Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — Q3 2014 Earnings Presentation
58 slides from Royal Kpn Nv's earnings presentation, Oct 28, 2014
Slide 1: Third Quarter 2014 results
Third Quarter 2014 results 28 October 2014
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 depreciati
Slide 3: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 3
Slide 4: Executive summary: Good strategic progress
Executive summary Good strategic progress Continued customer base growth 4G, IPTV and multi play in The Netherlands Strong growth Consumer fixed-mobile bundles (+84k) and Business multi play seats (+37k) Good strategic Return to growth in broadband (+6k), good IPTV net adds (+49k) progress H
Slide 5: Executive summary
Executive summary Adjusted revenues -4.9% y-on-y in Q3 ’14 versus -7.0% in Q2 ’14 o Positive impact customer base growth, but still lower mobile price levels y-on-y and ongoing decline of business market size Adjusted EBITDA (excl. phasing out handset lease) -12% y-on-y in Q3 ’14 Financial resul
Slide 6: Sale of E-Plus successfully completed
Sale of E-Plus successfully completed Cash proceeds increasing financial flexibility Use of cash proceeds Bond tender • Majority of cash proceeds to increase • Up to € 2.0bn allocated for bond tender financial flexibility − Tender period 28 October - 4 November 2014 − Bond tender − Regular bond rede
Slide 7: Shareholder remuneration
Shareholder remuneration Dividend payments recommenced Additional excess cash • Intended DPS of € 0.07 in respect of 2014 • 20.5% stake Telefónica Deutschland treated as financial investment • € 0.02 interim dividend paid in October 2014 − Cash upside via dividend payments following closing E-Plus s
Slide 8: Outlook (continuing operations)
Outlook (continuing operations)1 On track to reach outlook • Financial performance stabilizing towards the end of 2014 2014 • Capex < € 1.4bn2 • Capex < € 1.5bn, including Reggefiber2 • Free cash flow (excl. TEFD dividend)3 growth expected in 2015 Limited tax cash out in The Netherlands in coming
Slide 9: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 9
Slide 10: Group financial profile
Group financial profile € bn Net debt • Pro forma net debt of € 6.1bn 10.5 10.3 9.6 • Average coupon senior bonds 4.9%, average 6.3 6.1 maturity senior bonds 6.8 years Q3 ’13 Q2 ’14 Q3 ’14 Net debt1 Pro forma net debt2 Net debt / EBITDA • Net debt / EBITDA at ~2.3x, pro forma E-Plus 2.8x 2.9x sale a
Slide 11: Group results Q3 '14 (continuing operations)
Group results Q3 ’14 (continuing operations) € m (continuing operations) Q3 ’14 Q2 ’14 Q3 ’13 y-on-y % Revenues 1,978 2,004 2,080 -4.9% • Adjusted revenues down 4.9% y-on-y Adjusted revenues1 1,978 1,989 2,080 -4.9% (Q2 ’14: -7.0%) − Lower mobile price levels y-on-y and Opex (excl. D&A) 1,345 937 1,
Slide 12: Group results YTD '14 (continuing operations)
Group results YTD ’14 (continuing operations) € m (continuing operations) YTD ’14 YTD ’13 % Revenues 5,978 6,411 -6.8% • Adjusted revenues down 6.6% y-on-y Adjusted revenues1 5,956 6,374 -6.6% • Opex (excl. D&A, pension release and Operating expenses (excl. D&A) 3,654 4,109 -11% impact phasing out h
Slide 13: Group cash flow Q3 '14 (continuing operations)
Group cash flow Q3 ’14 (continuing operations) € m (continuing operations) Q3 ’14 Q3 ’13 % EBITDA 633 743 -15% • Free cash flow higher y-on-y at € 250m Interest paid/received -130 -168 -23% mainly due to Tax paid/received -14 -82 -83% − € 126m more cash from change in working Change in provisions1 -
Slide 14: Group cash flow YTD '14 (continuing operations)
Group cash flow YTD ’14 (continuing operations) € m (continuing operations) YTD ’14 YTD ’13 % EBITDA 2,324 2,302 1.0% • Free cash flow € 195m lower y-on-y Interest paid/received -585 -584 0.2% mainly due to Tax paid/received -27 -218 -88% − € 429m lower EBITDA, excluding € 451m Change in provisions1
Slide 15: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 15
Slide 16: Operating review The Netherlands
