Telecompaper

France Telecom reported a decline in first-half sales and profits, saying it suffered more than expected from the weak economic environment. The company's revenues fell 3.2 percent from a year earlier to EUR 25.46 billion, as growth in France and Africa was offset by weakness in Eastern Europe, the UK and the business services market. On a comparable basis, revenues fell 1.3 percent in Q2, versus 0.4 percent growth in Q1. EBITDA dropped 5.0 percent to EUR 8.82 billion in H1, with about half the drop due to negative exchange rate effects. The EBITDA margin dropped to 34.7 percent from 35.3 percent a year ago, a decline blamed on regulatory price cuts, cost of content acquisition and new taxes and service rules in France. Net profit fell to EUR 2.8 billion from EUR 3.0 billion a year ago. The operator cut capex 19.3 percent to EUR 2.53 billion, while cash flow improved 12.4 percent to EUR 4.1 billion. The customer base reached 186 million at end-June, up 6.6 percent from a year earlier, led by a 9.7 percent rise in mobile susbcribers to 125.5 million. Net additions in Q2 reached 3.7 million, helped by new prepaid offers in Europe. The ADSL base was at 13.4 million at 30 June, up 7.7 percent year-on-year, and the number of TV customers grew 74 percent to 2.7 million. France Telecom said it still expects cash flow this year to at least meet last year's level of EUR 8.0 billion. However, the regulatory impact on results in the second hafl is expected to be twice as pronounced as the estimated EUR 383 million in H1. While the GDP decline in its markets is expected to be slightly less (down 2.6% in H2 versus 2.9% in H1), the operator still expects a somewhat lower level of activity at its operations. To offset erosion of the EBITDA margin, France Telecom is accelerating implementation of its Orange 2012 restructuring plan. Cost reductions in H2 should be similar to H1, while capex will be slightly higher due to seasonal effects.