FRANCE TELECOM : FY 2011 Financial Results

review by business segment

France

Revenues in France were 22.534 billion euros in 2011, down 3.3% on a comparable basis. Excluding the impact of regulatory measures (-439 million euros), the decline was limited to 1.5%.

Personal Communication Services revenues rose 0.8% to 10.921 billion euros. Excluding the impact of regulatory measures (-361 million euros), growth was 4.3%, reflecting primarily the success of the segmented offers strategy (the Open, Origami and Sosh offers), and the growth in smartphones. The number of contract customers increased 2.5% year on year, representing 71.8% of the total customer base at 31 December 2011, versus 70.5% a year earlier.
Data services grew 15.9% (excluding the impact of regulatory measures), linked to both SMS and Internet browsing revenues. Data services represented 36.1% of network revenues in 2011, a gain of 5.0 points compared with the preceding year. The number of hosted MVNOs continued to grow rapidly, rising 20% year on year to 3.351 million customers at 31 December 2011.

Revenues from Internet services rose 2.2%, despite the fact that the VAT increase for the month of January 2011 was not passed through to customers and the impact of price cuts. Fixed broadband services had net additions of 391,000 customers in 2011, an estimated 30.5% share of net additions in the ADSL market, attributable in particular to the Open offers (1.2 million customers at 31 December 2011) and new segmented triple-play offers. The fixed broadband customer base rose 4.2% year on year to 9.598 million subscribers at 31 December 2011. Digital TV continued its rapid growth, rising 25% year on year to 4.374 million customers at 31 December 2011.

Revenues from Carrier Services fell 1.6% on a comparable basis. Excluding the impact of regulatory measures ( -120 million euros), revenues rose 1.1% due to the increasing number of telephone lines sold to other carriers (+12.3% year on year or 11.428 million lines at 31 December 2011).

fourth quarter of 2011

Revenues in France were 5.661 billion euros, down 4.1% on a comparable basis. Excluding the impact of regulatory measures (-124 million euros), the decline was limited to 2.0% after falling 2.8% in the third quarter.

Home Communication Services revenues declined 5.3% on a comparable basis and 3.9%, excluding the impact of regulatory measures, to 3.220 billion euros after falling 3.8% in the third quarter.

   
Restated EBITDA in France was 8.654 billion euros in 2011, a decrease of 644 million euros (-6.9%) on a comparable basis, due in particular to:

• the impact of regulatory measures (-148 million euros); 

• the impact of not passing on the complete VAT increase from 1 January 2011 (-154 million euros); and 

• the decline in revenues (-211 million euros, excluding the impact of regulatory measures and the VAT impact). 

At the same time, the growth in commercial expenses slowed strongly during the second half. Overall, the restated EBITDA margin was 38.4% in 2011, with erosion limited to 1.5 points for the full year, compared with the declince of 2.0 points in the first half.
The change in EBITDA before restatements also included the change in exceptional provisions recognised in 2011 and 2010 for the "Part Time for Seniors" plan and an expense in 2011 related to the 2011-2015 bonus shares plan, for an overall positive impact of 316 million euros.

Operating income from France fell 5.9% on a comparable basis to 6.241 billion euros, reflecting the decrease in EBITDA and to a lesser extent an increase in amortisation and depreciation.

CAPEX in France rose 1.7% on a comparable basis to 2.619 billion euros due to:

• a significant increase in investment related to ADSL equipment installed at customer locations linked to the success of Open, and the Livebox and TV decoder upgrade programmes; 

• the development of optical fibre; and 

• the growth of investment in information systems to improve customer relations.  

Investment in 3G capacity declined following the substantial investment in the second half of 2010 to increase speed and coverage. The 3G mobile network covered 98.2% of the French population at 31 December 2011.

Spain

Revenues in Spain rose 4.5% to 3.993 billion euros. Excluding the impact of regulatory measures (-89 million euros), revenues increased 7.0% compared with the preceding year.

