Deutsche Telekom Cuts Earnings Forecasts for 2007 (Update3)
By Kenneth Wong
Jan. 28 (Bloomberg) -- Deutsche Telekom AG, Europe's largest telephone company, cut its forecast for profit this year as competition in Germany intensifies and the dollar's decline against the euro erodes U.S. revenue.
Adjusted earnings before interest, tax, depreciation and amortization will be about 19 billion euros ($24.5 billion), compared with an earlier estimate of as much as 20.2 billion euros, Chief Executive Officer Rene Obermann said on a conference call in Bonn today. Revenue last year missed the company's prediction, Deutsche Telekom said, citing preliminary numbers.
Obermann, two months in the job, predicted ``moderate'' revenue growth in 2007. Deutsche Telekom lost half a million traditional phone lines for a fourth consecutive quarter as Vodafone Group Plc's Arcor unit and Telecom Italia SpA's Hansenet stepped up discounting.
``It makes more sense to reduce the forecast at this stage than having to deal with it later in the year,'' said Stefan Borscheid, a London-based analysts at WestLB AG, in a phone interview. ``A lower guidance increases the management's flexibility with regard to its new strategy.''
The dollar's 10 percent decline against the euro last year reduced sales at T-Mobile USA Inc., Deutsche Telekom's fastest- growing division.
Obermann, 43, took over from Kai-Uwe Ricke, who was ousted after the former monopoly's revenue from traditional phone lines fell for more than three years. Ricke in August had cut Deutsche Telekom's 2006 sales and earnings forecast. The company gave its 2007 earnings forecasts for the first time in November.
Shares
Shares of Deutsche Telekom lost 1.4 percent in 2006, the third-worst performance in the 24-member Bloomberg Europe Telecommunication Services Index, which climbed 14 percent in the year. The stock has gained 1.7 percent this year and fell 15 cents to 14.17 euros on Jan. 26 in Frankfurt.
A week before Ricke's ouster, he announced a plan to cut 5 billion euros in costs by 2010 through measures such as reducing marketing budgets and to raise 3 billion euros over three years from selling assets. The cost cut plan remains unchanged, Chief Financial Officer Karl-Gerhard Eick said on the call today.
Obermann will present details of the company's strategy to its supervisory board next month. Deutsche Telekom is scheduled to release fourth-quarter earnings on March 1.
`Confident'
Deutsche Telekom previously forecast 2007 adjusted Ebitda of 19.7 billion euros to 20.2 billion euros. The cut announced today, of as much as 1.2 billion euros, includes about 800 million euros for the fixed-line division. The remaining 400 million euros is for the T-Mobile division, which sells wireless services in 11 European countries as well as the U.S.
``We're confident that this year we'll be able to improve our market position in the broadband market,'' Obermann said on the call. ``We must invest to safeguard our position. It's a difficult market.''
The company said adjusted earnings last year were within its target range of 19.2 billion euros to 19.7 billion euros. Revenue was 61.3 billion euros, missing a target for a range of 61.5 billion euros to 62.1 billion euros.
For 2007, sales growth for 2007 will be ``moderate'' and in a low ``single-digit'' rate, Chief Financial Officer Karl-Gerhard Eick said.
The company said it will recommend a dividend of at least 72 cents a share for 2006. It paid out 72 cents a share for 2005.
To contact the reporter on this story: Kenneth Wong in Berlin at
Last Updated: January 28, 2007 11:29 EST