Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — Koninklijke KPN — Q1 2011 Earnings Presentation
49 slides from Royal Kpn Nv's earnings presentation, Apr 21, 2011
Slide 1: First Quarter Results 2011
First Quarter Results 2011 21 April 2011
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 Eelco Blok Group financial review Carla Smits-Nusteling Group operational review Eelco Blok Concluding remarks Eelco Blok 3
Slide 4: EBITDA outlook adjustment, free cash flow confirmed
EBITDA outlook adjustment, free cash flow confirmed Revenues in the Netherlands lower than expected, new strategy accelerated • Lower than expected revenues in the Netherlands • New strategy and related investment plans accelerated to strengthen the Dutch businesses • Germany firmly on track with pr
Slide 5: Q1 trends affecting the Netherlands
Q1 trends affecting the Netherlands Revenues in the Netherlands lower than expected Trends Impact • High penetration of smartphones leading to increasing usage of new ‘apps’ in wireless • SMS and voice revenues down Consumer • New ‘apps’ resulting in accelerated substitution of – Significantly less
Slide 6: Accelerate implementation new strategy
Accelerate implementation new strategy Acting on key trends through short term actions and accelerated investments Key areas Key actions • Enhance market position Consumer • Accelerate investments to wireless and Business wireline Strengthen strengthen Dutch Telco business • Improve broadband and TV
Slide 7: Outlook
Outlook EBITDA outlook adjusted, free cash flow confirmed Previous outlook 2011 Revised outlook 2011 EBITDA Growth1 > € 5.3bn2 Capex < € 2 bn < € 2 bn Free cash Growth4 Growth4 flow3 Dividend per At least € 0.85 At least € 0.85 share • EBITDA outlook lowered to more than € 5.3bn • 2011 free cash flo
Slide 8: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Group operational review Eelco Blok Concluding remarks Eelco Blok 8
Slide 9: Group results Q1 '11
Group results Q1 ’11 €m Q1 ’11 Q1 ’10 % Revenues and other income 3,235 3,277 -1.3% • Lower revenues and other income – Regulatory impact of € 122m (3.7%) Operating expenses 2,523 2,484 1.6% – Net positive incidentals of € 2m 1 – of which Depreciation 347 348 -0.3% – of which Amortization1 210 182 1
Slide 10: Group cash flow Q1 '11
Group cash flow Q1 ’11 Free cash flow follows regular seasonal pattern €m Q1 ’11 Q1 ’10 % • Free cash flow of € 191m in Q1 ’11, Operating profit 712 793 -10% down 16% y-on-y Depreciation and amortization1 557 530 5.1% – € 54m lower EBITDA Interest paid/received -256 -259 -1.2% – € 81m lower working
Slide 11: Group financial profile
Group financial profile Solid financial profile with Net debt / EBITDA well within target range € bn Debt Financing policy 13.8 13.7 13.6 12.6 12.8 2.5x 2.2 2.3 2.3 2.2 2.2 2.0x 12.1 12.2 11.8 11.8 11.4 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Gross Debt Net Debt Net Deb
Slide 12: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Group operational review Eelco Blok International The Netherlands Concluding remarks Eelco Blok 12
Slide 13: Financial review - Mobile International
Financial review - Mobile International Service revenue growth and good profitability despite severe MTA impact Wireless service €m 2.0% • Q1 service revenues up 2.0% y-on-y revenues – Severe regulatory impact of € 77m (8.3%) − Underlying growth in Germany 1,025 927 987 999 946 accelerating − Strong
Slide 14: Financial review - Mobile International by segment
Financial review - Mobile International by segment Continued underlying growth in all segments, severe regulatory impact €m 45.4% 41.8% 43.0% 39.3% 38.9% • Q1 service revenues up 1.0% y-o-y Germany • Severe MTA impact of € 53m on service revenues, € 27m on EBITDA 850 820 803 768 773 • EBITDA margin
Slide 15: Operating review - Germany
Operating review - Germany Underlying service revenue growth accelerating, 7.9% y-on-y in Q1 Net adds • High number of postpaid net adds (119k) 19.6 20.4 21.0 – Regional focus and strong captive channel 19.3 19.9 performance – Driven by ‘Mein BASE’ performance 351 434 • Launch of high speed data pro
Slide 16: Operating review - Belgium
Operating review - Belgium1 Strong underlying growth of 8.1%, service revenues impacted by regulation Net adds 3.7 3.7 3.9 • Growing customer base through good 3.6 3.6 performance of simplified BASE proposition 136 • Commercial high speed mobile data in key 44 53 24 regions 24 10 14 17 14 -36 – Supp
Slide 17: Operating review - iBasis
