By Robin van Daalen
AMSTERDAM-- Royal KPN NV continued to struggle with weak demand
and lower prices during the first three months of the year, but it
expects operating income to stabilize toward the end of the
year.
The Dutch telecom company said Friday that net profit for the
first quarter tumbled 98% as income from its consumer mobile and
corporate businesses declined.
Net profit for the first three months of the year slumped to
EUR3 million ($4.1 million), from EUR152 million a year ago.
Operating income from its consumer mobile business was down 61%,
caused by fierce competition in its home market of the Netherlands,
while operating income from corporate business fell 22% amid lower
demand.
Sales for the first quarter were down 8.2% at EUR1.996 billion,
from EUR2.175 billion in the same period a year earlier.
"In the second half of the year the trend in [earnings before
interest, depreciation and amortization] should improve," Chief
Executive Eelco Blok said, adding that supported by ongoing cost
savings this should result in a stabilization of its operating
income, or Ebitda, in the fourth quarter of the year.
To boost its performance and cut costs, KPN wants to simplify
its product portfolio, client processes and networks and
information-technology operations. KPN says the move will result in
between 1,500 and 2,000 job losses in the Netherlands and, combined
with lower investments, will yield more than EUR300 million in
annual savings by 2016.
At the same time KPN is in the process of merging its German
E-Plus business with that of Spain's Telefonica SA to ease its debt
burden and enable it to resume paying a dividend. The deal comes as
Europe's fragmented telecoms sector is undergoing a wave of
consolidation.
Mr. Blok said he is confident the company will obtain regulatory
approval for the deal, which is currently being scrutinized by
European authorities. "We are confident we will obtain regulatory
approval in June and that the sale will complete shortly
thereafter," Mr. Blok said.
KPN, which will generate around 80% of sales in the Netherlands
when the E-Plus deal closes, will hold a 20.5% share in the
combined company.
And more deals in the European telecom sector are on the
horizon, Mr. Blok said. "I'm convinced that when the E-Plus deal is
approved, that will be a trigger for further consolidation, both
in-country and cross-border," he said.
Several non-European firms have expressed interest in entering
the European telecom market. AT&T Inc. expressed an interest in
acquiring wireless operations in Europe, while Hong Kong's
Hutchison Whampoa last month said it's looking to expand in Europe,
after buying Telefonica's Irish unit last year.
KPN itself is working hard to prove that rejecting a EUR2.40 per
share offer from its largest shareholder, América Móvil SAB was the
right thing to do. The Mexican company, controlled by billionaire
Carlos Slim has recently reduced its stake to just under 25% from
close to 30% previously and earlier this week said it reached a
deal that could give it operational control of the company.
Mr. Blok said that he didn't know América Móvil's intentions
with its stake in KPN are, adding both companies had only been
discussing KPN's operational performance. He added his focus is on
improving KPN's performance, so that "if someone comes knocking on
our door [to hold takeover talks], we can do that out of
strength."
Write to Robin van Daalen at Robin.VanDaalen@wsj.com
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