Personal Communication Services revenues continued to climb, rising 7.1%, to 3.286 billion euros excluding the impact of regulatory measures (-89 million euros). This reflected strong customer base growth of 4.5% with 12.478 million customers at 31 December 2011 (excluding MVNOs) generated primarily by the 6.7% increase in contract customers to 7.616 million at 31 December 2011.
Revenue growth in data services accelerated, rising 24.1% in 2011 on the rapid development of Internet browsing. The number of customers with an Internet contract rose to 2.421 million at 31 December 2011 compared with 737,000 in the preceding year, and the Internet Everywhere service (3G USB sticks) rose 21% year on year to 769,000 customers at 31 December 2011.
The hosted MVNO customer base also grew strongly, rising 24% year on year to 1.477 million customers at 31 December 2011.

fourth quarter of 2011
Revenues in Spain rose  5.0% on a comparable basis to 1.010 billion euros. Excluding the impact of regulatory measures (-21 million euros), revenues increased 7.3%. This reflected strong growth in mobile, where revenues rose 6.0% and fixed services accelerated by 13.7% after rising 6.5% in the third quarter due to the growth of ADSL.  

EBITDA in Spain rose 9.8% to 839 million euros in 2011. The EBITDA margin was 21.0%, an improvement of one point in relation to 2010. Revenue growth and reduced service fees and inter-operator costs (impacted by call termination price cuts imposed by the regulator) were partially offset by the increase in commercial expenses in an environment of strong competitive pressures in the mobile market.  

Operating income in Spain was -168 million euros in 2011, an improvement of 50 million euros over the preceding year. EBITDA growth of 74 million euros was partially offset by the increase in amortisation and depreciation.

CAPEX in Spain rose 2.0% to 405 million euros from 2010 to 2011. CAPEX primarily concerned the development of 3G mobile network capacity to support the growth in usage (principally data services) and continuation of the mobile access network upgrade programme.

Poland

Revenues in Poland fell 4.1% in 2011 on a comparable basis to 3.625 million euros. Excluding the impact of regulatory measures (-58 million euros), revenues for the year fell 2.6%.

Personal Communication Services revenues rose 3.1% to 1.871 billion euros, on a comparable basis and excluding the impact of regulatory measures (-58 million euros). This increase reflects customer base growth of 2.3% year on year in mobile services with 14.658 million customers at 31 December 2011 (excluding MVNOs), generated primarily by the 4.1% increase in prepaid customers to 7.681 million at 31 December 2011.

Home Communication Services revenues declined 6.5% on a comparable basis to 2.013 billion euros due to the downward trend in traditional telephony. The number of broadband services customers rose 2.6% year on year to 2.346 million at 31 December 2011. The number of digital TV customers (ADSL and satellite) rose steeply to 636,000 customers at 31 December 2011, a year-on-year increase of 17%.

fourth quarter of 2011

Revenues in Poland fell 4.1% on a comparable basis to 824 million euros. Excluding the impact of regulatory measures (-17 million euros), revenues fell 2.1%, compared with a decline of 1.7% in the third quarter. The decline in mobile services growth, echoing the market trend, was partially offset by the improvement in fixed services with the start-up of the business services operations. Against this backdrop, Orange Poland's mobile services maintained their market share in volume and remained the market leader in value.

Restated EBITDA in Poland fell 8.8% in 2011 on a comparable basis (-123 million euros) to 1.274 billion euros, mainly linked to the decline in revenues and to increased restructuring costs, partially offset by savings from the cost optimisation programme, and the decline in service fees and inter-operator costs due to cuts in call termination rates imposed by the regulator.
The change in EBITDA before restatements also includes the change in exceptional provisions recognized in 2011 and 2010 and the increase in income from disposals generated by the sale of the subsidiary TP Emitel in 2011, with a combined positive impact of 352 million euros.

Operating income in Poland in 2011 was 443 million euros, an increase of 242 million euros on a comparable basis in relation to 2010. In addition to the increase in EBITDA of 229 million euros, operating income incorporates a decline in amortisation and depreciation (12 million euros).

CAPEX in Poland fell 2.8% on a comparable basis to 627 million euros. Fixed broadband represented the largest share of CAPEX, at 58%. Overall, 859,000 broadband users were served in 2010 and 2011, in line with the deployment agreement signed with the regulator.

