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Deutsche Telekom Q2 profits beat forecasts, US in spotlight

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Deutsche Telekom, Europe's biggest telecom company, on Thursday posted quarterly results that topped expectations, with a 9 per cent rise in core profit powered by strength in the United States and modest gains in Germany and Europe.

[FRANKFURT] Deutsche Telekom, Europe's biggest telecom company, on Thursday posted quarterly results that topped expectations, with a 9 per cent rise in core profit powered by strength in the United States and modest gains in Germany and Europe.

The German company slightly nudged up its 2017 outlook for core profit to around 22.3 billion euros (S$35.88 billion) from 22.2 billion euros previously.

Second-quarter results were driven by the contribution from its T-Mobile US business, 64-per cent controlled by Deutsche Telekom, which last month said it added more than a million customers for the 17th quarter in a row.

T-Mobile, the No 3 US mobile operator, is one of two public suitors seeking a tie-up with No 4-ranked Sprint Corp in what would mark a mega-merger deal that could reshape the US telecommunications market into three huge players.

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Reuters reported this week that Sprint's majority owner, Japan's SoftBank Group is exploring merger options not just with T-Mobile but also a tie-up with cable communications provider Charter Communications.

Deutsche Telekom's stock has seesawed on the prospects for its T-Mobile business reaching a merger deal with Sprint, gaining as much as 12 per cent in May when speculation peaked but falling to trade down 4.4 per cent in the year to date as no deal arose.

The shares were up 1.6 per cent at 15.78 euros by 0718 GMT on Thursday, making them the biggest gainers on Germany's blue-chip DAX index, which was down 0.3 per cent.

"The stock is all about Sprint," brokerage Bernstein said, noting the quarterly financial results followed a consistent pattern of increasing strength, led by the US business.

Overall at Deutsche Telekom, adjusted earnings before interest, tax, depreciation and amortisation (Ebitda), excluding special items, rose 8.9 per cent to 5.94 billion euros, beating forecasts, which ranged from 5.63 billion to 5.89 billion euros in a Reuters poll.

Revenue rose by 6.0 per cent to 18.89 billion euros, topping the high end of forecasts by 10 analysts polled by Reuters.

Citi analyst Simon Weeden called the results a solid set of figures with an "unexpected recovery" in revenue growth for Deutsche Telekom's German mobile services business, which turned slightly positive in the quarter, aided by a big marketing push.

Telekom said it invested 3 billion euros in capital spending, a 12.4 per cent increase, leading quarterly free cash flow to dip 1.4 per cent to 1.3 billion euros. For the full year, it reaffirmed its annual free cash flow target of 5.5 billion.

During the second quarter, the United States business contributed half of Telekom group revenue and 44 per cent of core profit, while Germany contributed one-third of reported profits and other business roughly one-fifth.

T-Systems, its technical and communications consulting business, posted a 1.8 per cent decline in second-quarter revenue amid sustained industry pricing pressure, Telekom said. Orders in the second quarter dropped 13.4 per cent to 1.3 billion euros.

REUTERS

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