Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — Q3 2015 Earnings Presentation
58 slides from Royal Kpn Nv's earnings presentation, Oct 27, 2015
Slide 1: Third Quarter 2015 Results
Third Quarter 2015 Results 27 October 2015
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 (‘FCF’). These non-GAAP figures should not be viewed as a substitute for KPN’s GAAP figures. KPN defines EBITDA as operating result before depreciatio
Slide 3: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 3
Slide 4: Highlights Q3 '15
Highlights Q3 ’15 Focus on excellent customer experience yielding positive results Services & Innovation Operational Financial1 & Portfolio Integrated OTT apps in Strong base growth Adjusted revenues Q3 ’15: IPTV platform Consumer € 1,764m, -2.6% y-on-y Including Netflix +33k broadband net
Slide 5: Differentiating through innovative services
Differentiating through innovative services Embracing OTT as an opportunity to increase customer satisfaction ~50% of fixed internet traffic Integrated OTT apps in IPTV platform is video streaming to increase customer satisfaction Google ~23% ~25% (YouTube) Netflix ~12% Other ~5% ~20% streaming ~5%
Slide 6: Consistent value creation in Consumer Mobile
Consistent value creation in Consumer Mobile Focus on upselling customer base Upsell potential: ~55% Improved value …leading to improved base1 still in bundles ≤1GB perception… value intake ~80% 10GB ~45% 5GB +€5 5GB ~25% 2GB +€5 1GB 1GB Q3 ’15 Q3 ’14 Q3 ’15 Customer distribution per bundle Current
Slide 7: Increasing SIMs per converged household
Increasing SIMs per converged household… …driven by successful family bundles Successful up- and Increasing number of cross-sell strategy SIMs per household Mobile Fixed 1.49 1.41 Double Free TV Data amount channels sharing of data + Movies in family €5 Free Mobile calling Q3 ’14 Q3 ’15 discount in
Slide 8: Business market changing rapidly
Business market changing rapidly Opportunities to retain value and stabilize revenues in medium-term Business revenue growth drivers Business Traditional Single play Network & IT Multi play New segment voice wireless services services total y-on-y YTD ‘15 adjusted revenue growth 0% YTD ’15 -7.7% -20
Slide 9: Developing as best-in-class service provider
Developing as best-in-class service provider NPS continues to improve across all segments NPS Consumer Residential1 NPS Consumer Mobile1 NPS Business1 6 7 0 0 -10 -11 +6 +7 +1 Q3 ’14 Q3 ’15 Q3 ’14 Q3 ’15 Q3 ’14 Q3 ’15 1 Source: TNS NIPO. Consumer Residential (all brands), Consumer Mobile (all brands
Slide 10: Enhancing best-in-class networks
Enhancing best-in-class networks Continued investments to increase capacity and speeds Increasing fiber penetration Expanding superior 4G network in fixed network through carrier aggregation ~80% 36Mbps 59% 48% 20Mbps 31% FttC 24% FttH 24% 28% end end end end end Q3 ’14 Q3 ’15 2016 Q3 ’14 Q3 ’15 Per
Slide 11: Building efficient and lean operating model
Building efficient and lean operating model IT investments to drive customer satisfaction and efficiency gains Simplification program Digitalization & on track Process transformation >€ 400m 2,000-2,500 Front-end Back-end Single Improved order customer ID management ~€ 250m ~1,350 Run-rate savings1
Slide 12: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 12
