KPN will report its third-quarter results on 27 October before the stock market opens. The focus will not only go to the figures and guidance, but also to other concerns, namely KPN’s bid for iBasis, the provider’s network plans in the Netherlands, the possibility of network sharing in Germany, and problems at KPN’s pension funds. KPN will report results in two main lines. The first one will be the Netherlands, and will include fígures from Consumer, Business, Getronics and Wholesale & Operations (including iBasis). The second line, Mobile International, will include numbers from E-Plus, Base and others, such as KPN’s MVNOs in France and Spain, as well as Ortel.
Market expectations see sales at EUR 3.43 billion from 3.65 billion the year before, with the decline attributed to the sale of some Getronics operations, the effects of MTA implementation, and a weak performance at iBasis. EBITDA is seen at EUR 1.33 billion from 1.28 billion, the net profit at EUR 390 million from 353 million, earnings per share at EUR 0.24 against 0.20 and the underlying EBITDA margin at 38.8 percent from a 35 percent margin the year earlier. On a more positive note, KPN has successfully managed to gently lift prices on minor elements of its tariff strategy and has continued cutting costs, resulting in the higher EBITDA margin. (Please see our research document ‘KPN versus Ziggo').
Since KPN launched its ‘Back to Growth’ two-year strategy at the beginning of 2008, the provider has slightly lowered its guidance, so it would not come as a great surprise should it decide to do so again. KPN is currently forecasting 2009 sales at EUR 13.6-13.8 billion, EBITDA at EUR 5.0-5.5 billion, capex at EUR 2 billion, free cash flow at EUR 2.4 billion, and a dividend at EUR 0.60-0.80 per share. For 2010, KPN expects sales unchanged from 2009, EBITDA at EUR 5.5 billion, capex at EUR 2 billion and a free cash flow of more than EUR 2.4 billion. The dividend is seen at EUR 0.80.
KPN has said it wants to distribute 40 to 50 percent of its free cash flow as dividend. The rest of the cash flow will go to value-adding goals, which in recent years have come to mean share buybacks. In theory, it is possible that following completion of its running share buyback programme to end-2009, KPN will concentrate on acquisitions or strengthening its networks. The chance seems slim in reality however, since KPN is very aware on the effects such moves could have on its share price. KPN is likely to abandon another share buyback programme in 2010 only for very grounded goals.
Despite a raised bid for iBasis, no further news is expected at this point. iBasis has found the upped bid at USD 2.25 still too low. The bidding period has been extended to 20 November, and hearings are expected to take place in the US on 28 and 29 October. KPN will probably make no statement over the success of its offer until more is decided.
Regarding the provider’s plans for its networks in the Netherlands, KPN has said that it will make some announcements towards the end of 2009. The provider is currently holding trials for FTTH and FTTC, the latter with VDSL2. During the release of its second-quarter results, KPN did not disclose how many homes it had passed, but did provide goals for the end of 2009: 400,000 FTTH and 450,000 FTTC. With this in mind, KPN could very well come out with new targets. KPN could take advantage of the turbulence on the broadband market (big success of Docsis 3 at cable, VDSL2 at Tele2) to say more about its own FTTH/FTTC strategy.
Network sharing has grown strongly in popularity in order to cut costs and new agreements are expected between providers, in view of new auctions and the increasing use of LTE networks. KPN has already cut such a deal in Belgium with Mobistar but these have so far only concerned passive network parts, with little real room for synergies. Market watchers are expecting such a deal in Germany and the name O2 has cropped up, again. O2 parent Telefonica and Vodafone signed in March a UK network-sharing agreement and are said to be looking to broaden the scope of this agreement to other European countries, including in Germany.
Finally, there remains the question of KPN’s pension fund. The stock market has proved a windfall, with the result that KPN has not had to make additional payments. At the beginning of April, an agreement was reached, with KPN promising that it will invest a maximum of EUR 390 million in the period from 2009 up to and including 2012.
