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    ORA   FR0000133308

ORANGE S.A.

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France Telecom takes knife to dividend

02/22/2012 | 09:41am EDT
France Telecom Orange Chief Executive Stephane Richard poses before the company's 2011 annual results presentation in Paris

PARIS (Reuters) - France Telecom (>> FRANCE TELECOM) is cutting its dividend and putting off a promised share buyback to conserve cash in the face of brutal competition from a new mobile player and Europe's ongoing debt crisis.

PARIS (Reuters) - France Telecom (>> FRANCE TELECOM) is cutting its dividend and putting off a promised share buyback to conserve cash in the face of brutal competition from a new mobile player and Europe's ongoing debt crisis.

France has been locked in a mobile price war since mid-January, when Iliad (>> ILIAD) launched its ultra low-cost mobile offers, leading France Telecom to lose 201,000 customers to date.

In addition, borrowing has become more expensive, especially after France lost its prized top credit rating, and the economic outlook is darker than a year ago, Chief Executive Stephane Richard told Reuters in an interview.

"The priority is to secure cash, especially since the European debt markets have been basically closed for the past six months," said Richard.

As a result, Richard predicted a "calm" year on the acquisition front, a shift from recent years when the company spent to expand in high-growth Middle Eastern and African markets.

"The economic and competitive environment does not lend itself to major transactions," he added.

The new focus on hoarding cash also means France Telecom will not buy back shares in 2012 as it had promised investors it would after selling its Swiss unit to a private equity fund for $1.5 billion in December.

Dividends in 2012 and 2013 will be limited to 40-45 percent of operating free cash flow so as to allow the group to maintain its key debt ratio at two times operating profit.

France Telecom said this would likely lead to a dividend between 1.21 and 1.35 euros per share next year, down from 1.40 for 2011.

France Telecom's moves are a sign of the times as Europe's telecom operators struggle to find growth amid intense regulatory pressure and tough price competition.

Spain's Telefonica (>> Telefonica SA) trimmed dividends in December and is focusing on paying down debt, while Dutch operator KPN (>> KPN KON) slashed its returns to shareholders via buybacks.

Telecom Italia (>> Telecom Italia S.p.A.) may cut its dividend when it reports results on Thursday, analysts say, while investors will also look to see what Deutsche Telekom (>> Deutsche Telekom AG) does when it reports the same day.

SHARES RISE

Shares in France Telecom were up 2 percent to 11.68 euros at 1247 GMT as analysts welcomed the largely in-line 2011 results.

Analysts seemed unmoved by the dividend cut, which was somewhat anticipated given the industry context. "No doubt the company saw little sense in paying a dividend for which it got little or no credit," wrote Robin Beinenstock, analyst at Bernstein, in a note.

More potentially worrying, however, is the outlook for France Telecom and its rivals Vivendi (>> VIVENDI) and Bouygues Telecom (>> BOUYGUES) as Iliad's Free Mobile offers force them to slash mobile prices.

France Telecom said it was aiming for operating free cash flow of 8 billion euros in 2012, down from 9.3 billion in 2011. That fall can be attributed to the fact that the group's earnings before interest, tax, depreciation, and amortization (EBITDA) is expected to slump by 1 billion this year, Richard explained.

"This year will be the real low point for us in terms of competition in France," he said.

In 2011, France Telecom saw its revenues and operating profits deteriorate, hit by regulatory measures, new taxes, and political unrest that affected its Egypt and Ivory Coast units.

Revenue fell 1.6 percent on a comparable basis to 45.27 billion euros, in line with the consensus forecast, according to Thomson Reuters I/B/E/S.

Restated EBITDA fell 4.8 percent to 15.08 billion, while margins fell to 33.3 percent from 34.4 percent a year earlier.

France Telecom's domestic business, which accounts for half of revenues and profits, held up relatively well given the tougher competition as operators jockeyed to lock in market share before Iliad's arrival.

French revenue slipped 3.3 percent to 2.5 billion, while EBITDA fell 3.7 percent to 8.57 billion.

(Editing by James Regan and Andrew Callus)

By Leila Abboud and Gwénaëlle Barzic


ę Reuters 2012
Stocks mentioned in the article
ChangeLast1st jan.
AIMING INC. -3.73% 361 End-of-day quote.-13.64%
BOUYGUES SA -2.66% 32.89 Real-time Quote.-2.26%
DEUTSCHE TELEKOM AG -0.91% 17.596 Delayed Quote.17.66%
ILIAD S.A. -0.72% 131 Real-time Quote.-22.07%
KONINKLIJKE KPN N.V. -1.28% 2.618 Real-time Quote.5.27%
ORANGE S.A. -1.28% 9.89 Real-time Quote.1.60%
SHIFT, INC. 2.47% 16580 End-of-day quote.15.86%
TELECOM ITALIA S.P.A. -1.91% 0.4364 Delayed Quote.15.63%
TELEFÓNICA, S.A. -1.75% 3.966 Delayed Quote.22.22%
THE LEAD CO., INC. -8.47% 746 End-of-day quote.-11.19%
VIVENDI SE -0.93% 28.91 Real-time Quote.9.59%
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Financials
Sales 2021 42 429 M 50 318 M 50 318 M
Net income 2021 2 572 M 3 050 M 3 050 M
Net Debt 2021 27 102 M 32 140 M 32 140 M
P/E ratio 2021 10,2x
Yield 2021 7,06%
Capitalization 26 301 M 31 181 M 31 191 M
EV / Sales 2021 1,26x
EV / Sales 2022 1,24x
Nbr of Employees 133 787
Free-Float 80,4%
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Mean consensus OUTPERFORM
Number of Analysts 29
Average target price 12,95 €
Last Close Price 9,89 €
Spread / Highest target 78,0%
Spread / Average Target 30,9%
Spread / Lowest Target -22,7%
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Managers and Directors
NameTitle
StÚphane Richard Chairman & Chief Executive Officer
Ramˇn Fernßndez Executive Director-Finance & Performance
MichaŰl Trabbia Chief Technology & Innovation Officer
Helle Kristoffersen Independent Director
Jean-Michel SÚvÚrino Independent Director
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