Germany: Deutsche Telekom returns to profit

An efficiency drive at Deutsche Telekom appeared to bear fruit when Europe's biggest telecommunications company reported a surprise return to the black in the first quarter and raised its target range for core earnings, says the Financial Times

Net income in the three months to March 31st was €850m, compared with a loss of €1.8bn in the same period last year. Stripping out positive tax effects and the sale of shareholdings, net income was €100m compared with a €1.4bn loss. Group revenue rose 6.6% to €13.6bn.

Group income benefited from improved core earnings at all of its four divisions as revenue growth and cost cutting boosted margins.

As a result, Deutsche Telekom said it was hiking its target range for full-year earnings before interest, taxation, depreciation and amortisation (ebitda) to €17.2bn-17.7bn from €16.7bn-17.7bn.

The heavily indebted German operator also said its disposal policy and a big jump in free cashflow helped carve a significant slice off its debt pile, meaning it was on track to meet its target of reducing debt to three times ebitda.

The group said it cut net debt by €4.8bn in the quarter to €56.3bn as it rolled out its programme of the sale of non-strategic assets, including a 15% stake in Russian mobile operator MTS, and free cashflow jumped to €2bn from €300m a year ago.

It was a boost for the leadership of Kai-Uwe Ricke, who became chief executive six months ago, as he focuses on cutting costs and de-leveraging the company ahead of a strategy review expected later this month.

Mr Ricke was given the task of turning around Deutsche Telekom's fortunes after it built up huge debt buying assets at the height of the telecommunications and Internet boom and then reported Germany's biggest-ever corporate loss in 2002 as it wrote down the value of many of those assets.

Not including exceptionals, ebitda at T-Com, Deutsche Telekom's core fixed-line business, rose 7.2% to €2.7bn, while ebitda at T-Systems, its business division, was 10.9% higher at €266m.

Ebitda at T-Mobile, the mobile operator, grew 25% to €1.5bn on the back of an 18.9% rise in revenues, while T-Online, an Internet service provider, reported its first positive ebitda of €75m, compared with a loss of €14m.

The shares rose more than 2.5% to €12 in morning trading.

Source: Financial Times.