Operating review The Netherlands Financial review Good strategic progress €m 42.9% 37.8% 39.2% • Simplification resulting in YTD ’14 Capex and opex savings ~€ 100m y-on-y -5.8% 1,661 1,588 1,565 • Continued improvement customer satisfaction 713 600 614 +22 +15 Interactive TV 0 Q3 ’13 Q2 ’14 Q3 ’14 K
Slide 17: Consumer - multi play: Fixed-mobile bundles successful
Consumer - multi play Fixed-mobile bundles successful Continued growth triple play Strong growth fixed-mobile bundles k 14% k +5%-points 10% 47% 48% 3% 369 43% 285 1,286 1,316 1,169 86 273 315 86 Q3 ’13 Q2 ’14 Q3 ’14 Fixed-mobile bundles Q3 ’13 Q2 ’14 Q3 ’14 Of which quad play Fixed-mobile bundles a
Slide 18: Consumer Residential: Financial review
Consumer Residential €m 21.9% 22.3% 22.9% • Adjusted revenues 2.5% lower y-on-y − Ongoing decline traditional voice services Financial review -2.5% − Increased commercial activities to counter continued promotional activities by competition 489 476 477 107 106 109 • Adjusted EBITDA margin of 22.9% s
Slide 19: Consumer Residential: Broadband and IPTV net adds
Consumer Residential (cont’d) Commercial initiatives successfully supporting RGU trends 25% 26% 26% • Commercial initiatives and copper upgrades successfully supporting RGU trends TV market share IPTV net adds & 72 − Integrated FttH / copper proposition − New KPN and Telfort fixed-mobile bundles 49
Slide 20: Consumer Mobile: Financial review
Consumer Mobile €m 26.9% • Underlying service revenue decline of 6.9% 14.4% 13.3% y-on-y (Q2 ’14: -9.3%) Financial review − Mainly driven by lower above bundle usage and -5.6% lower price levels y-on-y − Improving trend due to high postpaid net adds 375 354 354 supported by lower churn 101 51 47 Q3
Slide 21: Consumer Mobile: Postpaid net adds and ARPU
Consumer Mobile (cont’d) Continued high retail postpaid net adds k • High retail postpaid net adds of 84k 84 − Driven by good performance of KPN brand and Postpaid net adds 53 no frills brands 5 • Lower churn across all brands supported by − Increased uptake fixed-mobile bundles -13 -12 -19 − Nation
Slide 22: Business: Challenging market environment
Business Challenging market environment impacting financial performance 24.8% • Adjusted revenues declined 7.0% y-on-y €m 21.0% 22.4% − Continued decline of market size driven by Financial review customer rationalization and optimization -7.0% 759 727 706 • Adjusted EBITDA margin at 22.4% 188 158 15
Slide 23: Business: Accelerating cost reduction programs
Business (cont’d) Accelerating cost reduction programs to offset revenue pressure Initial Simplification benefits Good progress 4G & multi play • Further steps to simplify product portfolio, client • Growing 4G customer base, now 612k processes and IT subscribers (Q2 ’14: 525k) − ~€ 10m y-on-y reduc
Slide 24: NetCo: Financial review and Simplification
NetCo €m €m 54.7% 54.5% 54.6% • Adjusted revenues down 4.5% y-on-y − Decline traditional services and lower traffic across Financial review -4.5% segments 583 − Lower wholesale traffic revenues 560 557 319 305 304 • Adjusted EBITDA margin relatively stable at 54.6% Q3 ’13 Q2 ’14 Q3 ’14 − Decline of
Slide 25: iBasis: Financial review
iBasis 3.6% • Adjusted revenues down 2.0% y-on-y €m 2.9% 2.2% − Competitive international wholesale traffic market Financial review -2.0% • Adjusted EBITDA margin at 2.9% 248 231 243 − Decline of high margin revenues, partly offset by continued cost focus 9 5 7 Q3 ’13 Q2 ’14 Q3 ’14 • Successfully co
Slide 26: Belgium: Price, service and network quality leadership
Belgium Price, service and network quality leadership Price leadership1 % of users recognizing price difference, consider operator the cheapest 59 Price 56 55 50 51 49 50 leadership 32 30 26 27 27 19 18 20 20 18 14 13 Customer 18 15 6 14 15 Leading Service 2008 2009 2010 2011 2012 2013 H1 2014 netwo
Slide 27: Belgium: Financial review
