Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — Investor Day (November 2018)
83 slides from Royal Kpn Nv's investor day presentation, Nov 28, 2018
Slide 1: Capital Markets Day 2018
CAPITAL MARKETS DAY 2018 28 November 2018 Rotterdam
Slide 2: Program
Program 13:00 13:30 14:00 14:15 14:30 WELCOME, GROUP STRATEGY NETWORK, OPERATIONS & IT CONSUMER BUSINESS BREAK Maximo Ibarra Joost Farwerck Jean-Pascal van Overbeke Maximo Ibarra CEO COO Chief Consumer Market CEO and a.i. Chief Business Market 15:00 15:30 15:40 - 17:30 FINANCIALS FINAL REMARKS Q&A J
Slide 3: Safe harbor
Safe harbor Alternative performance measures and management estimates This financial report contains a number of alternative performance measures (non-GAAP figures) to provide readers with additional financial information that is regularly reviewed by management, such as EBITDA and Free Cash Flow (‘
Slide 4: Group Strategy
GROUP STRATEGY Maximo Ibarra Chief Executive Officer Amsterdam 4
Slide 5: Organic Sustainable Growth
ORGANIC SUSTAINABLE GROWTH 5
Slide 6: Organic Sustainable Growth
ORGANIC SUSTAINABLE Value GROWTHvolume. over Lean operating model. 6
Slide 7: Organic Sustainable Growth
ORGANIC SUSTAINABLE GROWTH Consumer Business Lean Converged Stabilize EBITDA New multi-year customer base and service opex reduction growth revenues program 7
Slide 8: Strategic focus 2019-2021
STRA The best converged TEGY smart infrastructure. Focus on profitable 2019 growth segments. Acceleration of 2021 simplification and digitalization. 8
Slide 9: External Environment
EXTERNAL ENVIRONMENT The Netherlands. Ecosystem. Telecom market. 9
Slide 10: The Netherlands: strong external environment
The Netherlands: strong external environment Strong economy Excellent infrastructure Tech savvy High GDP growth 2.8% Dense and small geography Country of early Low unemployment rate 3.9% Well connected to core Internet adopters Highest smartphone and Internet Ranked Home of penetration in Europe #6
Slide 11: The ecosystem is evolving: integrated converged propositions
The ecosystem is evolving: integrated converged propositions Household Business Cloud TV Security IoT ONE STOP SHOP 11
Slide 12: The ecosystem is evolving: key enabling technologies
The ecosystem is evolving: key enabling technologies Fiber 4G/5G Virtualization & Cloud HYBRID NETWORKS & PLATFORMS 12
Slide 13: The Dutch telecom market: mature and dynamic
The Dutch telecom market: mature and dynamic Leading Highly One of the most broadband regulated competitive performance market markets in Europe Average 4G throughput of 42Mbps Fixed access regulation Revenue growth: >98% of population has at least Europe: +0.3% 100Mbps capable broadband Netherlands
Slide 14: KPN today: stronger and more flexible
KPN today: stronger and more flexible Broadband footprint Market position Innovative & skilled Customer satisfaction workforce ~80% >40% +12 NL NPS 2 FttH/FttC Market share in High employee FMC leadership in 1 penetration mobile & broadband engagement Consumer & Business Q3 2018 1 Mobile based on Q4
Slide 15: KPN today: solid financial performance
KPN today: solid financial performance Adjusted EBITDA Capex Free Cash Flow growth driven by Capex & interest In line ~€ 1.1bn +10% Adjusted EBITDA, Capex and FCF (excl. TEFD dividend) based on 2018 outlook 15
Slide 16: Doing business in a sustainable manner
Doing business in a sustainable manner 25% 100% green energy Climate neutral Energy reduction 1 Circular 2011 2015 2020 2025 Leading position in benchmarks Reputation ranking A LIST 2017 TOP 3 RepTrak Pulse 2017 European Telcos 1 Compared to 2010 16
Slide 17: Organic Sustainable Growth
The best converged smart infrastructure. ORGANIC Focus on profitable SUSTAINABLE growth segments. GROWTH Acceleration of simplification and digitalization. 17
Slide 18: The best converged smart infrastructure
