BRUSSELS – Dutch telecommunications company Royal KPN NV on Tuesday reported a 63 per cent fall in fourth quarter earnings, mostly due to a large charge on its IT consulting business, Getronics, which it is now selling.
The results also reflect the dramatic impact customers with smartphones using free services such as Skype and WhatsApp have had on KPN, with possible implications for larger rivals Vodafone PLC and Deutsche Telekom AG.
In early trading the company’s shares fell 8.7 per cent to €7.80.
KPN’s net profit in the quarter was €176 million ($229 million), from €475 million in the same period a year ago, including the €298 million charge. Sales dipped 0.4 per cent to €3.38 billion.
In a limp forecast for 2012, KPN chief executive Eelco Blok said it will be “a year of transition in the Netherlands as we aim to bottom-out our broadband market share and to stabilize our market share in consumer wireless.”
He forecast lower earnings for the full year, and said the company will cease share buybacks, though he pledged to raise dividends by €0.05 cents per share to €0.90.
The company said it will cut up to 2,500 jobs at Getronics and sell off parts of the business employing 4,900 more. It will sell Getronics’ European operations outside the Netherlands to Germany’s Aurelius AG and its Latin American business to private equity firm OpenGate capital. KPN did not disclose terms but said the businesses disposed had combined sales of €665 million last year. KPN bought Getronics for €776 million in 2007.
While KPN remains the largest provider of mobile phone services in the Netherlands, that business has suffered from rapid change.
At the start of 2011, KPN’s customers with smart phones stepped up significantly their use of Internet services such as Skype for voice and WhatsApp for messaging rather KPN’s own more expensive services. When the company tried to block or charge extra for customers using third party software, Dutch parliament passed one of the world’s toughest “Net Neutrality” laws, requiring network operators to allow Skype and others to use its network without giving preferential treatment to any.
It was seen as a bellwether victory for software giants such as Skype owner Microsoft and Google, which also offers messaging and voice services.
KPN, along with competitors Vodafone PLC and Deutsche Telekom AG, responded by hiking prices on their Internet data plans almost simultaneously – and they are now all under investigation for alleged price-fixing.
As an indication of the impact these Dutch changes have had, KPN’s German operations – where it is the third wireless operator behind Vodafone and DT – saw operating profits rise 24 per cent to €456 million. By comparison, they fell by 13 per cent in the Netherlands to €871 million.
The company’s chief financial officer Carla Smits abruptly announced she would resign on Jan. 4, citing dissatisfaction with “corporate governance structure” after KPN said it would expand its management board to 12 people.
Though her departure led to a minor sell-off in shares, analysts say it should have been a red flag for deeper problems at KPN.
Analyst Victor Bareno of SNS Securities said the results were worse than expected and the outlook 2012 amounted to a “significant” profit warning.
He said “still…tougher times are ahead.” He rates shares a hold but said estimates and price target for shares are under review “with negative implications.”
Comments