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France Telecom takes huge profit hit after swallowing €1.8bn writedown

CFO says it might put 20% of EE on the market

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Telecoms is not the fat market it once was as the low spend in the UK 4G auction showed today, and Euro telco giant France Telecom has also felt the pain. The former French monopoly telco had to write down €1.84bn on units in Poland, Egypt and Romania, which was partly to blame for the hefty 79 per cent plunge in profits year-on-year shown in its annual results for 2012.

The parent company of Orange and 50 per cent stakeholder in EE saw its yearly net profit fall from €3.828bn in 2011 to €1.104bn euros in 2012, a drop of 79 per cent.

Operating profit fell by €1bn from €9.3bn in 2011 to €7.9bn in 2012. Revenue fell 3.9 per cent: 2012 brought in €43.52bn, down from €45.3bn in 2011.

Although the hit in profits was mostly down to the impairment charges in its Polish, Egyptian and Romanian assets, the telco also attributed the droop to its spending on networks needed to compete on its home territory in France. France Telecom used to be the monopoly player in France but now faces competition from cut-price rivals - so it's had to take lower margins to hang onto subscribers. Execs also blamed the general European slump and unfavorable regulation.

Operations in Africa and Asia grew - but not enough to compensate for the slump in Europe.

The telco is now looking to cut costs by reducing dividends as well as raising cash for acquisitions by selling its assets. It is also considering an IPO of a minority stake in the UK's EE - its joint venture with Deutsche Telekom. CFO Gervais Pellissier told Bloomberg:

We’re looking at putting a small part of EE, maybe 15 or 20 per cent, on the market at the end of 2013 or beginning of next year. Depending on British market conditions as well as EE’s first-half earnings, we’ll judge whether an IPO is fit.

As for next year, the outlook is even darker with operating cash flow predicted to fall a further billion from 7.9 billion euro this year to "over 7 billion" next year. Dividends per share are likely to be 0.8 euros in 2013. ®

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