By Ragnhild Kjetland Nov. 5 (Bloomberg) — Deutsche Telekom AG , Europe’s biggest telephone company, posted a better-than-expected 7.2 percent increase in third-quarter profit, aided by cost cuts, and confirmed its 2009 targets. Net income rose to 959 million euros ($1.42 billion) from 895 million euros a year earlier, the Bonn-based company said in a statement today. Analysts had estimated a profit of 830 million euros, according to the average of four estimates compiled by Bloomberg. Deutsche Telekom reiterated its full-year free cash-flow target of 7 billion euros. “The margin is strong and cash flow is encouraging,” said Guy Peddy , an analyst with Macquarie Capital Europe Ltd. in London. “The results will firm up dividend expectations.” Deutsche Telekom, like its European rivals Vodafone Group Plc and France Telecom SA, has been slashing costs to make up for falling demand for phone services amid the economic slump. Deutsche Telekom is merging its T-Mobile U.K. operations with France Telecom’s Orange and accelerating spending on network expansion for its T-Mobile USA operations to win back customers. “We have continued the positive trend of the second quarter and have picked up the pace,” Chief Executive Officer Rene Obermann said in the statement. Deutsche Telekom rose 1.2 percent to 9.39 euros at 9:07 a.m. in Frankfurt. Before today, the stock had lost 13 percent this year. Sales Rise Deutsche Telekom reiterated that its full-year earnings before interest, taxes, depreciation and amortization will decline 2 percent to 4 percent from 19.46 billion euros in 2008, excluding Hellenic Telecommunications Organization SA , the Greek unit consolidated fully in the group in February. The cash flow in the third quarter reached a total of 5.1 billion euros. The company policy remains to pay out an “attractive” dividend , Deutsche Telekom spokesman Andreas Leigers said. In 2008, it paid a dividend of 78 cents a share. In the latest quarter, sales including the Greek unit rose 5.2 percent to 16.3 billion euros from 15.5 billion euros. Adjusted earnings before interest, taxes, depreciation and amortization rose 5.2 percent to 5.53 billion euros from 5.3 billion euros. Analysts had estimated 16.3 billion euros in sales and adjusted Ebitda of 5.3 billion euros. The dollar’s depreciation and other exchange-rate movements cut revenue by about 100 million euros in the third quarter from the second quarter, Leigers said. The euro climbed 4.1 percent against the dollar from a year earlier. Cost Cuts Deutsche Telekom said cost-cutting measures and improvements in efficiency helped it achieve increased profitability in all businesses in the third quarter. It added 500 million euros to its current cost-cutting program “Save for Service” to a total of 5.4 billion euros since it was started in 2005. The company said it will unveil more cost measures when it releases results for 2009. Deutsche Telekom’s merger plan in the U.K. sparked speculation about possible changes also at its U.S. unit, which accounts for about a quarter of revenue. In October, Chief Financial Officer Timotheus Hoettges said the company is considering options in the U.S., including partnerships and other ways to get more wireless spectrum. In September, two people familiar with the matter said Deutsche Telekom was in talks with Clearwire Corp., 51 percent owned by Sprint Nextel Corp., and with MetroPCS Communications Inc., about getting access to their U.S. networks. Deutsche Telekom said T-Mobile USA has built its high-speed third-generation network in the U.S. to reach around 170 million people. It said the goal of reaching 200 million people by the end of the year is unchanged. So far this year, it has spent about $3 billion on capital expenditure in the U.S. compared with $3.6 billion spent there in 2008. To contact the reporter on this story: Ragnhild Kjetland in Frankfurt rkjetland@bloomberg.net
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Deutsche Telekom Profit Rises 7.2%, Confirms Full-Year Cash-Flow Targets