Rest of World

• in Africa and the Middle East, revenues rose 6.8%, excluding Egypt (-5.9%) and Côte d'Ivoire (-8.0%), led by Cameroon (+13.2%), Mali (+7.6%), Senegal (+3.8%) and new operations in Africa^[16] (+18.6%). The mobile services customer base in Africa and the Middle East was up 26.4% year on year to 74.557 million customers at 31 December 2011;   

• in Europe, revenues rose 0.8%. Mobile Internet browsing with smartphones and 3G USB sticks rose sharply (+20%) and represents more than 10% of the revenues in the Europe area in 2011. The increase in relation to 2010 was across most of the countries. The situation in Romania is improving, with erosion limited to -1.8% in the second half of 2011 after declines of 5.6% in the first half and 7.8% in 2010; 

• revenues in the Dominican Republic rose 2.3%. The 2011 mobile customer base grew 7.7% year on year, led by strong growth in contract customers (+24.1%).  

In the Rest of World segment, the mobile services customer base was 99.7 million at 31 December 2011, a net increase of 16.1 million customers year on year, including 4.8 million from Meditel in Morocco, 1.7 million from CCT in the Congo, and 0.6 million from Korek in Iraq. Excluding these three countries, net additions of 9.0 million customers were reported for 2011 (+10.8%), led by Egypt (+2.7 million), Mali (+1.7 million), Cameroon (+1.1 million) and Senegal (+1.0 million). In addition, Orange Money is now marketed in eight African countries and had more than 3.2 million customers at 31 December 2011.

fourth quarter of 2011

Revenues declined 0.4% on a comparable basis to 2.292 billion euros. Excluding the impact of regulatory measures (-19 million euros), revenues rose 0.4%:

• Revenues increased 5.6% in Africa and the Middle East, excluding Egypt (-8.2%) and Côte d'Ivoire (-2.2%); 

• European revenues rose 1.2%, led by Belgium (+1.6%) and Switzerland (+2.5%). Romania reported improvement, with erosion limited to -1.7% after a decline of 2.0% in the third quarter. 

EBITDA in the Rest of World segment was 2.993 billion euros in 2011, down 6.2% on a comparable basis due to the downturn in Egypt and Romania and to the impact of regulatory measures, most notably in Belgium and Switzerland.

Operating income in the Rest of World segment was 595 million euros in 2011. The decline of 606 million euros in relation to 2010 on a comparable basis reflects the decrease in EBITDA (-197 million euros), the increase in amortization and depreciation (-174 million euros), and the increase in impairment of goodwill and fixed assets (-236 million euros).

CAPEX in the Rest of World segment was 1.409 billion euros in 2011, a 5.1% increase on a comparable basis, reflecting the upgrade programme for mobile access equipment in Europe (Belgium, Switzerland, Romania and Slovakia) and deployment of mobile networks in Kenya, Guinea and Niger.

Enterprise

Revenues in the Enterprise segment were 7.101 billion euros in 2011, with erosion limited to 1.6% on a comparable basis after a decline of 4.8% in 2010. The 3.2-point improvement year on year is largely tied to increased revenues in services and mature networks. Revenues in the emerging markets rose 11.3% on a comparable basis in 2011 to 541 million euros.

Revenues in services rose 6.4% in 2011 to 1.771 billion euros, after remaining stable in 2010. Most of the revenue growth was international, led by the integrated services, consulting and equipment sales.

Growing networks reported a 14.2% increase in revenues to 366 million euros, reflecting the rapid development of Voice over IP and satellite access.

Mature networks rose slightly (+0.4%) to 2.782 billion euros, led by 2.1% growth in IPVPN services attributable to international development. Meanwhile, broadcast services fell 0.7% after rising 3.8% in 2010.

Legacy networks continued their downward trend, with revenues declining 11.2% in 2011 to 2.182 billion euros after falling 12.2% in 2010. Fixed line fell 8.9%, while legacy network solutions declined 20.1%.

fourth quarter of 2011
Revenues declined 2.0% on a comparable basis to 1.818 billion euros in relation to the fourth quarter of 2010. Growing networks reported a 13.1% increase in revenues, reflecting continuing growth in Voice over IP, satellite access services and Image revenues. At the same time, services rose 0.6% (+2.8% excluding equipment sales) on growth in integration services and security solutions. International operations performed well, with quarterly revenues rising 3.5%, led by the Americas and the Asia-Pacific region.

