Restructuring hurts France Telecom

France Telecom on Tuesday posted a sharp drop in full-year operating and net profit, hit by restructuring, impairment charges, disposals and pricing pressures in its key fixed and mobile markets.

The company reported a net profit of €4.14bn for the 12 months to December 31, down from €5.71bn in 2005.

In spite of the decline, France’s leading telecoms operator, which trades mainly as Orange, proposed to keep its dividend for 2007 stable at €1.2 a share, a move that drew mixed reactions from analysts.

“This signals that they [France Telecom] are hoping to make an acquisition or at least keep their options open,” said a London-based analyst. “Raising the dividend would have made it a more attractive stock, now it is linked to a possible acquisition of which we know nothing.”

Another stock watcher in Paris said some investors expected the pay-out to be kept at the same level and would welcome the news.

Overall, analysts said France Telecom’s results, part of which were published on February 1, lacked sparkle.

“The numbers are what we expected, there are no surprises there,” another Paris-based analyst said.

The company confirmed its targets for the current year, including organic cashflow of €6.8bn and a “near stabilisation” of its margin on earnings before interest, depreciation, tax, depreciation and amortisation.

In a conference call with journalists, Gervais Pellissier , France Telecom finance director, gave more details regarding the ebitda margin for 2007, saying it could drop by up to 1 percentage point.

However, Mr Pellissier did not wish to give a forecast for sales growth in 2007.

“We have chosen to no longer commit ourselves to a sales guidance  . . .  We are talking about a very moderate growth, perhaps the same level we saw in 2006,” he told reporters.

In July, France Telecom scrapped its 2 per cent underlying sales growth target for 2006, as price competition, regulatory pressure and internet telephony was hampering progression much more than foreseen.

On a comparable basis, revenues in 2006 rose 1.2 per cent to €51.7bn.

France Telecom, which runs mobile and fixed-line operations in Poland, Britain, the Netherlands and North Africa, saw its full-year operating profit decline to €6.98bn from €10.49bn in 2005.

It said it remained on the lookout for acquisitions, namely outside wstern Europe in regions such as the Middle East, Africa and Asia.

“Engines of growth are to be found outside Europe,” Mr Pellissier said.