France's Wanadoo on Monday became the first major European Internet service provider to report an annual profit, posting 2002 earnings of €30m thanks to tax gains and strong results at its telephone directory arm.
Wanadoo also reported an annual core profit for the first time, unveiling earnings before interest, tax, depreciation and amortisation (EBITDA) of €90m in 2002 compared to a €64m loss for 2001.
The company said free cash flow was €114m for the year, due primarily to 86 million euros earned on the sale of a building, compared to a negative €275m in 2001.
With the results, Wanadoo has established itself along with Germany's T-Online as Europe's dominant player in one of the few technology sectors experiencing significant growth. T-Online reports full-year results on March 13.
"These are a strong set of results. However, I don't expect a major share price reaction as the company already forecast this in January," said Kai Kaufmann, Internet analyst with Dresdner Kleinwort Wasserstein.
Wanadoo shares fell after an early surge. By midday, they were down 2.59% at €4.52 as investors speculated that retailer Dixons might sell all or some of its 40 million Wanadoo shares.
Concerns about a capital increase at parent company France Telecom, which owns 74% of Wanadoo, also weighed, traders said.
Strong 2003 predicted
Wanadoo repeated a forecast that sales would grow by between 25% and 30% this year, while operating free cash flow would be positive. It also reiterated that it expected core earnings to triple.
It said net profit would rise strongly this year. The company had originally expected to post its first annual net profit in 2003.
Looking ahead, Chief Executive Olivier Sichel said he intended to make each of Wanadoo's businesses profitable and that his ambition was to be among the most profitable European companies in the sector.
"We have to go from an overall profit to economic success at each of our businesses," Sichel said at a news conference.
To achieve these targets, Sichel said he would push to boost operating cash flow, cut costs and improve the efficiency of Wanadoo's sales forces and marketing efforts.
He also said Wanadoo had to simplify its products in order to attract more customers.
He said he expected Wanadoo to have 2.8 million broadband customers by the end of 2003, up from about 1.4 million at the end of last year, but said that due to increased competition, the company would lose market share in France.
"We expect 2003 to be a year of strong growth in broadband," he said.
In contrast to the strong net and core results, the company recorded a loss of six million euros at the operating level, hit mainly by its British unit, Freeserve, which lost €92m last year, up from a €74m loss a year ago.
In 2001, the company's operating loss was €153m.
Wanadoo said the cost of services and products sold rose to €1.02bn in 2002 from €837m the year before. Selling, general, administrative and research and development expenses rose to €969m from €789m.
In January, the company reported 2002 sales of €2.075bn euros and a subscriber base of €8.54m.
Analysts had expected the company to report EBITDA of €68m, with forecasts in a range of €34m to €88m euros.
The company said its directory business earned a core profit of €289m in 2002 compared to 239 million in 2001, while its Internet activities recorded a €166m core loss for the year after a €290m loss in 2001.
For 2003, Wanadoo said the portals business would break even at the core level.
Financial income was €56m, from a group net cash position of €1.55bn, compared to financial income of €72m. Wanadoo also said its bottom line was boosted by a deferred tax asset of €58m.The company said it would pay no income tax in 2003 and 2004 .