Royal KPN NV · EURONEXT:KPN
Royal KPN NV — Q3 2010 Earnings Presentation
54 slides from Royal KPN NV's earnings presentation, Oct 26, 2010
Slide 1: Third Quarter Results 2010
Third Quarter Results 2010 26 October 2010
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: Agenda
Agenda Chairman’s review Ad Scheepbouwer Group financial review Carla Smits-Nusteling Group operating review Ad Scheepbouwer Concluding remarks Ad Scheepbouwer 3
Slide 4: Highlights Q3
Highlights Q3 Solid performance across the Group • Revenue growth at Group level y-on-y in Q3 • Continued increase in profitability at Dutch Telco • Higher service revenue growth in Germany at very strong margin • High speed data launch in Germany already in Q4 • Outlook confirmed for 2010 and 2011
Slide 5: Financial highlights Q3
Financial highlights Q3 • Financial performance Q3 ’10 – Revenues and other income of € 3,378m, up 1.4% y-on-y – EBITDA of € 1,408m, up 5.9% y-on-y – Capex of € 431m, up 20% y-on-y – Free cash flow of € 681m, € 1,616m YTD – Earnings per share of € 0.27, up 8.0% y-on-y • Improved financial profile in
Slide 6: Outlook for 2010 and 2011 confirmed
Outlook Outlook for 2010 and 2011 confirmed Reported 2009 Outlook 2010 Revenues and • Higher revenues in H2 € 13.5bn In line with 2009 y-on-y, excluding disposals other income • EBITDA growth of € 300m € 5.2bn > € 5.5bn for full year 2010 remains EBITDA Incl. real estate: € 56m Incl. real estate: No
Slide 7: Agenda
Agenda Chairman’s review Ad Scheepbouwer Group financial review Carla Smits-Nusteling Group operating review Ad Scheepbouwer Concluding remarks Ad Scheepbouwer 7
Slide 8: Group results Q3 '10
Group results Q3 ’10 Solid financial performance across the Group €m Q3 ’10 Q3 ’09 % YTD ’10 YTD ’09 % Revenues and other income 3,378 3,331 1.4% 10,009 10,138 -1.3% Operating expenses 2,531 2,579 -1.9% 7,530 8,012 -6.0% 1 – of which Depreciation 353 384 -8.1% 1,052 1,167 -9.9% 1 – of which Amortiza
Slide 9: Group cash flow Q3 '10
Group cash flow Q3 ’10 Free cash flow of € 0.7bn in Q3 ’10 €m Q3 ’10 Q3 ’09 % • Free cash flow of € 681m in Operating profit 847 752 13% Q3 ’10, down 18% y-on-y − Interest payments up 33% due to bond Depreciation and amortization1 561 577 -2.8% issue in Q3 ’09 and impact of tender in Interest paid/r
Slide 10: Group cash flow YTD '10
Group cash flow YTD ’10 On track to meet full-year guidance of at least € 2.4bn free cash flow for 2010 €m YTD ’10 YTD ’09 % Operating profit 2,479 2,126 17% • Free cash flow of € 1.6bn YTD, up Depreciation and amortization1 1,638 1,759 -6.9% 7.0% y-on-y Interest paid/received -604 -461 31% Tax paid
Slide 11: Group financial profile
Group financial profile Maturity profile optimized following tender and bond issue in Q3 ’10 € bn Debt Financing policy 14.5 13.6 13.7 13.8 13.8 13.7 13.6 2.5x 2.3 2.3 2.3 2.2 2.3 2.3 2.0x 11.7 11.8 11.7 12.1 12.2 2.1 11.1 11.4 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q1 '09 Q2 '09 Q3 '09 Q4
Slide 12: Agenda
Agenda Chairman’s review Ad Scheepbouwer Group financial review Carla Smits-Nusteling Group operating review Ad Scheepbouwer The Netherlands International Concluding remarks Ad Scheepbouwer 12
Slide 13: Dutch Telco - Strategy
