Phone giant wields the axe

Dutch phone company Royal KPN plans to cut as many as 5250 jobs by the end of 2007 to lower costs and compensate for slowing fixed-line sales.

Sales have stagnated for a fifth year as customers increasingly choose to make calls over the internet or on their mobile phones.

The former Dutch phone monopoly plans to eliminate 1500 to 1750 jobs a year through 2007, and may cut a further 3000 in the following two years, said chief executive Ad Scheepbouwer.

KPN, based in The Hague, said the cuts would generate savings of 450 million ($820 million) by 2007.

The extra job cuts in 2008 and 2009, which will also be mainly at the fixed-line unit, will be made if the company decides to move all of its Dutch phone network to internet-based technology. It has invested in wireless units in Germany and Belgium to counter falling fixed-line sales.

The company has estimated that building an internet network may cost 1 billion to 2 billion.

"Pressure on fixed-line businesses is intense, so cost-cutting makes total sense," said Khing An Liem, a fund manager at Kempen Capital Management in Amsterdam. "KPN is financially solid today, but I have my doubts for the future."

The company also said fourth-quarter net income slumped 71 per cent to 479 million from 1.64 billion a year earlier. Sales fell to 3.05 billion in the quarter from 3.11 billion.

KPN was expected to report net income of 247 million on sales of 3.06 billion, the median estimates in a Bloomberg survey of 12 analysts.

Shares of KPN fell as much as 3.8 per cent to 7.03.

Scheepbouwer, 60, took over in November 2001. He has slashed debt by two-thirds, resumed dividend payments and brought the company back to profit after his predecessor's acquisition spree led to losses in 2001 and 2002.

He has now turned to boosting sales at the mobile unit to make up for slowing fixed-line phone sales.

They have barely risen since 2000, and KPN said it expected sales to be little-changed this year.

Scheepbouwer has pledged to return all excess cash to shareholders in the form of dividends or stock buybacks as the company expands its high-speed web and mobile-phone services.

KPN said in June it planned to buy back shares worth 1 billion to bring the total spent on dividends and buybacks to more than 2 billion for 2004.

This week it said it would resume buying back stock this week with the 485 million it has left from the earlier plan. It also said it would repurchase an additional 500 million of shares.

The company said it expected a "high single-digit decrease" in earnings before interest, taxes, depreciation and amortisation (ebitda) this year.

It expected capital spending to reach 1.7 billion in 2005, and to have free cash flow of more than 2 billion.

"KPN has delivered on fourth quarter results," said Stuart Gordon, an analyst at ABN Amro in London. "There are huge uncertainties, however, with respect to Ebitda for 2005 and that's what is causing the share price weakness."

Of the 39 analysts covering KPN in the past year, 22 rate the stock a "buy" and seven advise investors to sell, according to Bloomberg data.

KPN employed 32,736 people at the end of 2003, down from 49,121 at the end of 2001, and employs about 18,000 workers in the Netherlands who fall under a collective labour agreement.

Of the about 5000 job cuts announced this week, about 1400 are part of a plan announced last year to shed 2250 jobs, KPN said.

Net income in the fourth quarter of 2003 was boosted by a 1.08 billion gain from an agreement with the Dutch tax authority on how to tax a restructuring at the mobile unit, resulting in a deductible loss.

- BLOOMBERG