Belgium (cont’d) €m • Underlying service revenue decline 1.3% 26.0% 21.9% 21.6% y-on-y (Q2 ’14: -1.9%) in stabilizing market Financial review − Postpaid service revenue growth, prepaid remains -2.8% under pressure 181 178 176 − Continued tariff optimization by customers 47 39 38 • Adjusted EBITDA ma
Slide 28: Belgium: Customer base and ARPU
Belgium (cont’d) Continued good postpaid net adds 3.3 3.2 3.3 • Continued good postpaid net adds k customer base Net adds & 75 • Prepaid net adds of +75k driven by strong 46 16 18 performance wholesale partners -61 -195 Q3 ’13 Q2 ’14 Q3 ’14 Customers (m) Prepaid net adds Postpaid net adds € 34 • Pos
Slide 29: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 29
Slide 30: Concluding remarks
Concluding remarks Continued customer base growth 4G, IPTV and multi play in The Netherlands Price, service and network quality leadership in Belgium Simplification program well on track Financial performance gradually improving E-Plus sale leads to solid financial profile, dividend paymen
Slide 31: Annex: Q3 2014 Information Pack
Annex Q3 2014 - Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 ir@kpn.com www.kpn.com/ir
Slide 32: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 6 Telefónica Deutschland stake 32
Slide 33: 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 34: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 6 Telefónica Deutschland stake 34
Slide 35: Analysis of adjusted results YTD '14
Analysis of adjusted results YTD ’14 Impact incidentals (no incidentals in Q3 ’14 and Q3 ’13) Revenues (€ m) YTD ’14 YTD ’13 Sale of fixed assets (hardware) Business 5 - Change in provision NetCo 17 -6 Book gain sale IS&P Business - 23 Germany, Consumer Residential, Adjustment deferred revenues - 49
Slide 36: Restructuring costs
Restructuring costs €m Q3 ’14 Q3 ’13 YTD ’14 YTD ’13 Germany (incl. discontinued operations) -6 1 -12 6 Belgium - - -3 - Mobile International (incl. discontinued operations) -6 1 -15 6 Consumer Mobile - - -1 -5 Consumer Residential -1 -4 -7 -16 Business -5 -5 -18 -24 NetCo -2 -2 -3 -7 Other 1 -7 -2
Slide 37: Impact regulation
Impact regulation €m Q3 ’14 Q3 ’13 Revenues EBITDA Revenues EBITDA Germany (incl. discontinued operations) -20 -17 -42 -22 Belgium -5 -4 -11 -7 Mobile International (incl. discontinued operations) -25 -21 -53 -29 Consumer Mobile -5 - -7 -3 Of which: Mobile Wholesale - - - - Business -6 -4 -10 -7 Net
Slide 38: Operating expenses
Operating expenses €m Q3 ’14 Q3 ’13 % Employee benefits 309 307 0.7% Cost of materials 171 146 17% Work contracted out and other expenses 793 782 1.4% Own work capitalized -17 -17 flat Other operating expenses1 89 119 -25% Depreciation2 294 319 -7.8% Amortization2 146 143 2.1% Total operating expens
Slide 39: Operating expenses - analysis: Employee benefits & Cost of materials
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y increase (Continuing operations) • Release of provisions for several incentive 16.8% 16.1% 15.9%1 15.6% schemes in Q3 ’13 15.2% 14.8% 14.6% Q-on-Q decrease 365 324 307 322 3181 309 301 • Lower cost as a r
Slide 40: Operating expenses - analysis: Work contracted out & Other
Operating expenses - analysis Work contracted out & Other Y-on-Y increase €m Work contracted out • Higher content costs at Consumer Residential (Continuing operations) 40.6% 40.1% • Higher FttH activation costs at NetCo 38.7% 39.4% 36.7% 38.0% 37.6% Partly offset by • Lower IT costs due to Simplific
Slide 41: Operating expenses - analysis: Depreciation & Amortization
Operating expenses - analysis Depreciation & Amortization €m Y-on-Y decrease Depreciation1 • Lower depreciation due to phasing out of handset (Continuing operations) lease at all brands at Consumer Mobile 15.3% 15.9% 15.3% 16.0% 14.6% 14.9% 13.8% Q-on-Q decrease • Lower depreciation due to phasing o
Slide 42: The Netherlands - operating expenses
The Netherlands - operating expenses Breakdown operating expenses • Operating expenses (excl. D&A, restr. costs and impact €m (excl. D&A and restructuring costs) phasing out handset lease) down 2.5% y-on-y +0.1% / -2.5%1 • Employee benefit costs increased 1.2% y-on-y due to release of provisions for
