Rapid expansion left France Telecom heavily indebted

After some one-off costs including retirement plan changes and the falling value of some investments, France Telecom said it made a profit of 4.65bn euros before tax for the six months to June, up 46% on the previous year.

The headline figure does not quantify the cost of the restructuring. That number will not be available till September, France Telecom said.

But the strengthening euro spells trouble ahead, the firm admitted, as it downgraded expectations of its sales for the full year.

The first half had already produced a significant difference between the real increase in sales - 1.7% - and the like-for-like increase taking currency changes and the shifting pattern of its business into account, which was 3.9%.

Now France Telecom has said its full-year revenues will be up 3-5% on the like-for-like basis, whereas before it was promising a real 3.5% boost.

Wireless help

As in previous periods, mobile phone arm Orange provided a sizable sales boost, and France Telecom was keen to point to solid gains in revenue per user everywhere outside France itself.

Operating profits at Orange were up 68% to 2.1bn euros, while sales rose 6.9% to 8.6bn euros and the subscriber base expanded by 1.3 million to 45.6 million customers.

Similarly, the Wanadoo internet operation saw breakneck growth as the company increased its sales of ADSL broadband data connections.

But the traditional fixed-line side of the business continued to drag on the group as a whole, with sales within France falling almost 5% from 2002 to 2003 and corporate network sales outside France down almost 20% - largely due to the euro's negative effect.

New look

France Telecom is still trying to manage the massive debt burden it built up during its 1990s buying spree - one effect of which was to drive investors away last year, triggering a 62.5% slide in its stock price.

This year, following promises of a root-and-branch restructuring programme dubbed TOP, the shares are back up by 45%.

Analysts remain sceptical, however, so France Telecom laid out a range of savings to try to bring them around.

It is promising to concentrate on organic growth, rather than acquisitions as it did before, trumpeting "reductions in corporate lifestyle such as streamlining business travel and ... sponsorship".