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Deutsche Telekom promises stable payouts amid lower targets

Deutsche Telekom set modest 2010 targets as it aims to please shareholders with strict cost control and promises of a stable, albeit possibly lower, dividend until 2012.

The Bonn-based group said continued economic uncertainty, such as the threat of rising unemployment, led it to give a cautious outlook.

Like other incumbent telecom groups Deutsche Telekom is struggling with falling revenues for both fixed-line and mobile voice telephony as companies such as Google and Apple muscle their way onto their turf.

“The outlook is more at the lower end of expectations and had immediately caused (equity) investor fears regarding the sustainability of its dividend payments,” Stephan Haber at UniCredit said in a note.

“Therefore, the company now published a medium-term shareholder remuneration policy to calm investors' fears.”

Deutsche Telekom has vowed to keep what it calls an attractive dividend policy for shareholders including the German government, which owns around 30% of the company, and private equity firm Blackstone with just under 5%.

It scrapped dividends in 2002 and 2003 but resumed paying them in 2004.

Last year it hit its targets thanks to contributions from its Greek unit OTE but also took a hit in the fourth quarter due to a writedown connected to financial risks in Greece, it said.

It managed to fend off the economic downturn thanks to its cost savings program which it plans to continue, aiming to generate €4.2 billion in savings by 2012.

For this year, it said on Thursday, it aims to reach around €20 billion ($27 billion) in earnings before interest, tax, depreciation and amortization (EBITDA) and generate a free cash flow of around €6.2 billion.

That compares with a core profit of around €20.6 billion and a free cash flow of around €7 billion last year.

In the last quarter of the year Deutsche Telekom reported a net loss of €3 million due to writedowns of €500 million in southeastern Europe.

Core profit in the quarter was €5 billion on sales of €16.2 billion, in line with analyst expectations. (Reuters)