Royal KPN NV (KPN), the Dutch phone operator partly owned by Carlos Slim’s America Movil SAB (AMXL), canceled its dividend for 2013 and 2014 as the company prepares for a share sale.
The decision stems from plans to sell stock to existing investors and “it would be weird to firstly raise capital from our shareholders, and after that return a part of that money to them,” Chief Executive Officer Eelco Blok said on a conference call. KPN will save as much as 45 million euros ($58.4 million) annually this year and next by dropping the payout, Chief Financial Officer Eric Hageman said.
Blok won shareholders’ backing earlier this month for the 3 billion-euro stock sale as part of an effort to invest in operations and reduce debt. Today’s move cancels KPN’s plan announced in December to offer a dividend of 3 euro cents a share for 2013 and 2014, a cut of 91 percent from earlier projections, after KPN bought mobile-phone frequencies.
“Scrapping the dividend is bad news for shareholders, and on the other hand the company is doing what they need to do,” said Jos Versteeg, an Amsterdam-based analyst at Theodoor Gilissen Bankiers. “They need to invest in the business to survive in the longer term.”
KPN fell as much as 3.7 percent to 2.61 euros, the lowest intraday price since April 9, and was trading down 0.7 percent at 11:44 a.m. in Amsterdam. The stock has fallen 27 percent this year, the worst performance by a telecommunications company in the Stoxx 600 index, valuing the phone operator at about 3.86 billion euros.
The carrier is seeking to strengthen its balance sheet after spending 1.35 billion euros on wireless spectrum in the fourth quarter to serve consumers seeking faster mobile networks amid growing use of smartphones for surfing the Web, downloading music and watching videos. KPN faces a new challenge from Sweden’s Tele2 AB (TEL2B), which bought frequencies to enter the Dutch market.
KPN spent 979 million euros paying dividends in 2012, an 18 percent drop from the 1.2 billion-euro cost of the payouts a year earlier, according to its annual report. The company scrapped a planned second-half 2012 dividend of 12 cents a share in December when it rearranged the payment strategy. It was originally planning a payout of 35 cents a share for 2012 and at least that amount for 2013.
“Apparently the company underestimated the dilution of the share sale,” said Jasper Jansen, an economist at investor lobby group VEB, which represents holders of about 1 million KPN shares. “It’s a bit clumsy, announcing that they’re skipping the dividend two weeks after the annual shareholders meeting.”
The rights offer follows hybrid-bond sales in March that included $2 billion of debt denominated in euros and pounds and $600 million denominated in dollars.
To stay ahead of the competition, KPN began the rollout of high-speed 4G technology in the first quarter in the Netherlands and is targeting coverage of about 65 percent of the country by the end of this year.
First-quarter earnings before interest, taxes, depreciation and amortization before restructuring costs fell 12 percent to 1.01 billion euros, KPN said today. That beat the 997 million- euro average of 11 analyst estimates compiled by Bloomberg.
Revenue and other income declined 4.3 percent to 2.91 billion euros on an underlying basis, as sales in Germany and the consumer mobile business were under pressure because of competition in wireless operations and the continued decline of traditional phone services, KPN said.
In the Netherlands, underlying sales dropped 6.1 percent, while mobile revenue abroad on that basis declined 2.2 percent in the first quarter. KPN reiterated that it expects business in the Netherlands to stabilize “toward 2014.” A strategy in Germany to focus on postpaid subscriptions and higher commercial investments will lead to service revenue growth combined with a lower Ebitda margin this year, KPN said.
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