KPN reports 51% fall in 1Q profit; accelerates cost-cutting plan

24 Apr 2012

Dutch telecoms group KPN Telecom (or Royal KPN as it is also known) posted a 51% year-on-year fall in net income to EUR288 million (USD379 million) for the three months ended 31 March 2012, down from EUR591 million a year earlier, as weak margins across all its business operations – but particularly in its domestic consumer mobile segment – hit its bottom line. The Group reported that quarterly sales dipped 1.4% to EUR3.19 billion, while core earnings before interest, tax, depreciation and amortisation (EBITDA), fell 13% in the first quarter to EUR1.1 billion, broadly in line with the EUR1.111 billion forecast in a Reuters poll of eight analysts. Nonetheless, KPN noted that the fall in EBITDA was most pronounced in the group’s Netherlands home market, where core profit declined 15%, even though core profit at its international business (including Belgium and Germany) showed a small 1.7% y-o-y rise.

In the wake of the announcement KPN is looking to accelerate its cost-cutting programme. The telco is facing serious problems in its home market where as smartphone penetration is reaching almost 50%, the company is finding that many of its customers are switching from traditional KPN services like voice calls and SMS, to internet-based application services such as ‘WhatsApp’, a smartphone messaging service, and Microsoft’s free VoIP service ‘Skype’.

KPN chief executive Eelco Blok released a statement in which he said: ‘Needless to say, the current financial performance of the company is not in line with our medium to longer term ambition,’ however, he went on to add that he expects profits and cash flow to improve in the second half of this year, driven by a better performance in its Dutch businesses. In fiscal 2012, KPN is forecasting free cash-flow in a range of EUR1.6 billion-EUR1.8 billion and EBITDA of between EUR4.7 billion-EUR4.9 billion (below FY2011’s EUR5.27 billion level), excluding the costs related to cutting around 4,000 to 5,000 jobs. The telco now aims to complete the jobs rationalisation programme by 2013 – two years ahead of its original schedule – and is also looking to make savings of between 30%-40% at its corporate HQ by the same date. The CEO says the revised plan marks ‘a tough but achievable target’.

Earlier this month KPN said it was considering the sale of its Belgian mobile unit BASE, in a deal that could generate up to EUR1.8 billion for the company. BASE is Belgium’s third largest carrier by subscribers and could attract interest from a number of potential bidders, including private equity groups such as Apax Partners. The unconfirmed sources claim that talks over a possible deal are at a preliminary stage, but that details on a formal auction process may be established in time to be sent to interested parties in May. The Netherlands’ largest telecoms group by revenue and subscribers released a statement which read: ‘KPN is conducting a comprehensive review of the strategic options in respect of its mobile operations in Belgium … The outcome of this strategic review is not yet clear and further announcements will me made.’

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