The best converged smart infrastructure digital highway of the Netherlands Fiber roll-out Full mobile network Moving to acceleration modernization All-IP +1 million 100% 100% FttH households by end 2021 5G ready by end 2021 by end 2021 Stable Capex envelope: substantial shift in mix 18
Slide 19: Focus on profitable growth segments
Focus on profitable growth segments Consumer Business SME base LE & Corporate +300k converged households 100% Value over by end 2021 on KPN EEN 1 volume by mid 2020 70% Stabilized postpaid base end-to-end Adjusted EBITDA 2 converged in 2021 mid 2020 1 Traditional fixed voice and legacy broadband 2 E
Slide 20: Acceleration of simplification & digitalization
Acceleration of simplification & digitalization From 20 to 2 From 5 core Simplified converged IT networks to 1 end-to-end stacks organization ~€ 350 million 2019 - 2021 new net 1 opex savings program 1 Indirect opex adjusted for the impact of restructuring costs and incidentals 20
Slide 21: Organic Sustainable Growth
Premium. Innovative Value. operating ORGANIC & model. SUSTAINABLE Focus. commercial GROWTH approach. Lean. 21
Slide 22: Network, Operations & IT
NETWORK OPERATIONS & IT Joost Farwerck Chief Operating Officer Utrecht 22
Slide 23: The best converged smart infrastructure
THE BEST CONVERGED SMART INFRASTRUCTURE 23
Slide 24: Strong network, IT integration on track
Strong network, IT integration on track Dense fiber Best customer Largely simplified penetration experience on 1 operating model mobile network ~30% Customer touchpoints Web App Shop Call Centers Mechanics Sales B2B UNIFORM DIGITAL LAYER (API) FRONT END Customer interaction layer (BSS) Telfort KPN B
Slide 25: Strategic focus
STRA TEGIC The best converged smart infrastructure. FOCUS Enable innovative technologies. 2019 Accelerate simplification of operating model. 25 2021
Slide 26: The best converged smart infrastructure
The best converged smart infrastructure digital highway of the Netherlands Fiber roll-out Full mobile network Moving to acceleration modernization All-IP +1 million 100% 5G ready 100% FttH households by end 2021 by end 2021 by end 2021 26
Slide 27: Increase availability 1Gbps access speeds
Increase availability 1Gbps access speeds FttH as natural evolution of FttC Finalize FttC roll-out +1 million Improving average +500k households FttH households access speeds ~30% >1Gbps ~45% Mbps >1,000 1,000 >40% ~50% >200Mbps ~70% ~60% >150Mbps 400 ~75% 240 50 100 of households >100Mbps ~75% ~85%
Slide 28: Higher utilization rate and lower roll-out costs
Higher utilization rate and lower roll-out costs Higher network utilization Automated planning ...contributing to lower rate in fiber areas & design... average roll-out costs € 1,000 +8%pt € 725 utilization rate 1 2012 2016 2019 - 2021 Time to design all NL non-fiber Significantly lower roll-out cos
Slide 29: Regional hybrid access approach
Regional hybrid access approach Fixed access Regional access- In-home Copper Technology roll-out to-activation phase-out Finalize FttC Communication In-home WiFi coverage Migrate copper base Network topology to fiber (FttB / PON / G.Fast) Accelerate FttH Marketing & sales Do-it-yourself tooling Swit
Slide 30: Full mobile network modernization by 2021
Full mobile network modernization by 2021 Continued strong …requires mobile …to enable latest data growth… equipment upgrade… technologies Massive 100% MIMO CAGR: ~55% 14 15 16 17 18 19 20 21 Mobile traffic KPN network (Tb/month) 5G ready 30
Slide 31: Field Labs
(>) Field Labs
Slide 32: Rationalize networks
Rationalize networks Shutting down Moving to single legacy networks core network PSTN SDH ISDN 3G Copper in fiber areas 28 GWh power savings (2019 - 2021) 32
Slide 33: Decentralize networks
Decentralize networks (De)centralization Improved customer experience 70% Offload core traffic network Low latency services Core Metro core Mobile location site Regional network upgrades at lower spend Bringing content closer Moving mobile functions to the customer deeper into the network 33
Slide 34: Virtualize networks
