Cost cutting allows DT to navigate eurozone storms
German giant beats forecasts with 15% rise in profit, despite revenue and earnings declines in many European markets
Published: 10 November, 2011
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Deutsche Telekom looked resilient under fire, despite the debt crisis in its home region, announcing a 15% year-on-year rise in net profit in its third quarter, though this was mainly because of cost cuts. It also maintained its outlook for the full year, and even saw its T-Mobile USA arm - which it is hoping to sell to AT&T - reversing its recent pattern of customer losses. However, it the sale is blocked by US authorities, it will restrict the German giant's ability to invest in high growth areas next year, to offset the effects of European saturation and economic slump.
For the third quarter, net profit was €1.07bn, convincingly beating consensus analyst estimates of €863m, which would have been a decline from the year-ago figure of €933m. But EBITDA, the key metric tracked by European analysts, fell 2.7% to €3.88bn, just ahead of forecasts. Some of the improvement came from a stringent cost cutting program, which has saved DT a total of €1.5bn in the first nine months of the year, and reduced its cost base by €3.9bn since 2010. It is targeting savings of €4.2bn in the period from 2010 to 2012. Net revenue fell 6% to €14.7bn.
CEO Rene Obermann was cautious about the economic climate in Europe, saying: "We have to assume that economic development is unlikely to boost our business." Indeed, operating profit from the European business, excluding the firm's home base in the powerful German economy, saw a 5.3% decline, especially because of DT's exposure to crisis-hit Greece through its 40% stake in OTE. Even Germany, usually very stable in profit terms, saw a 1.3% fall in adjusted EBITDA.
But Obermann added: "We have once again demonstrated that we can stand our ground in a difficult environment. We cannot afford to be complacent in our efforts as the challenges will continue to intensify."
On the TMo USA deal, Obermann would only say on the earnings call: "We remain convinced that we will be able to keep to our timetable for the transaction and that we, together with our partner AT&T, will ultimately receive approval for the transaction - after all, the sale is positive for the US mobile communications market and consumers." The US unit is already included in its parent's figures as a discontinued operation.
German revenue fell 5% to €6bn, a drop blamed on "weaker handset revenues and the reduction in mobile termination rates", which was partially offset by a 26% rise in mobile data revenue to €410m. Total mobile customers in the country grew by 0.1% to 34.9m, while the European mobile base, excluding Germany, was down 1.5% to 59.5m and revenue was down 6.1% to €3.9bn.
In the US, T-Mobile did add net subscribers for the first time this year, though most growth relied on lower value prepaid subscribers. For the quarter, the cellco reported net income of $332m, up slightly from $320m a year earlier, while revenue was down to $5.2bn from $5.4bn in the year-ago period. Service revenues totaled $4.67bn, down from $4.71bn.
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