Operating review - iBasis Focus on balancing revenue growth with profitability €m Financial 4.1% 3.8% • Focus on balancing revenue growth with 3.2% 3.0% 3.1% profitability – Q1 revenues up 17% y-on-y to € 226m, of which ~2% positive currency effect – EBITDA margin of 3.1%, stable q-on-q 234 226 237
Slide 18: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Group operational review Eelco Blok International The Netherlands Concluding remarks Eelco Blok 18
Slide 19: Financial review - Dutch Telco
Financial review - Dutch Telco €m Revenues and other income • Revenues and other income down 3.1% y-on-y -3.1% – Regulatory impact of € 44m (2.5%) – € 22m net positive impact from incidentals 1,758 1,759 – Lower wireless service revenues 1,747 1,740 1,704 from changing customer behavior – Continued
Slide 20: Financial review - Dutch Telco by segment
Financial review - Dutch Telco by segment €m 26.9% 29.2% 28.1% 29.6% 29.1% Consumer • Revenue decline of 2.9% y-on-y − Regulation impact of € 19m (2.0%) 969 990 991 990 941 − Changing customer behavior impacting wireless service revenues Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 €m 35.2% 32.8% 34.5% 32.6%
Slide 21: Operating review - Consumer wireless
Operating review - Consumer wireless1 Service revenues impacted by regulation and changing customer behavior €m • Service revenues down 8.1% y-on-y -8.1% – Regulatory impact of € 19m (4.4%) – Decreasing prepaid service revenues Service due to value focus ~2% revenues 434 448 443 430 399 – Impact fro
Slide 22: Operating review - Consumer wireless (cont'd)
Operating review - Consumer wireless1 (cont’d) Smartphones and new ‘apps’ leading to changing customer behavior Changing industry trends Mitigating measures • High smartphone and data penetration • Commercial actions put in place to − 42% of postpaid customers2 have mitigate service revenue impact s
Slide 23: Operating review - Consumer wireline
Operating review - Consumer wireline X 1,000 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 • PSTN/ISDN line loss slightly higher PSTN/ISDN − Higher outflow to wholesale line rental loss due to aggressive promotions and cable -87 -72 -73 -81 -98 • PSTN/ ISDN loss expected to stabilize due to new retention offer
Slide 24: Operating review - Consumer wireline (cont'd)
Operating review - Consumer wireline (cont’d) Continued growth in TV market share, broadband customer base stable Growing TV market share Broadband customer base stable 14% 14% 15% 16% 13% 42% 42% 42% 41% 41% 245 302 360 147 193 2,584 2,568 2,568 2,576 2,569 886 895 899 895 882 Q1 '10 Q2 '10 Q3 '10
Slide 25: Operating review - Business wireless
Operating review - Business wireless Lower voice revenues partly offset by data growth €m -7.3% 248 246 236 • Service revenues decline 7.3% y-on-y 228 230 – Impact from regulation € 17m (6.9%) Service revenues1 – Lower voice revenues only partly offset by data growth Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '
Slide 26: Operating review - Business wireline
Operating review - Business wireline Continued pressure on traditional services €m -7.2% • Continued impact from decline in traditional business • € 22m negative impact y-on-y from Revenues1 373 338 331 335 346 release in Q1 ’10 • Positive impact from Atlantic Telecom Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1
Slide 27: Operating review - Getronics
Operating review - Getronics Relatively stable market position in challenging market €m Revenues and other income • Revenues relatively stable – The Netherlands down 0.5% y-on-y 538 – International up 1.7% y-on-y, including 474 478 476 472 positive 5.1% currency effect • EBITDA margin flat y-on-y –
Slide 28: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Group operational review Eelco Blok Concluding remarks Eelco Blok 28
Slide 29: Concluding remarks
Concluding remarks • Lower than expected revenues in the Netherlands • New strategy and related investment plans accelerated to strengthen the Dutch businesses • Germany firmly on track with profitable growth, despite MTA reductions • 2011 EBITDA outlook adjusted downwards, free cash flow outlook is
Slide 30: Q&A
Q&A
Slide 31: 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 32: Analysis of results
Analysis of results Key items worth mentioning in results interpretation €m Q1 ’11 Q1 ’10 Revenue effect MTA tariff reduction Group -118 -55 Roaming tariff reduction Group -4 -15 EBITDA effect MTA tariff reduction Group -50 -20 Roaming tariff reduction Group -1 -13 Restructuring charges Group -9 -7