Slide 13: Multi play penetration increasing in Consumer
Multi play penetration increasing in Consumer Successful take-up driving customer loyalty and reducing churn Households in Mobile customers in Fixed-Mobile bundles Fixed-Mobile bundles 669k 997k 369k 519k 23% 28% 14% 16% Q3 ’14 Q3 ’15 Q3 ’14 Q3 ’15 Retail postpaid customers in # of fixed-mobile bund
Slide 14: Investments Consumer Residential paying off
Investments Consumer Residential paying off Strong market position supporting base growth Successful Increasing triple Supporting ARPU upsell strategy play penetration per customer 55k 55% € 43 € 43 49k 48% 33k 6k Broadband IPTV Triple play ARPU net adds net adds Q3 ’14 Q3 ’15 Q3 ’14 Q3 ’15 Q3 ’14 Q
Slide 15: Consumer Mobile growth continuing
Consumer Mobile growth continuing High value customer intake fuels service revenue growth Continued strong retail Derisking Driving service postpaid net adds ARPU profile revenue growth 84k € 28 € 28 +4.6% 80k % committed ARPU 75% 77% -8.2% Retail postpaid Retail postpaid Service revenue net adds AR
Slide 16: Challenging environment in Business
Challenging environment in Business Focus on growing multi play and new services Challenging environment Growing multi play Wireless € 37 € 34 430k 2k -1k Wireless Wireless single net adds1 play ARPU2 257k 19% Wireline 12% € 51 € 50 Q3 ’14 Q3 ’15 -31k -31k Traditional Multi play seats Line loss voic
Slide 17: BASE Company's results improving
BASE Company’s1 results improving Improving service revenue trend and profitability Service revenues Adjusted EBITDA margin 27.1% 21.6% -0.7% -4.4% Q3 ’14 Q3 ’15 Service revenue growth y-on-y Q3 ’14 Q3 ’15 Postpaid net adds Data usage growth continuing 18k +80% ~500 13k ~285 Q3 ’14 Q3 ’15 Q3 ’14 Q3
Slide 18: Improving financial results (continuing operations)
Improving financial results (continuing operations)1 Driven by strong operational performance and cost discipline €m Q3 ’15 Q3 ’14 y-on-y % Adjusted revenues 1,764 1,811 -2.6% Adjusted EBITDA 640 612 4.6% Net profit 87 -75 n.m. Capex -305 -251 22% FCF 213 234 -9.0% 1 All figures based on continuing
Slide 19: Revenue trend improving
Revenue trend improving Inflection in Consumer still offset by declining business market Adjusted revenues1 declined by 2.6% vs -5.2% in Q3 ’14 €m 22 9 1,811 6 51 2 1,764 31 Adj. Consumer Consumer Business NetCo & iBasis Other Adj. revenues Residential Mobile Other NL revenues Q3 ’14 Q3 ’15 The Neth
Slide 20: Adjusted EBITDA benefiting from cost savings
Adjusted EBITDA1 benefiting from cost savings Positive impact cost savings offset revenue decline €m 18 50 2 2 640 3 19 1 3 612 14 Adj. Revenues SAC / SRC, Traffic Personnel Marke- IT/TI, Change in iBasis Other Adj. EBITDA COGS ting Housing, provisions EBITDA Other NL Q3 ’14 Q3 ’15 The Netherlands2
Slide 21: Simplification to drive down Capex The Netherlands
Simplification to drive down Capex The Netherlands Continued investments in capacity and Simplification Capex The Netherlands (incl. Reggefiber) lower y-on-y Projects 2015 - 2016 €m 9881 IPTV and broadband base growth 937 Customer driven 174 207 FttC / FttH roll-out to increase capacity and speed fi
Slide 22: Improvement in free cash flow
