Royal KPN NV · EURONEXT:KPN
Royal KPN NV — Q4 2016 Earnings Presentation
53 slides from Royal KPN NV's earnings presentation, Feb 1, 2017
Slide 1: Fourth Quarter and Annual Results 2016
Fourth Quarter and Annual Results 2016 1 February 2017
Slide 2: 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 3: Highlights Q4 and 2016
Highlights Q4 and 2016 Services & Innovation Operational Financial2 Addressable convergence base Focus on value and convergence €m Q4 '16 FY '16 expanded by adding XS4ALL in Consumer paying off Adj. revenues 1,704 6,780 Increasing penetration of fixed- mobile bundles % y-on-y -2.3% -3.4% Str
Slide 4: Delivering on strategic vision
Delivering on strategic vision Simplify, Grow, Innovate Further strengthening our Company SIMPLIFY GROW INNOVATE Commercial Digital & simple service Converged Telco Excellent and delivery & IT services user experience Flexible & simplified Best-in-class secured Applying innovative Operational networ
Slide 5: Key priorities on track
Key priorities on track 1 Accelerate up- and cross-sell in bundles 2 Grow in TV and IT services 3 Finalize Business transformation 4 Finalize build of flexible and simplified integrated network and operating model 5 Expand superior access position by deploying innovative technologies and increasing
Slide 6: Continued growth of fixed-mobile bundles in Consumer
Continued growth of fixed-mobile bundles in Consumer 1 Clear benefits from convergence strategy Customers in fixed-mobile bundles Multi-brand strategy to drive convergence further Households1 Postpaid customers 37% 43% 29% 33% Q4 ’15 Q4 ’16 Q4 ’15 Q4 ’16 + 56% KPN brand Clear convergence benefits Hi
Slide 7: Continued value focus in Consumer mobile
Continued value focus in Consumer mobile 1 Strategic focus on KPN brand drives Customer Lifetime Value Focus on committed ARPU… CLV illustrates …and Customer focus Lifetime on KPN brand Value € 25 € 26 € 26 Actuals Q4 ’16 y-on-y1 ~€ 21 ~€ 22 ~€ 22 2yr handset contract Q4 ’15 Q3 ’16 Q4 ’16 Committed
Slide 8: TV focus point in household centered strategy
TV focus point in household centered strategy 2 Highest quality of service through differentiated functionalities and leading network Best-in-class IPTV services… …driving continued TV growth 69% 70% High quality Content 161 Metro Core Locations 66% Delivery Network Superior stable access speeds
Slide 9: Migrations to integrated solutions strengthen business customer relations
Migrations to integrated solutions strengthen business customer relations 3 Revenue challenges in Business remain Business revenue growth drivers Q4 ’16 Q4 ’16 FY ’16 FY ’16 adjusted % of total adjusted adjusted % of total adjusted y-on-y growth revenues y-on-y growth revenues Business total -9.2% -
Slide 10: SME: migrations to multi play accelerating
SME: migrations to multi play accelerating 3 Mobile-only and traditional fixed impacted by accelerated migrations to integrated solutions Migrations from mobile-only (SME) to Rationalization and Accelerated migrations multi play and LE & Corporate migrations in fixed to multi play q-on-q q-on-q k k
Slide 11: LE & Corporate: migrations to integrated solutions and new technologies
LE & Corporate: migrations to integrated solutions and new technologies 3 Revenues impacted by rationalization, but order intake improving in 2016 Migrating legacy network services Migrations to integrated solutions Order intake improving to new technologies preventing churn, but impact revenues Leg
Slide 12: Strengthening business market portfolio and infrastructure
Strengthening business market portfolio and infrastructure 3 Leading infrastructure and strengthened market positioning Further strengthening infrastructure Leading cloud & data center services Expanding scale and capabilities Deploying successful hybrid access strategy used in Consumer Deregulation
Slide 13: Operational excellence to improve business customer experience