Slide 33: Restructuring charges
Restructuring charges €m Q1 ’11 Q1 ’10 Germany - - Belgium - - Rest of World - - Mobile International - - Consumer - -1 Business - - Wholesale & Operations - -3 IT NL - - Dutch Telco - -4 Getronics -5 - The Netherlands -5 -4 Other -4 -3 KPN Group -9 -7 33
Slide 34: Regulation
Regulation MTA reductions and upcoming spectrum auctions MTA reductions implemented across the Group Upcoming spectrum auctions • KPN’s suspension request has been rejected, annulment • Concept auction document published procedure is ongoing NL NL • Preliminary timing indicates Q1 2012 € ct / min Un
Slide 35: Impact MTA reduction
Impact MTA reduction €m Q1 ’11 Revenues EBITDA Germany -53 -27 Belgium -21 -14 Mobile International -74 -41 Consumer -19 -6 Of which: Mobile Wholesale - - Business -17 -2 Wholesale & Operations -12 -1 Intercompany 4 - The Netherlands -44 -9 KPN Group -118 -50 35
Slide 36: Operating expenses
Operating expenses €m Q1 ’11 Q1 ’10 % Salaries and social security contributions 477 506 -5.7% Cost of materials 258 205 26% Work contracted out and other expenses 1,106 1,116 -0.9% Own work capitalized -29 -24 -21% Other operating expenses 154 151 2.0% Depreciation1 347 348 -0.3% Amortization1 210
Slide 37: Operating expenses - analysis
Operating expenses - analysis Salaries and social security contributions & Cost of materials €m Salaries and social security Y-on-Y decrease • Reduction of own personnel at all segments 15.5% 14.7% 14.1% 14.9% • Release of pension provision at Getronics in Q1 ’11 13.7% Q-on-Q increase • Q4 ’10 posit
Slide 38: Analysis operating expenses
Analysis operating expenses Work contracted out & Other €m Work contracted out Y-on-Y decrease • Higher traffic costs relating to higher external 34.1% 34.2% 34.8% 33.8% 34.6% revenues at iBasis • Offset by – Lower SAC related distribution costs in the 1,144 1,160 Netherlands 1,116 1,140 1,106 – Low
Slide 39: Analysis operating expenses
Analysis operating expenses Depreciation & Amortization €m Depreciation1 Q-on-Q decrease • Smaller asset base across all segments, lowering deprecation costs 10.6% 10.5% 10.6% 10.6% 10.9% 348 351 353 357 347 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Depreciation % of Revenues €m Amortization1 Y-on-Y increa
Slide 40: Personnel
Personnel • Decrease of 1,669 FTE y-on-y – Reduction of 723 FTE in the Netherlands 32,203 (excl. Getronics) from all segments 31,121 30,654 30,534 – Reduction of 953 FTE at Getronics, mainly 30,599 4,369 from restructuring 3,990 3,934 3,843 3,826 – FTE at KPN abroad flat • Decrease of 65 FTE q-on-q
Slide 41: Tax
Tax P&L Cash flow Fiscal units (€ m) Q1 ’11 Q1 ’10 Q1 ’11 Q1 ’10 Dutch activities 63 -109 -108 -549 Getronics 6 1 -2 -2 German Mobile activities -29 -23 -4 -1 Belgian Mobile activities -7 -9 - - Other - -2 -1 -2 Total 33 -142 -115 -554 • Preliminary tax assessment 2010 fully prepaid in Q1 2010 • Q1
Slide 42: Share repurchase program progress
Share repurchase program progress Date1 Value (€ m) Shares (m) Avg. share price (€) January - - - February 30.4 2.6 11.71 March 148.0 12.6 11.71 Q1 ’11 178.4 15.2 11.71 April 58.9 5.0 11.82 Total 237.3 20.2 11.74 • € 1bn share repurchase program for 2011 started on 21 February 2011 – ~24% completed
Slide 43: Debt portfolio
Debt portfolio Breakdown of € 12.8bn gross debt1 12% 81% 7% Other Financial Global bonds 4% instrum ents 6% 1% EUR USD2 GBP2 7% Eurobonds 93% 89% Fixed Floating (incl. swapped) 1 Book value of interest bearing financial liabilities plus the fair value of financial instruments (excluding Reggefiber)
Slide 44: Dutch wireless services disclosure
Dutch wireless services disclosure Q1 ’11 Q4 ’10 Q1 ’10 Service revenues (€ m) 698 735 740 − Consumer 399 430 434 − Business 230 236 248 − Other Dutch activities1 69 69 58 SAC / SRC (€) − Consumer 146 168 183 − Business2 225 234 255 1 Indicates amongst others Mobile Wholesale NL, Simyo and visitor r
Slide 45: 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 46: 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 47: 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 48: 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 49: Service revenue growth Mobile International
Service revenue growth Mobile International Service revenue growth Germany Service revenue growth Belgium 9.7% 9.7% 9.2% 8.9% 9.0% 8.1% 7.1% 6.6% 6.6% 4.0% 4.0% 4.0% 2.2% 1.8% 2.0% 2.0% 1.0% -0.7% -2.3% -5.3% Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Reported Underlying (