KPN expects core earnings to stabilise in 2015 after 'transformational' 2014

KPN said it expects core earnings to stabilise by the end of 2015 after the Netherlands-based operator recorded a decline in EBITDA that was below analyst expectations in the fourth quarter of 2014.

The company said adjusted EBITDA fell by 3 per cent to €669 million ($768 million) in the last three months of 2014. Analysts polled by Reuters had forecast EBITDA of €641 million.

"We have seen a stabilising financial performance through successive quarters of 2014," said CEO Eelco Block. "We expect adjusted EBITDA to have stabilised by the end of the year and a growing free cash flow in 2015."

Nevertheless, Reuters reported that Blok said it was difficult to forecast KPN's performance for this year due to competition from cable companies Ziggo and UPC, and the imminent rollout of 4G by Tele2 NL.

"We don't want to be stuck so much in our outlook that we cannot respond to those developments," Blok said, according to Reuters.

Jefferies analysts were largely positive on the company's results, noting that adjusted revenues were solidly (+3 per cent) ahead of expectations. "An associated slight (-1 per cent) EBITDA miss should not be much of an issue given strong commercial traction in Dutch consumer fixed and mobile in particular," the analysts added.

KPN reported a net loss of €37 million in the quarter, which it said was mainly due to higher financial expenses of €211 million related to a bond tender. The net loss was nevertheless 66 per cent lower than in the same period of the previous year, when it reached €108 million.

Adjusted fourth-quarter revenues were flat year-on-year at €2.06 billion. While the company reported strong growth in its consumer customer base, it said this was offset by the impact of the ongoing decline of the business market size.

In the 2014 financial year as a whole, revenue fell 4.6 per cent year on year to just over €8 billion. Adjusted EBITDA fell 15 per cent to just above €2.5 billion, while the net loss was 18 per cent lower at €239 million. The company also reported it had more than 2 million 4G customers at the end of the year.

Overall, Blok described 2014 as a "transformational year" for KPN: "Following the sale of [German mobile operator] E-Plus [to Telefónica Deutschland] we acquired the remaining stake in the FTTH joint-venture Reggefiber, further strengthening our position in the Netherlands. The investments in our customers, products and networks have resulted in growing customer bases and all-time high customer satisfaction," Blok said.

The CEO also noted that the company took a number of steps under a so-called "simplification programme" to reduce debt and other financial liabilities. "The attractive 20.5 per cent stake in Telefónica Deutschland provides additional flexibility and upside via potential dividends," he added.

Jefferies analysts said they believed the management's approach was justified as free cash flow "looks well protected" and there is "good momentum in consumer KPIs."

For more:
- see the KPN results statements
- see this Reuters article

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