* Scraps 2012 share buyback programme, ups investment
* To sell Getronics International business
* Sees 2012 as transition year
* Cuts 2012 core profit outlook
* Shares down 5.9 percent
(Adds analyst, company comment)
By Roberta Cowan
AMSTERDAM, Jan 24 Dutch telecom firm KPN
has cut its core profit expectations for 2012 and
scrapped a 2012 share buyback programme to pour money into its
struggling domestic business.
KPN, the largest telecommunications provider in the
Netherlands, which has been trying to reverse falling revenues,
profits and market share in its domestic fixed-line and mobile
businesses, warned on Tuesday 2012 would be a 'transition' year.
KPN, known for its generous annual 1 billion euro share
buyback programmes and healthy dividends, said it would invest
"strategically" in its domestic infrastructure during current
macro economic uncertainty and won't update the market on 2013
expectations until later in 2012.
KPN shares tumbled on the profit warning and by 1000 GMT
were down 5.9 percent after hitting their lowest level in six
years. They were the worst performer on the Amsterdam AEX index.
Analysts were mixed on KPN's abrupt and some said drastic
change of plans as many were only expecting a cut in the share
buyback programme to around 500 million euros from the usual 1
Robin Bienenstock from Bernstein said KPN's past was
catching up with it and that the generous share buyback policy
was not sustainable.
"Massively reducing expectations and eliminating the share
buyback in order to reinvest in the core business that is
clearly declining at an alarming rate is a very sensible move,"
The firm also said it would sell the international division
of its IT unit, which had 565 million in sales in 2011. There
has also been speculation of a more radical shake up of the
"Selling Getronics International will tantalise some
investors with the possibility that this company (KPN itself)
will either be taken private or broken up altogether, but those
hopes are unrealistic as this set of results clearly show that
KPN Netherlands needs KPN Germany's cash in order to right
itself," said Bienenstock.
Both the Chief Executive Eelco Blok and the interim Chief
Financial officer Eric Hageman denied KPN is in talks or has
been approached by parties interested in KPN's assets.
Blok, a KPN insider, became chief executive in April and has
had what he called a 'lively' year. He has increased cost cuts,
set new financial objectives, slashed 25 percent of the
workforce and has seen his CFO quit abruptly on Jan. 3 over
In December, the Dutch telecom regulator and the competition
authorities separately put KPN under investigation for possible
breaches of regulatory law and for price fixing.
Blok said the investigations are ongoing and that KPN is
Blok blamed falling domestic revenues in part on savvy Dutch
smartphone subscribers opting to communicate through Facebook,
Twitter and instant messaging rather than by traditional voice
calls. He said that KPN's market for corporate customers had
also become increasingly difficult and more competitive.
"Some aspects in the performance of The Netherlands did not
meet our expectations ... in order to strengthen our domestic
businesses in response to the challenges they face from the
changing external environment, we will further expand and
accelerate our investment strategy beyond the measures we
announced in May 2011," Blok said in a statement.
KPN competes in its home market with Vodafone Group
and Deutsche Telekom AG which operates under the
T-Mobile brand, and increasingly with restructured cable firms
Ziggo and UPC.
Ziggo, owned by private equity groups Cinven and
Warburg Pincus, and UPC, owned by Liberty Global Inc.
, are both wooing customers with bundled packages of
super-fast broadband, television and telephone services.
KPN said it now expects 2012 core profit to be 4.7 billion
euros to 4.9 billion euros ($6.1 billion to $6.4 billion), down
from 5.268 billion euros in 2011. It is guiding for 2012 capital
expenditure of between 2-2.2 billion euros and free cash flow of
1.6-1.8 billion euros.
It said it will pay a 2011 dividend of 0.85 cents and still
expects a 2012 dividend of 0.90 euro cents but wouldn't confirm
its previous 2013 dividend guidance for 0.95 cents.
KPN reported fourth-quarter sales down 1.8 percent to 3.375
billion euros, and core profit, or earnings before interest,
tax, depreciation and amortization (EBITDA), down 6.2 percent to
1.316 billion euros. Analysts had expected core profit of 1.367
billion euros on fourth-quarter sales of 3.346 billion euros.
Net profit for the quarter fell 63 percent to 176 million
euros, due to a 300 million impairment charge at its IT unit,
the CEO said.
($1 = 0.7665 euros)
(Reporting By Roberta B. Cowan; Editing by Hans-Juergen Peters
and Jane Merriman)