Dutch Telco - Strategy Key elements of value maximizing strategy Manage for value Grow mobile data Targeting single access Lifecycle ’94 • First GSM network in NL n io • Roll-out (A)DSL ut Br rib an Value st ds ’02 • Roll-out 3G Network Di maximization ’04 • TV offering launch with Customer Lifecycl
Slide 14: Dutch Telco business
Dutch Telco business Continued increase in profitability at Dutch Telco €m Revenues and other income • Revenues and other income down 1.3% y-on-y in Q3 ’10 -1.3% – Continued pressure on traditional businesses – ~1.5% impact from regulation 1,824 1,838 – Positive impact from € 26m 1,770 1,782 1,758 1
Slide 15: Financial review - Dutch Telco business by segment
Financial review - Dutch Telco business by segment All segments contributing to healthy profitability €m 26.9% 26.0% 26.9% 29.2% 28.1% 23.7% 24.0% Consumer • Improving revenue trend as a result of wireless services, despite regulation 1,031 1,042 1,018 1,004 990 991 969 • Solid profitability combine
Slide 16: Operating review - Consumer wireless
Operating review - Consumer wireless1 Market position strengthened while carefully watching market value Continued focus on successful strategies Positive developments in Q3 • Balancing market share, pricing and Focus on market value remains while SAC/SRC to maximize market value improving market po
Slide 17: Operating review - Consumer wireless (cont'd)
Operating review - Consumer wireless1 (cont’d) Improving service revenues trend, despite regulation €m -3.7% • Improving service revenue trend, down 3.7% y-on-y Service – ~3.3% impact from regulation revenues 465 477 460 453 448 443 434 – Focus on profitable revenues results in some prepaid customer
Slide 18: Operating review - Consumer wireline
Operating review - Consumer wireline Broadband customer base stabilizing, supported by continuing IPTV growth Positive developments in Q3 Stabilizing broadband customer base 13% 14% 14% 11% 12% 12% 43% 43% 43% 42% 42% 42% 42% 10% 193 245 106 147 50 62 76 2,565 2,568 2,578 2,575 2,584 2,568 2,568 785
Slide 19: Operating review - Consumer wireline (cont'd)
Operating review - Consumer wireline (cont’d) Net line loss remains at manageable level in Q3 X 1,000 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 PSTN/ISDN • PSTN/ISDN line loss stable loss • Outflow to cable remains in line with -92 -77 -83 -87 -87 -72 -73 previous quarters • Success of retent
Slide 20: Operating review - Business wireless
Operating review - Business wireless Stable performance of wireless services corrected for regulation €m -2.6% • Service revenues down 2.6% y-on-y 247 246 234 247 248 246 228 – ~3.0% impact from regulation Service • Continued mobile data growth in a revenues competitive environment Q1 '09 Q2 '09 Q3
Slide 21: Operating review - Business wireline
Operating review - Business wireline Continued decline in revenues €m -7.2% • Continued impact from competition, economy and decline in traditional business Revenues1 374 371 359 361 376 342 333 • Underlying revenue trend shows stable decline, corrected for € 11m negative Q1 '09 Q2 '09 Q3 '09 Q4 '09
Slide 22: Operating review - Getronics
Operating review - Getronics On track for 8% EBITDA margin in 2010 €m Revenues and other income -1.9% • Revenues down 1.9% in Q3; market (Existing operations) conditions remain difficult, no change in 537 customer behavior 525 528 485 474 478 476 – The Netherlands down 4.4% y-on-y in Q3, including €
Slide 23: Agenda
