KPN raises full-year forecast

KPN, the Dutch telecommunications company, on Tuesday raised its full-year guidance for operating earnings, as its German mobile unit returned to profit and its chief executive spoke of a "new found spirit and determination" in the face of competitive pressure.

Ad Scheepbouwer, KPN chief executive, said the former Dutch incumbent had "delivered strong results in a very tough market" as he upgraded its 2006 outlook for earnings before interest, tax depreciation and amortisation from flat to a low-single digit rise. It reported ebitda of €4.6bn in 2005 and sales of €11.8bn.

KPN faces intense domestic competition from cable companies cutting into its core telephony market, and has taken legal action to pursue claims that regulation unfairly limits its ability to counter the loss of sales at its traditional fixed-line business by launching new internet-based services. It is appealing against a court judgement dismissing its claims.

The group also raised its outlook for free cash flow from €2bn to €2.2bn, but maintained sales guidance for a low-single digit increase.

E-Plus, KPN's German mobile unit, reported a €101m operating profit, compared with a €10m loss a year earlier, and recorded service revenue growth of 9.8 per cent, compared with average market growth of 1 per cent. It recorded a record operating margin of 37 per cent.

The group changed its approach in Germany in August last year, targeting market segments with specific offers, and aiming to establish regional strongholds. It said it had recruited 1.8m subscribers in the first half to new business segments - targeting for example ethnic minority groups.

Noting "significant challenges in the consumer market evidenced by line loss, the company said it was nonetheless "successfully increasing market share in a declining voice market".

While it witnessed more than 250,000 line disconnections in the second quarter, it said those customers were increasingly switching to internet-based services.

Revenue from new technology-based services rose 9 per cent from the previous quarter and 17 per cent from the same period in 2005.

The group reported sales of €2.98bn, 0.9 per cent higher than the same period in 2005, and an operating result of €670m, or 20 per cent higher.

The sales increase reflected the acquisition last year of Telfort, the Dutch mobile operator, but fixed line sales were hit by regulatory rulings related to tariffs, falling 4.6 per cent to €1.65bn.

Its mobile activities, which embrace German, Dutch and Belgian operations, reported a record margin of 38.9 per cent, with revenues and related income rising 13 per cent to €1.6bn.

Net profit nearly doubled to €461m, while earnings per share more than doubled to €0.22 from €0.10. It declared an interim dividend of €0.16 per share, 23 per cent higher than a year ago. Since October 2004, it has cancelled 403m shares, 16 per cent of the total outstanding at that point.

It posted a 3.6 per cent decline in costs to €2.3bn, helped by a reduction in jobs. It plans to cut 8,000 jobs by 2009. More than 3,000 jobs have been cut since the end of 2004.

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