France Telecom posted a big rise in 2003 operating profit on Wednesday but its shares tumbled after weakness in its fixed-line businesses raised concerns about future growth.
France Telecom said it expected sales and core earnings to rise this year as restructuring paid off, but the predicted gains were modest and analysts were sceptical the former monopoly could revive its domestic fixed-line business, hit by competition since France opened its telecoms market in 1998.
Most of the profit gains at the operating level came from cost cuts and other savings from restructuring, not from growth at its main businesses, which analysts said was unsustainable.
"Basically they look pretty weak all around," a London based telecoms analyst said of the company's results. "The growth hasn't come through at all."
The results sent France Telecom shares down nearly five percent, wiping out most of their gains this year. At 1100 GMT, the shares were off 4.85 percent at 22.58 euros.
The company said operating profit was 9.55 billion euros ($11.85 billion) compared with 6.81 billion in 2002. Earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 16 percent to 17.30 billion euros.
The state-controlled firm said sales in 2003 fell 1.1 percent to 46.121 billion euros, just below analyst expectations. On a like-for-like basis they were up 3.4 percent, at the low end of company guidance.
As part of a deep restructuring, France Telecom slashed its debt to less than 45 billion euros at the end of 2003 from about 70 billion a year earlier. It also generated operating cash flow of 12.2 billion euros during the year.
The restructuring has partly restored the firm's financial health, which was badly damaged during a reckless expansion spree in the late 1990s that saddled it with huge debt.
But analysts said this was not enough to offset concerns about the fixed-line business in France, which generates more than 40 percent of France Telecom's EBITDA.
Chief Financial Officer Michel Combes said the rate of decline was slowing and reiterated the company's target of reversing the trend this year.
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