A writedown on a stake in the British telecoms operator has marred otherwise brilliant quarterly results for Deutsch Telekom. But it wants to keep its holding, hoping for a similar turnaround like in its US business.
Deutsche Telekom on Thursday reported adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of 5.55 billion euros ($6 billion) - up 7.5 percent from the same quarter a year ago and above analysts' estimates of 5.48 billion euros.
Between January and March, the Bonn, Germany-based company also increased revenue by 5.8 percent to 18.6 billion euros - but an accounting effect slashed net profit by 76 percent to just 747 million euros.
In the first quarter last year, profits had been boosted by the sale of British mobile operator EE to the country's market leader British Telecom (BT). In return, Deutsche Telekom received a 12-percent stake in BT.
This has since turned out to be a loss-making investment, forcing the German company to writedown 3 billion euros of its initial value of 7.4 billion. In the first quarter of 2017, it again wrote down 700 million euros on BT as shares lost more than 10 percent during the quarter.
Scandal-hit BT cuts jobs
On Thursday, BT unveiled pre-tax profit dived by a fifth to 2.35 billion pounds ($3.04 billion, 2.79 billion euros) in the financial year to the end of March, hit by an Italian accounting scandal, troubles at its Openreach broadband unit, and challenging trade both at home and abroad.
The troubled British telecoms giant also announced it would axe 4,000 jobs worldwide in a new cost-cutting drive across three divisions, including global services, group functions, and technology, services and operations.
The group, which currently employs 102,500 staff and operates in 180 countries, would take a one-off restructuring charge of 300 million pounds, it said in its annual report.
In January, BT revealed an accounting scandal at its Italian division which cost the group 530 million pounds. And in March, regulator Ofcom hit BT with a bill of around 350 million pounds in fines and compensation following delays to high-speed cable installations by its Openreach broadband unit.
As a result, BT's remuneration committee stripped chief executive Gavin Patterson of his 2016/2017 bonus, totaling 338,398 pounds.
Banking on turnaround
Despite the problems with its BT stake, Deutsche Telekom has repeatedly stated it aims to keep involved in the company. "The financial stake in the leading integrated network operator in the UK is still the right strategy for me," Chief Executive Tim Höttges said in the speech in January.
Apparently, Deutsche Telekom is hoping for a similar success story that has been achieved by its American subsidiary T-Mobile USA. Deutsche Telekom owns 64 percent in the mobile operator that used to accumulate massive losses in first few years.
But now T-Mobile has become a cash cow, reporting last month a 2.7-percent rise in post-paid customers to 35.3 million at the cost of big rivals AT&T and Verizon, setting the unit up for a key role in expected consolidation in the US market.
"T-Mobile US continues to grow at breakneck speed," wrote Bernstein analyst Dhananjay Mirchandani, reiterating a "market perform" rating. "Leading indicators remain strong."
CEO Höttges said in a statement on Thursday that "our investments in the United States have paid off," adding that the positive trends in both the US and Germany remained unbroken, making for "a good start in 2017."
Bolstered by its first-quarter performance, Deutsche Telekom remains confident of meeting its objectives for the year, forecasting adjusted operating profit of around 22.2 billion euros, up from the 21.4 billion earned in 2016.
uhe/kd (Reuters, dpa, AFP)