Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — FY2013 Earnings Presentation
68 slides from Royal Kpn Nv's earnings presentation, Feb 4, 2014
Slide 1: Annual Results 2013
Annual Results 2013 4 February 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. 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: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Thorsten Dirks 5 Concluding remarks Eelco Blok 3
Slide 4: Executive summary
Executive summary Improved operational performance Triple play penetration at 44%, up 8%-points y-on-y Quad play customers doubled in Q4 ’13 to 173k Dutch 4G coverage at ~80%, nationwide end Q1 ’14 Positive postpaid net adds, but market share lower in competitive Dutch mobile market Succes
Slide 5: Executive summary (cont'd)
Executive summary (cont’d) Strategy Building on strong fundamentals Enhanced customer focus via best-in-class networks and products Simplification leading to lean operating model Outlook Financial performance stabilizing towards the end of 2014 Free cash flow growth expected in 2015 Reco
Slide 6: Building on strong fundamentals
Building on strong fundamentals Enhanced customer focus via best-in-class networks and products Completed Going forward Best-in-class networks Capex at less elevated levels • Leading 3G and 4G networks • Expand 4G network capacity in The Netherlands, 4G roll-out Belgium • Vectoring and pair bonding
Slide 7: Building on strong fundamentals (cont'd)
Building on strong fundamentals (cont’d) Major steps towards a lean operating model Completed Going forward FTE reduction program Simplification program • ~4,6501 exits related to FTE reduction • Simplified products, client processes and program in 2011-2013 period networks & IT -4,272 • Significant
Slide 8: Outlook (continuing operations)
Outlook (continuing operations) • Financial performance stabilizing towards the end of 2014 2014 • Capex < € 1.4bn1 • Capex < € 1.5bn, including Reggefiber1 • Free cash flow (excl. TEFD dividend)2 growth expected in 2015 − Limited tax cash out in The Netherlands in coming years due to tax loss on sa
Slide 9: Shareholder remuneration
Shareholder remuneration Recommence dividend, subject to closing E-Plus sale Dividend Additional excess cash • Recommence sustainable dividend • 20.5% stake Telefónica Deutschland payments, DPS of € 0.07 in respect of 2014 − Cash upside via potential dividend payments • Growing DPS expected in respe
Slide 10: E-Plus sale
E-Plus sale Completion expected mid 2014 Confident on regulatory approval Substantial benefits • Combination Telefónica Deutschland and • Increased competitiveness due to creation of E-Plus to realize substantial synergies stronger player in size and market presence • KPN expected to benefit from (d
Slide 11: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Thorsten Dirks 5 Concluding remarks Eelco Blok 11
Slide 12: Group financial profile
Group financial profile € bn Net debt • Net debt increased slightly 12.0 9.6 9.8 • € 1.4bn bond redemptions in first half of 2014 5.7 5.8 • Average coupon senior bonds 5.0%, average maturity senior bonds 6.6 years Q4 ’12 Q3 ’13 Q4 ’13 Net debt1 Pro forma net debt2 Net debt / EBITDA • Net debt / EBIT
Slide 13: Capex review (continuing operations)
Capex review (continuing operations) Capex at less elevated levels going forward High investments in recent years Less elevated levels going forward The Netherlands • High investments in recent years, of which 2012 2013 (€ 1,419m) (€ 1,417m) large part completed − Copper network upgrades 46 44 254 7
Slide 14: Group results Q4 '13 (continuing operations)
Group results Q4 ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) Q4 ’13 Q4 ’12 % Revenues and other income 2,061 2,383 -14% • Revenues down 14% y-on-y − Lower revenues mainly at Business, Operating expenses (excl. D&A) 1,480 1,563 -5.3% Consumer Mobile and NetCo
Slide 15: Q4 '13 EBITDA (continuing operations)
Q4 ’13 EBITDA1 (continuing operations) Impacted by phasing out handset lease and incidentals €m 820 -7.3% 13 800 65 51 7 742 33 26 50 ~52 581 Reported Tower sales Other Restructuring Regulation EBITDA Q4 Reported Phasing out Provision Other Restructuring EBITDA Q4 EBITDA incidentals costs ’12 EBITDA
Slide 16: Group results FY '13 (continuing operations)
Group results FY ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) FY ’13 FY ’12 % Revenues and other income 8,472 9,458 -10% • Revenues down 10% y-on-y − Lower revenues mainly at Business, Operating expenses (excl. D&A) 5,589 6,112 -8.6% Consumer Mobile and NetCo
Slide 17: Group cash flow Q4 '13 (continuing operations)
