KPN Shares Fall as Company Cuts Outlook, Quarterly Profit Misses Estimates
Royal KPN NV (KPN), the largest Dutch phone company, fell the most since 2008 in Amsterdam trading after predicting lower profit and cash flow this year, following a 63 percent drop in fourth-quarter net income.
KPN cut its forecast for free cash flow to 1.6 billion euros ($2.08 billion) to 1.8 billion euros, compared with an earlier forecast of approximately 2.4 billion euros, the company said today. The operator won’t buy back shares in 2012 after last year’s 1-billion euro program because it needs to balance investments with a “prudent financing policy in a period of macroeconomic uncertainty.”
Chief Executive Officer Eelco Blok said KPN will accelerate Dutch investments in 2012 to ensure “suitable” profits after net income dropped for two years. Phone companies are struggling with changing consumer behavior as customers increasingly communicate with social media such as Skype and WhatsApp. Telefonica SA of Spain last year cut its dividend forecast and announced plans to cut 6,500 jobs.
KPN “forecasts for 2012 are worse than the most bearish expectations in the market,” Jos Versteeg, an analyst at Theodoor Gilissen Bankiers, said by phone, “And they’re not purchasing any shares this year, which isn’t very good news either.”
KPN, based in The Hague, fell as much as 9.7 percent, the most since Oct. 10 2008, and was down 6.4 percent at 8 euros at 1:30 p.m. KPN shares fell 15 percent last year, compared with a 7.3 percent fall in the Bloomberg Europe Telecommunication Services Index.
‘Year of Transition’
“2012 will be a year of transition in the Netherlands, as we aim to bottom out our broadband market share and to stabilize our market share in consumer wireless,” Blok said in the statement. He added that KPN’s domestic business hasn’t been “meeting expectations.”
The CEO said the company will speed up the restructuring program he announced last year, which will cost 4,000 to 5,000 employees in the Netherlands.
“We haven’t got enough cost flexibility compared to our peers,” Blok said on a conference call today.
Fourth-quarter net income fell to 176 million euros from 474 million euros, the company, said today. Sales declined 0.4 percent to 3.4 billion euros. Six analysts in a survey by Bloomberg had estimated profit of 475 million euros.
KPN took an impairment charge of 298 million euros on its corporate market unit, formerly known as Getronics, due to “fierce price pressure” in the corporate market for information-technology services. KPN today announced the divestment of the international businesses of Getronics to focus its corporate operations on the Netherlands.
Ebitda
Earnings before interest, taxes, depreciation, amortization and restructuring charges fell 1.6 percent to 1.34 billion euros in the fourth quarter and declined 3.8 percent to 5.27 billion euros in the full year. Analysts had predicted Ebitda of 1.36 billion euros in the quarter. The company sees Ebitda of 4.7 billion euros to 4.9 billion euros this year, compared with the 5.16 billion euro estimate from 28 analysts in a Bloomberg survey.
KPN, which competes with Vodafone Group Plc and Deutsche Telekom AG’s T-Mobile in the Netherlands, is accelerating investments to strengthen its position in its home market and the continued roll-out of mobile broadband networks in Germany and Belgium. That will result in capital expenditures of as much as 2.2 billion euros this year.
“They will really have to make an effort to turn things around, and it is clear that they’re planning to do so,” said Frank Claassen, an analyst at Rabo Securities.
Rivalry
KPN will maintain its dividend policy and plans to increase the payout in 2012 to 90 cents a share from 85 cents for 2011.
Competition in the Dutch mobile market will increase this year as the government will auction licenses for mobile-phone frequencies and has reserved some space for new market entrants. KPN will have to spend 500 million euros on spectrum purchases, analyst Dimitri Kallianiotis from Citigroup predicted in a note to clients yesterday.
This month, Chief Financial Officer Carla Smits-Nusteling stepped down because of disagreements about governance. Smits- Nusteling, a former TNT NV executive, took the position in September 2009. Under her watch, KPN increased its dividend and increased share buybacks. On Nov. 1, KPN said that another board member, Baptiest Coopmans, will leave the company on April 1.
To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
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