Deutsche Telekom Swings To 4Q Loss As Charge Weighs
BONN -(Dow Jones)- Deutsche Telekom Thursday swung to an unexpected net loss of EUR898 million in the fourth-quarter as it decided to book most of the costs for shedding 32,000 jobs in the quarter.
In the last quarter in 2005, the German telecommunications giant had posted a net profit of EUR991 million. Analysts had expected a net profit of EUR667 million for the three months ending Dec. 31, 2006.
The Bonn-based firm's earnings were also hit by the ongoing customer exodus at its domestic fixed-line business, where it lost more than 2 million customers - more than double the rate than in 2005.
Analyst Frank Rothauge of Frankfurt-based bank Sal. Oppenheim said that it looks like the company's management "obviously wants to package all the negative (items) in an already weak year."
He added that the company's results adjusted for special items are "weak, but by no means surprising." He rates Deutsche Telekom shares at neutral with a EUR17 target.
Despite the huge drop in profits, Deutsche Telekom said it will pay an unchanged dividend of EUR0.72 for 2006.
As the company had already preannounced its 2006 sales figure in late January, while saying operating profit before special items would come in in line with its own guidance, the main focus is on the company's strategy update due later Thursday.
Chief Executive Rene Obermann will outline his strategy for Deutsche Telekom for the first time since he replaced Kai-Uwe Ricke in November.
Early Thursday, Deutsche Telekom only said its supervisory board has given its approval for Obermann's strategic plans, without revealing further details.
In addition, it said it has also signed off on the plans of transferring existing staff to a new service unit named T-Service.
The T-Service plans - which were originally announced by Obermann's predecessor Ricke - are controversial in Germany, as the company wants to transfer at least 45,000 employees into this new unit with an aim on changing their contracts with extended working hours and lower wages.
Shedding the 32,000 jobs and the creation of T-Service are the two main parts of Deutsche Telekom's revamp plan which it has said should bring in around EUR5 billion in cost savings by 2010.
"Two contrasting developments shaped Deutsche Telekom's operations in the 2006 financial year: intense competition together with a major drop in prices on the domestic market and further growth in international business," the company said in a statement.
Deutsche Telekom didn't specify the charge it took for the job cuts program in the fourth quarter. A spokesman only referred to the difference in the numbers for adjusted and unadjusted operating earnings.
Earnings before interest, taxes, depreciation and amortization, adjusted for special items, came in at EUR4.55 billion in the fourth quarter, down 13% from EUR5.20 billion a year earlier.
Ebitda including special items, however, came in at EUR1.94 billion, down 59% from EUR4.74 billion, showing that operating earnings reflect charges of around EUR2.61 billion.
Sales in the fourth quarter edged up 2.4% to EUR15.9 billion from EUR15.5 billion, driven by Deutsche Telekom's wireless unit T-Mobile International AG.
Like other European fixed-line incumbents, Deutsche Telekom is grappling with a number of smaller but nimbler rivals that are driving prices down as the Internet and wireless technology change the way people communicate.
In late January, Deutsche Telekom cut its operating profit outlook for 2007 due to plans to raise investments and slash prices amid competition on its home soil.
The company said operating profit in 2007 will be around EUR19 billion, down from its already lowered August estimate of EUR19.7 billion to EUR20.2 billion, while projecting a slight increase in sales.
Deutsche Telekom shares closed Wednesday at EUR13.56. The shares are almost flat on a 12-month basis, though they have bounced back from a low of EUR10.64 in the fall of 2006.
Analysts say that although the stock has underperformed most of its peers in the last twelve months, Deutsche Telekom shares are still more expensive than rivals such as France Telecom and Telefonica of Spain, trading at 16 times projected 2007 earnings per share.
Company Web site: http:/www.deutschetelekom.com
-By Joon Knapen, Dow Jones Newswires; +49-30-28884127; joon.knapen@dowjones.com
(END) Dow Jones Newswires"
Posted to the site on 1st March 2007
