KPN Cuts Profit Forecast, Up to 5,000 Dutch Jobs by 2015
April 21, 2011, 5:43 AM EDTBy Martijn van der Starre and Maaike Noordhuis
(Updates with CEO comments starting in 6th paragraph)
April 21 (Bloomberg) -- Royal KPN NV, the largest Dutch phone company, cut its 2011 profit forecast and plans to eliminate as much as 25 percent of its workforce in the Netherlands by 2015. The stock slumped as much as 8.7 percent.
Earnings before interest, taxes, depreciation and amortization will be more than 5.3 billion euros ($7.7 billion), The Hague-based KPN said today. The company had forecast the measure to rise this year from 5.5 billion euros in 2010. Analysts predicted Ebitda of 5.42 billion euros, the average estimate of 27 analysts compiled by Bloomberg showed.
This is a “very serious profit warning”, Victor Bareno, an SNS Securities analyst, said in a note. “It is caused by structural changes in the market - which may be more difficult to address - and it affects the mobile Dutch business”.
The former phone monopoly generated almost 70 percent of 2010 revenue from its home market, compared with less than 40 percent at Deutsche Telekom AG, the biggest telecommunications company in Europe. Economic growth in the Netherlands, the euro region’s fifth-largest economy, will also ease in 2012 as the government trims spending and meets European Union budget rules ahead of schedule, planning agency CPB said last month.
Job Cuts
KPN, which also sells services in Germany and Belgium, fell as much as 1.02 euros to 10.73 euros and was down 6.6 percent as of 11:22 a.m. in Amsterdam trading, valuing the company at 16.7 billion euros. Before today, it had risen 7.6 percent this year, compared with a 3.2 percent gain by the 21-company Bloomberg Europe Telecommunication Services Index.
“KPN missed its forecast in 2010 already, so the 2011 outlook was very ambitious,” Jos Versteeg, an Amsterdam-based analyst at Theodoor Gilissen Bankiers NV who has a “buy” rating on the stock, said by phone.
KPN will eliminate 4,000 to 5,000 jobs in the Netherlands through 2015, the company said. The majority will consist of outsourcing and farming out back-office activities, it said. The multi-year reorganization costs are expected to amount to as much as 300 million euros, it said.
“Customers are changing their behavior in a very fast pace, which is driven by smartphones and applications,” Chief Executive Officer Eelco Blok, who took over as CEO earlier this month, said in a conference call. Blok said KPN will have to adjust its products to keep up with customers’ demands.
Negative Dutch Trends
“We face negative trends in the Netherlands,” Blok said. “To make our Dutch businesses more robust I have decided to accelerate the investments related to the new strategy.”
KPN will invest an extra 100 million euros this year to strengthen its strategic market positions, Blok said. Those investments will be used to create a better fast-Internet VDSL- network and improve the company’s TV-platform.
First-quarter profit rose 32 percent to 591 million euros, helped by a one-time tax gain of 150 million euros.
The former monopoly’s revenue shrank in the past two years, to 13.3 billion euros in 2010 from 14.4 billion euros in 2008, according to Bloomberg data. Sales may stagnate at 13.3 billion euros this year, according to the average of 28 estimates.
KPN, which was scheduled to report first-quarter results on April 28, confirmed its dividend proposal of at least 85 cents a share and its 1 billion-euro share buyback program. KPN also repeated its forecast for free cash flow and capital expenditure for 2011.
The Dutch economy will grow 1.5 percent in 2012 after expanding 1.75 percent this year. State spending will drop 0.5 percent in 2013 as the government reduces its deficit to 2.2 percent of gross domestic product, below the 3 percent limit the EU set for 2013, according to the CPB planning agency.
--With assistance from Jurjen van de Pol in Amsterdam. Editors: Kenneth Wong, Simon Thiel.
To contact the reporter on this story: Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net.
To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net.
