KPN's fourth-quarter results showed the increasingly familiar picture of slightly disappointing sales and in-line profits. The Dutch operator also maintained its outlook, and as a result, there was no great movement in the share price. We have warned already earlier that sooner or later, this pattern is going to end, and KPN will need to turn to sales growth and leveraging in order to maintain its nice bottom line. The cautious outlook for 2011 ( the company is still in the midst of its 'Back to Growth' plan for 2008-2010) included just one concrete target: a dividend of at least EUR 0.85 per share. Sales growth is noticeably absent.
For the moment, KPN is still busy. After five years of cuts, the company expects at least another 2,000 jobs to go in 2010, taking the total over the whole period to 10,000. Outsourcing deals should play an important part in this, so Alcatel-Lucent, Ericsson, NSN and Huawei, pay attention! The loss of board member Stan Miller will also have a cheap solution: his tasks will be divided among the other management.
Still, the Kpn management should (you can hope) be concerned about the top line. The company is uncertain about 2011, even when the the economic crisis should be largely over. KPN itself noted in the results announcement several times that the market conditions have not deteriorated further. Looking at the Q4 results, all the line items show declines, except for consumer broadband (up 0.2 percent to EUR 259 million) and Belgium (4.5 percent higher at EUR 207 million). In the mobile division, we're putting mobile and mobile wholesale together, as the transfer of Debitel from the latter to the former distorts the figures. That aside there is growth in (mobile) data and TV.
The question is whether KPN can continue to show improvement in its results after 2010, when cost savings will start becoming more difficult. While it will have a 'lean and mean' organisation and the economy should be picking up again, tough competition, market saturation and regulatory intervention are working against it. The obvious route is to drive growth through strategic acquisitions, such as the recent buy-out of Ortel Mobile. Any takeovers on the consumer broadband market would likely face opposition from the competition regulator NMa. On the TV market, satellite operator CanalDigitaal is a candidate, but it's questionable whether KPN would want to add a third platform to its TV strategy, which already includes the IPTV service Interactieve TV and DTT service Digitenne. KPN has also been focusing on organic growth for the TV services. On the business market, Getronics could clearly make some acquisitions. And then BBned is also for sale, with its attractive business services unit BBeyond. For the rest, KPN will have to make do with FTTH and new services. In its other markets Germany and Belgium, everything is still possible, such as taking over wholesale subscribers (the German arm of The Phone House is a candidate) or fixed networks (although KPN has already left the fixed and wholesale market in Belgium).
And finally, after the departure of Marcel Smits as CFO and now Stan Miller, the question is who will replace Ad Scheepbouwer as CEO from mid 2011. At the moment, nothing fruitful can be said about that. Although maybe the 'lean and mean' strategy so successfully implemented by Scheepbouwer was all about one thing: selling KPN for a good price? We can hardly say anything useful about that either, but it's clear this sort of speculation will resurface in the coming year.
