Dutch telco KPN plans to issue €4bn (US$5.4bn) in new shares in an effort to cut debt and continue to make investments, having posted a loss of €162m for the final quarter of 2012.
Announcing its Q4 results today, KPN noted that the rights issue is…
Dutch telco KPN plans to issue €4bn (US$5.4bn) in new shares in an effort to cut debt and continue to make investments, having posted a loss of €162m for the final quarter of 2012.
Announcing its Q4 results today, KPN noted that the rights issue is still subject to shareholder approval. A decision on the matter is expected to be taken at an EGM on 19 March.
KPN said it might still look at alternatives to a rights issue, saying it could raise parts of the overall amount of €4bn through equity-linked or other capital instruments.
On a conference call with analysts, CEO Eelco Blok said the company will hold talks with shareholders and other interested parties over the next few weeks about the structure of the capital raise.
He said Carlos Slim’s America Movil (AMX), which acquired a 27.7% stake in the company last year, has not yet taken a decision on whether or not it will participate in the rights issue.
“This is a necessary measure to invest in our strategy and to strengthen our balance sheet,” Blok told analysts. “KPN’s financial position has been impacted by rising debt levels, among others due to the Dutch spectrum auction late last year. We will continue with our strategy and therefore will see continued investments in infrastructure and in customers.”
Blok noted that the board aims to protect the company’s investment grade rating and is targeting a net debt/EBITDA ratio of 2x to 2.5x at the end of 2013.
In a statement issued today, Blok said that while business units’ financial performance for 2012 fell “largely” within expected ranges, they generally did not do as well as forecast at the start of the year. Disposals of assets, such as towers in the Netherlands and Germany, also helped to improve the balance sheet, he noted.
Analysts at Bernstein Research doubted whether investors will support the rights issue.
“Investors are being asked to take a leap into the void with KPN that promises ‘stabilisation towards 2014’ but gives no indication of the pace of decline they expect in 2013,” they said in a note to investors.
“With this level of uncertainty regarding any turnaround plan it is hard to believe that a rights issue could be priced at anything other than a very deep discount,” they added.
Bernstein analysts also questioned KPN’s reasons for opting for a rights issue to maintain its investment grading rather than accepting junk status.
“KPN’s guidance and strategy are not reassuring for anyone,” they said. “They point to a much more aggressive pursuit of quad play and a believable revival of their wireline business, but the outlook for their wireless-only businesses in the Netherlands, Germany and Belgium look very bleak indeed.”
KPN reported total revenues of €3.274bn for the fourth quarter, down 3% year-on-year. Revenues for the full year stood at €12.708bn, down 3.5% on the 2011 result. EBITDA for 2012 was down 12% to €4.528bn, with an EBITDA margin of 35.6%. Operating profit (EBIT) for 2012 stood at €1.82bn, down 29% on the 2011 result, while net profit amounted to €693m, down 55% from the previous year. Free cash flow for 2012 was down 33% to €1.652bn.
Blok attributed the disappointing results to adverse macro-economic conditions, increased competition in mobile markets, rising debt levels and operational costs and increased commercial investments in assets such as spectrum and fibre.
He said that, while the company has made good progress in stabilising its domestic market positions, it is experiencing lower underlying profitability in each of its three main markets.
Outlining the group’s changing strategy, he said: “In the Netherlands, we are approaching a new balance between a focus on market positions and achieving stable performance. In Germany and Belgium, the next phases in our challenger strategy are being implemented to fuel underlying growth in 2013 and beyond”.
At the time of writing, KPN’s share price was down 20.78% since market close yesterday to €3.248%.
