Royal KPN NV · EURONEXT:KPN
Royal KPN NV — KPN — H1 2013 Earnings Presentation
66 slides from Royal KPN NV's earnings presentation, Jul 23, 2013
Slide 1: Half year results 2013
Half year results 2013 23 July 2013
Slide 2: Safe harbor
Safe harbor Non-GAAP measures and management estimates This financial report contains a number of non-GAAP figures, such as EBITDA and free cash flow. These non-GAAP figures should not be viewed as a substitute for KPN’s GAAP figures. KPN defines EBITDA as operating result before depreciation and im
Slide 3: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 The Netherlands Joost Farwerck 4 Mobile International Thorsten Dirks 5 Concluding remarks Eelco Blok 3
Slide 4: Executive summary
Executive summary Delivering German E-Plus to be sold to Telefónica Deutschland mobile synergies Continued good operational performance, on track to realize outlook Strengthened financial position, platform to continue to execute strategy Revenues down due to challenging market Half year cir
Slide 5: Executive summary (cont’d)
Executive summary (cont’d) Bundling services increasingly reducing churn Triple play penetration at 42%, +12%-points y-on-y Investments in TV market share at 24%, #2 position in The customers Netherlands yielding Continued good postpaid net adds in Germany operational (H1 ’13: 475k vs. H1 ’1
Slide 6: Outlook
Outlook1 Continued good operational performance, on track to realize outlook • The Netherlands expected to stabilize towards 2014 • Next phase German strategy expected to lead to service revenue growth combined with lower EBITDA margin, especially in 2013 • Capex in 2013 below € 2.3bn and total plan
Slide 7: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 The Netherlands Joost Farwerck 4 Mobile International Thorsten Dirks 5 Concluding remarks Eelco Blok 7
Slide 8: E-Plus to be sold to Telefónica Deutschland
E-Plus to be sold to Telefónica Deutschland Delivering German mobile synergies of ~€ 5.0-5.5bn • E-Plus to be sold to Telefónica Deutschland Transaction structure ‒ Delivering German mobile synergies of estimated € 5.0-5.5bn Free • Implied valuation of € 8.1bn1, representing 9.0x float multiple on E
Slide 9: Group financial profile
Group financial profile Successfully completed € 3bn rights issue, net debt down to € 9.5bn Debt € bn 13.9 13.5 13.5 • Successfully completed € 3bn rights issue 13.0 13.2 13.0 − Total cash position of € 4.0bn at the end of Q2 ’13 − Net debt position decreased to € 9.5bn 12.4 12.4 12.5 11.8 12.0 9.5
Slide 10: Group financial profile (cont’d)
Group financial profile (cont’d) Positive impact capital raise on key credit metric Net debt1 / EBITDA2 • Net debt / EBITDA at 2.2x 2.8x − Positive impact rights issue proceeds ~0.7x 2.7x 2.6x − Partly offset by lower 12 months rolling EBITDA 2.5x 2.4x 2.2x • € 2bn hybrid bonds issued in Q1 ’13 reco
Slide 11: Group results Q2 ’13
Group results Q2 ’13 €m Q2 ’13 Q2 ’12 % • Revenues down 8.1% y-on-y − Lower revenues Consumer Mobile, NetCo, Revenues and other income 2,935 3,192 -8.1% Business and Germany − Regulation impact of € 61m (1.9%) Operating expenses (excl. D&A) 1,901 2,025 -6.1% 50% • Opex (excl. D&A) down 6.1% 1 – Depr
Slide 12: Group results YTD ’13
Group results YTD ’13 €m YTD ’13 YTD ’12 % • Revenues down 8.4% y-on-y − Lower revenues NetCo, Business, Consumer Revenues and other income 5,846 6,383 -8.4% Mobile and Germany − Regulation impact of € 115m (1.8%) Operating expenses (excl. D&A) 3,818 4,085 -6.5% 1 − Net negative impact from M&A and
Slide 13: Group cash flow Q2 ’13
Group cash flow Q2 ’13 €m Q2 ’13 Q2 ’12 % • Free cash flow lower y-on-y at € 139m Operating profit 253 618 -59% − € 133m lower EBITDA Depreciation and amortization1 781 549 42% − € 148m less cash from change in Interest paid/received -119 -121 -1.7% working capital Tax paid/received -77 -119 -35% −