Operational excellence to improve business customer experience 3 Business organization streamlined further Simplification of Further progress on Strong improvement NPS1 portfolio and organization indirect cost reductions 1 -5.1% 3 2 -3 Migrating customers to 1 single workspace platform +7 -10 Reduce
Slide 14: Revenue trend The Netherlands improving in Q4
Revenue trend1 The Netherlands improving in Q4 Adjusted revenues NL declined by 1.9% Adjusted revenues KPN Group €m -2.3% 18 €m 1,745 1,549 1,704 6 4 1,519 58 Adj. revenues Consumer Business Wholesale Other Adj. revenues Q4 ’15 Q4 ’16 NL Q4 ’15 NL Q4 ’16 Adjusted revenues iBasis -3.7% +2.6% +2.1% -9
Slide 15: Adjusted EBITDA The Netherlands improving
Adjusted EBITDA1 The Netherlands improving Adjusted EBITDA NL increased by 6.2%2 Adjusted EBITDA KPN Group +4.1% €m 606 36.6% 39.6% 582 €m 14 602 18 567 35 2 30 Q4 ’15 Q4 ’16 Adjusted EBITDA iBasis -17% Adj. EBITDA Revenues Cost of goods Personnel IT/TI Other Adj. EBITDA €m & services expenses opera
Slide 16: Strong progress in reducing spend levels The Netherlands
Strong progress in reducing spend levels The Netherlands1 Simplification drives quality improvements at reduced spend levels FY ’16 opex reduction (€ 176m) supporting margins -4.6% €m -2.4% €m €m +1.3% 3,791 3,615 6,172 6,026 4 2,381 2,411 577 500 3 531 517 2 1,208 1,149 1 1,475 1,449 FY ’15 FY ’16
Slide 17: Continue towards flexible and simplified network and operating model
Continue towards flexible and simplified network and operating model 4 Starting second wave of Simplification program Customer interaction layer (BSS) 1 2 Network interaction layer (OSS) 3 1 Integration Consumer BSS finalized 2 Starting integration Business BSS 3 Starting with OSS Simplification Q4
Slide 18: Further quality improvements to lead to additional savings
Further quality improvements to lead to additional savings 4 Second wave of Simplification program to yield >€ 300m in run-rate savings Simplification program run-rate opex and Capex savings >760 €m >300 ~460 ~180 ~140 ~140 End 2013 2014 2015 2016 End 2016 2017 - 2019 End 2019 FIRST WAVE SECOND WAVE
Slide 19: Creating a flexible and simplified integrated network
Creating a flexible and simplified integrated network 4 Improving quality of service and preparing for virtualization IP transformation on track Decentralize, bringing services closer to customers 100% Amount of network equipment 1 ~55% ~35% ~35% ~62% ~100% 2010 2016 2019 Network Network Network Leg
Slide 20: Next generation access available for majority of households
Next generation access available for majority of households 5 Vplus delivering highest stable speeds FttH/FttC coverage at ~78% of households without changing network architecure1 700 Aggregate bit rate (Mbps) ~50% of KPN network 600 ~78% 500 ~71% 400 ~80% of KPN network 300 200 End 2015 End 2016 10
Slide 21: KPN is ahead of the Capex curve
KPN is ahead of the Capex curve 5 Capex lower y-on-y Capex projects 2017 20.8% Investments in second wave Simplification program 19.7% €m Further strengthening core network and mobile network 1.3bn capacity Other1 76 1.2bn ~1.15bn Mobile access 103 98 105 Continued hybrid access roll-out in Bu
Slide 22: Free cash flow growth
Free cash flow1 growth Growing operating free cash flow2… …and free cash flow3 +10% +24% €m €m 1,235 683 1,119 552 FY ’15 FY ’16 FY ’15 FY ’16 Free cash flow components €m 2,429 68 50 121 460 631 52 683 1,193 6 Reported Change in Change in Interest paid Taxes received Capex Other FCF excl. TEFD Cash
Slide 23: Solid financial position
Solid financial position 6 Lower gross debt y-on-y Debt portfolio Net debt € 0.3bn lower vs. Q3 ’16 8.7 Mainly a result of cash generation in Q4 ’16 € bn 8.0 8.1 Net Net debt € 0.3bn higher vs. Q4 ’15 7.1 1.3 cash2 6.8 Q4 ’15 included € 805m proceeds from sale of ~5% TEFD, 6.5 ~70% distribut