EBITDA in the Enterprise segment was 1.276 billion euros in 2011, up 3.1% on a comparable basis. The EBITDA margin was 18.0%, an improvement of 0.8 points compared with 2010. The decline in revenues was more than offset by lower service fees and inter-operator costs and by the optimisation of certain other cost items.

Operating income of 940 million euros in 2011 increased 4.7% on a comparable basis. The ratio of operating income to revenues (13.2%) improved by 0.8 points compared with 2010.

CAPEX rose 7.8% on a comparable basis to 343 million euros in 2011, reflecting in particular increased investment in integration platforms and outsourcing of critical communication applications offers.

International Carriers and Shared Services

Revenues in International Carriers and Shared Services declined 1.0% in 2011 on a comparable basis to 1.610 billion euros:

• revenues from International Carrier Services fell 2.4% to 1.361 billion euros, mainly due to the decrease in network services to the Group's other operating segments, partially offset by the increase in maintenance and underwater cable laying operations linked in particular to the ACE cable in Western Africa; 

• Shared Services rose 7.5% to 249 million euros, largely due to patent sales. 

EBITDA was positive in 2011 at 105 million euros compared with negative EBITDA of 681 million euros in 2010 on a comparable basis, an improvement of 786 million euros year on year. This was due to:

• the restructuring of the Orange Sport and Orange Cinema Series businesses, where a provision of 547 million euros was recognised in 2010; 

• the positive change in the provision for the "Part Time for Seniors" plan (163 million euros in 2011). 

The operating loss was 103 million euros in 2011, compared with a loss of 1.364 billion euros in 2010 on a comparable basis. The year-on-year improvement of 1.261 billion euros was related to the EBITDA increase of 786 million euros and the end of financing operations in the United Kingdom, generating operating income of 642 million euros, mainly due to the reclassification of currency translation reserves for the entities involved in these financing operations.

CAPEX was 367 million euros in 2011, an increase of 57 million euros on a comparable basis in relation to 2010, largely due to the installation of the ACE (Western Africa) and LION 2 (Indian Ocean) underwater cables.

schedule of upcoming events

• 3 May 2012: first quarter 2012 results 

contacts

disclaimer

This press release contains forward-looking statements about France Telecom's business, notably for 2012. Although France Telecom believes these statements are based on reasonable assumptions, the actual occurrence of the forecasted developments is subject to numerous risks and uncertainties, including matters not yet known to France Telecom or not currently considered material by France Telecom, and there can be no assurance that anticipated events will occur or that the objectives set out will actually be achieved. Important factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements include, among other factors, overall trends in the economy in general and in France Telecom's markets, the effectiveness of the "Conquests 2015" strategic plan and of other strategic, operating and financial initiatives, France Telecom's ability to adapt to the ongoing transformation of the telecommunications industry, notably in France with the arrival of the fourth mobile operator, tax and regulatory constraints, notably on fixing wholesale tariffs, as well as the outcome of legal proceedings and the risks and uncertainties related to international operations and exchange rate fluctuations. More detailed information on the potential risks that could affect France Telecom's financial results can be found in the Registration Document filed with the French Autorité des marchés financiers and in the annual report on Form 20-F filed with the U.S. Securities and Exchange Commission.  Except to the extent required by law, in particular sections 223-1 et seq. of the General Regulations of the Autorité des marchés financiers, France Telecom does not undertake any obligation to update forward-looking statements.

appendix 1: consolidated statement of income

appendix 2: consolidated balance sheet

appendix 3: consolidated statement of cash flows

appendix 4: change in the net financial debt from 2010 to 2011

The restated ratio of net financial debt / EBITDA is calculated based on:

• net financial debt, including 50% of the net financial debt of the Everything Everywhere joint venture in the United Kingdom and, for 2011, (i) the payment of 891 million euros for the acquisition of the 4G licence in France (800 MHz) on 19 January 2012 and (ii) the payment  of 550 million euros pertaining to the dispute between DPTG and TP S.A. on 13 January 2012; 

• in relation to restated EBITDA for the preceding 12 months, including (i) EBITDA of Orange in the United Kingdom until 1 April 2010, the date of its disposal, excluding income from the disposal of Orange assets in the United Kingdom; (ii) 50% of the EBITDA of the Everything Everywhere joint venture in the United Kingdom since 1 April 2010, the date it was established; and (iii) EBITDA of ECMS in Egypt in the first half of 2010. 