Improvement in free cash flow1 Free cash flow YTD’15 higher y-on-y supported by lower interest paid €m 146 475 79 7 162 329 0 120 171 15 28 13 FCF Reported Interest Taxes Change Change Other Capex3 Proceeds FCF excl TEFD FCF YTD ’14 EBITDA paid paid in in working from real dividend 2 TEFD YTD ’15 pr
Slide 23: Solid financial position
Solid financial position Telefónica Deutschland stake provides additional financial flexibility Lower net debt y-on-y Debt portfolio € bn Gross debt flat at € 8.6bn vs. Q2 ’15 11.8 10.3 Average maturity senior bonds 7.2 years 8.6 8.6 Net 7.3 7.5 1.1 cash2 Average coupon senior bonds 5.1% 2.9x
Slide 24: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 24
Slide 25: On track for outlook 2015
On track for outlook 2015 Outlook continuing operations 2015 Shareholder remuneration Adjusted EBITDA in line with 2014 Intended DPS of € 8.0ct in respect of 20151 Capex < € 1.3bn € 3.0ct interim dividend paid in September ’15 Free cash flow > € 500m (excl. TEFD Growing DPS expected in r
Slide 26: Q&A
Q&A 26
Slide 27: Q3 2015 – Information Pack
Q3 2015 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 ir@kpn.com ir.kpn.com 27
Slide 28: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Group KPI overview 4 Debt overview 5 Regulation & Spectrum 6 Fixed infrastructure 7 Telefónica Deutschland stake 28
Slide 29: 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 Begonia Roberts +1 212 250 9100 (New York) AD
Slide 30: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Group KPI overview 4 Debt overview 5 Regulation & Spectrum 6 Fixed infrastructure 7 Telefónica Deutschland stake 30
Slide 31: Group results Q3 '15 (continuing operations)
Group results Q3 ’15 (continuing operations) (€ m) Q3 ’15 Q2 ’15 Q3 ’14 y-on-y % Revenues 1,764 1,741 1,811 -2.6% Adjusted revenues 1,764 1,751 1,811 -2.6% Operating expenses (excl. D&A) 1,162 1,173 1,216 -4.4% EBITDA 602 568 595 1.2% Adjusted EBITDA 640 602 612 4.6% Depreciation 276 274 270 2.2% Am
Slide 32: Group results YTD '15 (continuing operations)
Group results YTD ’15 (continuing operations) (€ m) YTD ’15 YTD ’14 y-on-y % Revenues 5,263 5,476 -3.9% Adjusted revenues 5,273 5,454 -3.3% Operating expenses (excl. D&A) 3,517 3,266 7.7% EBITDA 1,746 2,210 -21% Adjusted EBITDA 1,837 1,787 2.8% Depreciation 823 844 -2.5% Amortization 375 389 -3.6% O
Slide 33: Group cash flow Q3 '15 (continuing operations)
Group cash flow Q3 ’15 (continuing operations) (€ m) Q3 ’15 Q3 ’14 y-on-y % EBITDA 602 595 1.2% Interest paid/received -113 -130 -13% Tax paid/received -1 -15 -93% Change in provisions1 9 -7 n.m. Change in working capital1 18 39 -54% Other movements 3 2 50% Net cash flow from operating activities 51
Slide 34: Group cash flow YTD '15 (continuing operations)
Group cash flow YTD ’15 (continuing operations) (€ m) YTD ’15 YTD ’14 y-on-y % EBITDA 1,746 2,210 -21% Interest paid/received -414 -585 -29% Tax paid/received -13 -28 -54% Change in provisions1 -1 -614 -100% Change in working capital1 -51 -130 -61% Other movements (incl. TEFD dividend) 152 -1 n.m. N
Slide 35: Financials by segment
Financials by segment Consumer Residential Consumer Mobile 22.9% 22.0% 23.3% 23.9% 21.9% 13.3% 477 478 486 354 374 376 109 105 113 82 90 47 Q3 ’14 Q2 ’15 Q3 ’15 Q3 ’14 Q2 ’15 Q3 ’15 Business NetCo 22.4% 57.7% 60.6% 18.6% 18.9% 54.6% 706 662 655 557 544 548 304 314 332 158 123 124 Q3 ’14 Q2 ’15 Q3 ’1