Virtualize networks Perceived infinite bandwidth Personalized and adjustable Predictive and automated recovery ~50% Virtualized network Lower TCO functions by end 2021 Through flexible, scalable and (<5% in 2018) automated networks 34
Slide 35: Accelerate simplification of operating model
Accelerate simplification of operating model Finalize Moving to standard IT integration cloud building blocks Significantly contributing to End 2021 End 2021 Front-end Digital layer ~€ 350m BSS 2019 - 2021 new net OSS opex savings program 1 From 20 to 2 converged IT stacks Concentrating data centers
Slide 36: The best converged smart infrastructure
THE BEST ~45% of households at >1Gbps CONVERGED SMART ~70% of households at >200Mbps INFRA STRUCTURE ~50% virtualized network functions 36
Slide 37: Consumer
CONSUMER Jean-Pascal van Overbeke Chief Consumer Market Haarlem 37
Slide 38: Converged households to drive growth
CONVERGED HOUSEHOLDS TO DRIVE GROWTH 38
Slide 39: Strong market positions with leadership in convergence
Strong market positions with leadership in convergence Broadband and Converged base Best-in-class mobile market share1 NPS 2 >40% Broadband Postpaid +17 +28 converged 45% 51% 56% 68% Total KPN Brand Total KPN Brand Best all-in-one fixed provider 1 Best mobile provider³ 1 Mobile based on Q4 2017, bro
Slide 40: Strategic focus
STRA Best household access TEGIC and customer experience. FOCUS Growing converged base and product 2019 penetration. 2021 Focus on delivering value. 40
Slide 41: FttH access investments driving higher returns
FttH access investments driving higher returns +15% +€ 6 -34% +9%ptBroadband NPS 1 ARPU Churn market share Q3 2018, >200Mbps households vs. <200Mbps households 1 KPN brand, source: Kantar TNS 41
Slide 42: Best household access and customer experience
Best household access and customer experience Household-centric Best in-home Easily accessible propositions and experience self-service organization ~12% ~2% Q1 ’17 Q3 ’18 Customer contact without human intervention 42
Slide 43: Convergence offers clear benefits
Convergence offers clear benefits Market leading NPS 1 Higher value per Lower mobile churn household ~75% + 28 >10% + 17 Consumer total Converged Fixed-only Converged Mobile-only Converged household household household Fixed ARPU KPN brand 1 Source: Kantar TNS 43
Slide 44: Targeted household approach to increase converged base
Targeted household approach to increase converged base by end 2021 Grow converged …and SIMs …to drive higher households … 1 per household… converged postpaid base +300k > 10% 56% 70% Q3 2018 by end 2021 1 Q3 2018: 1,325k converged households 44
Slide 45: Data driven personalized campaigning
Data driven personalized campaigning to increase up- and cross-sell Offering tailored product …to further increase …driving high and services advice… product penetration… value inflow Focused direct Successful marketing up- and 75% Mobile acquisitions from existing households1 Regional approach cros
Slide 46: Clear value focus to drive sustainable service revenue growth
Clear value focus to drive sustainable service revenue growth High-value broadband Growing converged Clear benefits household growth KPN brand base 80% 65% NPS ARPU Supported by Converged net adds Converged net adds fiber roll-out broadband YTD ’18 postpaid YTD ’18 Churn 46
Slide 47: Converged households to drive growth
CONVERGED Best household access and customer HOUSE experience. HOLDS Growing converged TO DRIVE base and product GROWTH penetration. Focus on delivering value. 47
Slide 48: Business
BUSINESS Maximo Ibarra CEO and a.i. Chief Business Market The Hague 48
Slide 49: Sustainable EBITDA growth
SUSTAINABLE EBITDA GROWTH 49
Slide 50: Progress made, but still work to do
Progress made, but still work to do Declining organic Growing converged Improving customer revenues portfolio satisfaction (NPS) 2 +1 1 1 Q3 ’18 -8.6% -7.3% -5.9% -4.4% YTD Q3 ’18 -10 FY ’17 FY ’16 ~35% FY ’15 SME base KPN EEN Q4 ’15 1 Revenues excluding M&A and hardware 2 Source: Kantar TNS 50
