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D.Telekom 2007 Earnings Meet Expectations

Deutsche Telekom confirmed its 2008 outlook on Thursday after restructuring costs caused a slight drop in 2007 core earnings and its CEO told CNBC Europe he was optimistic that the company will withstand a slowdown in the U.S.

Earnings before interest, tax, depreciation and amortisation (EBITDA) adjusted for one-off items fell to 19.3 billion euros ($29.0 billion) last year primarily due to restructuring provisions, Europe's largest telecoms group by sales said.

AP

Revenue rose 1.9 percent to 62.5 billion euros thanks to growth in mobile communications, especially in the United States.

"Last year, despite the market environment (in the U.S.), we were able to increase market revenue… so we accomplished 3.6 millon new customers. This year our target is around 3 million customers," Chief Executive Rene Obermann told "Worldwide Exchange."

The company exceeded its target for cost cutting this year, reducing costs by 2.3 billion euros compared with 2 billion planned, Obermann added.

He said Deutsche Telekom's growth strategy will rely on increasing competitiveness in Germany, which still represents 50 percent of its business, and finding opportunities to grow abroad.

Adjusted core profit had on average been expected to come in at 19.3 billion euros on sales of 62.53 billion, according to a Reuters poll of 20 analysts.

The group reiterated its outlook for flat core earnings this year and a flat free cash flow of 6.6 billion euros.

Shares in the German telecoms group fell 2.9 percent to 12.54 euros by the market close, lower than the German blue-chip index which ended down 1.9 percent.

"We believe that the management team under CEO Obermann has a better grip on the cost base than previous management teams, but the challenges continue," Merck Finck analyst Theo Kitz said.

Obermann took over as head of Deutsche Telekom in November 2006.

The Bonn-based former telephone monopoly is in the middle of a restructuring programme as its traditional market for fixed-lined telephony shrinks. It saved 2.3 billion euros in costs last year, more than its target of 2 billion.

Obermann said the company is looking for additional cost savings to boost competitiveness, above the 4.7 billion euros it has targeted in cost cuts by 2010.

"If we see further potential, we will of course exploit it. We are certainly working hard at it," Rene Obermann said after the company announced 2007 earnings.

The German market, where Deutsche Telekom hopes to compensate losses at its traditional fixed-line unit with new DSL broadband connections, accounts for about half of its revenues.

The group has been at pains to keep domestic customers from switching to rivals such as Vodafone or smaller local phone and Internet service providers.

A decline in prices for mobile phone rates in Germany resulted in a 2.7 percent drop in revenue and an 11.1 percent decline in core profit at T-Mobile Germany, the company said.

Revenue growth abroad, however, remained at a high level.

Excluding Germany, it rose 12.2 percent to 27.1 billion euros as core profit abroad increased by 17.8 percent to 7.9 billion.

Deutsche Telekom said tax effects led to a 2007 net loss of 757 million euros, though adjusted net profit was 808 million.

Obermann also said the company was close to concluding talks on a partnership for the systems integration unit of its business client unit T-Systems.

"I am talking of days or weeks," Obermann said.

Deutsche Telekom has been searching for a partner for the unit for almost a year now.

-- Reuters contributed to this report