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Investments weigh on Deutsche Telekom bottom line

Investments weigh on Deutsche Telekom bottom line

BERLIN, May 18: German network operator Deutsche Telekom said Thursday it was confident of hitting its financial targets for 2019, although it reported falling profits in the first quarter as costly infrastructure investments hit, reports AFP. Net profit at the Bonn-based group fell 9.3 percent year-on-year between January and March, to 900 million euros ($1 billion). Operating, or underlying profit (EBIT) grew 4.0 percent to 2.3 billion euros, on revenues up 8.7 percent at 19.5 billion. While revenues beat expectations from analysts surveyed by Factset, operating and net profit both fell short. Telekom said its investment outlays swelled 20 percent over the quarter, with 3.7 billion euros pumped into building up its American mobile network and preparing to launch high-speed 5G connectivity in Germany. Overshadowing operators' bidding for the radio spectrum needed to provide the ultra-fast technology has been US pressure on Berlin to shut out Chinese equipment maker Huawei, citing security concerns. So far ministers have refused to bow to Washington's demands. On the operational side, chief executive Tim Hoettges hailed a "successful start to the year", saying Telekom also shone outside its traditionally high-performing US arm T-Mobile. Package mobile and landline deals sold well in Europe, helping it add 17 percent more customers in Germany compared with early 2018. But the US division continued its breakneck growth, adding 1.6 million new customers over the quarter. T-Mobile is also waiting on competition authorities' green light for a merger with competitor Sprint. Looking ahead to the full year, Deutsche Telekom aims for an operating profit of 23.9 billion euros as measured by EBITDA, 2.5 percent higher than in 2018. Beijing has struggled to get prices to rise in recent months, with both measures staying stubbornly low as global growth cools leading to weak demand and a trade war with the US festers. Data released Thursday showed the consumer price index (CPI) - a key measure of retail inflation - rose 2.5 percent on-year last month, up from 2.3 percent in March. The gain came on the back of soaring pork prices - rising 14.4 percent on-year - owing to an outbreak of African swine flu in China that has led to the culling of a million pigs. Prices of other fresh meats, fruit and vegetables also increased. "We believe the rapid spread of African Swine Fever since August 2018 could help push up pork prices by another 40 percent over the next six months," said Lu Ting of Nomura bank. "The rise of CPI inflation is being driven by a surge in pork prices as a result of a supply shock," he said in a research note. The producer price index (PPI) - an important barometer of domestic demand - climbed 0.9 percent, from 0.4 percent in March. The CPI reading was in line with forecasts in a Bloomberg survey while the PPI reading came in above the forecast 0.6 percent. Still economists remain sceptical about China's outlook. "Both official measures of inflation picked up last month but this shouldn't be interpreted as evidence of stronger domestic demand," said Julian Evans-Pritchard of Capital Economics, noting key drivers of the upswing included higher pork, iron and oil prices. "But with core CPI moving in the opposite direction, there are still few signs of a demand-driven pick-up in inflationary pressures," said Evans-Pritchard. Growth in the first quarter stabilised at 6.4 percent in China after falling to 6.6 percent last year, its lowest annual rate in almost three decades. "We believe a double dip of growth is a real risk, and Beijing can't afford to stop easing yet," said Lu of Nomura.

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