Slide 24: Outlook 2017
Outlook 2017 6 Outlook 2017 Shareholder remuneration Adjusted EBITDA in line with 2016 Intended DPS of € 11ct in respect of 2017 Including ~€ 40-50m roaming regulation impact Intention to grow regular DPS in line with FCF growth profile thereafter Capex ~€ 1.15bn Intention to pass-throug
Slide 25: Q&A
Q&A Key priorities on track 1 Accelerate up- and cross-sell in bundles 2 Grow in TV and IT services 3 Finalize Business transformation 4 Finalize build of flexible and simplified integrated network and operating model 5 Expand superior access position by deploying innovative technologies and increas
Slide 26: Q4 2016 – Information Pack
Q4 2016 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 ir@kpn.com ir.kpn.com 26
Slide 27: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 27
Slide 28: KPN ADR program
KPN ADR program KPN has a sponsored Level 1 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 Jonathan Montanaro +1 212 250 9100 (New York) ADR broker
Slide 29: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 29
Slide 30: Corporate Social Responsibility Strategy
Corporate Social Responsibility Strategy Successful CSR strategy1 Social and environmental achievements 2015 #1 Sustainable Datacenter award (EMEA) by Datacenter Dynamics 18% 77% 73% 2 vs. 2010 vs. 70% end 2014 vs. 69% end 2014 Energy Engaged Secure reduced employees connectivity #5 in Workplace
Slide 31: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 31
Slide 32: Group results Q4 ’16 (continuing operations)
Group results Q4 ’16 (continuing operations) (€ m) Q4 ’16 Q3 ’16 Q4 ’15 y-on-y % Revenues 1,723 1,718 1,745 -1.3% Adjusted revenues 1,704 1,711 1,745 -2.3% Operating expenses (excl. D&A) 1,097 1,053 1,167 -6.0% EBITDA 626 665 578 8.3% Adjusted EBITDA 606 662 582 4.1% Depreciation 254 251 282 -9.9% A
Slide 33: Group results FY ’16 (continuing operations)
Group results FY ’16 (continuing operations) (€ m) FY ’16 FY ’15 y-on-y % Revenues 6,806 7,008 -2.9% Adjusted revenues 6,780 7,018 -3.4% Operating expenses (excl. D&A) 4,377 4,684 -6.6% EBITDA 2,429 2,324 4.5% Adjusted EBITDA 2,428 2,419 0.4% Depreciation 1,008 1,105 -8.8% Amortization 537 511 5.1%
Slide 34: Group cash flow Q4 ’16 (continuing operations)
Group cash flow Q4 ’16 (continuing operations) (€ m) Q4 ’16 Q4 ’15 y-on-y % EBITDA 626 578 8.3% Interest paid/received -61 -71 -14% Tax paid/received 6 31 -81% Change in provisions1 -19 -43 -56% Change in working capital1 127 81 57% Other movements -2 1 n.m. Net cash flow from operating activities 6
Slide 35: Group cash flow FY ’16 (continuing operations)
Group cash flow FY ’16 (continuing operations) (€ m) FY ’16 FY ’15 y-on-y % EBITDA 2,429 2,324 4.5% Interest paid/received -460 -485 -5.2% Tax paid/received 50 18 >100% Change in provisions1 -68 -44 55% Change in working capital1 -121 30 n.m. Other movements 94 153 -39% Net cash flow from operating
Slide 36: Financials by segment
Financials by segment The Netherlands Consumer Business Business 62.1% 61.8% 58.7% 61.2% 58.0% 55.6% 781 802 799 630 572 569 498 494 370 348 332 434 Q4 ’15 Q3 ’16 Q4 ’16 Q4 ’15 Q3 ’16 Q4 ’16 Wholesale Network, Operations & IT 68.9% 67.9% 69.9% 180 187 186 124 127 130 -257 -295 -286 Q4 ’15 Q3 ’16 Q4
Slide 37: Dutch wireless disclosure
Dutch wireless disclosure Service revenues (€ m) Q4 ’16 Q4 ’15 y-on-y % FY ’16 FY ’15 y-on-y % Consumer 299 284 5.3% 1,178 1,160 1.6% Business1 162 176 -8.0% 678 711 -4.6% Other2 40 38 5.3% 156 154 1.3% KPN The Netherlands 501 498 0.6% 2,012 2,025 -0.6% SAC/SRC per subscriber (€) Q4 ’16 Q4 ’15 y-on-
Slide 38: Tax Q4 ’16
Tax Q4 ’16 P&L Cash flow Regions (€ m) Q4 ’16 Q4 ’15 Q4 ’16 Q4 ’15 The Netherlands -31 -34 6 31 Belgium - -28 - - Other - - - - Total reported tax -31 -62 6 31 Of which discontinued operations - -28 - - Reported tax from continuing operations -31 -34 6 31 Effective tax rate continuing operations 21.
