling €1.84 billion on some of its units.

Net income for the year plunged to €820 million in 2012, down from €3.8 billion the year before, according to the Financial Times.

While low-cost offers have caused turmoil in the French mobile market--largely driven by Iliad's Free Mobile--FT posted fourth-quarter results largely in line with analyst expectations, and confirmed its 2013 cash-generation and dividend targets.

Espirito Santo analyst Nick Brown told Reuters that investors were relieved that financial targets for this year had not been scaled back given the pressure in France, which accounts for half of the group's revenue.

Commenting on the results, FT CFO Gervais Pellissier said that the impairment charge on goodwill and assets of €1.84 billion included charges for its operations in Poland, Egypt and Romania. "We've seen risks intensify in some of our geographies, so we took impairment charges to comply with accounting rules," he told the FT.

The company said its Polish subsidiary had accounted for €899 million of the impairment charge after it cut its dividend plan this month for the second time in four months after fourth-quarter profit and revenue slumped, according to Bloomberg.

Pellissier confirmed that the company's net income was also affected by a sharp decrease in operating income because of declining sales and the cost of a new part-time work scheme for older employees.

Operating income in 2012 fell by almost half to €4 billion, compared with €7.95 billion in 2011. Sales fell 3 per cent from €44.7 billion to €43.5 billion, according to the FT.

Ovum analyst Emeka Obiodu said he was not shocked by FT's performance. "We are not surprised by this. In France, where the entry of Iliad's Free Mobile has triggered intense price competition, revenues have fallen by 5 per cent on a comparable basis. This matters a lot as FT makes about half of its revenues from its home market," he said in a statement.

"Today's results will rekindle calls for new acquisitions or asset disposals," he said. "But any target that can sufficiently reduce the group's reliance on France will not come cheap."

Pellissier added that FT and Deutsche Telekom could launch an initial public offering for a small percentage of their EE joint venture in the UK at the end of 2013 or beginning of next year: "We're looking at putting a small part of EE, maybe 15 or 20 per cent, on the market," Pellissier told Bloomberg. "Depending on British market conditions as well as EE's first-half earnings, we'll judge whether an IPO is fit."

For more:
- see this FT article (reg. req.)
- see this Reuters article
- see this Bloomberg article

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