Slide 36: Financials by segment (cont'd)
Financials by segment (cont’d) iBasis Belgium (discontinued operations) 2.9% 2.6% 2.5% 27.2% 27.1% 21.6% 243 234 241 176 169 170 38 46 46 7 6 6 Q3 ’14 Q2 ’15 Q3 ’15 Q3 ’14 Q2 ’15 Q3 ’15 Adjusted revenues (€ m) Adjusted EBITDA (€ m) Adjusted EBITDA margin 36
Slide 37: Analysis of adjusted results Q3 '15
Analysis of adjusted results Q3 ’15 Impact incidentals and restructuring costs on revenues & EBITDA Revenues (€ m) Q3 ’15 Q3 ’14 KPN Group - - Of which discontinued operations - - KPN Group continuing operations - - EBITDA (€ m) Q3 ’15 Q3 ’14 Restructuring costs Group -32 -17 Change in provision Oth
Slide 38: Analysis of adjusted results YTD '15
Analysis of adjusted results YTD ’15 Impact incidentals and restructuring costs on revenues & EBITDA Revenues (€ m) YTD ’15 YTD ’14 Revenue related provision Business -10 - Sale of fixed assets (hardware) Business - 5 Change in provision NetCo - 17 KPN Group -10 22 Of which discontinued operations -
Slide 39: Restructuring costs
Restructuring costs (€ m) Q3 ’15 Q3 ’14 YTD ’15 YTD ’14 Consumer Mobile -5 - -8 -1 Consumer Residential -1 -1 -3 -7 Business -5 -5 -37 -18 NetCo -3 -2 -11 -3 Other -10 1 -8 -2 The Netherlands -24 -7 -67 -31 iBasis - - - - Belgium (incl. discontinued operations) - - - -3 Other activities -8 -10 -19 -
Slide 40: Dutch wireless disclosure
Dutch wireless disclosure Service revenues (€ m) Q3 ’15 Q3 ’14 % YTD ’15 YTD ’14 % Consumer retail 309 288 7.3% 876 848 3.3% Business1 179 183 -2.2% 535 562 -4.8% Other2 37 40 -7.5% 115 126 -8.7% KPN The Netherlands 525 511 2.7% 1,526 1,536 -0.7% SAC/SRC per subscriber (€) Q3 ’15 Q3 ’14 % Consumer r
Slide 41: Tax
Tax P&L Cash flow Regions (€ m) Q3 ’15 Q3 ’14 Q3 ’15 Q3 ’14 The Netherlands -8 -10 -1 -15 Belgium 1 1 - - Other -2 -2 - - Total reported tax -9 -11 -1 -15 Of which discontinued operations 1 1 - - Reported tax continuing operations -10 -12 -1 -15 Effective tax rate continuing operations 10.4% -20.0%
Slide 42: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Group KPI overview 4 Debt overview 5 Regulation & Spectrum 6 Fixed infrastructure 7 Telefónica Deutschland stake 42
Slide 43: Consumer Residential
Consumer Residential Broadband IPTV 40% 40% 41% 28% 28% 26% 31 33 64 6 49 55 Q3 ’14 Q2 ’15 Q3 ’15 Q3 ’14 Q2 ’15 Q3 ’15 Net adds (k) Broadband market share1 Net adds (k) TV market share1 RGUs and ARPU per customer 2.14 2.24 2.26 43 43 43 Q3 ’14 Q2 ’15 Q3 ’15 ARPU per customer (€ ) RGUs per customer 1
Slide 44: Consumer Mobile
Consumer Mobile Postpaid net adds Retail postpaid ARPU € 84 80 28 27 28 70 % committed ARPU 8 -2 ~75% ~78% ~77% -19 Q3 ’14 Q2 ’15 Q3 ’15 Retail (k) Wholesale (k) Q3 ’14 Q2 ’15 Q3 ’15 Service revenues Committed ARPU breakdown 42% 44% 44% 6% 6% 6% Incoming (MTA) 323 333 338 4.6% 7% 10% 9% Above bundle
Slide 45: Business
Business Wireless services Wireless service revenues 1,709 1,792 1,794 -2.2% y-on-y 37 343 34 183 178 179 % committed 72% 84% 84% single play ARPU Q3 ’14 Q2 ’15 Q3 ’15 Q3 ’14 Q2 ’15 Q3 ’15 Wireless single play ARPU (€)1 Wireless service revenues4 (€ m) Wireless customers (k)2 Voice & Internet wireli
Slide 46: Belgium (discontinued operations)
Belgium (discontinued operations) Net adds ARPU 3.3 3.2 3.2 31 31 31 75 18 7 13 -18 8 8 8 -41 Q3 ’14 Q2 ’15 Q3 ’15 Q3 ’14 Q2 ’15 Q3 ’15 Postpaid (k) Prepaid (k) Postpaid (€) Prepaid (€) Customers (m) Service revenues 21% ~20% ~20% 151 149 150 Q3 ’14 Q2 ’15 Q3 ’15 Service revenues (€ m) Service reven
