Deutsche Telekom Projects Rising Payout Amid Earnings Growth

Deutsche Telekom AG, Europe’s biggest phone company, pledged to return more cash to shareholders over the next four years as its growing T-Mobile US Inc. business boosts profit.

Earnings excluding some items will climb as much as 4 percent a year on average, the Bonn-based carrier said Thursday. The company plans a minimum dividend of 50 cents (57 U.S. cents) a share that’s set to grow in line with rising free cash flow, which it forecasts to increase about 10 percent a year.

The forecast makes Deutsche Telekom stand out among European carriers, which have been hobbled by weak economic recovery since the financial crisis. The plan also highlights how much Chief Executive Officer Tim Hoettges has to rely on T-Mobile US, an asset that’s repeatedly drawn interest from suitors as it keeps pulling in customers from its rivals.

“We’ll have to see what they say today about whether they plan to sell T-Mobile or not,” said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris.

Earnings before interest, taxes, depreciation and amortization and excluding some items will grow an average 2 percent to 4 percent a year through 2018, as annual sales increase 1 percent to 2 percent, the company projected.

Its shares, up 22 percent this year through yesterday, fell 1.5 percent to 15.90 euros at 9:18 a.m. in Frankfurt.

Dish Opportunity

For 2015, Deutsche Telekom forecasts adjusted Ebitda to grow 4 percent to 18.3 billion euros. If the U.S. dollar maintains its current exchange rate to the euro, Ebitda will be almost 1 billion euros higher, the company said.

Fourth-quarter sales rose 8.5 percent to 17 billion euros. Analysts had projected 16.5 billion euros, data compiled by Bloomberg showed. Adjusted Ebitda increased 9.5 percent to 4.44 billion euros, compared with the average estimate of 4.42 billion euros. The net loss narrowed to 110 million euros. The company had expenses in the fourth quarter related to workforce reduction and switching off old network technology.

While T-Mobile US is riding a wave of successes, Hoettges may have another chance to cash in on its resurgence. T-Mobile CEO John Legere said last week a merger with Dish Network Corp. may be a “great opportunity” for T-Mobile, followed a few days later by Dish Founder and Chairman Charlie Ergen praising the fourth-largest U.S. wireless carrier.

In Germany, Deutsche Telekom cemented its lead over Vodafone Group Plc and is making headway convincing regulators to set rules that reward it for expanding on its broadband network. To keep customers, Deutsche Telekom plans to increase network investments by 1 percent to 2 percent a year through 2018. It spent almost 12 billion euros on capital investments last year.

Deutsche Telekom and Orange SA signed a deal this month to sell their U.K. wireless venture EE to BT Group Plc for about $19 billion. The agreement, if approved, would leave Deutsche Telekom with a 12 percent stake in Britain’s biggest phone company.

Not everything is going Hoettges’s way. The European business still has been shrinking for years amid economic weakness in the region. The corporate-customer arm T-Systems is shifting from large computer and phone-management contracts that bring in little profit to more lucrative projects such as cloud hosting, at the cost of 4,900 jobs in Germany alone.

Hoettges and other European telecommunications executives haven’t yet convinced lawmakers to set rules that may let phone companies grab a bigger share of income raked in by Internet giants such as Google Inc. and Facebook Inc.

And the CEO’s focus on improving Deutsche Telekom’s network entailed cutting back on its own offering of Internet services, which had been championed by predecessor Rene Obermann. Instead, the company has been signing up software partners to provide deals to its customers.

Source: Bloomberg