France Telecom fuelled speculation it was keeping its powder dry for acquisitions as it proposed a flat dividend for the current year and posted a sharp drop in 2006 profits, hit by its restructuring and price cuts.
France's leading telecoms group, which trades under Orange, said it was on the lookout for acquisitions in emerging markets as Western Europe matured and competition showed no sign of abating.
"There are still some nice targets in Africa," France Telecom Chief Executive Didier Lombard told a news conference. Lombard said France Telecom's strategy was to preserve cash generation while investing in new engines of growth.
The group, which also operates in Britian, Poland, the Netherlands and North Africa, proposed to keep its 2007 dividend at 1.20 euros a share, the same it will pay for 2006, allowing it to save cash for purchases.
France Telecom said it was also looking at Asia but Lombard said the operator was not yet considering investing in China, the world's second biggest mobile market, where it has a research agreement with China Telecom.
News of the dividend payment, unusually early in the company's financial year, came after the operator saw its net profit for 2006 drop to 4.14 billion euros ($5.4 billion) from 5.71 billion in 2005.
Operating profit during the period slid to 6.99 billion euros from 10.50 billion. The latest figures included restructuring costs of 567 million euros and a 2.8 billion euro writedown, most of which to reflect a drop in the value of its struggling Orange UK business.
In Britain, where it has a 23-24 percent market share, Orange produced the market's worst margins. In the second half, mobile margins shrunk to 20 percent from about 29 percent in 2005. The company's domestic business, Home France, came out ahead of most expectations in terms of underlying full year EBITDA (earnings before interest, tax, depreciation and amortisation). Its Spanish operation disappointed, analysts said, with fixed revenues falling by 15 percent. Some investors voiced concern that unlike its European telecoms peers, France Telecom's international businesses were underperforming a domestic business itself dogged with fierce competition and regulatory price cuts.
Overall, analysts said the results lacked sparkle. "The numbers are generally weak, particularly in mobile in the UK and Spain," Credit Suisse said in a note.