2nd UPDATE: KPN Profit Up; Keeps Outlook

(Adds background, comments from analyst, company.) By Roberta B. Cowan Of DOW JONES NEWSWIRES AMSTERDAM (Dow Jones)--Royal KPN NV (KPN.AE) Tuesday reported a 26% increase in second-quarter net profit, mainly due to cost cutting, kept its full-year targets and said it expects the decline in sales to slow further in the second half of the year. The Netherlands' largest telecommunications company posted a net profit of EUR465 million for the quarter ended June 30, up from EUR370 million a year earlier, beating analysts' expectations of EUR449 million. Earnings before interest, tax, deprecation and amortization, or Ebitda, came in at EUR1.4 billion, up from EUR1.3 billion a year earlier. Group profitability improved as operating costs fell 5.8% on job cuts, lower salaries and procurement costs, and on more efficient network operations. The company also reported a EUR31 million increase in Ebitda attributable to Getronics, its information communications technology unit, and benefited from the absence of reorganization costs it incurred a year ago. Revenue, however, fell 1.7% to EUR3.35 billion from EUR3.41 billion due to fixed-line losses, increased competition and pricing pressure. Some business customers also continued to hold back on orders. Analysts had forecast revenue at EUR3.36 billion. Revenue fell less sharply than in the first quarter, though, and Chief Executive Ad Scheepbouwer said he expects the decline to slow further. The results were broadly in line, said ABN Amro analyst Rene Verhoef, noting a better than expected 3.6% rise in Ebitda at German mobile unit E-Plus. Still, he said the 4.3% sales decline at its business unit was disappointing. Verhoef has a buy rating on the stock. KPN confirmed its outlook for revenue, Ebitda and free cash flow for this year and next. "All in all we are confident of achieving our objectives for 2010 and 2011 and have set an interim dividend per share of EUR0.27 for 2010 leading into the full year target of EUR0.80 dividend per share," said Scheepbouwer. KPN said it didn't see any "further deterioration" in its markets but cautioned that any worsening of economic circumstances could "jeopardize KPN's objective of achieving sound financial performance." KPN said it has experienced a strong increase in data users on its Dutch network and is investing to adapt to the rapid growth in smartphones by changing its pricing policies. For the first time in five quarters, KPN said it had more subscription wireless customers in its home market than those on prepaid, as average revenue per user, or ARPU, increased to EUR25 from EUR23. "Most people are taking smartphones rather than normal phones," Scheepbouwer said. Scheepbouwer is due to retire in 2011. He has made it known that he would prefer an internal candidate for his replacement, which makes board members Eelco Blok, responsible for the International business, and Baptiest Coopmans, head of the Dutch operations, the most likely contenders. Chief Financial Officer Carla Smits-Nusteling has only been at the company a short time. The company competes in its home market with Vodafone Group PLC (VOD) and Deutsche Telekom AG (DT), and also operates in Germany through E-Plus. KPN reiterated Tuesday that it is open to partnerships with E-Plus but that it isn't dependent on a network partnership to deploy a high speed data network at low cost. By 1550 GMT, KPN's shares were trading up 0.9% at EUR11.15 in a broadly higher AEX market. Company website: www.kpn.com -By Roberta B. Cowan, Dow Jones Newswires; +3120-571-5200; roberta.cowan@dowjones.com Order free Annual Report for Vodafone Group PLC Visit http://djnweurope.ar.wilink.com/?ticker=GB00B16GWD56 or call +44 (0)208 391 6028 (END) Dow Jones Newswires July 27, 2010 08:01 ET (12:01 GMT)