Ultimately, all stakeholders benefit when a company's management is transparant about its reporting and plans. For commercial reasons, there may be secrets from time to time, but an overall lack of transparancy will in term hurt customers, employees and shareholders. The stock market valuation will show a discount to the peer group valuation.
KPN's reporting leaves little to desire, with a deluge of numbers every quarter. And yet, transparency still is the major weak point at the moment and this explains why KPN desperately needs a new CFO. On February 19, KPN will host a Capital Markets Day and one can only wonder why this is scheduled, absent a new CFO.
Unfortunately, only those financial analysts working at financial institutions are invited (so much for transparency ...). But fortunately, the event will be webcast.
KPN had seen several CFOs come and go since CEO Eelco Blok took over in 2011. The position is vacant currently and filled on an interim basis by Steven van Schilfgaarde (in September 2013 he announced that he would leave the company, but 10 days later he was appointed interim CFO).
Here is why the company is in desperate need for a new CFO:
- First of all, the position is vacant. Succession has been all too rapid since 2011 and the company needs guidance in more than one way.
- Second, KPN issued no fewer than 4 profit warnings, lowered the dividend on 3 occasions and announced a rights issue. And all this within a time span of less than 3 years. At 13Q4, the Netherlands business was forecast to 'stabilise toward the end of 2014', rather than 'toward 2014', as it was put as recently as at the 13Q3 results, and so invisibility continues.
- Once more, management appears to be reverse engineering the bottom line (2011: guidance on dividend; 2013: guidance on free cash flow), without giving guidance on the top line (which deteriorated, just when it was supposed to be improving).
- The dividend is re-installed, pending the E-Plus sale, but it remains unclear whether the dividend is solely dependent on this sale, or whether it can be sustained by the current business and its cash flow.
- Months after the rights issue, another EUR 5bn was announced to flow into the company as a result of the E-Plus sale. It remains unclear why KPN would need this extra cash.
- The dividend policy needs to be run as way to distribute excess cash, not as a way of attracting investors. How come the dividend is reinstated at a time when the business deteriorates? Why is the company speculating about receiving dividends from Telefonica Deutschland? KPN appears to be hopeful that the debt level at TD would be raised to enable it to pay a higher dividend.
- All this probably translates into guidance at the KPN level that is taken with a grain of salt by the market. Hardly anyone probably takes it all too literally at the moment.
KPN needs a very experienced CFO who can issue trustworthy guidance based on the underlying business progress. This should improve the quality of the company's guidance and bring back stability. KPN really needs to stop issuing profit warnings at just about every single quarter. No wonder America Movil insisted on appointing the CFO, should it acquire KPN. And a strong CFO will be good for the company's valuation.
Finally, here are some questions for the Capital Markets Day:
- Which initiatives are put in place to turn Consumer Mobile around? What is KPN's response to current market trends? Remember, Tele2 is constructing its own LTE network, Ziggo and UPC will merge and launch a nationwide mobile provider and T-Mobile has a new mobile-only strategy.
- How much will the expected opex and capex savings be ('hundreds of millions')?
- What is the cost of VDSL2 + vectoring per home passed, including the cost of laying fiber outer rings? And how does that compare to the cost of FTTH (currently apparently around 850 EUR/HP)? And does it warrant a migration in focus from FTTH to VDSL?
- Can the fiber outer rings be re-used by Reggefiber for its FTTH architecture, should KPN decide to step up FTTH investments in the future?
- How do Tele2 and Vodafone (potential FTTH unbundlers) feel about KPN slowing down FTTH? (Let me guess: "You will need to ask them").
- What are the plans for Belgium? When the planned sale of E-Plus was announced, focus was directed to the Netherlands and Belgium. However, silence around Base was rather deafening and one can only wonder why: is something big in the works (remember, selling E-Plus will deliver EUR 5 bn + a 20.5% Telefonica Deutschland stake)? Or is Base really up for sale again, given that Belgium is a notoriously difficult market?
- What are the current takeover opportunities? In which part of the value chain is KPN interested?
- Is iBasis a core holding?