KPN reported a net profit for 2003 of 2.73bn euros ($3.42bn) compared to a net loss of 9.542bn euros ($11.98bn) for 2002. Excluding exceptional items, the profit after taxes in 2003 amounted to 655m euros ($822.4m) compared to a loss after taxes of 163m ($204.6m) in 2002. Earnings included a tax credit of 972m euros ($1.22bn). Revenue was 12.21bn euros ($13.54bn).

Two months ago, the operator issued a profit warning because of slow-growing fixed-line operations in its home market. The fixed-line business is expected to decline 5% to 7% in 2004, partially offset by 5% to 7% growth in mobile operations.

The carrier also said it would issue a dividend for the first time since 2001. KPN said it would pay a dividend of 0.13 euros ($0.16) per share this year. This is on top of the 0.12 euros ($0.15) dividend it announced earlier in the year. KPN also said it would reinstate an interim dividend this year, for the first time since 2000. It would also consider launching a share buy-back.

The Dutch group is aiming to pay a dividend of at least 0.20 euros ($0.25) in 2004. Looking forward, the company reiterated guidance for 2004, saying it expected pre-tax profit of between 1.4bn euros ($1.75bn) and 1.7bn euros ($2.13bn), with operating revenue flat at 2%.

It is an impressive turnaround for the Dutch carrier, after it ran into financial difficulties in 2001 when it paid too much for acquisitions and mobile phone licenses. It managed to stave off insolvency by issuing shares, cutting jobs, and selling subsidiaries to cut debt.

KPN also cut more than a third of its workforce. It employed about 30,500 workers at the end of last year, down from about 47,900 at the end of 2001. Last month, the company said it would shed a further 4.5% of the workforce at its fixed-line business this year.

At the end of 2003, net debt was 8.3bn euros ($10.4bn), down from 9.4bn euros ($11.8bn) in the third quarter and over 20bn euros ($25.1bn) two years ago.

Meanwhile, the merger mania that started in the North American mobile market with the $41bn acquisition of AT&T Wireless Services Inc, crossed the Atlantic after it emerged late last week that KPN had been in takeover talks for 18 months with mmO2.

Although the talks broke down late on Friday, industry experts believe the former Dutch State phone company could launch a hostile bid, although the carrier denies this.

No value was officially placed on the offer, although the Guardian newspaper reported that KPN had bid more than 9.5bn pounds ($17.7bn) for mmO2. KPN apparently offered 110 pence ($2.05) per mmO2 share, mostly in stock, the paper said.

KPN can confirm that it had been discussing a combination with mmO2 in the past few weeks and made a proposal recently to that effect, the company said in a statement. Although the board of KPN believes that the logic for a combination between the two companies remains intact, discussions have now ceased.

This article is based on material originally published by ComputerWire