Slide 39: Tax FY ’16
Tax FY ’16 P&L Cash flow Regions (€ m) FY ’16 FY ’15 FY ’16 FY ’15 The Netherlands -91 -76 52 22 Belgium 3 -26 - 1 Other -5 -5 -2 -4 Total reported tax -93 -107 50 19 Of which discontinued operations 3 -26 - 1 Reported tax from continuing operations -96 -81 50 18 Effective tax rate continuing operat
Slide 40: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 40
Slide 41: Consumer
Consumer Fixed-Mobile KPIs Fixed-Mobile household development Fixed-Mobile postpaid development 43% 37% 40% 35% 29% 33% 2,205 2,102 2,923 2,652 2,543 2,421 1,461 1,583 813 1,003 1,077 1,172 Q4 ’15 Q3 ’16 Q4 ’16 Q4 ’15 Q3 ’16 Q4 ’16 F-M households (k) Fixed-only households(k) F-M postpaid base (k) Mo
Slide 42: Consumer (cont’d)
Consumer (cont’d) Residential KPIs Household base (k) RGUs and ARPU per household 3,736 3,655 3,620 2.14 2.16 2.07 897 775 738 438 405 398 767 767 769 € 40 € 41 € 42 1,634 1,708 1,715 Q4 ’15 Q3 ’16 Q4 ’16 Q4 ’15 Q3 ’16 Q4 ’16 Not bundled Not bundled (BB only) Dual play Triple play (PSTN & Digitenne)
Slide 43: Consumer (cont’d) Mobile KPIs
Consumer (cont’d) Mobile KPIs Mobile net adds Mobile postpaid ARPU 80 € 25 € 26 € 26 % committed ARPU 36 19 5 ~83% ~84% ~83% -9 -21 Q4 ’15 Q3 ’16 Q4 ’16 Q4 ’15 Q3 ’16 Q4 ’16 Postpaid net adds (k) Prepaid net adds (k) Committed ARPU Non-committed ARPU Wireless service revenues 41% 42% 5.3% y-on-y 284
Slide 44: Business
Business Total Business Mobile1 Multi play (mainly SME)3 1,790 1,832 1,820 289 316 58 176 174 162 -8.0% 45 y-on-y 35 36 Q4 ’15 Q3 ’16 Q4 ’16 Q4 ’15 Q3 ’16 Q4 ’16 Total Business mobile service revenues2 (€ m) ARPU per multi play seat (€) Total Business mobile customer base (k) Multi play seats (k) Mo
Slide 45: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 45
Slide 46: Debt portfolio
Debt portfolio Breakdown nominal debt1 (total € 9.0bn) Nominal debt by currency Other 2% GBP2 Hybrid bonds 22% 22% Euro bonds EUR Global bonds 68% USD2 64% 8% 14% Bond redemption profile (€ bn) Fixed vs. floating interest 1.1 0.9 1.0 0.7 0.8 0.6 0.6 0.6 0.6 0.6 0.5 0.4 0.5 0.1 Fixed3 100% ’17 ’18 ’1
Slide 47: 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 48: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 48
Slide 49: 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 2.1GHz VOD KPN T-Mob KPN VOD T-Mob 2*59.4 (Paired) 2*14.6 2*14.8 2*10 2*5 2*5 2*10 2.6GHz T-Mob KPN Tele2 1*60 (Unpaired)
Slide 50: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 50
Slide 51: Fixed infrastructure
Fixed infrastructure Active in Download speed Network VDSL2 CO ~50Mbps VDSL2 pair bonding CO ~100Mbps Vectoring SC ~120Mbps Bonded vectoring SC ~240Mbps Bonded VPLUS SC ~400Mbps NG.PON SC >1Gbps FttH ODF ~1Gbps Fiber Copper Q4 and FY 2016 Results | Information Pack | Fixed Infrastructure |
Slide 52: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 52
Slide 53: Telefónica Deutschland stake
Telefónica Deutschland stake Accounting treatment Balance sheet Stake included as financial asset1 Fair value of KPN’s stake based on Telefónica Deutschland’s share price and adjusted quarterly Fair value movements recorded in other comprehensive income Significant or prolonged value decreas