KPN and Tele2 Netherlands will on 5 February present their fourth quarter results. In this brief, we highlight the important points, namely the results themselves and the network deployment plans (LTE, FTTH, VDSL, Wi-Fi), as well as the more strategic issues.
KPN
Group results:
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Market expectations are for EBITDA at EUR 4.7 billion, at the bottom end of KPN’s objectives (EUR 4.7-4.9 billion). The market is also looking for revenues of EUR 3.16 billion, an operating profit of EUR 650 million and a net profit of EUR 290 million.
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Acquisitions and divestments need to be taken into account, which means underlying growth will be more important than the reported figures. All 2012 corporate actions will be relevant. Acquisitions: Reggefiber and Reggeborgh assets; expanding the stake in Reggefiber to 51 percent (consolidation only at 60% - acquisition of the Rotterdam network via Reggefiber is therefore not directly relevant); RoutIT (12.5%). Divestments: Getronics International, mobile sites Netherlands and Germany, Station to Station, KPN Narrowcasting, Ortel Switzerland, KPN Spain, installation & maintenance operations of KPN Business.
- Overall, the group will show decreasing free cash flow (EBITDA minus capex). In early 2010, the free cash flow was still at nearly EUR 1 billion per quarter; it now lies at EUR 600-700 million. This decline will likely be even more visible in Q4.
- The Strengthen - Simplify - Grow strategy (10 May 2011) for the period to 2015 will be adjusted. This may involve further cost reductions, share offerings and news about America Movil.
- The balance sheet is weaker. The ratio of net debt to EBITDA is higher (2.7 at Q3) than what KPN allows itself (2.0-2.5). The continued weakening of results and various obligations (such as mobile licences in January 2013 and the planned buyout of Reggefiber) will contribute to further deterioration. And now the question is, will KPN have to stage a share issue?
- Another question: will KPN elaborate on the state of affairs with America Movil (results on 13 February)?
Results per division
- Consumer Mobile has posted declining sales in the last few quarters, at around 8 percent year-on-year. Call minutes per subscriber remain reasonably stable but the number of SMS has declined sharply.
- Consumer Residential has performed better, offsetting falling revenues to a degree. The number of RGU per customer as well as ARPU have shown a slight upward trend. There is also growth on the triple-play market. Net additions on the broadband market have been positive since Q2 2012.
- E-Plus: sales growth has dropped to almost zero and EBITDA fell in the last few quarters. Where does KPN see recovery coming from? In terms of underlying net additions, things are going well, but the AMPU, or minutes per user, is declining.
- Base will again record a good performance. Subscribers are doing well (apart from a clean-up in the previous quarter), but again here, there has been a decline in call minutes per subscriber.
Tele 2 Netherlands
The peer most similar to KPN provides considerably less detail.
- The most notable event is the recovery on the mobile market. Growth started again in Q4 2011 and now the question will be, did it continue into Q4 2012?
- The broadband market is doing less well and so another question will be whether the operator's entry on the FTTH market will bring a turnaround.
- Attention will also go to the 4G plans.
- Tele2 Business is benefiting from the OT2010 contract for 300,000 civil servants. Has this division finally found a new director? There is still an interim head at the moment.
- At group level, the focus will go mainly to Russia, where Tele2 is without any 3G licence and where it only has an interim CEO. A sale or merger are among the possibilities for the future.