Slide 14: Group cash flow YTD ’13
Group cash flow YTD ’13 FCF impacted by intrayear phasing €m YTD ’13 YTD ’12 % • Free cash flow of € 224m YTD ’13, Operating profit 618 1,210 -49% € 347m lower y-on-y Depreciation and amortization1 1,410 1,088 30% − € 270m lower EBITDA Interest paid/received -424 -379 12% − € 116m higher Capex Tax p
Slide 15: Financial review – The Netherlands
Financial review – The Netherlands €m • Revenues and other income down 9.0% y-on-y Revenues and other income − Lower revenues Consumer Mobile, NetCo and -9.0% Business − Net negative impact from M&A and incidentals € 23m (0.9%) 1,976 1,907 1,875 1,774 1,759 1,735 • EBITDA excl. restructuring costs d
Slide 16: Financial review – The Netherlands by segment
Financial review – The Netherlands by segment €m Consumer Residential • Revenues Consumer Residential increased by 23.4% 21.9% 21.9% 5.0% y-on-y 18.1% 19.0% 18.5% − Continued growth triple play revenues − Supported by net positive effect from M&A € 20m +5.0% (4.4%) • Actions taken to improve profita
Slide 17: Financial review – The Netherlands by segment
Financial review – The Netherlands by segment €m Business • Revenues Business down by 6.1% y-on-y 27.3% 26.9% 26.3% 27.5% − Lower hardware sales, decline in traditional 24.6% 25.8% services and continued price pressure 25.0%2 − Partly offset by € 23m (3.1%) book gain related to -6.1% sale Infrastruc
Slide 18: Financial review – IT Solutions & iBasis
Financial review – IT Solutions & iBasis €m IT Solutions1 • Revenues IT Solutions down by 13% y-on-y 13.2% 14.0% − Continued price pressure driven by overcapacity in 11.8% market and postponement larger ICT investments 8.9% 8.5% 5.5% − Stable market position -13% − Net negative impact from incidenta
Slide 19: Financial review – Germany
Financial review – Germany €m Germany • Revenues Germany down 4.6% y-on-y 38.2% 39.8% 38.5% 39.6% − Regulation impact € 38m (4.5%) 34.2% 25.0% − Partly offset by net positive impact from incidentals 32.1%2 € 13m (1.7%) 27.0%3 − Underlying service revenue decline stabilizing at -4.6% 2.4% 1032 Decl
Slide 20: Financial review – Belgium
Financial review – Belgium €m Belgium • Revenues Belgium down 12% y-on-y 35.7% 36.8% − Regulation impact € 13m (6.3%) 31.4% 31.2% 25.1% 26.8% − Underlying service revenue decline 3.6% − Mobile market remains very competitive -12% • EBITDA down € 25m y-on-y 191 207 201 205 − Regulation impact € 8m 18
Slide 21: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 The Netherlands Joost Farwerck 4 Mobile International Thorsten Dirks 5 Concluding remarks Eelco Blok 21
Slide 22: The Netherlands
The Netherlands Focus on creating loyal customers by high quality services Best-in-class Simplification to Bundled services networks support profitability Simplified products Simplified client processes Simplified network & IT 22
Slide 23: The Netherlands – 4G
The Netherlands – 4G Creating 4G market leadership, currently ~50% coverage 1 Roll-out 3 Data opportunity • 4G roll-out accelerated • 4G rapidly increasing data usage over Q2 Q4 Q1Q1 mobile network ’13 ’13 ’14’14 Data per user % data usage via Wi-Fi1 +80% -15% • Roll-out ahead of market − Superior c
Slide 24: The Netherlands – fixed network
The Netherlands – fixed network Ahead of the curve in Europe KPN leading with vectoring in Europe1 Best-in-class fixed networks Download speed Bonded Continued vectoring roll-out FttH 2014 2014 (200Mbps) (500Mbps) Vectoring 2013 (100Mbps) Pair bonding 2012 2013 2014 2015 (80Mbps) VDSL2 FttH 2011 200
Slide 25: Operating review – Consumer Residential
Operating review – Consumer Residential Continued strong operational performance 2.07 2.10 2.13 • RGUs and ARPU per customer increasing 1.94 1.97 2.01 per customer RGUs & ARPU 39 39 40 41 42 42 Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 Q2 ’13 RGUs (#) Blended ARPU (€) 23% 24% 24% • Growing TV market share
