KPN Says Sales, Profit Fell in Fourth Quarter

Royal KPN, the Dutch telecommunications company, said Tuesday fourth-quarter profit fell 31% after the company incurred a restructuring charge.

Net income dropped to 427 million euros($555 million) from 618 million euros in the same period a year ago, the company said in a statement. Sales dropped 4.1% to 3.04 billion euros($3.95 billion), mostly due to a decline in demand at KPN's fixed-line division.

The company took a 75 million euros ($98 million) charge in the quarter to restructure its newly acquired Telfort unit. Last year, KPN benefited from a one-time gain of 274 million euros due as Japan's NTT Docomo unwound its investments in the business.

KPN said that operationally, a rise in earnings at its mobile telephony division outweighed a fall in its fixed-line operations. The company expects to return around 2 billion euros ($2.6 billion) to shareholders in 2007, split evenly between dividends and share buybacks.

KPN said that the transition all aspects of its business to an Internet compatible platform and the merger of its fixed-line and mobile operations by the start of 2010 would put a drag on earnings, balanced by the sale of real estate.

Generating Cash

However, "we have all confidence that we can generate a free cash stream of more than 2 billion euros in the transition years of 2007, 2008 and 2009, despite the fact that the company will have to start paying tax in 2007," Chief Executive Ad Scheepbouwer.

KPN has been benefiting from tax credits since it recovered from near-bankruptcy at the turn of the century after an acquisitions binge that was compounded by overpaying for "third-generation" mobile telephony licenses.

The company returned to health under Scheepbouwer by selling some operations and a share sale underwritten by the Dutch state. The state, then a major shareholder, has since sold its stake in KPN.

The company's net debt stood at a "stable" 9.2 billion euros ($12 billion) at the end of the quarter, KPN said.

For the full year 2006, KPN's net profit was 1.58 billion euros, up from 1.44 billion euros, while sales rose 1% to 12.1 billion euros.