D.Telekom looks east as domestic growth stalls

Chief Executive Kai-Uwe Ricke, who wants to post six billion euros ($7.2 billion) free cash flow this year, said he would spend part of this money if opportunities arose in eastern Europe that could increase shareholder value.

"We will use our free cash flow flexibly," Ricke told around 7,000 of the group's 2.8 million shareholders who convened for its annual general meeting in Cologne's KoelnArena: "To cut our debt further, to increase capital expenditure and to make selective acquisitions."

"Taking into account the EU's enlargement towards the east, we are placing a special focus on this region," Ricke added. Poland, Hungary, the Baltic states, the Czech Republic, Slovakia and Slovenia joined the EU on May 1.

Deutsche Telekom controls the dominant phone carrier of Hungary, Matav , and those of Croatia and Slovakia. It owns stakes in mobile operators in the Czech Republic, Russia and Poland.

It was ready to pay 1.1 billion euros to buy the 51 percent it does not already own in Poland's Polska Telefonia Cyfrowa (PTC) from co-owners Vivendi Universal and Elektrim , but talks bogged down last year.

Deutsche Telekom currently relies on its U.S. and British mobile units for the growth it lacks in Germany, where revenues are falling due to fixed-line competition and price-cutting by regulators.

But one of its biggest shareholders -- after the German government -- warned Ricke at the meeting not to return to the costly empire-building that left Deutsche Telekom under towering debts three years ago and cost Ricke's predecessor his head.

"We advise against overpriced acquisitions and new adventures, not only in eastern Europe," said Ralf Oberbannscheidt, a fund manager at Deutsche Bank's DWS fund, which owns 1.4 percent of Telekom's shares.

"Even if the temptation of... expansion in other countries may be huge, it irritates investors when Deutsche Telekom's name appears in every takeover speculation going around."


TURNAROUND CHEERED

The holders of Germany's most widely owned stock have seen their shares underperform Germany's blue-chip DAX index <.GDAXI> by 16 percent since the last AGM. They were trading 0.7 percent up at 13.23 euros at 1310 GMT.

But they applauded Ricke for having turned round the company from a loss of 24.6 billion euros in 2002, Germany's biggest ever, to profitability last year and a pledge to reinstate dividend payments next year.

Ricke, who also got cheers for waiving one month's salary to help cut staff costs, confirmed his goals to post 19.2 billion euros in core profits this year and to earn enough to pay a dividend after two years of scrapping payouts to cut debt.

But he cautioned over a weak German economy, which hit the group's first-quarter results despite a stellar performance in the United States and Britain.

"2004 is certainly not an easy year," Ricke said. "Nonetheless, we would like to confirm our goals for the year."

Ricke repeated the group had currently no plans to reintegrate its Internet service T-Online International and that he aimed for gradual reorganisation of the company to adapt to changing customer needs.

DWS's Oberbannscheidt said that this was not enough to make clear what exactly he was all about and why he should remain invested in Deutsche Telekom.

"What exactly do you want to write on Deutsche Telekom's banner?," he asked Ricke. "How would a new direction distinguish you from other phone companies? As you know, we have plenty of other investment opportunities," he said.

Chief financial officer Karl-Gerhard Eick meantime said Deutsche Telekom expects the problem-ridden German road toll project, Toll Collect, to continue posting losses until 2015.

Eick said Deutsche Telekom's share of those losses were covered by risk provisions it made in the last two quarters. Deutsche Telekom owns Toll Collect jointly with carmaker DaimlerChrysler and France's Cofiroute.



Source: Reuters