Slide 26: Operating review – Consumer Residential (cont’d)
Operating review – Consumer Residential (cont’d) Multi play and FttH supporting reduction of churn Bundled services and FttH increasing… …leading to churn reduction k +12%-points 42% • Bundling of services is proven strategy to 40% 36% reduce churn 32% 30% 1,131 28% 1,077 979 Triple play churn two t
Slide 27: Operating review – Consumer Mobile
Operating review – Consumer Mobile €m 45% 45% 44% 45% 45% 45% • Underlying service revenues under pressure (-7.2%) revenues 387 403 387 378 368 Service 362 360 • Market share relatively stable around 45% 345 345 336 328 325 Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 Q2 ’13 • Differentiated market approach t
Slide 28: Operating review – Business
Operating review – Business Moving towards bundled services Service revenues slightly down y-on-y Bundling services €m 51 51 49 49 49 48 Mobile device Mobile management Internet 252 253 245 246 246 249 Collaboration Mobile telephony Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 Q2 ’13 Voice & SMS Data (excl. S
Slide 29: The Netherlands – operating expenses
The Netherlands – operating expenses FTE reductions leading to structural decline in personnel costs Breakdown operating expenses1 • Operating expenses (excl. D&A and restructuring €m (excl. D&A and restructuring costs) costs) down 7.3% y-on-y -7.3% • Employee benefits down € 51m (16%) y-on-y 1,049
Slide 30: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 The Netherlands Joost Farwerck 4 Mobile International Thorsten Dirks 5 Concluding remarks Eelco Blok 30
Slide 31: Mobile International
Mobile International Focus on next phase of strategy Invest in high Grow in Focus on postpaid & quality broadband underpenetrated data opportunity data networks regions Data revenues 31
Slide 32: Operating review – Germany
Operating review – Germany Continued good postpaid net adds €m 15.7% 15.8% 15.9% 15.8% 15.1% ~15% • Stable market share expected due to competitive environment revenues Service 767 791 809 782 764 714 • Underlying service revenue decline stabilizing at 2.4% Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 Q2 ’13
Slide 33: Operating review – Germany (cont’d)
Operating review – Germany (cont’d) Capturing growing data opportunity German mobile market developments1 E-Plus developments • SMS revenues total German market (€ m) • Underlying service revenue growth stabilizing in -15% Q2 ’13 848 723 Q1 ’12 Q1 ’13 0% • Voice revenues total German market (€ m) -9
Slide 34: Operating review – Germany (cont’d)
Operating review – Germany (cont’d) Monetize and further improve data network Monetize competitive data network E-Plus data speed: from #4 to #3 in H1 ’13 High data service revenue growth >6 +60% Average throughput1 4.1 (Mbps) 1.4 H1 ’12 H1 ’13 Q2 ’12 Q2 ’13 Q4 ’13 Increased bandwidth 79% 88% 91% •
Slide 35: Operating review – Germany (cont’d)
Operating review – Germany (cont’d) Focus on growing postpaid, stabilizing prepaid Growing postpaid Important progress made to stabilize prepaid • Strong postpaid net adds (k), especially in • Growing prepaid customer base (m) underpenetrated areas 16.3 475 15.5 284 Q1 ’12 Q2 ’13 H1 ’12 H1 ’13 • AMP
Slide 36: Operating review – Belgium
Operating review – Belgium Continued outperformance in competitive market € m >19% ~20% ~20% >20% >20% ~21% • Belgian mobile market size under pressure − Mobile market remains competitive revenues − Telecoms law allows for increased tariff Service 180 181 185 optimization 170 162 161 Q1 ’12 Q2 ’12 Q
Slide 37: Operating review – Belgium (cont’d)
