UPDATE: Deutsche Telekom Confirms Outlook As Profit Rises

-- Deutsche Telekom confirms full-year guidance

-- Second-quarter net profit up on lower restructuring costs

-- Europe posts declines, while U.S. profit rises

-- Company maintains dividend plan

(Rewrites throughout)

 
   By Philipp Grontzki 
 

Deutsche Telekom AG (DTE.XE) Thursday confirmed it's on track to reach its full-year targets after second-quarter net profit rose sharply, helped by lower expenses linked to staff reductions, but the company warned its European business is unlikely to improve in the near term.

Net profit rose to 614 million euros ($759.7 million) in the three months to June 30 from EUR348 million a year earlier, benefiting from a drop in one-off net costs of around two thirds to EUR200 million, the company said. Revenue was EUR14.38 billion, down 0.7% from EUR14.48 billion.

Like other European operators, Deutsche Telekom has been fighting with eroding prices and falling revenue due to intense competition as well as heavy regulation. Tough economic conditions in southeastern Europe where it has a large footprint through its 40% stake in Greece's Hellenic Telecommunications Organization SA (HTO.AT) have also been taking their toll.

Earnings before interest, taxes, depreciation, amortization and one-time items such as restructuring costs fell 8.8% in the period to EUR1.2 billion in Europe, excluding Germany. In Germany, where the company has been cutting thousands of jobs in past years to bring costs down, operating profit dropped 2.2% to EUR2.36 billion in the second quarter.

"With further deterioration in the economic situation of many countries, intense competitive pressure, and regulatory intervention, revenue and earnings [in the Europe division] still suffered," Deutsche Telekom said in a statement.

Another weak spot for the company has been its ailing U.S. unit T-Mobile USA, the nation's fourth-biggest wireless carrier, which was late in upgrading its network. It lost another net 557,000 branded contract customers in the second quarter but still managed a 19% increase in operating profit to EUR1.06 billion, helped by lower expenses for handset subsidies and a stronger dollar against the euro. In local currency, adjusted Ebitda was up only 5.8%.

Deutsche Telekom has repeatedly said that it continues to explore strategic options for T-Mobile USA after a plan to sell it to AT&T Inc. (T) failed last year on opposition from regulators. However, Chief Executive Rene Obermann said in May that a full sale is unlikely.

For Deutsche Telekom as a whole, the company still expects adjusted Ebitda to fall to around EUR18 billion this year from EUR18.7 billion in 2011, while free cashflow is seen at about EUR6 billion.

In the second quarter, the company recorded an almost unchanged operating profit of EUR4.7 billion, helped by the dollar and slightly ahead of expectations, and free cashflow of EUR1.67 billion.

Deutsche Telekom also confirmed that it plans to pay a dividend of at least EUR0.70 a share for 2012.

At 0719 GMT, shares were up 0.9% at EUR9.47, valuing the company at about EUR40.6 billion.

Write to Philipp Grontzki at [e-mail]

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