Deutsche Telekom holds to targets despite profit drop

Deutsche Telekom is on track to meet its 2011 targets, it said Thursday, despite a poor performance in the United States, continued economic weakness in southeastern Europe and sluggish growth in Germany. 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 US business to AT&T for €39 billion (Dh203 billion). Once the sale is concluded — expected in the first quarter of 2012 — Deutsche Telekom's domestic operations in Germany will account for 54 per cent of its business. It expects to generate €14.9 billion 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. Article continues below 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 amortisation] guidance of 19.1 billion euros," DZ Bank analyst Joeri Sels said. Poor performance "We believe that Deutsche Telekom will heavily miss the US guidance due to both currency effects and a poor operational performance." Deutsche Telekom shares were up 1 percent at €10.37 when the German blue-chip index DAX was up 0.8 per cent. The group said second-quarter net profit dropped 26.7 per cent to €348 million, mainly due to €600 million in one-off expenses for an extended early retirement plan in Germany, where sales fell 3.4 per cent. 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 per cent stake in Greek telecoms group OTE, which reported a better than expected profit yesterday. 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 per cent to €4.687 billion.