appendix 5: analysis of consolidated EBITDA

* The EBITDA restatements relate to the following exceptional events:

A total negative amount of 47 million euros in 2011 for:

• income from asset disposals of 197 million euros related to the sale by TP S.A. of its subsidiary TP Emitel; 

• an additional provision of 115 million euros related to the European Commission fine on TP S.A. for misuse of its dominant position on the broadband market in Poland; 

• an expense of 37 million euros related to the 2011-2015 Bonus Share plan; 

• a provision reversal of 29 million euros for the Part Time for Seniors Plan in France; 

• an additional provision of 19 million euros related to the restructuring of the Orange Sport and Orange Cinema Series businesses;  

• an additional provision of 8 million euros for the DPTG dispute in Poland. 

A total positive amount of 1.317 billion euros in 2010 for:

• a provision of 547 million euros related to the restructuring of the Orange Sport and Orange Cinema Series businesses; 

• an additional provision of 492 million euros for the Part Time for Seniors plan in France; 

• an additional provision of 266 million euros for the DPTG dispute in Poland; 

• a provision of 13 million euros related to the European Commission fine on TP S.A. for misuse of its dominant position on the broadband market in Poland. 

* The EBITDA restatements relate to the following exceptional events:
A total negative amount of 20 million euros in the fourth quarter of 2011 for:

• a provision reversal of 61 million euros related to the Part Time for Seniors plan in France; 

• an additional provision of 19 million euros related to the restructuring of the Orange Sport and Orange Cinema Series businesses; 

• an additional provision of 14 million euros related to the Bonus Share distribution plan; 

• an additional provision of 8 million euros for the DPTG dispute in Poland. 

A total positive amount of 981 million euros in the fourth quarter of 2010 for:

• a provision of 547 million euros related to the restructuring of the Orange Sport and Orange Cinema Series businesses; 

• an additional provision of 422 million euros for the Part Time for Seniors plan in France; 

• an additional provision of 13 million euros related to the European Commission fine on TP S.A. for misuse of its dominant position on the broadband market in Poland. 

appendix 6: revenues by operating segment

appendix 7: key performance indicators of France Telecom-Orange

appendix 8: 2011 highlights

All press releases are available on the Group's websites:

• www.orange.com 

• www.orange.es 

• www.everythingeverywhere.com 

• www.tp-ir.pl 

• www.orange-business.com 

appendix 9: glossary

ARPU - Fixed Services for Consumers: average annual revenues per line for fixed services and internet for consumers are calculated by dividing the average monthly revenues over the past twelve months by the weighted average number of fixed service lines for consumers over the same period. The weighted average number of fixed service lines for consumers is the average of the monthly averages during the period in question. The monthly average is the arithmetic mean of the number of lines at the start and end of the month. The ARPU of fixed services for consumers is expressed as monthly revenues per line.

ARPU - Personal Communication Services: average annual revenues per user (ARPU) are calculated by dividing the revenues from mobile services (see "mobile services" below) generated over the past twelve months by the weighted average number of customers over the same period, excluding "machine to machine" customers. The weighted average number of customers is the average of the monthly averages during the period in question. The monthly average is the arithmetic mean of the number of customers at the start and end of the month. PCS ARPU is expressed as annual revenues per customer.

broadband ARPU (ADSL, FTTH, satellite and WiMAX): average revenues per user of broadband services per quarter are calculated by dividing the quarterly revenues for consumer broadband services by the weighted average number of accesses over the same period. The weighted average number of accesses is the average of the monthly averages during the period in question. The monthly average is the arithmetic mean of the number of accesses at the start and end of the month. ARPU is expressed as monthly revenues per access.

CAPEX: capital expenditure on tangible and intangible assets excluding telecommunication licences and investments through finance leases.

commercial expenses: external purchases including purchases of handsets and other products sold, commissions related to distribution, advertising, promotional and sponsorship expenses, and rebranding expenses.

comparable basis: data based on comparable accounting principles, consolidation scope and exchange rates are presented for previous periods. The transition from data on an historical basis to data on a comparable basis consists of keeping the results for the period ended and then restating the results for the corresponding period of the preceding year for the purpose of presenting, over comparable periods, financial data with comparable accounting principles, consolidation scope and exchange rates. The method used is to apply to the data of the corresponding period of the preceding year, the accounting principles and scope of consolidation for the period just ended as well as the average exchange rate used for the income statement for the period ended.

