KPN Q4 results show business division improving, consumer under pressure

Friday 2 February 2018 | 12:33 CET | Background

KPN's latest results showed things are slowly getting better at its business division. The company appears on track with its original forecast for a return to growth within 3-5 years. In two years, the drop in revenues has been reduced to 1.4 percent, leaving still up to three years to generate growth. However, KPN Consumer has now fallen into negative growth. The Dutch operator is losing postpaid mobile customers - likely due to the introduction of unlimited plans at other operators. 

Business recovers but Consumer under pressure

KPN's Q4 performance was supported by a recovery on the business market. The drop in revenues at KPN Business was reduced to 1.4 percent, compared to a 9.0 percent fall a year ago, and the management expects a return to revenue growth within 1-3 years. 

The better performance is helped by services such as mobile-only and fixed-only accounting for an increasingly small share of division revenues. Structural growth is coming from the segments Multiplay and New Services (M2M/IoT, cloud). Together these accounted for EUR 87 million in sales in Q4, good for 15 percent of KPN Business's revenues. That's up from EUR 62 million or 11 percent a year ago.

The consumer division is doing less well. After a few quarters of positive growth, revenues are now down two quarters in a row. The bundling trend continues, and KPN added customers in broadband, IPTV and double-plays during the quarter, but in other areas the company is losing ground, including postpaid mobile and triple play. Postpaid ARPU fell to EUR 24 from EUR 26 a year ago. 

The number of households served is also on a downward trend. This appeared to stop last quarter but resumed in Q4. KPN Consumer served 3.57 million households at the end of 2017, down from 3.62 million a year earlier. 

The results were helped by the continued reduction in costs. KPN is reducing annual costs by EUR 570 million compared to 2016, driven by an extensive simplification of the organisation at all levels. The impact of the EU roaming regulation was not too bad either, with wholesale costs lower than expected and positive visitor revenues. Roaming traffic abroad showed a strong increase. 

Impact IFRS accounting

In 2018, results will be affected by implementation of the IFRS 15 standard for revenue recognition from contracts. This mainly affects sales of handsets. KPN estimates the theoretical impact on 2017 results at a negative EUR 130 million for underlying revenues and EUR 100 million less in adjusted EBITDA. We note that this is purely an accounting change and does not have any impact on the business or value of the company. 

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