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UPDATE: Deutsche Telekom 2Q Net Profit -35%, Confirms Outlook

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BONN (Dow Jones) Deutsche Telekom said Thursday second quarter net profit fell 35%, mainly on one off effects, but confirmed its outlook.

The former state telecom monopoly posted just slight declines in sales and operating profit in the period ending June 30, mainly on adverse currency effects.

"We will achieve our targets for 2008," said Chief Executive Rene Obermann, adding that cost cutting measures are on track.

The confirmed outlook, in particular, eased investors' concerns the company could be hurt by a cooling economy or the strong euro. The reiterated guidance followed solid results recently from peers France Telecom and Spain's Telefonica, both of which also maintained their outlook.

By 1144 GMT, the share was trading up 0.5% at EUR11.41 outperforming a flat German market and a flat DJ Stoxx telecoms index.

The Bonn-based company said second quarter net profit was EUR394 million, down from EUR604 million a year earlier when the company booked a gain from the sale of T-Online France. Deutsche Telekom didn't specify the size of the gain but said that items negatively affecting its bottom line in the period totaled EUR239 million.

Adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, fell 1.1% to EUR4.85 billion.

Net revenue fell 2.9% to EUR15.13 billion, hurt by the strong euro against the U.S. dollar and sterling.

There was a negative effect on revenue in the first six months of the year amounting to around EUR1.2 billion because of the strength of the euro, said chief financial officer Karl-Gerhard Eick.

Deutsche Telekom's wireless unit, T-Mobile, has exposure to the dollar and sterling through key operations in the U.S. and the U.K.

Eick said that Deutsche Telekom can stick to its outlook as long as the euro exchange rate is below an average $1.60; it's now around $1.54.

At constant currencies, Obermann said sales in the first six months would be up 0.8%.

Obermann said T-Mobile USA, a key growth driver, was showing "no sign of the current turbulence in the U.S. economy." He also said there's growth potential for Deutsche Telekom's mobile operations in Germany as well as in other European countries.

Deutsche Telekom said free cash flow before dividend payments was EUR1.96 billion, up from EUR1.75 billion a year earlier.

There was a further 7.1% decline in German fixed-line customers, to 29.82 million at the end of the second quarter from 32.09 million, while total mobile customers grew 8.7% on year to 125 million.

Deutsche Telekom's second quarter figures were good, and it's important that Ebitda guidance was confirmed, said Landesbank Baden-Wuerttemberg. LBBW maintains its buy rating on the stock and EUR14.6 target price.

Deutsche Telekom targets 2008 adjusted Ebitda of EUR19.3 billion and free cash flow of EUR6.6 billion, level with 2007.

Turning to acquisitions, Obermann said "mega deals are often announced in the industry only to be canceled again."

France Telecom failed in its recent attempt to acquire Nordic operator TeliaSonera for around $42 billion, a process which badly hit the French company's share price.

Obermann said Deutsche Telekom, meanwhile, has taken four major expansionary steps in the past 15 months, recently through its purchase of a 25% stake in Greek peer Hellenic Communications Organization (OTE) for EUR3.2 billion.

-By Archibald Preuschat, Dow Jones Newswires, +49 (0) 69 29725505, archibald.preuschat@dowjones.com

(END) Dow Jones Newswires

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