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The New York Times, March 11, 2003
Copyright 2003 The New York Times Company
The New York Times
March 11, 2003, Tuesday, Late Edition - Final
SECTION: Section W; Page 1; Column 3; Business/Financial Desk
LENGTH: 785 words
Deutsche Telekom Posts Biggest Loss in Europe's History
BYLINE: By HUGH EAKIN
DATELINE: BERLIN, March 10
BODY:
Deutsche Telekom said today that it had lost 24.6 billion euros ($27.1 billion) in 2002, the biggest annual loss in European corporate history.
The company said it had also seen some hopeful signs in the fourth quarter, when revenue was up and its loss was much narrower than the year before, thanks to a strong performance by T-Mobile, its wireless unit. But analysts had been expecting even better results from T-Mobile, and disappointed investors bid down Deutsche Telekom's shares.
The main culprit in the immense annual loss was the sharply reduced value of investments the company made in the technology stock bubble of the late 1990's. Like Vivendi and France Telecom, which both posted losses last week in excess of 20 billion euros, Deutsche Telekom recognized the new market reality with enormous write-offs on those investments. All three companies changed chief executives last year.
"We are well aware of the scale of the figure," said Kai-Uwe Ricke, Deutsche Telekom's chief executive since November, in a statement that accompanied the 2002 financial results. "We are in no way trying to gloss over this."
The company recorded 14.5 billion euros ($16 billion) in revenue in the fourth quarter, a 9 percent increase from the comparable period a year earlier. Its net loss fell to 100 million euros ($111 million), from 2.5 billion euros ($2.8 billion) a year ago. The company managed to reduce its total debt by 3 billion euros ($3.3 billion), to 61.1 billion euros ($67.6 billion).
"All in all, the fourth-quarter trend is quite positive," said Ralf Hallmann, an analyst for Bankgesellschaft Berlin. "The net loss figures, though historic, are much the same as they were after the third quarter."
T-Mobile, which Mr. Ricke ran before ascending to the top post, is the company's growth engine. It is adding subscribers at a brisk pace in Britain and, especially, the United States, and its revenue rose 29.5 percent in the fourth quarter, to 5.2 billion euros ($5.7 billion).
Profits rose 31.9 percent in the quarter at the company's Internet service, T-Online, reaching 500 million euros ($553 million). The company's traditional cash cow, the T-Com fixed-line network business, managed a small increase in earnings.
Still, the company's heavy debt, much of it run up to pay sky-high prices for new-generation digital wireless licenses and other technology bubble investments, is weighing on the company's share price. Deutsche Telekom sank to 9.15 euros, or $10.07 a share, a drop of about 9 percent.
"We are working with a very high debt level, and that frightens investors a lot," said Boris Boehm, a fund manager for Nordinvest in Hamburg, which has 1.4 million shares of Telekom.
The company has been selling some peripheral assets in recent months to reduce debt, notably six cable TV networks that fetched 1.73 billion euros ($1.9 billion) and real estate worth 300 million euros ($331 million).
The company has also been talking with rivals about selling a star performer, the American unit of T-Mobile. Telekom bought the business, formerly called Voicestream, in 2001 for $40 billion. With a 42 percent gain in subscribers last year, it is the fastest-growing operator in the market. But it remains the smallest of the six national operators, and it is still losing money, though its operating results have been improving.
"T-Mobile USA could be a main source for this year's and next year's Ebitda," Mr. Hallmann said, referring to earnings before interest, taxes, depreciation and amortization costs are counted.
"If subscription increases are as positive this year as in 2002, they could even become No. 5," he said.
The company held talks with Cingular Wireless last year about a merger with T-Mobile USA, but called them off in November when the two sides could not agree on valuation. Deutsche Telekom said today that it would continue to invest about 2 billion euros ($2.2 billion) in capital improvements to keep T-Mobile growing in the United States.
Deutsche Telekom did not offer any new forecast today for its results in 2003. But it promised shareholders that it would continue to reduce debt by cutting costs, improving cash flow and selling noncore assets and businesses. The chief financial officer, Karl-Gerhard Eick, said the company expected to sell about 2 billion euros' worth of real estate this year.
"The good signs are overlooked," Mr. Boehm said. "The company is on track to reducing its debt by another 12 billion euros this year. As rivals have died out, Telekom is in a sweet spot in the German market, and well positioned in new technologies. It could do well in a better economic environment."
