CORRECT: Deutsche Tel Warns On Profit; Telco No Safe Harbor
22 April 2009 - 3:47AM
Dow Jones News
Deutsche Telekom AG (DT) Tuesday became the first European
integrated telecommunications company to issue a profit warning due
to the economic slump, undermining the sector's defensive
reputation and dragging down telecoms stocks around Europe.
Citing weak mobile operations in the U.S., the U.K. and Poland,
in particular, Deutsche Telekom said it now expects 2009 earnings
before interest, tax, depreciation and amortization, or Ebitda,
adjusted for exceptional items, to be 2%-4% below 2008's level of
EUR19.5 billion, while free cash flow is set to reach around EUR6.4
billion, down from EUR7 billion a year ago.
At the end of February, Deutsche Telekom said that it expected
adjusted Ebitda and free cash flow in 2009 to remain at the same
level as 2008. The guidance excludes the acquisition of Greece's
Hellenic Telecommunications Organization S.A. (OTE).
"The company isn't in a crisis," Chief Executive Rene Obermann
told a conference call. However, not all of the problems can be
attributed to the crisis, Obermann said, especially referring to
the U.K., where T-Mobile is about to change its management
team.
Deutsche Telekom said it will freeze capital expenditure of
around EUR1 billion. Initially Deutsche Telekom planned capex on
prior years level of around EUR8.7 billion, Obermann said.
Deutsche Telekom said it had "felt the impact of the economic
slowdown and the more intense competitive environment,"
particularly in the U.S. and U.K., while roaming revenue fell as
consumers cut back on travel.
The weak zloty in Poland and weak sterling in the U.K hurt
revenue and adjusted Ebitda, the company said.
As a result, Deutsche Telekom shares closed down 7.2 at EUR9.01
while European competitors such as France Telecom (FTE) lost 2.9%
and Telefonica S.A. (TEF) lost 2.1%.
Deutsche Telekom said first-quarter revenue rose by around 6% to
about EUR15.9 billion with OTE consolidated for the first time
since February, while operating Ebitda was 3% to EUR4.8 billion.
Excluding the consolidation of OTE, group revenue was stable at
EUR15 billion, with adjusted Ebitda dropping by 5% to EUR4.5
billion. Free cash flow was between EUR200 million and EUR300
million in the first quarter of 2009, compared with EUR1.6 billion
in the same period last year, it said.
Hannes Wittig of J.P. Morgan said Deutsche Telekom's main
problem is the U.S., while Germany is doing well. He rates the
share overweight with a price target of EUR13.50.
Telecom companies have so far held up better than other sectors
in the economic downturn but still face low, or no, growth in their
mature markets. As a result, many have taken steps to cut
costs.
Vodafone Group PLC (VOD), the world's biggest mobile operator by
sales, in November said it would cut costs by GBP1 billion and
focus on core markets after cutting revenue guidance due to weak
markets in Spain and Turkey. Vodafone's shares lost 0.5%
Tuesday.
Deutsche Telekom said Tuesday it has begun an impairment test of
T-Mobile in the U.K.
Thousands of jobs have also been cut across the European sector
in recent months.
-By Archibald Preuschat, Dow Jones Newswires, +49 211 138 7218,
archibald.preuschat@dowjones.com
(Natascha Divac and Philipp Grontzki contributed to the
report.)