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France Telecom recovering from debt sickness

Orange does well, Wanadoo doesn't

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France Telecom has released its annual results, with net profits for 2000 of £2.3 billion (£2.15 a share) and a reduced operating margin of 14.4 per cent from 16.5 per cent. The profits were slightly lower than expected and saw the telecom giant's share price fall 0.34 per cent.

The company went out of its way to assure people it was tackling its huge debt burden - currently standing at £38.2 billion - but, nevertheless, its share price is the lowest for a year. Revenues will grow by 20 per cent this year to £20.8 billion, the company said.

Most interest was given to subsidiary Orange, however, which announced its first results since its float. Things are looking bright for Orange, despite currently sitting at below its float price and dropping nearly another 3 per cent. Revenues are up 59 per cent to £7.6 billion, customer base up 68 per cent, net losses stay roughly the same at £820 million (operating profits rocketed). The company also said it was on target to make non-voice (the expected big break for mobile companies) revenue account for 25 per cent of total income by 2005.

As for Wanadoo - France Telecom's ISP (ignoring Freeswerve for the moment) - it has done what all good Net stocks should do and dragged down the results by managing to make a net loss of £64 million from a far smaller loss of £1.2 million in 1999.

It is important to look at the context of the market with these results. The big three in Europe - Deutsche Telekom, France Telecom and British Telecom - are all suffering from enormous debt, brought on by spending a fortune on 3G licences. France Telecom actually carries the largest debt and has seen its share price suffer the most (down nearly 70 per cent this year).

It has been under pressure but top man Michael Bon reckons the worst is over. France Telecom is in a fairly unique position in that the French government holds a majority stakeholding. Bon has thus been less exposed to the forces of capitalism which may still see Peter Bonfield stand down as BT CEO.

France Telecom has also made some good investments. Orange wasn't cheap and its float was a disaster but it was a good buy nonetheless. Freeserve also gives it good access to the UK Internet market. It also has stakes in NTL (25 per cent), Sprint (10 per cent), STMicroelectronics (11 per cent) and Sema (17 per cent). Plus its recent huge bond issue will help lift the pressure slightly.

Investors are exactly happy about the bond, but are keeping scthum while France Telecom grows faster than nearly all other European telecoms. The difference in approach between it and beleaguered BT has actually be commented on by Bon. He said: "We had a choice. We could have done nothing and left our balance sheet in better shape, but then we would have been in a situation like BT, with no real international strategy," Mr Bon says.

Even with 3G still looking like a dead duck, France Telecom looks as though it is recovering from its particularly nasty cold. ®

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