Slide 51: Strategic focus
STRA TEGIC Converged simplified product portfolio. FOCUS Transformation of operating platform. 2019 Lean and digital 2021 operations. 51
Slide 52: Converged simplified product portfolio
Converged simplified product portfolio Improved delivery Core IT services Fiber upgrade chain & NPS & pricing discipline business parks -50% products 52% 70% by end 2021 Today by end 2019 Prioritize deal profitability >100Mbps coverage & incentives on value 52
Slide 53: Fiber upgrade business parks to drive uptake of converged services
Fiber upgrade business parks to drive uptake of converged services Example Euregio business park Increased bandwidth …driving commercial Enschede following upgrade… success within 3 months of upgrade 29% of all customers moved to converged portfolio 100% 90% ~50% 0% 0% < 40 Mbps >100 Mbps < 40 Mbps
Slide 54: Transformation of operating platform KPN EEN
Transformation of operating platform KPN EEN Migrations to Clear operational Example Improved customer KPN EEN 1 benefits post migration lifetime value 100% +10NPS 2 Repricing at migration SME mid 2020 2x faster Reduced cost to serve Up and cross-sell services LE in 2020 Time-to-market Reduced churn
Slide 55: Lean and digital operations
Lean and digital operations Cost to serve KPN EEN significantly Simplified end-to-end KPN EEN lowers complexity organization >25% lower by 2021 -75% of IT systems New management by 2021 structure & accelerate integration of recent acquisitions 55
Slide 56: Stabilizing service revenues
Stabilizing service revenues SoHo ~350k customers SME ~225k customers LE & Corporate ~2k customers Now Future Now Future Now Future Slighty decrease revenues, Grow revenues Stabilize and grow revenues stabilize margins Market leader: >40% market share Converged portfolio Value over volume 56
Slide 57: Strategic priorities to deliver organic sustainable growth
Strategic priorities to deliver organic sustainable growth Stabilized Grow profitable Stabilizing end-to-end revenues by service revenues Adj. EBITDA leveraging mid 2020 leading market positions 57
Slide 58: Break
BREAK | 20 min Bkpn | WARES Kay n aR sore
Slide 59: Financials
FINANCIALS Jan Kees de Jager Chief Financial Officer Eindhoven 59
Slide 60: Organic Sustainable EBITDA & FCF Growth
ORGANIC SUSTAINABLE EBITDA & FCF GROWTH 60
Slide 61: KPN today
KPN today Financial Financial Shareholder performance profile remuneration -2.2% Revenues € 6.2bn Net debt € 12ct Regular DPS In line Adj. EBITDA 2.7x Leverage ~€ 1.1bn Capex +10% FCF Revenues YTD Q3 ’18 y-on-y growth, Financial profile Q3 2018, EBITDA, Capex, FCF (excl. TEFD dividend) and sharehold
Slide 62: Strategic focus
STRA Convergence & value TEGIC focus driving revenue stabilization. New multi-year sustainable FOCUS opex reduction supports organic Adj. EBITDA growth. 2019 Stable Capex envelope: substantial shift in the mix. 2021 FCF growth drives progressive dividend and a solid financial profile. 62
Slide 63: Convergence & value focus driving revenue stabilization
Convergence & value focus driving revenue stabilization Consumer Business Wholesale Grow base and Accelerate growth Grow WBA/VULA value of converged in convergence Maintain disciplined households Selective growth in IT strategy Value over volume 63
Slide 64: Accelerate multi-year sustainable opex reductions
Accelerate multi-year sustainable opex reductions Realized ~€ 190m run-rate savings New opex reduction program 2 wave Simplification nd 1 ~€ 350m 5% Capex 2019 - 2021 net savings 2 95% Opex 1 Realized: end Q3 ’18 vs. end Q4 ’16 2 Indirect opex adjusted for the impact of restructuring costs and incid
Slide 65: Acceleration of simplification opex reductions
cceleration of simplification A opex Digitalization & virtualization reductions 1 Rationalization and simplification of 2 End-to-end digitalization and automation front- 3 All-IP network and virtualization. portfolio. end and back-end. 4 IT landscape rationalization. 5 Organizational effectivene
