KPN Beats Earnings Estimates on Customer Gains, Cost Cuts

Royal KPN NV, the biggest Dutch phone company, reported earnings exceeding analysts’ estimates after customer gains and cost cuts partly offset falling phone bills. The stock advanced.

Earnings dropped 19 percent to 633 million euros ($849 million), excluding items such as interest, taxes, depreciation and amortization, The Hague-based carrier said today. That compared with analysts’ 619 million-euro average estimate compiled by Bloomberg. Sales of 2 billion euros were in line with estimates.

KPN, left focusing on the Dutch market after a sale of its German E-Plus unit to Telefonica SA, added 53,000 contract mobile users. KPN, whose largest shareholder is billionaire Carlos Slim’s America Movil SAB, will face an expanded challenger when John Malone’s Liberty Global Plc combines its UPC division with cable company Ziggo NV’s 2.7 million customers after a $7 billion takeover.

“The number of 53,000 new mobile subscribers in the consumer market is promising,” Chief Executive Officer Eelco Blok said on a conference call.

Annual sales and earnings have dropped at least four years as competition from Ziggo and Sweden’s Tele2 AB have pushed monthly bills lower. KPN targets “stabilizing financial performance toward the end of 2014.”

KPN shares gained 5.3 percent to 2.41 euros at 11:12 a.m. in Amsterdam. They have gained about 2.7 percent this year.

Declining Sales

Still, sales at the consumer mobile division fell 9 percent, and the average monthly revenue per user declined to 28 euros from 32 euros a year earlier. Tele2 plans to take 20 percent of the Dutch wireless market in five to seven years after its 4G network is running.

Sales to business customers fell 11 percent as the average bill declined to 43 euros from 49 euros. The unit added 16,000 subscribers. KPN said it’s accelerating cost cuts at the division, planning to reduce the equivalent of 400 to 500 full-time jobs in 2014. About 150 of those reductions were made in the first half.

In total, a KPN’s cost-cut program has led to a decline of about 350 full-time jobs and delivered about 75 million euros in savings compared with last year, the company said.

“As the expectations were very low, KPN’s results were slightly better than expected,” said Guy Peddy, a Macquarie Research analyst in London. “Challenges remain, both on the consumer market as well as on the business market.”

German Sale

The net loss was 183 million euros. KPN booked an impairment cost of 744 million euros last quarter related to the German sale. The company last year reached an agreement with Dutch tax authorities, allowing it to pay less taxes on future earnings because of the German disposal.

Sales at E-Plus grew 1.1 percent, while Telefonica’s German unit today posted a 4.4 percent sales drop. E-Plus also added more mobile customers than its peer, anchoring its position as the No. 3 player in the country. The two carriers’ combination creates Germany’s largest wireless operator by customers.

The sale of E-Plus was conditionally approved by the European Commission this month. The companies have said they expect the deal to be finalized in the third quarter, after which KPN will pay an interim dividend of one-third of the full-year dividend, which it sees at 7 cents a share.

America Movil cut its stake in KPN to 22.6 percent, its second-quarter report showed July 22, after failing to acquire the company last year. It will now expand in Europe by paying about $1 billion to boost its stake in Telekom Austria AG to 50.8 percent, it said this month.

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