(Reuters) -Dutch telecoms company KPN NV aims to slightly improve its core profit this year, it confirmed on Tuesday, supported by cost savings that should also boost its cash flow.

Soaring consumer prices and slowing economies are creating new challenges for telecom operators, who have seen profitability eroded in recent years by cut-throat competition and the need to invest in fibre and 5G networks.

The largest telecoms provider in the Netherlands forecast adjusted core earnings after leases (EBITDAAL) of around 2.41 billion euros ($2.61 billion) in 2023, compared with an October guidance for a small annual increase. Its 2022 core profit was 2.40 billion euros.

KPN said the outlook included an over 100 million euro hit from higher costs of energy, labour and leases.

To mitigate energy costs, the group will keep reviewing its energy consumption and modernising its network, finance chief Chris Figee said in a call, adding there was “still a lot to be gained”.

“Although we are facing a difficult macro-economic environment with wage indexation and rising energy costs likely to affect our cost savings run rate, the measures we have put in place provide us with confidence in our ability to maintain healthy margins and a growing free cash flow,” Chief Executive Joost Farwerck said in a statement.

KPN forecast a free cash flow of around 870 million euros for 2023. It plans to pay a dividend of 15 euro cents per share through the year, up 4.9% from 14.3 cents in 2022.

Credit Suisse analysts said the inflation-hit core profit outlook was “a touch light” but the cash flow target was 2% above consensus.

KPN’s core profit in the final quarter of 2022 was 598 million euros on sales of 1.37 billion euros. Analysts on average had expected core earnings of 597 million and sales of 1.36 billion euros.

The shares were up 0.7% at 0930 GMT, while Amsterdam’s AEX index fell 0.6%.

($1 = 0.9227 euros)

(Reporting by Lina Golovnya and Dagmarah Mackos in Gdansk; editing by Milla Nissi)