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KPN says funding pension deficit a factor

NETHERLANDS – Dutch telecoms firm KPN, which is raising its pension schemes’ equities exposure to boost returns, said the possible funding of its 350 million-euro pension deficit will be a factor in its profitability.

“We are expecting to achieve profit before tax at the higher end of our guidance, despite the fact that there will be some additional costs of 200 to 300 million euros in the second half of the year,” the group said.

It cited extra costs from the “possible funding of a pension deficit” as well as marketing costs and the amortisation of costs associated with mobile phone licences.

“The funding agreement between KPN and its pension funds obliges KPN to make additional payments in case of a shortfall,” the firm said in its second-quarter earnings release.

“Although the actual coverage level increased, the total reserve deficit increased to 350 million euros as of June 30, 2004 (December 31 2003: 305 million euros) as a result of a change in the strategic asset mix to improve longer-term performance.”

In 2005, KPN has to pay 20% of any pension shortfall as at the end of December 2004 - on top of the regular pension contributions. It said: “The actual deficit on December 31 2004 will therefore determine the payment due in 2005.”

In May the company said its pension schemes had cut exposure to bonds to boost long-term performance.

A spokeswoman said at the time that the new strategic allocation means fixed income exposure would decline to 50% from the current 60%. “We have increased our exposure to equities,” she said. The allocation to real estate was also raised.

KPN’s asset mix has changed over the years. In mid-July 2002, it cut its equity investments to take its holding in the asset class below 30%. At the end of 2001, 56% of its portfolio was in equities.

The company reported that net income rose to 369 million euros from 183 million euros.

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