Deutsche Telekom sees slower core earnings growth this year

BONN, Germany (Reuters) – Deutsche Telekom (DTEGn.DE) forecast that growth in its core earnings would slow to 3% this year after a strong fourth quarter, as it looks finally to complete a merger that would create the third-largest U.S. wireless carrier.

Europe’s largest mobile operator said it expected adjusted earnings before interest, taxation, depreciation and amortization after leases (EBITDA AL) to reach 25.5 billion euros ($27.5 billion) this year.

That was below consensus forecasts by analysts and marks a halving from the growth rate in 2019, when Deutsche Telekom’s U.S., European and German businesses all did well – helped by favorable foreign exchange and consolidation effects.

The $26 billion deal for U.S. unit T-Mobile (TMUS.O) to take over Sprint (S.N), announced in April 2018, last week cleared its last major legal obstacle when a New York judge threw out a case brought by more than a dozen U.S. states.

With Sprint struggling during the protracted period during which the deal was pending, T-Mobile CEO John Legere has signaled that he would seek to renegotiate some of its terms to reflect the changing market dynamics.

Uncertainty over the deal has weighed on the group balance sheet, as have the heavy costs of building next-generation 5G networks, forcing Deutsche Telekom in November to say it would cut its 2019 dividend.

Deutsche Telekom reduced its net debt by 2.8 billion euros in the fourth quarter to 76 billion euros, bringing its leverage ratio back down to 2.65 times adjusted EBITDA, within management’s comfort zone.

Fourth-quarter revenues rose by 5.4% to 21.361 billion euros, ahead of analyst expectations, while adjusted EBITDA AL was up 8.2% to 6.030, also just ahead of consensus.