Deutsche Telekom AG (DTE) lowered a forecast for free cash flow as Germany’s largest phone company plans to spend more expanding its U.S. business and as it reorganizes the T-Systems corporate-client unit.
Free cash flow will increase “slightly” in 2015 after declining 8.7 percent to 4.2 billion euros ($5.8 billion) in 2014, the Bonn-based company said today in a statement. The company earlier projected free cash flow of about 6 billion euros for next year. Analysts had predicted free cash flow in 2015 of 5.1 billion euros, according to the average of estimates compiled by Bloomberg.
Chief Executive Officer Timotheus Hoettges, in office since January, is trying to challenge U.S. mobile-service market leaders AT&T Inc. (T) and Verizon Wireless by upgrading the network of its T-Mobile US Inc. unit and luring customers with cheaper offers. The CEO is reinforcing the company’s efforts in the U.S. as a sale of the unit is unlikely to happen in the short term, people familiar with the plans said yesterday.
“We could achieve our original ambition level for 2015 of around 6 billion euros if we were to slam the door in the face of the customer rush in the United States,” Chief Financial Officer Thomas Dannenfeldt said in the statement. “That’s not what we want.”
The German operator now plans to provide 250 million people in the U.S. with fast LTE networks by the end of the year, compared with an earlier target of 225 million, it said.
The reduced free cash flow projection “is not a drama, and the market shouldn’t react too negatively to it,” said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris who recommends investors buy Deutsche Telekom shares. “Increasing spending in the U.S. is a necessity,” particularly if the company can’t sell the unit in the short term, he said.
The company last year sold $5.6 billion of T-Mobile US bonds to external investors, further slashing cash flow. The projections for the figure are also affected by plans to refocus T-Systems away from low-profit outsourcing business to growing business fields such as connected cars and telemedicine. That will require staff reductions of about 4,000 over this and next year, people familiar with the plans have said.
Earnings before interest, taxes, depreciation, amortization and some items will be 17.6 billion euros this year, the company said today. Analysts predict 17.5 billion euros, according to the average of estimates compiled by Bloomberg.
Fourth-quarter adjusted Ebitda rose 1.3 percent to 4.06 billion euros, while sales jumped 6.5 percent to 15.7 billion euros, helped by the acquisition of MetroPCS Communications Inc. last year. The company took a writedown of about 500 million euros on the value of its Austrian wireless division.
Deutsche Telekom has taken steps to consolidate the operator’s eastern European holdings and is trying to continue subscriber gains at its T-Mobile US unit. Outside the U.S., the company has ramped up network investments to gain an edge on Vodafone Group Plc (VOD) and Telefonica SA as competition weighs on prices in Europe’s saturated wireless market.
Its 2013 revenue of 60.1 billion euros makes Deutsche Telekom Europe’s largest phone company by sales, reclaiming the region’s top spot after losing it to Telefonica in 2011.
French peer Orange SA today reported a 6.4 percent slide in fourth-quarter sales and announced a cut in this year’s dividend to conserve cash as a price war started by local rival Iliad SA entered its third year.
Hoettges told directors yesterday that a sale of the T-Mobile US unit is less likely in the near term because of regulatory hurdles, people with direct knowledge of the matter said. T-Mobile US, the smallest among the four nationwide U.S. wireless providers, has attracted the interest of Japan’s SoftBank Corp., which aims to combine it with its U.S. unit Sprint Corp., people familiar with the matter have said.
Deutsche Telekom affirmed plans to pay a dividend of 50 cents following the annual shareholder’s meeting in May.
To contact the reporter on this story: Cornelius Rahn in Berlin at email@example.com