Aug. 14 (Bloomberg) -- Deutsche Telekom AG, Europe's largest
phone company, had a second straight quarterly profit as costs
fell, debt shrank and earnings improved at the mobile-phone unit.
The company plans to resume paying a dividend for 2004.
Net income was 256 million euros ($290 million) in the
second quarter, compared with a 2.08 billion-euro loss in the
year-ago period, Chief Executive Officer Kai-Uwe Ricke said at a
press conference in Bonn. Analysts expected on average a loss of
163.3 million euros, according to a Bloomberg survey.
Ricke, who ran the company's T-Mobile International AG
global wireless business before he became CEO in November, is
cutting more than 50,000 jobs through 2005 as sales fall at the
main T-Com phone unit. Deutsche Telekom, which cut net debt to 53
billion euros in the quarter from 64.2 billion euros a year
earlier, is also adding clients at the U.S. mobile-phone unit.
``Deutsche Telekom's numbers are showing improvements,''
helped by the performance in the U.S. wireless unit, said Bruno
Lippens, who helps manage $12 billion at Robeco Groep in
Rotterdam and holds the stock. A dividend ``seems somewhat early
as they still have a big pile of debt.''
Deutsche Telekom said it plans to resume its dividend for
2004, which will be paid out in 2005. Ricke's predecessor Ron
Sommer cut the 2001 dividend 40 percent to 37 cents a share as
debt swelled. The 2002 dividend was dropped completely.
The company's shares rose as much as 1.4 percent to 13.78
euros, and traded at 13.77 euros as of 6:07 p.m. in Frankfurt.
Sales rose 4.7 percent in the quarter to 13.59 billion
euros. Adjusted earnings before interest, taxes, depreciation and
amortization rose 16 percent to 4.6 billion euros from 3.98
billion in the second quarter last year.
The former German monopoly last year posted continental
Europe's biggest loss of 24.6 billion euros after 21.4 billion
euros of writedowns, mostly from the takeover of VoiceStream
Wireless Corp., which is now called T-Mobile USA. As a result, it
cut annual depreciation charges by more than 1 billion euros.
Ricke, 41, who returned the German company to a profit of
850 million euros in the first quarter after two years of losses,
forecast a ``slight'' profit for the full-year as the company
lowers debt further.
``We're working toward a black zero, nothing more, nothing
less,'' Ricke told reporters in Bonn. ``We're not in acquisition
mode. Our goal this year is to clean up the balance sheet.''
Chief Financial Officer Karl-Gerhard Eick said taxes will be
400 million euros to 500 million euros in the second half.
`More of the Same'
``Ricke just needs to do more of the same and that's enough
for the investors,'' said Adrian Darley, who helps manage $14.7
billion at Gartmore Investment Management Ltd. ``He has certainly
done what he said he would do.''
Darley said he was overweight in the stock at the beginning
of the year and is now neutral because of the stock's 12 percent
increase this year.
The stock has gained 32 percent in the past year, compared
with a 40 percent gain in the Bloomberg Europe Telecommunications
U.S. Target Raised
Bellevue, Washington-based T-Mobile USA is now expected to
post full-year Ebitda of $1.5 billion, up from a previous
forecast of $1 billion, the company said.
T-Mobile USA added 606,000 users in the second quarter,
bringing the total to 11.4 million. The unit is using actress
Catherine Zeta-Jones and lower prices than competitors Verizon
Communications Inc. and Sprint Corp. to win customers.
The unit posted second-quarter Ebitda of 443 million euros
compared with 176 million euros in the same quarter last year.
``T-Mobile looks good -- it's the main driver behind the
profit,'' said Heike Pauls, an analyst at CAI Cheuvreux who rates
the shares an ``underperform.'' ``The fixed net division T-Com
didn't turn out as bad as expected.''
T-Mobile International's second-quarter Ebitda rose 29
percent to 1.74 billion euros from 1.35 billion euros in the year-
earlier period. Sales at Deutsche Telekom's wireless business
rose 21 percent to 5.23 billion euros.
Ebitda at Deutsche Telekom's T-Com was little changed at
2.55 billion euros from 2.56 billion in the second quarter last
year as sales fell 6.9 percent to 6.12 billion euros from 6.58
billion. Deutsche Telekom, which said its market share has
dropped since the local phone market was opened this year, plans
30,000 job reductions at T-Com alone to cut costs.
Deutsche Telekom's net debt fell in the quarter after Ricke
sold a stake in Russian mobile-phone operator OAO Mobile
Telesystems for about 500 million euros. He aims to cut debt to
about 52 billion euros, or three times 2003 Ebitda, by year-end.
Ricke said today he will continue cutting debt after the
2003 targets are met to between two times and three times Ebitda,
without giving a timeframe.
``We have a strong statement from the management that debt
will fall continuously over the years -- for investors that's an
important message,'' said Gartmore's Darley.
The company said the euro's gains against the dollar and the
pound hurt revenue in the second quarter, as it reduced the value
of sales in those currencies when repatriated.
At the same time, the strength of the euro against the
dollar cuts the company's costs for servicing debt, as about 20
percent of its borrowings are denominated in the U.S. currency.
The euro reached a high of $1.19 in May.
Ricke said Deutsche Telecom expects the euro to trade at
$1.13, in line with the current price.
The euro was on average 24 percent stronger than the dollar
in the second quarter than in the same period last year.
Deutsche Telekom's 3.5 billion euros of 6.625 percent bonds
due in 2011, rated BBB+ by Standard & Poor's, yielded 5.23
percent at 5:04 p.m. in London, or 1.23 percentage points more
than German government debt of similar maturity.
The yield premium, or spread, which shows how risky
investors perceive the bonds to be, has dropped from 2.8
percentage points in mid-January.
T-Online International AG, in which Deutsche Telekom owns 72
percent, said Tuesday Ebitda rose to 80 million euros in the
second quarter from 1 million euros in the previous year.
Deutsche Telekom reported 76 million euros in second-quarter
adjusted Ebitda from its T-Online holding, up from 2 million
euros in the same quarter last year. Sales reported for the T-
Online holding rose to 402 million euros from 327 million.
The company's information-technology unit T-Systems posted
second-quarter Ebitda or 337 million euros from 251 million.
Sales at T-Systems rose to 1.75 billion euros from 1.71 billion.
T-Systems had 3 billion euros in its order book, compared with 1
billion in the same period a year earlier.
Ricke said the company was able to transfer 7,400 employees
into its Personnel Service Agency to cut jobs in the first half.
The company plans to transfer 15,000 workers into the agency this
year and eventually place them in new jobs inside and outside of