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization. This indicator corresponds to operating income before depreciation and amortization, before revaluation related to acquisitions of controlling interests, before the reversal of cumulative translation adjustment from liquidated entities, before impairment of goodwill and asset impairment, and before income from associates. EBITDA is not a financial performance indicator as defined by the IFRS standards and is not directly comparable to indicators referenced by the same name in other companies.

Internet/Business Everywhere: enables laptop computers to be connected to the Internet anywhere using a USB flash drive.

MVNO: Mobile Virtual Network Operator. Mobile network operator using third party network infrastructures.

naked ADSL: the naked ADSL access offer is aimed at subscribers who do not wish to keep a standard, separate telephone contract. In France and Poland, France Telecom also offers wholesale naked ADSL to other carriers, allowing their customers, especially those residing in areas where total unbundling is unavailable, to dispense with the traditional telephony subscription.

operating cash flow: corresponds to EBITDA minus CAPEX. EBITDA-CAPEX is one of the Group's management indicators used to monitor its operational performance and those of its operating sectors.

other external purchases: these include overhead, property expenses, service fees and purchases of other services, content purchases, equipment costs and other supplies in inventory, call centre outsourcing expenses and other external consumption, net of capitalized production of goods and services.

revenues from data services (Personal Communication Services): these are revenues from mobile services (see "revenues from mobile services" below), excluding revenues generated by voice services. They include revenues generated by text messages (SMS), multimedia messages (MMS), data (WAP, GPRS and 3G) and the cost invoiced to the customer for purchases of content.

revenues from mobile services: these are revenues (voice and data services) generated by incoming and outgoing calls, network access fees, roaming revenues from customers of other networks, revenues from value-added services and revenues from incoming calls from mobile virtual network operators (MVNO).

roaming: Use of a mobile telephone service on the network of an operator other than that of the subscriber.

wholesale line rental - WLR: by supplying an analogue connection to the France Telecom switched network and related services as a supplement to a narrowband telephone traffic routing offer, the WLR offer allows third party operators to market a global narrowband fixed telephony offer.

[1] Including a payment on 19 January 2012 related to the acquisition of a 4G license (800MHz) in France and a payment on 13 January 2012 related to the dispute between Danish company DPTG and TP S.A. in Poland.
[2] Subject to approval by the Annual General Meeting of Shareholders.
[3] See glossary.
[4] New operations in Africa: Kenya, Guinea, Guinea-Bissau, Niger, Central African Republic and Uganda.
[5] Included in 2011 were Meditel in Morocco (4.8 million customers), CCT in the Democratic Republic of Congo (1.7 million customers) and Korek Telecom in Iraq (0.6 million customers). Customer bases are consolidated at the percentage of interest France Telecom-Orange holds in the corresponding companies.
[6] Non-restated EBITDA. See appendix 1.
[7] Payment of 891 million euros made on 19 January 2012 relating to the 4G mobile license in France (800 MHz) and the payment of 550 million euros on 13 January 2012 relating to a legal case against the Danish company DPTG and TP S.A. in Poland.
[8] The main factors behind the variation in financial debt in 2011 are presented in appendix 4.
[9] The method of calculating restatements of net financial debt to EBITDA is described in appendix 4.
[10] The coupon clipping date for the dividend is 8 June 2012; the registeration date is 12 June 2012.
[11] Excluding exceptional items and excluding the payment of unemployment insurance for employees of France Telecom in France with civil servant status.
[12] Subscription fees and calling services.
[13] See glossary.
[14] See glossary.
[15] In particular in Egypt, with the full consolidation of the operator Mobinil on July 13, 2010 and the acquisition of Linkdotnet in September 2010, and in Belgium, with the acquisition of KPN Belgium Business by Mobistar, consolidated in June 2010.
[16] New operations in Africa: Kenya, Guinea, Guinea-Bissau, Niger, Central African Republic and Uganda.