France Telecom 2009 net profit down 26 percent on flat sales as forced to repay state aid

Thursday, February 25, 2010

France Telecom profit down 26 pct on $1.35B charge

PARIS — France Telecom SA said Thursday its net profit contracted by about a quarter last year after European authorities ordered the network operator to repay almost euro1 billion ($1.35 billion) in state aid.

The former state-owned telecom monoply, whose largest shareholder is still the French government, reported net profit fell 26 percent in 2009 to euro3 billion, down from euro4.1 billion in 2008.

In a statement, the company blamed the drop largely on a euro964 million charge it was forced to take stemming from a dispute with EU competition authorities over what Europe’s top court ruled were illegal tax breaks the company received before 2003.

The EU Commission ruled in August 2004 that France was giving illegal tax breaks worth between euro798 million and euro1.14 billion to its national phone company.

National governments in the European Union aren’t normally allowed to give preferential treatment to certain companies or sectors.

France Telecom’s profitability was again squeezed in the fourth quarter by lower inter-operator fees. New regulations in some of the operators’ biggest markets — France, Britain, Poland and elsewhere — lowered the fees operators pay one another to send calls over each others’ networks.

Earnings before interest, tax, depreciation and amortization, or EBITDA, excluding the impact of the state aid case, fell 0.9 percent in the fourth quarter to euro3.7 billion, on a 3.3 percent drop in revenue to euro11.5 billion.

For all of 2009, revenue was about flat at euro46 billion.

Last year France Telecom was shaken by a series of suicides by its employees.

Unions blame the suicides — some 25 employees took their lives over the past year and a half — on stress due to restructuring.

That spurred France Telecom to put its corporate restructuring on hold. The former state-run company laid off some 22,000 people in 2006-2008.

Chief Executive Didier Lombard, who faced criticism over his handling of the suicides, is being replaced next month by Deputy CEO Stephane Richard. Lombard will remain with the company as non-executive board chairman.

In early trading Thursday, France Telecom shares rose 1.8 percent to euro17.14.

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