UPDATE: KPN Slashes Dividend To Cut Rising Debts

Dutch telecommunications firm Royal KPN NV (KPN.AE) slashed its dividend Tuesday in a bid to control its rising debt, after posting another round of weak quarterly results.

KPN will pay a dividend of EUR0.35 ($0.42) a share for this year, down from the EUR0.90 a share it had previously forecast.

Chief Executive Eelco Blok said the step was not taken lightly.

"The economic prospects in the Netherlands continue to be difficult. Today, it is even more important to strike the right balance between a prudent financial framework, continued investments and sustainable shareholder remuneration. This will support our credit ratings and enhance our financial flexibility," he said.

With smartphone penetration in the Netherlands at 50% of the population, one of the highest in Europe, KPN's traditional revenue from voice calls and text messages is being eroded by Internet services like WhatsApp, a smartphone messaging service, or Microsoft Corp.'s (MSFT) Skype, which offers free Internet phone calls.

This has hit KPN's profits over past quarters and hammered the share price, which lost a quarter of its value over the past 12 months. Mexican telecommunications giant America Movil SAB (AMX), controlled by billionaire Carlos Slim, used the distressed valuation to raise its stake to 28% last month, from just under 5% for more than EUR2 billion.

The dividend cut will save EUR780 million, Chief Financial Officer Eric Hageman said, which will help offset net debt which stood at EUR12.4 billion at the end of the second quarter. The debt is 2.6 times the firm's earnings before interest, taxes, amortization and depreciation, or Ebitda, and exceeds the company's market capitalization of roughly EUR10 billion.

Mr. Blok declined to say if America Movil was involved in the decision to cut the dividend.

"We talk to America Movil like to every other shareholder," Mr. Blok just said in a conference call.

Analysts showed some understanding for the move, which lowers the dividend yield to 5%, well below the 8% average yield of its European peers, according to brokerage Rabobank.

"We believe it is the right decision for mid to long term," said ING, which rates KPN shares at buy with an EUR9 target, but added the cut is larger than expected.

The shares slipped more than 3% at a result and at 1118GMT were trading down 3.4% at EUR7.08.

KPN's net profit tumbled 24% to EUR315 million ($382 million) in the three months to June, from EUR414 million a year earlier, hurt by weak margins, especially in its Dutch mobile consumer business. Sales were down 3% to EUR3.19 billion. Mr. Blok noted there were some positive signs, with market share in the hard-pressed Dutch consumer mobile market stable at 45%, and the year-on-year decline in mobile service revenue slowing to 9.6% in the June quarter, after a 12% fall in the first quarter.

KPN's mobile operations abroad, Base in Belgium and E-Plus in Germany, did well, with E-Plus revenue up 4.9%, while Base posted a 6.7% increase in sales.

To counteract falling revenue, Mr. Blok is slashing costs and plans to cut 4,000 to 5,000 jobs by the end of next year. KPN intends to sell Base, but the CEO declined to provide a time frame for the sales process, stressing only that the price should reflect the value of the asset. ING analyst Jeffrey Vonk values Base at around EUR1.45 billion.

KPN said it is on track to hit its targets for 2012. These include a free cash-flow between EUR1.6 billion and EUR1.8 billion and earnings before interest, taxes, depreciation and amortization, or Ebitda, in a EUR4.7 billion to EUR4.9 billion range, excluding the cost of shedding 4,000 to 5,000 jobs.

Write to Archibald Preuschat; archibald.preuschat@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Telekom Austria (PK) (USOTC:TKAGY)
Historical Stock Chart
From Jul 2024 to Aug 2024