Agenda Chairman’s review Ad Scheepbouwer Group financial review Carla Smits-Nusteling Group operating review Ad Scheepbouwer The Netherlands International Concluding remarks Ad Scheepbouwer 23
Slide 24: Mobile International
Mobile International Continued service revenue growth with strong profitability Wireless service €m +5.1% • Service revenues up 5.1% y-on-y revenues – Improving growth trend in Germany 975 956 987 1,025 – Lower growth in Belgium due to severe 902 943 927 impact from MTA – Strong growth y-on-y in RoW
Slide 25: Financial review - Mobile International by segment
Financial review - Mobile International by segment Continued revenue growth with strong margins €m 40.3% • Market outperformance expected with 35.4% service revenue growth of 1.8% y-on-y Belgium¹ 32.5% 33.3% 32.5% 33.2% 34.8%2 30.9% • Severe MTA impact of € 11m on service revenues, € 8m on EBITDA 20
Slide 26: Operating review - Belgium
Operating review - Belgium1 Service revenues up 1.8% including severe regulatory impact Net adds • Service revenues up 1.8% y-on-y 3.5 3.5 3.6 3.6 3.6 3.6 3.7 including severe MTA impact of 6.6% – Strong performance of BASE postpaid, mainly driven by flat fees and SME/SoHo 39 53 segment 38 24 29 32
Slide 27: Operating review - Germany
Operating review - Germany Higher service revenue growth, expecting further improvement in next quarters Net adds • Growing customer numbers through 18.0 18.2 18.7 19.0 19.3 19.6 19.9 partnerships and focused marketing – Net adds of 309k with increasing postpaid adds to 77k through BASE 462 – Contin
Slide 28: High speed data launch - Strategy
High speed data launch - Strategy Key enablers in place, regional approach for roll-out & commercial offers Road to high speed data launch Regional approach Germany Q4 ’09 • Strategic partnership with ZTE, incl. equipment at favorable terms Q1 ’10 • Relaunch of BASE brand Hamburg Q2 ’10 • Acquired v
Slide 29: High speed data launch - Commercial
High speed data launch - Commercial Offering value for money data propositions to mass market through partnerships Lowest cost to serve Multi-brands & partners Handsets Incumbent Challenger Timed investments Proven technology Partnerships Cost to serve • Branded smartphones; first one • Challenger b
Slide 30: Operating review - RoW
Operating review - RoW Strong revenue increase with Spain, France and Ortel all contributing • Continued subscriber growth with healthy ARPU, mainly from Simyo Spain • Benefit from improved network conditions reinvested to accelerate growth • Launch of “40 Móvil” brand in Q3 with media partner Quare
Slide 31: Operating review - iBasis
Operating review - iBasis Focus on revenues and profitability, continued momentum of turnaround Financial • Focus on balancing revenue growth with profitability 4.3% 4.1% 4.1%1 3.8% – Revenues up 38% y-on-y to € 248m, of which 3.5% 3.4% 3.2% ~10% currency effect – EBITDA margin of 3.2% 1.1% – EBITDA
Slide 32: Agenda
Agenda Chairman’s review Ad Scheepbouwer Group financial review Carla Smits-Nusteling Group operating review Ad Scheepbouwer Concluding remarks Ad Scheepbouwer 32
Slide 33: Concluding remarks
Concluding remarks • Revenue growth at Group level y-on-y in Q3 • Continued increase in profitability at Dutch Telco • Higher service revenue growth in Germany at very strong margin • High speed data launch in Germany already in Q4 • Outlook confirmed for 2010 and 2011 33
