THE HAGUE, Netherlands -- Revenue trends
KPN Group’s reported revenues and other income were down 8.8% y-on-y in Q3 2009, which is partly attributable to anumber of disposals of Getronics’ business units. Excluding these disposed activities, total revenues and other incomedecreased by 5.1% y-on-y. This decline is mainly caused by the Netherlands where a decline can be seen across allsegments, with the majority attributable to Getronics and iBasis and the telecom activities being impacted byregulatory tariff cuts. The slight decline within Mobile International of 0.8% y-on-y is attributable to Germany whereasBelgium and Rest of World both show an increase in revenues.
EBITDA trends
The solid EBITDA performance of the Group is a direct result of KPN’s strategy to focus on EBITDA. The 4.4% y-on-yEBITDA growth for KPN’s existing business was driven by another strong quarter in the Netherlands, with EBITDAfrom existing operations up 2.2% y-on-y despite regulatory pressure on tariffs and a continued EBITDA growth atMobile International (4.9% y-on-y). In addition, Segment Other shows a EUR 17m y-on-y EBITDA improvement due tooverhead cost reduction, which includes a EUR 6m restructuring charge in Q3 2008.
EUR 827m free cash flow in Q3 2009
In Q3 2009 free cash flow amounted to a strong EUR 827m compared to EUR 465m in Q3 2008. The main itemsresponsible for this year-on-year increase are a one-off VAT-benefit (~EUR 150m; quarterly payment instead ofmonthly), additional improvements in the working capital position (~EUR 100m), lower capital expenditures(~EUR 145m) and limited cash tax payments due to a prepayment in Q1 2009 (~EUR 75m), partly offset by higherinterest and pension payments.The year-to-date free cash flow amounts to EUR 1,510m, which is about EUR 100m lower than last year (YTD Q32008: EUR 1,614m). KPN expects to generate around EUR 900m free cash flow in Q4 driven by the expectedincrease in EBITDA and a working capital improvement in the range of EUR 300-400m from seasonality and otherimprovements. Taking into account the Q4 2008 working capital improvement of approximately EUR 600m, KPN is ontrack to deliver around EUR 2.4bn free cash flow in 2009.
Funding profile further strengthened by issuance of new long-dated bonds
On 8 September 2009 KPN issued a Sterling bond for GBP 850m with a 20-year maturity and a Sterling coupon of5.75%. The Sterling bond has been swapped into EUR 971m with a Euro-equivalent coupon of 5.98%. In addition, on22 September 2009, KPN issued a EUR 700m bond, with a 15-year maturity and a coupon of 5.625%. Both bondswere issued under KPN’s Global Medium Term Note program and are listed on Euronext Amsterdam. With thesebond issues KPN extended its average maturity profile from 5.9 to 7.5 years compared to Q2 2009. The averageinterest rate is 5.4%, up from 5.3% at the end of Q2 2009 due to the newly issued bonds as well as the EUR 700mredemption in July 2009.
KPN Telecom NV (NYSE: KPN)