Operating review – Belgium (cont’d) Strong network position supporting postpaid and data focus • Strong network position • Focus on postpaid and data • A leading network position in Belgium1 • New mobile portfolio successfully launched ‒ #1 voice quality ‒ Joint #1 position data quality • Dual carri
Slide 38: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 The Netherlands Joost Farwerck 4 Mobile International Thorsten Dirks 5 Concluding remarks Eelco Blok 38
Slide 39: Concluding remarks
Concluding remarks • Strengthened financial position, platform to continue to execute strategy • Significant network investments strengthening operations • Investments in customers yielding operational results • Underlying cost structure improvements to continue • Continued good operational performa
Slide 40: Q&A
Q&A 40
Slide 41: Annex
Annex Q2 2013 - Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 ir@kpn.com www.kpn.com/ir
Slide 42: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 42
Slide 43: KPN ADR program
KPN ADR program KPN has a sponsored Level 1 ADR program ADR program Bloomberg ticker KKPNY Trading platform Over-the-counter (OTC) CUSIP 780641205 Ratio 1 ADR : 1 Ordinary Share Depositary bank Deutsche Bank Trust Company Americas Depositary bank contact Stanley Jones +1 212 250 9100 (New York) ADR
Slide 44: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 44
Slide 45: Analysis of results
Analysis of results Impact incidentals, restructuring and regulation €m Q2 ’13 Q2 ’12 YTD ’13 YTD ’12 Revenue effect MTA reduction Regulation Group -43 -30 -83 -60 Roaming tariff reduction Regulation Group -18 -3 -32 -4 EBITDA effect MTA reduction Regulation Group -21 -11 -43 -21 Roaming tariff redu
Slide 46: Restructuring costs
Restructuring costs €m Q2 ’13 Q2 ’12 YTD ’13 YTD ’12 Germany - - 5 - Belgium - - - - Mobile International - - 5 - Consumer Mobile -2 -1 -5 -1 Consumer Residential -10 -20 -12 -21 Business -9 -1 -9 -12 NetCo -2 -17 -5 -17 Other -19 -2 -25 -3 Dutch Telco -42 -41 -56 -54 IT Solutions -5 -1 -10 -4 The N
Slide 47: Impact regulation
Impact regulation €m Q2 ’13 YTD ’13 Revenues EBITDA Revenues EBITDA Germany -38 -22 -73 -42 Belgium -13 -8 -24 -15 Mobile International -51 -30 -97 -57 Consumer Mobile -6 -1 -10 -4 Of which: Mobile Wholesale -2 - -2 - Business -3 -1 -6 -4 NetCo -1 - -2 - Intercompany - - - - The Netherlands -10 -2 -
Slide 48: Operating expenses
Operating expenses €m Q2 ’13 Q2 ’12 % Employee benefits 390 452 -14% Cost of materials 190 236 -20% Work contracted out and other expenses 1,160 1,142 1.6% Own work capitalized -29 -29 flat Other operating expenses1 190 224 -15% Depreciation2 506 338 50% Amortization2 275 211 30% Total 2,682 2,574 4
Slide 49: Operating expenses - analysis
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y decrease 16.0% • Lower costs due to the sale of Getronics 15.0% 14.3% 13.3% 14.4% 13.4% International • Lower costs as a result of FTE reduction program • Release of provision for several incentive scheme
Slide 50: Operating expenses - analysis
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y increase 39.8% • Increased dealer commissions Germany 38.8% 37.7% • Higher content and activation costs Consumer 36.2% 36.2% 36.5% Residential • Higher FttH access costs NetCo • Partly offset by lower commercial
Slide 51: Operating expenses - analysis
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 Y-on-Y increase 17.4% • Impairment of assets Germany (€ 75m) 13.6% 14.3% 14.1% • Increased customer driven investments, including 10.4% 10.7% handset lease model Consumer Mobile 5062 Q-on-Q increase 413 437 409 338 • Impairme
Slide 52: Dutch wireless disclosure
Dutch wireless disclosure Q2 ’13 Q2 ’12 % Service revenues (€ m) 617 664 -7.1% − Consumer retail 325 360 -9.7% − Business 249 253 -1.6% − Other1 43 51 -16% SAC/SRC per subscriber (€) − Consumer retail2 162 168 -3.6% − Business 283 277 2.2% 1 Includes amongst others Consumer Mobile wholesale and visi