Slide 66: Portfolio rationalization and end-to-end digitalization
Portfolio rationalization and end-to-end digitalization 1 2 Standardize portfolio, selective growth in IT Lean operating model Migrate to target portfolio platforms Digital customer journeys Reduce complexity Automate back-end tasks 66
Slide 67: All-IP network and virtualization
All-IP network and virtualization Example 3 Customer: Delivery of one new location Current New IP-VPN SD-WAN Physical delivery OTT delivery >12 weeks <1 day 21 manual actions 1 manual action (shipping) Migrate customers to all-IP network Customer: 100 routers need updating Decommission legacy networ
Slide 68: IT rationalization and organizational effectiveness
IT rationalization and organizational effectiveness 4 Consolidate IT platforms and 5 decommission legacy Clear end-to-end responsibilities Standardized solutions and hardware Delayer management and organizational simplification Vendor optimalization Automate processes 68
Slide 69: Restructuring accretive benefits back-end loaded
Restructuring accretive benefits back-end loaded 1 Restructuring 3 recorded in P&L Restructuring accretive to financials 2 Restructuring cash out Impact on FCF T=0 T = 6 months T= >12 months 69
Slide 70: Capex planning supported by data and zero-based budgeting
Capex planning supported by data and zero-based budgeting Smarter investments Stacked ranking Reallocation of supported by based on ROCE and investments data-driven decision NPV of proposed enabling step-up in making process investments access investments 70
Slide 71: Strong improvement FttH return profile
Strong improvement FttH return profile Lower roll-out spend due to reduced average costs per home passed Better utilization rate supported by data driven smart regional approach Payback period 3 Strong commercial benefits 1 reduced by ~50% +15% +€ 6 -34% +9% pt Broadband NPS2 ARPU Churn market share
Slide 72: Stable Capex envelope
Stable Capex envelope € 1.1bn per annum in 2019-2021 IT/TI Other ~2% ~2% Substantial shift in the mix enabling higher investments ~30% ~40% 2016-2018 ~35% ~50% 2019-2021 in access ~23% ~18% Commercial Access 72
Slide 73: Committed to solid financial profile
Committed to solid financial profile Solid investment Optimized balance Medium-term grade credit profile sheet position leverage Interest payments Net debt / EBITDA Baa3 / Stable <2.5x ~55% BBB- / Positive BBB / Stable 2014 2018 73
Slide 74: Organic and sustainable Adj. EBITDA & FCF growth
Organic and sustainable Adj. EBITDA & FCF growth 2018 outlook 2019 - 2021 ambitions Adjusted EBITDA In line with 2017 Organic growth Capex ~€ 1.1bn Stable at € 1.1bn annually FCF (excl. TEFD dividend) ~€ 800m Sustainable growth, driven by EBITDA Dividend € 12ct per share Progressive dividend, suppor
Slide 75: Organic Sustainable Growth
Convergence & value focus driving revenue stabilization. ORGANIC Accelerate multi-year SUSTAINABLE sustainable opex reduction. GROWTH Stable Capex envelope: substantial shift in the mix. Organic sustainable Adj. EBITDA and FCF growth contributing to progressive dividend and deleveraging. 75
Slide 76: Final Remarks
FINAL REMARKS Maximo Ibarra Chief Executive Officer Rotterdam 76
Slide 77: Organic Sustainable Growth
ORGANIC SUSTAINABLE GROWTH 77
Slide 78: Organic Sustainable Growth
ORGANIC SUSTAINABLE Value GROWTHvolume. over Lean operating model. 78
Slide 79: Organic Sustainable Growth
The best converged smart infrastructure. ORGANIC Focus on profitable SUSTAINABLE growth segments. GROWTH Acceleration of simplification and digitalization. 79
Slide 80: Organic Sustainable Growth
ORGANIC SUSTAINABLE Solid & GROWTHMaximizing Attractive. value. 80
Slide 81: Organic Sustainable Growth
Organic growth Stable Capex Sustainable ORGANIC of Adjusted EBITDA envelope FCF growth SUSTAINABLE GROWTH 81
Slide 82: Capital Markets Day 2018
TAL @ykpn | VARKets 2 7) B DAY 2018
Slide 83: Thank you
THANK YOU Duco Sickinghe Chairman Supervisory Board Breda 83