KPN Q2 earnings fall, cuts dividend

AP News
Posted: Jul 24, 2012 10:19 AM
KPN Q2 earnings fall, cuts dividend

AMSTERDAM (AP) — Royal KPN NV, the Dutch telecommunications company, said Tuesday it is slashing its dividend after reporting a sharp fall in second quarter earnings due to restructuring costs and declining sales.

Net profit was €315 million ($382 million), down 24 percent from €414 million in the same period a year ago. Sales fell 3 percent to €3.19 billion.

KPN CEO Eelco Blok said the company would cut its dividend from a proposed €0.90 to €0.35 per share because the company has fallen out of the range of profitability it considers prudent.

"We don't take this preemptive step lightly," Blok said. "Economic prospects in The Netherlands continue to be difficult and we are outside our financial framework range."

The company has fallen below the earnings to debt ratio it targets. Net debt is €12.4 billion, up from €11.8 billion at the end of last quarter.

Analyst Victor Bareno of SNS Securities said the results were in line with expectations, but the dividend cut "is quite severe and a bad signal for KPN's confidence in restoring profits and cash flow."

Mexican billionaire Carlos Slim has gradually acquired a 28 percent stake in KPN, although the company's management has advised shareholders not to accept his recent €8 per share offer in June. Shares were 5.7 percent lower in late trading in Amsterdam at €6.92.

KPN struck a more conciliatory tone toward Slim's America Movil SAB.

Blok said KPN wants a "constructive dialogue with our new large shareholder .... We will explore diligently any potential areas of cooperation that are viable, value accretive, in line with our strategy and in the interests of all shareholders and other stakeholders."

KPN has previously considered selling the company's E-Plus arm — Germany's third-largest mobile provider — as a preventive measure against Slim. Instead, the company said Tuesday it will instead seek to sell its Belgian operations.

KPN's business suffered a dramatic downturn at the end of 2011 as smartphone adoption in the Netherlands hit critical mass and the company's customers realized it was cheaper for them to use mobile Internet-based software such as Skype and WhatsApp to conduct messaging and telephone calls.

An attempt by KPN to block or charge extra for using such third party software backfired spectacularly as a public outcry led the country's politicians to quickly adopt one of the world's strongest "net neutrality" laws, mandating operators not to do anything to hinder such competition on their networks.

KPN, along with other major providers on the Dutch market such as Vodafone PLC and Deutsche Telekom, quickly responded by hiking prices for mobile Internet data. But that has yet to work its way through existing subscription packages and meanwhile KPN's retail customer revenues are continuing to decline.