Slide 34: Q&A
Q&A
Slide 35: Annex
Annex For further information please contact KPN Investor Relations Tel: +31 70 44 60986 Fax: +31 70 44 60593 ir@kpn.com www.kpn.com/ir
Slide 36: Analysis of results
Analysis of results Key items worth mentioning in results interpretation €m Q3 ’10 Q3 ’09 Revenue effect MTA tariff reduction Group -34 -59 Roaming tariff reduction Group -9 -39 Wholesale Price Cap W&O - -24 EBITDA effect MTA tariff reduction Group -14 -21 Roaming tariff reduction Group -5 -29 Whole
Slide 37: Regulatory MTA update
Regulatory MTA update MTA glide paths • New glide path implemented per 7 July 2010 – KPN has started an annulment procedure and requested suspension of the decision The € ct / min Until 7 July ’10 7 July ’10 Sep ’10 Jan ’11 Sep ’11 Sep ’12 Netherlands KPN 7.00 5.60 5.60 4.20 2.70 1.20 Vodafone 7.00
Slide 38: Impact MTA reduction
Impact MTA reduction €m Q3 ’10 YTD ’10 Revenues EBITDA Revenues EBITDA Germany - - -21 -10 Belgium -11 -8 -11 -8 Rest of World - - - - Mobile International -11 -8 --32 --18 Consumer -13 -5 -44 -12 Of which: Mobile Wholesale - - -2 -1 Business -7 -1 -26 -2 Wholesale & Operations -5 - -16 -1 Intercomp
Slide 39: Restructuring charges
Restructuring charges €m Q3 ’10 Q3 ’09 YTD ’10 YTD ’09 Germany 1 - -1 -1 Belgium - - - - Rest of World - - - - Mobile International 1 - -1 -1 Consumer - - -2 -4 Business - - - - Wholesale & Operations - 1 3 -4 Dutch Telco - 1 1 -8 Getronics - -1 1 -30 The Netherlands - - 2 -38 Other - - 1 4 KPN Grou
Slide 40: Operating expenses
Operating expenses €m Q3 ’10 Q3 ’09 % Salaries and social security contributions 471 502 -6.2% Cost of materials 226 207 9.2% Work contracted out and other expenses 1,160 1,137 2.0% Own work capitalized -24 -21 14% Other operating expenses 137 177 -23% Depreciation1 353 384 -8.1% Amortization1 208 1
Slide 41: Analysis operating expenses: Salaries & Cost of materials
Analysis operating expenses Salaries and social security contributions & Cost of materials €m Salaries and social security Y-on-Y decrease • Reduction of own personnel at all segments 16.1% 15.9% 15.2% 15.7% 15.5% 14.7% 14.1% Q-on-Q decrease • Reduction of own personnel at Dutch Telco business, Getr
Slide 42: Analysis operating expenses: Work contracted out & Other
Analysis operating expenses Work contracted out & Other €m Work contracted out Y-on-Y increase • Higher revenues at iBasis leading to higher costs 36.3% Partly offset by 34.7% 34.4% 33.9% 34.1% 34.2% 34.8% • Lower traffic costs due to regulatory tariff cuts 1,231 1,182 1,137 1,136 1,116 1,144 1,160
Slide 43: Analysis operating expenses: Depreciation & Amortization
Analysis operating expenses Depreciation & Amortization €m Depreciation1 Y-on-Y decrease • Lifetime of mobile masts increased in Q1 ’10 11.6% 11.5% 11.6% 11.4% • Smaller asset base across all segments 10.6% 10.5% 10.6% 392 391 384 383 348 351 353 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Depr
Slide 44: Personnel
Personnel • Decrease of 3,896 FTE y-on-y 35,638 35,502 – Reduction of 1,731 FTE in the Netherlands 34,550 33,148 (excl. Getronics) from all segments and due 4,972 4,901 32,203 4,570 31,121 30,654 to divestment of SNT Netherlands (Q4 ’09) 4,470 – Reduction of 1,147 FTE at Getronics, mainly 4,369 3,99
Slide 45: Tax