Slide 53: Tax
Tax P&L Cash flow Fiscal units (€ m) Q2 ’13 Q2 ’12 Q2 ’13 Q2 ’12 The Netherlands 36 -54 -771 -1121 IT Solutions -6 3 - -2 Germany 1 -36 1 -1 Belgium -1 -3 1 - Other - -2 -2 -4 Total reported tax 30 -92 -77 -119 Effective tax rate n.m. 21.3% • Q2 ’13 P&L tax includes one-off benefits from application
Slide 54: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 54
Slide 55: Debt summary
Debt summary € bn Q2 ’13 Q1 ’13 % Nominal debt 14.55 14.51 0.3% Eurobonds 11.37 11.37 flat Global bonds 0.76 0.76 flat Hybrid bonds 2.03 2.03 flat Credit facility - - flat Financial leases and other loans 0.39 0.35 11% Equity credit hybrid bonds -1.01 -1.01 flat Gross debt1 13.54 13.50 0.3% Of which
Slide 56: Debt portfolio
Debt portfolio Breakdown of € 14.6bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 14.6bn) Breakdown by currency Other 17% Hybrid bonds 3% 74% 14% Global bonds 9% 5% Eurobonds 78% EUR USD2 GBP 2 € bn Bond redemption profile Fixed vs. floating interest 1.4 1.5 1.3 1.3 1.1 1.0
Slide 57: Treatment of hybrid bonds
Treatment of hybrid bonds KPN & Credit rating agencies IFRS • Each tranche of the hybrid bonds is recognized as 50% • EUR tranche is a perpetual, accounted for as equity equity and 50% debt by the rating agencies − Coupon payments treated as equity distribution, hence not expensed through P&L, not i
Slide 58: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 58
Slide 59: Regulation
Regulation MTA rates across the Group • ACM published draft decision for MTA rates as of 1 September 2013 • Formal decision subject to EC notification, open to appeal NL € ct / min Until 7 July ’10 7 July ’10 Sep ’10 Jan ’11 Sep ’11 Sep ’12 Sep ’13 MTA rate 7.00 5.60 5.60 4.20 2.70 2.40 1.019 Impact
Slide 60: Unbundling tariffs
Unbundling tariffs Unbundling in copper network Category Monthly tariff MDF Node Line sharing (LLU) € 0.12 / line SDF colocation KPN / Telco Fully unbundled (LLU) € 6.86 / line ~28,000 1,350 MDF colocation € 913.52 footprint / year street cabinets local exchanges € 5.32 / line shared Wholesale Broad
Slide 61: Spectrum in The Netherlands
Spectrum in The Netherlands 800MHz Tele2 VOD KPN 2*30 Paired 2*10 2*10 2*10 900MHz VOD KPN T-Mob 2*35 Paired 2*10 2*10 2*15 1.8GHz KPN VOD T-Mob 2*70 Paired 2*20 2*20 2*30 1.9GHz T-Mob KPN VOD T-Mob 1*35 Unpaired 10 5 5.4 14.6 Current status 2.1GHz VOD KPN T-Mob KPN VOD T-Mob 2*59.4 Paired 2*14.6 2*
Slide 62: Spectrum in Germany
Spectrum in Germany 800MHz O2 VOD DT 2*30 Paired 2*5 2*5 2*5 2*5 2*5 2*5 900MHz E+ O2 DT VOD 2*34.8 Paired 2*5 2*5 2*12.4 2*12.4 1.8GHz DT E+ O2 VOD E+ 2*69.8 Paired 2*5 2*5 2*5 2*5 2*5 2*17.4 2*5 2*5 2*17.4 2.1GHz VOD E+ O2 DT 2*64.35 Paired 2*4.95 2*9.9 2*4.95 2*4.95 2*9.9 2*4.95 2*9.9 2*9.9 Curre
Slide 63: Spectrum in Belgium
Spectrum in Belgium 800MHz To be auctioned 2013 2*30 Paired 2*10 2*10 2*10 900MHz BASE Belgacom Mobistar 2*34 Paired1 2*10 2*12 2*12 1.8GHz BASE Belgacom Mobistar 2*63.6 Paired1 2*22 2*20.8 2*20.8 2.1GHz Belgacom BASE Telenet Mobistar 2*59.4 Paired 2*15 2*14.8 2*14.8 2*14.8 Current status 2.1GHz B M
Slide 64: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 64
Slide 65: Infrastructure
Infrastructure Deploying mix of technologies going forward VDSL from VDSL pair bonding (Vectored) VDSL ADSL on central office central office from copper (VDSL-CO) (VDSL-CO) street cabinet FttH Wireless Central Central Central Central office office office office ODF1 Street cabinet up to 20 Mbps DS2
Slide 66: Roadmap to Reggefiber consolidation
Roadmap to Reggefiber consolidation Option structure Reggefiber financials FY 2012 Option I1 Option II3 Option III Reggefiber FY 2012 (€ m) • Additional 10% • Additional 9% • Remaining 40% Revenue 73 Ownership stake • 51% ownership • 60% ownership • 100% ownership Opex 19 Option type Call and Put op