KPN posts strong 2Q results despite tough market

1 Aug 2006

The Dutch former monopoly operator Royal KPN today released its financial results for the second quarter to 30 June 2006, showing a near doubling in net income on the back of job cuts and increased revenues from new services such as VoIP and digital TV. KPN said net income rose to EUR461 million (USD588 million), up from EUR239 million for the same period of 2005, on the back of a 1% rise in sales from EUR2.91 billion to EUR2.98 billion. EBITDA was up 10.1% at EUR1.28 billion, while the group’s free cash flow improved by EUR79 million, or 13.7%, to EUR654 million. KPN has also raised some earnings forecasts for 2006.

The Dutch telco said it was increasing market share in a declining voice market by focusing its investment in new technologies and services. Revenues from new technology-based offerings such as TV and Web calls, were up nearly 9% quarter-on-quarter and up 17% year-on-year, helping offset declining sales of traditional phone services. In the Netherlands, where KPN generates more than 70% of sales, the telco is spending as much as EUR1.5 billion to deploy a fibre-optic network to support these services. By the end of June, KPN had over 230,000 TV customers, representing more than 8% market share in the coverage area. Meanwhile, the number of VoIP subscriptions more than doubled during the second quarter to 156,000, and KPN connected 69,000 new ADSL customers, resulting in a broadband market share of 42.4%. KPN’s retail broadband market share rose to 39.6% by the end of June as a result of organic growth as well as the acquisition of Demon (56,000 customers; 1.3% market share). On a less positive note, KPN lost 253,000 subscriptions for traditional services in its home market in the second quarter on the back of a loss of 194,000 lines in Q1.

Elsewhere, KPN’s Mobile division performed strongly, achieving service revenue growth of EUR213 million, or 16.2%, while increasing revenues and other income by 12.6%, or EUR179 million. This was attributed in the main to the consolidation of Telfort in the Netherlands (in October 2005), as well as improved performance by

all its individual operators. KPN Mobile and Telfort ended June with 8.264 million subscribers, up from 8.123 the previous quarter, and added it had boosted its post-paid market share while decreasing subscriber acquisition costs at the same time. In Germany, E-Plus reported 410,000 net additions to end the period with 11.852 million subscribers, of which 6.025 million were pre-paid. E-Plus says it is cutting rates at its brands in an attempt to gain market share in what is Europe’s largest economy. Meanwhile the group’s Belgian operation BASE closed out the quarter with 2.104 million mobile users.

As of 30 June 2006 KPN served 6.4 million fixed line subscribers and 2.3 million internet customers in the Netherlands as well as 22.2 million mobile customers in Germany, the Netherlands and Belgium, while employing 28,536 individuals.

Netherlands, BASE Company, E-Plus Group, KPN, KPN Mobile (old - see KPN)