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France Telecom 1st Half Net Down 19% On Tax

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PARIS (Dow Jones) France Telecom, Thursday gave some solace to the European telecom sector as it continued to show steady growth in revenue and underlying earnings, stuck to its 2008 goals, and said it will pay its first ever interim dividend in September.

The dominant French operator, whose operations stretch from the U.K. to Madagascar, still expects revenue to grow between 2% and 3% in 2008 on a like-for-like basis despite an expected second-half slowdown in some markets, Chief Financial Officer Gervais Pellissier told a conference call.

The European telecom sector took a hit last week when U.K. mobile giant Vodafone Group forecast full-year revenue at the low-end of its guidance.

On the other side of the Pyrenees, France Telecom's Spanish counterpart Telefonica also calmed fears somewhat Thursday, reporting results broadly in line with expectations and confirming its full-year guidance.

France Telecom's first-half earnings before interest, tax, depreciation and amortization, or Ebitda, grew 2.8% to EUR9.68 billion from EUR9.42 billion, slightly above an average EUR9.66 billion forecast from 12 analysts polled by Dow Jones Newswires.

That Ebitda was ahead of expectations "means France Telecom is again delivering in terms of cost control," said Dexia analyst Rob Goyens, who has a buy rating on France Telecom.

Investors responded favorably to the results and dividend pledge and at 1135 GMT, France Telecom shares were up 3%, or EUR0.60, to EUR20.38, outperforming an overall higher market.

Before Thursday's results, France Telecom shares had fallen about 20% from the start of the year, outperforming the DJ Stoxx 600 European telecom index, as the company has posted solid earnings and walked away from an unpopular takeover bid for TeliaSonera.

Net profit for the period ended June 30 fell 19% to EUR2.68 billion from EUR3.31 billion a year earlier, below an average EUR2.76 billion forecast from 11 analysts.

The company's net profit figure in the first half of 2007 benefited from deferred tax assets in France and a change in the income tax rate in the U.K.

Revenue rose 1.5% to EUR26.3 billion from EUR25.91 billion, broadly in line with an average EUR26.32 billion forecast by analysts.

The company maintained its 2008 targets of over EUR7.8 billion in free cash flow and a stable Ebitda margin.

France Telecom said it will pay an interim ordinary dividend of EUR0.60 a share Sept. 11., and will continue with the practice every year from now on.

Investors will have to wait until the closing of the 2008 accounts in February 2009 to find out the level of the overall dividend, which will be above the EUR1.30 paid for 2007, as well as "any other additional remuneration for shareholders," the company said.

The interim dividend "is a step in the right direction to regain investors' confidence following the aborted Telia deal," said Citigroup analysts, who have a hold rating on France Telecom.

On a like-for-like basis, second-quarter revenue in France Telecom's mobile operations in Spain grew 1.7% to EUR852 million and in the U.K. rose 10% to EUR1.44 billion.

"The Spanish context has a bit more of a negative tendency than other markets," CFO Pellissier said.

The two markets were under scrutiny after being singled out as weak spots in Vodafone's figures July 22, suggesting the macroeconomic slowdown may hurt operators' results.

There were "no horrors in either the UK or Spain," Collins Stewart analyst Mark James said in a note to investors.

-By Jethro Mullen, Dow Jones Newswires; 33 1 4017 1738; jethro.mullen@dowjones.com

(END) Dow Jones Newswires

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