Reuters: Hot Stocks: UPDATE 2-KPN scraps dividend payouts as German earnings tumble

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UPDATE 2-KPN scraps dividend payouts as German earnings tumble Apr 23rd 2013, 10:53 Tue Apr 23, 2013 6:53am EDT * Adj. core profit 1.01 bln euros vs 996 mln expected * Core profit drops 34 pct at Mobile International unit * German profit margins fall sharply * Debt to core profit ratio rises to 2.8x vs 2.7 at end 2012 * Shares down 1.4 percent, not far from 12-year low (Adds CEO comments, share reaction) By Robert-Jan Bartunek BRUSSELS, April 23 (Reuters) - Dutch telecoms group KPN reported a 12 percent fall in core profit and cancelled its dividend for this year and next, highlighting the scale of its problems resulting from a sector squeeze and a costly frequency auction. The debt-laden company, in which Mexican billionaire Carlos Slim's America Movil holds near 30 percent, had previously said it would pay a dividend of 0.03 euros for both years but is opting to conserve cash instead. KPN, which has outstanding debts of 14.4 billion euros ($18.8 billion) according to Reuters data, is set to launch a 3 billion rights issue of new shares, having already sold a 2 billion euro hybrid bond and disposed of a string of assets to keep its debts under control. The company had to pay a higher-than-expected 1.35 billion euros in a mobile frequency auction in the Netherlands. Moreover, fierce competition and a change in user behaviour, such as sending fewer paid text messages, have led analysts to expect the group's adjusted core profit to fall 13 percent in 2013, after having declined 11 percent in 2012. Shares of KPN fell as much as 3.6 percent to their lowest in two weeks. At 0935 GMT, they were down 1.4 percent at 2.676 euros, not far from a 12-year low of 2.503 euros set last month. The decline in first-quarter core earnings was mainly due to a 34 percent drop at its international mobile unit, especially in Germany, where lower prices and more promotional activity squeezed its profit margin to 25.7 percent from 38.2 percent a year ago. POOR PERCEPTIONS The group, which has about 24 million customers in Germany, said German service revenue should rise in 2013 despite a decline in the first quarter, but margins there should fall because of greater competition and higher advertising costs. "We expect to see the effects of an increased number of subscriptions in the second half of the year," Chief Executive Eelco Blok said, referring to Germany, where it operates as E-Plus. Espirito Santo Investment Bank wrote in a note to clients that E-Plus came out badly in a recent German consumer survey with very poor perceptions for network quality. "We believe it will be a long and expensive process to turn the business around," the bank said. KPN's Belgian unit BASE, for which revenue grew in the quarter, also saw a 13 percent drop in core profit as it launched new fixed-line products such as TV. Overall core profit (EBITDA) adjusted for non-recurring items fell 12 percent to 1.01 billion euros, just above the 996 million expected in a Reuters poll of eight analysts. KPN's debt to core profit ratio increased to 2.8 times at the end of the first quarter from 2.7 at the end of 2012. The company said it aimed for this to drop to between 2.0 and 2.5 at the end of this year, including the planned rights issue. KPN believes it will save between 40 million euros and 45 million a year by not paying shareholders a dividend. It said the decision would not have an impact on the coupon payment for the hybrid bonds it sold earlier this year. ($1 = 0.7674 euros) (Editing by Louise Heavens and David Holmes) Link this Share this Digg this Email Reprints

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