August 4, 2011 / 5:18 AM / 7 years ago

Deutsche Telekom holds to targets despite profit drop

BONN, Germany, Aug 4 (Reuters) - Deutsche Telekom (DTEGn.DE) is on track to meet its 2011 targets, it said on Thursday, despite a poor performance in the United States, continued economic weakness in southeastern Europe and sluggish growth in Germany.

The sign of Deutsche Telekom headquarters is pictured in Bonn February 25, 2010. REUTERS/Ina Fassbender

The Bonn-based group is in the throes of retrenching as a regional European player and awaits regulatory approval for the sale of its ailing U.S. business to AT&T (T.N) for 39 billion euros ($55.7 billion).

Once the sale is concluded — expected in the first quarter of 2012 — Deutsche Telekom’s domestic operations in Germany will account for 54 percent of its business.

It expects to generate 14.9 billion euros in core profit this year from its German and European operations and 4.2 billion from T-Mobile USA, with free cash flow of at least 6.5 billion.

Chief Executive Rene Obermann said while second-quarter results were no cause for celebration, he was confident the company would achieve its targets.

But some analyst voiced their doubts.

“After the second-quarter numbers it has become even more clear that Deutsche Telekom will most likely not achieve its EBITDA (earnings before interest, tax, depreciation and amortization) guidance of 19.1 billion euros,” DZ Bank analyst Joeri Sels said.

“We believe that Deutsche Telekom will heavily miss the U.S. guidance due to both currency effects and a poor operational performance.”

Deutsche Telekom shares were up 1 percent at 10.37 euros by 0850 GMT, when the German blue-chip index DAX .GDAXI was up 0.8 percent.

PENSIONERS WEIGH ON NET PROFIT

The group said second-quarter net profit dropped 26.7 percent to 348 million euros, mainly due to 600 million euros in one-off expenses for an extended early retirement plan in Germany, where sales fell 3.4 percent.

Like other European incumbents, it has been at pains to continuously reduce its bloated work force, many of whom are civil servants.

Apart from Germany, Deutsche Telekom is also active in southeastern Europe and owns a 40 percent stake in Greek telecoms group OTE (OTEr.AT), which reported a better than expected profit on Thursday.

Deutsche Telekom said business at its European operations was improving although the economic situation in Greece and Romania remained difficult.

“We are now also seeing light at the end of the tunnel in southeastern Europe,” Obermann said.

Second-quarter EBITDA dropped 6.5 percent to 4.687 billion euros ($6.68 billion).

Group sales were down 6.8 percent at 14.475 billion euros.

Analysts polled by Reuters had on average forecast a net profit of 635 million euros, a core profit of 4.67 billion and sales of 14.69 billion euros.

($1 = 0.700 euros)

Editing by Greg Mahlich

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