Deutsche Telekom Turns Profitable - InformationWeek

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Deutsche Telekom Turns Profitable

The German telecom company says asset sales and tax gains contributed to the improved showing

FRANKFURT, Germany (AP) -- German giant Deutsche Telekom rebounded to a profit of 850 million euros ($977 million) in the first quarter after huge losses last year as tax gains and asset sales contributed to the improved performance.

In a cautiously upbeat report, Europe's largest telecommunications company said Thursday that earnings rose across its four major divisions.

On top of that, a change of legal status for the T-Mobile International wireless unit, from stock corporation to partnership, resulted in tax gains of 460 million euros ($529 million), while asset sales brought in 428 million euros ($492 million).

"We exceeded our targets for debt reduction and net profit," chief executive Kai-Uwe Ricke said.

"By the end of the year, I hope to say that Deutsche Telekom is continuing in the black, despite the difficult prevailing conditions," Ricke told a news conference in Bonn. But, he said, "we are by no means through this yet."

Without asset sales and tax gains, earnings were a more modest 100 million euros ($115 million), but that was still a vast improvement from last year.

The company lost 1.8 billion euros in the first quarter of 2002 and 1.4 billion euros with one-time items excluded. It lost a staggering 24.6 billion euros for all of 2002.

Most of last year's huge losses were on paper, as the company wrote off the value of mobile phone licenses and companies it had bought during the stock market boom. But they underlined the fallen fortunes of the telecommunications industry and the need to adjust to a new environment.

The company's chief financial officer, Karl-Gerhard Eick, cautioned Thursday that the first-quarter performance shouldn't necessarily be taken as a sign of how the full-year results will look.

Earnings "may be impacted especially in the second half of the year by the overall weak economy in Germany," he said. Government figures released earlier Thursday showed that the economy, Europe's biggest, shrank slightly in the first quarter.

Deutsche Telekom has continued a campaign to reduce debt and cut costs under Ricke, who took over last year after predecessor Ron Sommer was pushed out amid dismay over the company's fallen stock price. Net debt fell to 56.3 billion euros ($65.1 billion) from 61.1 billion euros over the course of the first quarter.

E'We will also execute further asset sales in future, but only when the price is attractive," Eick said. "Given the good progress we have already made, we feel that we can be a bit more discerning here."

The company aims to reduce its debt to around 50 million euros ($57.5 million) by the end of this year. The main focus for the rest of this year will be real estate sales, Eick said.

Overall sales climbed 6.6 percent to 13.6 billion euros ($15.6 billion), the company said. The company's four major business are fixed-line and wireless telecommunications, online services and information systems.

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