Deutsche Telekom drops cash flow target on investments

By Harro Ten Wolde

BONN, Germany (Reuters) – Deutsche Telekom AG has scrapped its outlook for free cash flow in 2015 as it spends more money to win customers in the United States and restructure its enterprise unit T-Systems.

The former German phone monopoly said on Thursday it would not reach its original 2015 target of 6 billion euros ($8.2 billion) in free cash flow and said the figure for this year would drop to around 4.2 billion euros from 4.6 billion last year.

“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,” Thomas Dannenfeldt, Deutsche Telekom’s finance chief, said in a statement.

“That’s not what we want. The market is offering us the opportunity to achieve a different ambition: value-driven customer growth in the United States that translates into an increase in the value of the company,” Dannenfeldt added.

One-off expenses at T-Systems, Deutsche Telekom’s IT services unit, would also weigh on results, the company said.

A company source told Reuters last year it plans to cut around 4,000 jobs out of a total of almost 53,000 at the unit in the next three years.

Deutsche Telekom said the lower cash intake would not impact its dividend policy for now, expecting to pay 0.50 euro per share for the 2014 financial year. It gave no outlook for dividends beyond that.

NEW CUSTOMERS

T-Mobile US Inc, which is 67 percent-owned by Deutsche Telekom, last year added 2 million new customers after years of losing subscribers.

The No.4 player in the U.S. mobile market with 325 million total connections aims to add between 2 and 3 million more customers this year.

The unit’s turnaround has caught the attention of the ambitious founder of Japan’s Softbank Masayoshi Son, owner of third-placed Sprint, who is eager to marry it with T-Mobile to better take on AT&T and Verizon.

The tie-up would create a group with $62 billion in sales, 52 million contract customers and a 23 percent market share. But U.S. officials have signalled concerns about cutting competition in the U.S. market to three mobile players and the impact that could have on consumers and prices.

Deutsche Telekom shares were indicated to open 1.4 percent lower in a German blue-chip index seen opening 0.3 percent higher.

Deutsche Telekom’s fourth-quarter core earnings or EBITDA, excluding special items, rose to 4.06 billion euros, slightly below the average forecast of 4.14 billion in a Reuters poll.

The company expects EBITDA excluding special items to remain stable at around 17.6 billion euros in 2014, also slightly below consensus for 17.8 billion.

(Editing by Maria Sheahan and David Holmes)

Deutsche Telekom drops cash flow target on investments