KPN bullish on second half after cost cuts drive earnings beat

Reuters

* Q2 core profit 633 mln euros vs 626 mln expected

* Says made cost savings of 75 mln euros in first half

* Keeps 2014 outlook, aims to pay small dividend (Adds CEO comments)

By Robert-Jan Bartunek

BRUSSELS, July 30 (Reuters) - Dutch telecoms group KPN said on Wednesday its second half results would beat the first half, after strict cost cutting helped second quarter profits beat expectations.

The group, which in 2013 fended off a takeover bid by top shareholder America Movil - controlled by billionaire Carlos Slim, has faced stiff competition in its domestic market but repeated its results would stabilise by the end of 2014.

"We expect the results in the second half to be better than those in the first, so in that sense you could speak of a trough or that we have passed it," chief executive Eelco Blok said on a conference call.

KPN's shares rose as much as 4.6 percent, making it the top performer on the STOXX 600 European Telecoms Index.

In the second quarter, group core profit fell 19 percent to 633 million euros, above the 626 million expected in a Reuters poll of seven analysts.

KPN said its "simplification programme" resulted in savings on operating and capital expenses of about 75 million euros ($100 million) in the first half, with 350 employees leaving the company.

KPN said in February that it would cut up to 2,000 jobs to stem falling profits.

The cost cutting was most apparent in the group's business unit, which sells telecom services to companies, where it managed to slow the year-on-year decline in core profit to 17 percent from a 25 percent decrease in the first quarter.

Its Dutch consumer mobile business - an area of concern for several of the past quarters - weighed on results, with adjusted core profit falling 63 percent in the second quarter.

The group said it added 53,000 new mobile customers on a contract and average spend per user was stabilising, thanks to customers taking up more than one service and subscribing to fast mobile broadband (4G).

KPN's fixed line telecoms services continued to perform well, lifting core profit by 19 percent in the second quarter.

"We believe consensus expectations are realistic as top line is stabilising we expect a further positive impact from the simplification programme," ING analyst Emmanuel Carlier, who has a "buy" recommendation on the stock wrote in a note to clients.

The company's net debt to core profit ratio was 2.2 times, up from the 2.1 at the end of the first quarter, including the sale of E-Plus, which was cleared by European regulators earlier this month.

KPN said that, if the sale of its German unit E-Plus closed, it would restart paying a dividend of 0.07 euros for the 2014 financial year.

The group said it would invest less than 1.4 billion euros in 2014 and less than 1.5 billion in 2015.

CEO Blok said KPN's relationship with its largest shareholder, which had been troubled by the latter's failed attempt to gain full control, was very good and the two companies were working together closely on wholesale agreements.

America Movil, which reduced its stake in KPN to 22.6 percent from 25.7 percent in March, is facing tough new rules in its Mexican home market, forcing it to share infrastructure and slash access costs for rivals.

Blok said the Mexican group had not elaborated on whether it would keep a stake in the Dutch group in the long term. ($1 = 0.7460 euros) (Editing by Philip Blenkinsop and Louise Ireland)

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