Slide 47: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Group KPI overview 4 Debt overview 5 Regulation & Spectrum 6 Fixed infrastructure 7 Telefónica Deutschland stake 47
Slide 48: Debt summary
Debt summary (€ bn) Q3 ’15 Q2 ’15 % Eurobonds 6.67 6.67 - Global bonds 0.76 0.76 - Hybrid bonds 2.03 2.03 - Financial leases and other loans 0.13 0.13 - Nominal debt 9.59 9.59 - Equity credit hybrid bonds -1.01 -1.01 - Cash collateral on derivatives 0.04 0.04 - Adjustments to nominal debt -0.97 -0.9
Slide 49: Debt portfolio
Debt portfolio Breakdown of € 9.6bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 9.6bn) Nominal debt by currency Other 1% GBP2 Hybrid bonds Eurobonds EUR 22% 21% 70% 65% Global bonds USD2 8% 13% Bond redemption profile Fixed vs. floating interest 1.1 1.2 1.0 0.8 0.8 0.9 0.9
Slide 50: Treatment of hybrid bonds
Treatment of hybrid bonds KPN & Credit rating agencies IFRS Each tranche of the hybrid bonds is EUR tranche is a perpetual, recognized as 50% equity and 50% accounted for as equity debt by the rating agencies Coupon payments treated as equity distribution, hence not expensed through Definiti
Slide 51: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Group KPI overview 4 Debt overview 5 Regulation & Spectrum 6 Fixed infrastructure 7 Telefónica Deutschland stake 51
Slide 52: Unbundling tariffs
Unbundling tariffs Unbundling in copper network Category Monthly tariff MDF Node SDF Line sharing (LLU) € 0.11 per line colocation KPN / Telco Fully unbundled (LLU) € 7.87 per line ~28,000 1,350 Street cabinets local exchanges MDF colocation € 956.45 footprint per year € 5.32 per line shared Wholesa
Slide 53: Spectrum in The Netherlands
Spectrum in The Netherlands Current status 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 2.1GHz VOD KPN T-Mob KPN VOD T-Mob 2*59.4 (Paired)
Slide 54: Spectrum in Belgium
Spectrum in Belgium Current status 800MHz BASE Proximus Mobistar 2*30 (Paired) 2*10 2*10 2*10 900MHz1 BASE Proximus Mobistar 2*34 (Paired) 2*10 2*12 2*12 1.8GHz BASE Proximus Mobistar 2*74.4 (Paired) 2*24.8 2*24.8 2*24.8 2.1GHz Proximus BASE Mobistar 2*44.6 (Paired) 2*15 2*14.8 2*14.8 2.1GHz BASE Mo
Slide 55: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Group KPI overview 4 Debt overview 5 Regulation & Spectrum 6 Fixed infrastructure 7 Telefónica Deutschland stake 55
Slide 56: Infrastructure
Infrastructure Fixed network ahead of customer demand Download speed ahead of demand Next round of upgrades Download Active in speed network (up to) Download speed1 >40Mbps 2014 2015 2016 ~75% ~85% ~90% CO VDSL2 50Mbps VDSL2 pair bonding 100Mbps ~50% ~70% ~85% CO 100Mbps ≥200Mbps ~27% ~55% ~70%
Slide 57: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Group KPI overview 4 Debt overview 5 Regulation & Spectrum 6 Fixed infrastructure 7 Telefónica Deutschland stake 57
Slide 58: Telefónica Deutschland stake
Telefónica Deutschland stake Accounting treatment Balance sheet Stake will be included as financial asset1 Fair value of KPN’s stake will be based on Telefónica Deutschland’s share price and adjusted quarterly Fair value movements will be recorded in other comprehensive income Significant or