Orange reports profit plunge on tax charge, shares fall

French telecom group France Telecom/Orange on Thursday reported a plunge in first-half net profits, partly weighed down by higher taxes and a slump in sales, but held its forecasts. The operator also announced it will have to pay about 2.0 billion euros ($2.6 billion) to the French state in the second half of the year to settle a tax dispute. The group said that net profit dropped by 38 percent to 1.2 billion euros ($1.58 billion) mainly because of a 14.2-percent slump in earnings before interest, tax and amortisation to 495 million euros. The company said sales fell by 5.7 percent to 20.6 billion euros. The news pushed down its shares by 4.63 percent to 7.39 euros in early afternoon trading on the Paris stock exchange. The overall CAC 40 index of leading shares was down 0.67 percent. But the group stood by its targets for the full year, which include reaching an operating cash flow of 7.0 billion euros for 2013, and confirmed plans to pay out a dividend of at least 0.80 euros for this year. Finance director Gervais Pellissier sought to reassure investors by saying the bill for the tax dispute, related to the year 2005, will have "no impact on the balance sheet or the income statement because the risk has been provisioned for since 2005." Company chief Stephane Richard said that "against a macro-economic and competitive backdrop that remains difficult in our main markets, these results demonstrate the effectiveness of our strategy both commercially and in terms of reducing our cost structure." He said: "In France and Poland we achieved record quarterly net sales in mobile contracts for the first time in two years. In Spain, quarter after quarter we are gaining market share ... Africa and the Middle East continue to drive the group's growth with revenues." He added that the group was continuing to cut costs, and that it had already "largely achieved" this year's 600-million-euro cost reduction target. In the report, it said direct costs dropped 5.8 percent in the six-month period, and indirect costs were reduced by 1.4 percent. Richard also said his company was "maintaining the roll out of our high-speed fibre and 4G networks and are seeing real appetite for very high-speed broadband from our customers who are showing a willingness to pay a premium to access these services." At the end of June, Orange said it had a total of 231.5 million customers, up 3.1 percent on the year, and which were boosted by mobile contract sales in France, Spain, Africa and the Middle East.