France Telecom Reports Q1 686378

PARIS -- France Telecom-Orange reports solid first quarter results, in line with its guidance for 2011, despite intensified pressures in certain markets.

Group customers totalled 215.9 million at 31 March 2011, a 7.0% year-on-year increase on a comparable basis, led by 25% mobile growth in Africa and the Middle East.

Consolidated revenues increased 0.4% to 11.228 billion euros, excluding the impact of regulatory measures, with mobile services performing well in France (+5.9%), Spain (+7.0%) and Poland (+4.5%), driven by the success of smartphones and segmented offers.

Rapid growth continued in emerging markets, despite difficult conditions in Egypt and Côte d’Ivoire.

Restated EBITDA1 was 3.734 billion euros in the first quarter of 2011. The EBITDA margin was 33.3%, down 1.3 percentage points versus the first quarter of 2010, notably due to the unfavourable impact of the partial pass-through of the VAT increase starting 1 January 2011.

CAPEX was equal to 9.6% of revenues, representing 1.081 billion euros in investments, in line with the target CAPEX rate of about 13% for the year.

First quarter results are in line with the Group's guidance for 2011. The Group renews its commitment to paying a dividend of 1.40 euros per share for 2011 and 2012.

Commenting on the operating results for the first quarter of 2011, the Chairman and CEO of France Telecom-Orange, Stéphane Richard, said: “The Group’s operating and financial performance for the first quarter is strong, despite intensified competition in France and exceptional political conditions in certain emerging countries. “In France, the Group successfully overcame increased market turbulence and regulatory changes – most notably following the increase in VAT – with significant gains in the ADSL market thanks to the success of the Open quadruple play offer. The Group was also able to address difficult conditions in Egypt, Côte d’Ivoire and Tunisia. The Group performed very well in Spain, with revenues growing 4%, as well as in the continually improving Enterprise market.

“These solid first-quarter results are in line with our financial objectives for the whole of 2011, and sit squarely with the implementation of our Conquest 2015 plan as well as the creation of a new social contract in France."

Revenues
First quarter 2011 revenues for the France Telecom Group grew 0.4% year on year on a comparable basis, excluding the impact of regulatory measures (-194 million euros). Mobile services remained particularly buoyant, both in the main European markets and in emerging markets (except for Egypt, Côte d'Ivoire and Romania). At the same time, service operations in the Enterprise segment recovered significantly.

The main regional trends, excluding the impact of regulatory measures, were:

- in France, mobile revenues increased 5.9%, despite the VAT increase not being passed on to customers; the success of smartphones and the Open quadruple play offers accelerated growth in data services. The share of new ADSL customers for the quarter was estimated at about 20%;

- in Spain, mobile growth accelerated, reaching 7.0% in the first quarter of 2011. This was driven by the success of segmented offers and strong growth in data services. Fixed services also improved, with ADSL sales growing 4.1%;

- in Poland, mobile revenues increased 4.5%, driven by customer growth. The ADSL customer base also grew for the third consecutive quarter;

- in the Rest of World segment, excluding Egypt, growth remained strong in Africa and the Middle East, at 5.8%, led in particular by new operations2 and Cameroon. In Europe, revenues rose 1.2%, despite the decline in Romania; and

- the Enterprise segment continued to improve for the fourth consecutive quarter, with the slowdown limited to 1.0% in the first quarter of 2011.

Customer base growth
The Group had 215.9 million customers3 at 31 March 2011 (excluding MVNOs), a 7.0% increase year on year, with 13.8 million net additions over twelve months, chiefly generated by mobile services in Africa and the Middle East, but also in France, Spain, Poland, Belgium and Armenia.

In mobile services, the Group had a total of 156.7 million customers at 31 March 2011 (excluding MVNOs), with year-on-year growth of 10.1% on a comparable basis and 13.9 million net additions. This growth was largely in Africa and the Middle East, which together accounted for 65.5 million customers at 31 March 2011, a 25% year-on-year increase on a comparable basis with 12.1 million net additions.

Group fixed broadband services customers totalled 13.9 million at 31 March 2011, representing a 4.6% year-on-year increase with 605,000 net additions, including 370,000 in France, 136,000 in the other European countries4 (Spain, Poland and Belgium) and 144,000 in Africa and the Middle East (Egypt, Tunisia, Jordan and Senegal).

Digital TV (IPTV and satellite) grew sharply to 4.4 million subscribers in Europe at 31 March 2011, a 29% increase with 967,000 net additions, mostly in France and Poland.

EBITDA
Restated EBITDA was 3.734 billion euros in the first quarter of 2011, versus 3.936 billion euros in the first quarter of 2010 on a comparable basis. The EBITDA-to-revenues ratio was 33.3%, down 1.3-percentage points year-on-year.

Of this decrease in EBITDA margin, 0.5 percentage points are attributable to the negative impact of the partial pass-through to customers of the VAT increase instituted in France on 1 January 2011 (estimated impact of -70 million euros in the first quarter of 2011), while 0.2 percentage points are due to the worsened situation in Egypt.

The EBITDA margin was also marked by higher commercial expenses linked to the success of smartphones and an increase in commercial acts (retention and acquisition), particularly in France and Spain. In all, the ratio of commercial expenses was 14.8%, a 1.8 percentage-point increase versus the first quarter of 2010.

Orange (NYSE: FTE)