2nd UPDATE: Deutsche Telekom 3Q Net Up 7.2%, Cautious On 2010
(Rewrites, adds executive, analysts' comments.)
By Archibald Preuschat
Of DOW JONES NEWSWIRES
BONN -(Dow Jones)- Deutsche Telekom AG's (DT) shares rose Thursday as tight
cost control resulted in a 7.2% increase of third-quarter net profit, but it
said visibility into 2010 remains low and its U.S. performance remained a weak
spot.
Chief Financial Officer Timotheus Hoettges said the company "is comfortable"
in terms of reaching its 2009 free cash flow target, but Chief Executive Rene
Obermann said "there are a few developments at which we are looking very
carefully and with caution when it comes to 2010."
Net profit for the quarter ended Sept. 30 was EUR959 million, up from EUR895
million a year earlier on lower operating expenses. Revenue for the period rose
5.2% to EUR16.26 billion.
Closely watched earnings before interest, taxes, depreciation and
amortization, or Ebitda, adjusted for one-time items and restructuring, the
company's preferred measure of operating performance, rose 5.2% to EUR5.53
billion.
Sales and operating profit benefited from the consolidation of Hellenic
Telecommunications Organization (OTE), which contributed EUR1.5 billion to
Deutsche Telekom's third-quarter sales and EUR600 million to adjusted Ebitda.
Still, Obermann said the company's performance in the U.S., once the growth
engine, was "clearly not satisfying."
T-Mobile USA's subscriber base shrank by 77,000 in the quarter to 33.42
million, the first time it has lost customers since in entered the market at the
start of the decade. Revenue was down to $5.38 billion down from $5.51 billion a
year earlier.
If Deutsche Telekom's U.S. strategy doesn't work it needs to revamp it, and
quickly, as it is a highly competitive market, said Gartner research director
Katja Ruud.
The company aims to bolster its underperforming U.K. operations, meanwhile,
through a 50:50 joint venture with France Telecom SA's (FTE) Orange in a deal
first announced in September.
Overall, analysts were particularly upbeat about Deutsche Telekom's third-
quarter free cash flow, which at EUR3.29 billion comfortably beat expectations
for EUR2.41 billion. Hoettges attributed the beat to "strong working capital
management."
Strong free cash flow is key for the company's dividend policy.
The results are "fantastic," said Sal Oppenheim analyst Frank Rothauge, noting
the positive impact of cost savings in Europe and South East Europe, and at 1225
GMT its shares traded up EUR0.26, or 2.75% at EUR9.54, outpacing a lower overall
market.
Obermann declined to provide guidance for 2010, saying the company would do so
at its full-year results in February, along with details on further cost
savings.
Deutsche Telekom reported in its new geographic group structure for the first
time, comprising Germany, the U.S., Europe and South East Europe, plus its
Systems Solutions unit.
In its home market of Germany and in Europe, sales and adjusted Ebitda fell,
but were up in South East Europe primarily on the OTE consolidation.
Deutsche Telekom followed European peers Royal KPN NV (KPN.AE) of the
Netherlands and France Telecom in confirming its full-year 2009 outlook, despite
the weak dollar against the euro. The company confirmed its forecast for OTE to
boost its adjusted Ebitda by around EUR2 billion in the 11 months of fiscal
2009.
Peer Telecom Italia SpA (TI) reports later Thursday.
Excluding OTE, Deutsche Telekom forecast Ebitda to fall by around 2% to 4%
this year from EUR19.5 billion a year earlier, and said it expects OTE to
contribute around EUR0.6 billion to free cash flow, bringing the group's total
free cash flow to around EUR7 billion.
OTE Thursday said third-quarter net profit fell 19% on weak mobile sales and a
continued deterioration in fixed-line revenue, in results that were weak overall
but in line with consensus.
Company web site: www.telekom.de
-By Archibald Preuschat, Dow Jones Newswires, +49 211 138 7218,
archibald.preuschat@dowjones.com
(END) Dow Jones Newswires
11-05-090754ET
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