Slide 43: Dutch wireless disclosure
Dutch wireless disclosure Q3 ’14 Q3 ’13 % Service revenues (€ m) 533 587 -9.2% − Consumer retail 288 312 -7.7% − Business1 205 229 -10% − Other2 40 46 -13% SAC/SRC per subscriber (€) − Consumer retail3 190 172 10% − Business 266 244 9.0% 1 Includes partial allocation of multi play revenues to mobile
Slide 44: Tax
Tax P&L Cash flow Fiscal units (€ m) Q3 ’14 Q3 ’13 Q3 ’14 Q3 ’13 The Netherlands -10 -12 -141 -812 Germany 17 -102 -2 1 Belgium 1 - - - Other -3 -2 - -1 Total reported tax (incl. discontinued operations) 5 -116 -16 -81 Of which discontinued operations 16 -101 -2 1 Reported tax continuing operations
Slide 45: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 6 Telefónica Deutschland stake 45
Slide 46: Debt summary
Debt summary € bn Q3 ’14 Q2 ’14 % Nominal debt 12.84 12.80 0.03% Eurobonds 9.43 9.43 - Global bonds 0.76 0.76 - Hybrid bonds 2.03 2.03 - Financial leases and other loans 0.62 0.58 6.9% Adjustments to nominal debt -1.02 -1.02 - Equity credit hybrid bonds -1.01 -1.01 - Cash collateral on derivatives -
Slide 47: Debt portfolio
Debt portfolio Breakdown of € 12.8bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 12.8bn) Nominal debt by currency Other Hybrid bonds 5% 20% 70% 16% 10% Global bonds 6% Eurobonds 73% 2 2 EUR USD GBP € bn Bond redemption profile Fixed vs. floating interest 1.5 1.3 1.3 1.1 1.0
Slide 48: 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 49: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 6 Telefónica Deutschland stake 49
Slide 50: Regulation: MTA rates across the Group
Regulation MTA rates across the Group • ACM decision to base MTA rates on ‘pure BULRIC’ of € 1.019 cent per minute as of 1 September 2013 is under appeal (Court announced prejudicial questions to European Court of Justice) • Dutch Court suspended ACM decision and mandated interim rates NL based on ‘
Slide 51: Unbundling tariffs
Unbundling tariffs Unbundling in copper network Category Monthly tariff Line sharing (LLU) € 0.11 / line MDF Node SDF Fully unbundled (LLU) € 7.79 / line colocation KPN / Telco ~28,000 1,350 MDF colocation € 946.98 footprint / year Street cabinets local exchanges € 5.32 / line shared Wholesale Broad
Slide 52: 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 1.9GHz T-Mob KPN VOD T-Mob 1*35 Unpaired 10 5 5.4 14.6 Current status 2.1GHz VOD KPN T-Mob KPN VOD T-Mob 2*59.4 Paired 2*14.6 2*
Slide 53: Spectrum in Belgium
Spectrum in Belgium 800MHz BASE Belgacom Mobistar 2*30 Paired 2*10 2*10 2*10 900MHz1 BASE Belgacom Mobistar 2*34 Paired 2*10 2*12 2*12 1.8GHz2 BASE Belgacom Mobistar 2*63.6 Paired 2*23.4 2*23.4 2*23.4 2.1GHz Belgacom BASE Mobistar 2*44.6 Paired 2*15 2*14.8 2*14.8 Current status 2.1GHz B M B 1*15 Unp
Slide 54: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 6 Telefónica Deutschland stake 54
Slide 55: Infrastructure: Deploying mix of technologies going forward
Infrastructure Deploying mix of technologies going forward VDSL from CO1 VDSL pair bonding Vectored VDSL Pair bonded vectored (VDSL-CO) CO (VDSL-CO) from SC1 VDSL from SC FttH Wireless CO CO CO CO ODF1 SC SC up to 40 Mbps DS1 up to 80 Mbps DS up to 120 Mbps DS up to 240 Mbps DS up to 500 Mbps up to
Slide 56: Roadmap to Reggefiber consolidation
Roadmap to Reggefiber consolidation Option structure Reggefiber financials FY 2013 Option I1 Option II3 Option III (in € m) • Additional 10% • Additional 9% • Remaining 40% Revenue 119 Ownership stake • 51% ownership • 60% ownership • 100% ownership Opex (excl. D&A) 36 Option type Call and Put optio
Slide 57: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 6 Telefónica Deutschland stake 57
Slide 58: Telefónica Deutschland stake: Accounting treatment
Telefónica Deutschland stake Accounting treatment • 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 Balance sheet o Fair value movements will be recorded in other comprehensive income o Significant or