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France Telecom Boasts Q3 Growth

Light Reading
News Analysis
Light Reading
10/25/2007

Orange (NYSE: FTE) boasted a strong set of third-quarter financials today, reporting better-than-expected revenue growth and raising its full-year forecasts for gross operating margin and cash flow. (See FT's Q3 Revenues Grow.)

The French carrier posted revenues of €13.5 billion (US$19.3 billion), up 3.3 percent over the third quarter of 2006 and the fastest increase since the fourth quarter of 2005. Revenues had been expected to grow by around 2 percent, according to analysts polled by Reuters and Bloomberg.

FT attributed the revenue growth to a turnaround in "mature Western European markets," where revenue declined by 0.1 percent in the first quarter, grew 0.4 percent in the second quarter, and rose 1.9 percent during the third quarter. In a prepared statement chairman and CEO Didier Lombard pointed to customer additions in the U.K. and Spain in particular, along with a pickup in its French business.

The carrier's largest market by far is France (quelle surprise!), where sales rose 1.7 percent in the quarter due to revenue growth from unbundling and naked ADSL. Consumer broadband and fixed-line revenues remained stable.

Emerging markets -- including mobile operations in Africa, Eastern Europe, and Central America -- provided more than half of FT's revenue growth , rising 14.7 percent during the quarter. (See Emerging Growth Pumps Up FT.)

CFO Gervais Pellissier told a conference call that FT expects growth to slow slightly for the full year, thanks to increasing competition and higher penetration rates. The carrier is looking to offset that trend by expanding further into emerging markets in Africa and in Vietnam, he said.

Gross operating margin, -- FT's name for earnings before interest, tax, depreciation, and amortization (EBITDA) -- for the third quarter rose by 4.3 percent year-over-year to €5.1 billion ($7.3 billion), higher than the expected €4.9 billion ($7 billion). FT has raised its forecast for the full year, predicting the margin rate will stabilize, rather than decline by around 1 percent as it had previously forecast.

The carrier is also raising its guidance for organic cash flow to €7.5 billion ($10.7 billion) from €6.8 billion ($9.7 billion).

The better-than-expected results sent FT's share price up by €1.58 (6.66%) to €25.32 on the Euronext in Paris.

In other news, FT has placed €755 million ($1.08 billion) in an escrow account following the European Court of Justice's ruling that it must repay a minimum of €798 million ($1.14 billion) in illegal tax benefits it received from the French state. (See FT Preps for €755M Fine.) FT is awaiting a further ruling from the European Court of First Instance.

— Nicole Willing, Reporter, Light Reading

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