Tax P&L Cash flow Fiscal units (€ m) Q3 ’10 Q3 ’09 Q3 ’10 Q3 ’09 Dutch activities -75 -99 -1 1 Getronics 1 -1 - - German Mobile activities -29 -58 -4 -6 Belgian Mobile activities -9 -8 - - Other -2 -5 -1 -2 Total -114 -171 -6 -7 • Lower tax expense Dutch activities mainly due to costs of € 97m relat
Slide 46: Share repurchase progress
Share repurchase progress Date1 Value (€ m) Shares (m) Avg. share price (€) Q1 ’10 103.1 8.9 11.60 Q2 ’10 454.1 42.1 10.79 July 44.3 4.2 10.48 August 23.4 2.1 10.93 September 34.2 3.0 11.34 Q3 ’10 101.9 9.4 10.86 October2 26.4 2.3 11.35 Total 685.4 62.7 10.93 • € 1bn share repurchase program for 201
Slide 47: Debt portfolio
Debt portfolio Breakdown of € 13.6bn gross debt1 12% 75% Global bonds Other 13% Financial 13% 3% instrum ents 1% EUR USD2 GBP2 7% Eurobonds 93% 83% Fixed Floating (incl. swapped) 1 Book value of interest bearing financial liabilities plus the fair value of financial instruments related to these fina
Slide 48: Consumer voice market
Consumer voice market1 m Q3 ’10 Q2 ’10 Q3 ’09 KPN PSTN / ISDN 1.77 1.85 2.11 Wholesale Line Rental (WLR) 0.40 0.40 0.42 Total traditional voice 2.17 2.25 2.53 KPN VoIP 1.28 1.26 1.20 Cable VoIP 1.74 1.66 1.44 Alternative DSL VoIP 0.43 0.42 0.38 Total VoIP 3.45 3.34 3.02 Mobile-only 1.25 1.25 1.25 To
Slide 49: Dutch wireless services disclosure
Dutch wireless services disclosure Q3 ’10 Q2 ’10 Q3 ’09 Service revenues (€ m) 742 761 757 − Consumer 443 448 460 − Business 228 246 234 − Other Dutch activities1 71 67 63 SAC / SRC (€) − Consumer 162 157 150 − Business2 242 215 287 1 Indicates amongst others Mobile Wholesale NL, Simyo and visitor r
Slide 50: Infrastructure
Infrastructure Deploying mix of technologies going forward ADSL on copper VDSL from FttC FttH Wireless central office (VDSL-CO) Central office Central office (ADSL2+) (VDSL2) ODF1 Street Street Street cabinet cabinet cabinet up to 20 Mb/s down up to 40 Mb/s down 30-50 Mb/s down >100 Mb/s >14 Mb/s do
Slide 51: Unbundling tariffs
Unbundling tariffs Unbundling in current network Category Monthly tariff Line sharing (LLU)1 € 0.10 / line MDF Node SDF Fully unbundled (LLU)1 € 6.53 / line colocation KPN / Telco MDF colocation1 € 839.60 / footprint / year ~28,000 1,350 street cabinets local exchanges MDF backhaul Commercial pricin
Slide 52: German spectrum auction
German spectrum auction Good auction outcome, capacity and standardization are key Total E-Plus O O V V T T 800MHz Paired 2x5 2x5 2x5 2x5 2x5 2x5 60.0MHz 0% Standardized E O T V T V 900MHz Paired 2x5 2x5 2x5 2x5 2x7.4 2x7.4 69.6MHz 14% T T T T E O O O V E E E E 1.8GHz Paired 2x5 2x5 2x5 2x5 2x5 2x5
Slide 53: Spectrum in Belgium
Spectrum in Belgium Currently fairly allocated, potential new entrant KPNgB Proximus Mobistar 900MHz 2x10.8 2x12 2x12 KPNgB Proximus Mobistar Prox Mob Free 1.8GHz 2x5.8 2x5.8 2x22 2x15 2x15 2x11.4 Current KPNgB Proximus Mobistar Free 2.1GHz status 2x15 1x5 2x15 1x5 2x15 1x5 2x14.8 1x5 Free 2.6GHz 14
Slide 54: Service revenue growth Mobile International
Service revenue growth Mobile International Service revenue growth Germany1 Service revenue growth Belgium1 4.0% 4.0% 9.7%9.7% 8.4% 2.3% 2.2% 2.0%2.0% 7.7%7.7% 7.5%7.5% 1.4% 6.6%6.6% -0.4% -0.7% 1.8% -1.3% Q3 ’09 Q4 ’09 Q1 ’10 Q2 ’10 Q3 ’10 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Reported Underlying (exc