France Telecom's Q4 EBITDA Down 1.3%, Approves Stephane Richard as Incoming CEO

France Telecom has reported its fourth-quarter (Q4) earnings (EBITDA) fell 1.3% year-on-year (y/y) to 3.67 billion euro (US$4.97 billion), roughly in line with analyst expectations, as cost cuts and some signs of stability offset the ongoing effects of the global economic downturn. The French former incumbent, which has operations in more than 30 countries worldwide, also announced its fourth-quarter revenues had fallen 5.8% y/y to 11.54 billion euro, as global sales fell and the operator was hit by a weaker Polish zloty and U.K. pound.

France Telecom also announced its full-year 2009 earnings (EBITDA) were down 3% y/y to 16.3 billion euro, while 2009 revenues dropped 1.8% y/y to 45.9 billion euro. Net profits for the full year plunged 26% y/y to just under 3 billion euro, mainly due to charges linked to an EU ruling that forced the group to repay almost 1 billion euro in state aid, and new labour agreements in France.

The figures exclude the United Kingdom, which is no longer reported by France Telecom as part of their consolidated results due to the planned merger of mobile operations with Deutsche Telekom's T-Mobile.

France Telecom also announced it has increased its global customer base by 5.7% y/y, to 192.7 million customers at the end of the year, including an 8.8% y/y growth in the mobile customer base to 132.6 million, and a 4.1% rise in ADSL broadband subscribers to 13.5 million.

France's largest mobile and fixed-line operator kept its free-cashflow target at 8 billion euro for this year, and said it expects 2010 revenue to be stable, excluding the impact of recent regulatory decisions.

The company's board also approved the appointment of Stephane Richard as chief executive from the start of next week, with current CEO Didier Lombard stepping down from the role. Lombard will stay on as the group's Chairman.

Outlook and Implications

• A Fair Performance in a Difficult Climate: Despite revenue declines across the majority of its markets, France Telecom has avoided a disastrous 2009, chiefly due to some harsh cost-cutting, and some strong growth in its developing markets and enterprise businesses. In its African and the Middle Eastern regions, it posted strong growth of 5.8% y/y, driven in particular by its new operations in Africa, where revenues have shot up 23% y/y. However, a relatively flat performance at home has been dragged down by declines in the rest of Europe, where increases in competition and regulation have seen revenues decline. In the United Kingdom, France Telecom's mobile operator Orange UK has opted for a consolidation deal with rival T-Mobile UK, as competition in arguably the world's toughest mobile market becomes untenable (see United Kingdom: 22 February 2010: U.K. Regulator Clears Orange/T-Mobile Merger for EU Approval—Report). Elsewhere, the group saw 9.7% y/y decline in annual revenues in Central and Eastern Europe, due to the ongoing deterioration of the economic environment, with its Romanian operator hit particularly hard, with sales down nearly 17% y/y. France Telecom has recently delayed the rebranding of its Polish operations, as it does not want to bear the marketing costs at such a challenging time (see Poland: 24 February 2010: TP to Delay Fixed-Line Rebranding for Another 12 Months). However, France Telecom is still investing in Europe, with plans to boost its operations in the tough German market (see Germany: 16 February 2010: Orange Plans to Launch MVNO in Germany, Targets International Commuters—Report), and despite the global economic downturn, France Telecom has maintained healthy capex, particularly in key emerging markets, which will see it well-placed to benefit from recovery.

• Challenges and Investments in France: On top of the recession and the ongoing decline in traditional fixed-line operations, fresh domestic and EU regulations have hit the operator's income in France over the past year. France Telecom's mobile operator Orange also faces the imminent entry of a fourth mobile player into the market, which is likely to raise competition and spark a price war (see France: 16 February 2010: Iliad Picks Nokia Siemens for French 3G Network Roll-Out). However, the operator has re-launched its fibre-optic network investment, and is shifting its focus to network quality, with the recent announcement of HD mobile calling (see France: 12 February 2010: France Telecom Seeks New Competitive Edge from High-Definition Calls and France: 11 February 2010: France Telecom Announces US$2.8-bil. Fibre Investment by 2015).

• New CEO, New Beginning: France Telecom has now confirmed the new leadership of Stephane Richard (see France: 4 February 2010: France Telecom CEO-in-Waiting Hints at Further Joint Ventures in Europe—Report), who faces the task of navigating the former French incumbent through difficult social and financial times. On top of the global economic downturn, France Telecom has suffered a spate of employee suicides over the past year, blamed on working conditions, which have created something of a PR disaster for the company. Previous CEO Lombard has been replaced, not because he has done anything wrong, but because France Telecom now wants to draw a line under 2009, and move forward under a new leader into a period of recovery.