Group cash flow Q4 ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) Q4 ’13 Q4 ’12 % Operating profit 98 51 92% • Free cash flow of € 264m, 12% Depreciation and amortization1 483 769 -37% higher y-on-y Interest paid/received -70 -153 -54% − € 85m lower Capex Tax p
Slide 18: Group cash flow FY '13 (continuing operations)
Group cash flow FY ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) FY ’13 FY ’12 % • Free cash flow € 148m lower y-on-y Operating profit 1,026 1,386 -26% − € 463m lower EBITDA Depreciation and amortization1 1,857 1,960 -5.3% − € 41m higher Capex Interest paid/re
Slide 19: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Thorsten Dirks 5 Concluding remarks Eelco Blok 19
Slide 20: The Netherlands
The Netherlands Excellent position as the integrated access provider Leveraging unique assets; best-in-class fixed & mobile networks and ICT infrastructure Leading products in Business and Consumer markets Only operator in The Netherlands with converged in-house capabilities Business Fixed net
Slide 21: Building on strong fundamentals
Building on strong fundamentals Best-in-class networks and converged products Best-in-class networks Strong customer focus • Best-in-class mobile network • Market leading products − Nationwide coverage end Q1 ’14 − Fully modernized backhaul, majority Fiber-to-the-Site • Fixed network speeds ahead •
Slide 22: Simplification
Simplification Simple and low cost operating model Simplified product 1 Significant cost savings portfolio • Simple and flexible • >€ 300m run-rate >€ 300m product portfolio Capex and opex • Significant reduction # savings by 2016 of propositions 2013 2016 2 Simplified client processes FTE reduction
Slide 23: Consumer Residential financial review
Consumer Residential €m 21.9% 21.3% 18.1% 20.5% 20.0% Increasing products per customer Financial review +2.5% 1,852 1,962 480 489 492 107 101 394 392 87 Increasing customer base Q4 ’12 Q3 ’13 Q4 ’13 FY ’12 FY ’13 EBITDA margin (excl. restr. costs) EBITDA (excl. restr. costs) Revenues and other incom
Slide 24: Consumer Residential (cont'd)
Consumer Residential (cont’d) Full focus on IPTV to grow multi play customers 25% • Continued strong IPTV net adds of 80k 25% 23% leading to TV market share of 25% TV market share IPTV net adds & 183 72 80 • IPTV main driver for triple play growth 123 Q4 ’12 Q3 ’13 Q4 ’13 TV market share1 Acquisitio
Slide 25: Consumer Residential (cont'd)
Consumer Residential (cont’d) Continued focus on growing multi play customers Multi play and FttH customers +8%-points • Continued growth triple play customers, k penetration up 8%-points y-on-y 44% 43% 36% 1,216 1,169 • 173k quad play customers per Q4 ’13 979 − Total customers doubled q-on-q − Addr
Slide 26: Consumer Mobile financial review
Consumer Mobile € m 33.3% 30.0% 27.6% • Dutch mobile market remained competitive with 26.9% 9.9% new players arising, mainly in no frills segment Financial review -15% 1,707 1,510 414 375 353 • Underlying service revenue decline of 13% in Q4 ’13 y-on-y 138 512 417 101 35 • EBITDA1 lower y-on-y in Q4
Slide 27: Consumer Mobile (cont'd)
Consumer Mobile (cont’d) Positive net adds trend, continued pressure on ARPU k • Postpaid retail net adds at 9k 24 − KPN and Hi net adds improving driven by new propositions 9 9 5 Net adds 2 • 4G uptake accelerating, now 323k 4G subscribers (Q3 ’13: 100k) -13 Q4 ’12 Q3 ’13 Q4 ’13 Postpaid retail Pos
Slide 28: Business
Business Focus on bundled services and committed revenues • Stable market positions maintained in difficult €m 26.3% 26.3% 24.6% 25.3% macro environment and competitive market Financial review 21.3% 2,956 2,716 -11% / -8.8%1 748 • EBITDA margin3 lower y-on-y at 21.3% in 646 663 777 686 Q4 ’13 184 17
Slide 29: NetCo financial review
NetCo • Revenues down 10% y-on-y1 in Q4 ’13 €m € m 57.1% 54.7% 55.4% 57.3% 55.8% − Excluding € 65m tower sales in Q4 ’12 Financial review 2,621 − Lower wholesale traffic revenues -19% / -10%1 2,343 701 1,503 583 570 400 1,307 • EBITDA margin2 at 55.4% in Q4 ’13 319 316 − Net negative impact from inc
Slide 30: IT Solutions
IT Solutions 13.6% • Revenues down 9.4% y-on-y in Q4 ’13 € m 11.8% 12.3% 11.2% 10.8% − Continued price pressure driven by overcapacity in Financial review the market and postponement large IT investments 688 -9.4% 621 − Stable market position 170 154 146 • EBITDA margin2 at 13.6% in Q4 ’13 20 18 21
Slide 31: The Netherlands – operating expenses
The Netherlands – operating expenses Breakdown operating expenses • Operating expenses (excl. D&A, restr. costs and €m (excl. D&A and restructuring costs) phasing out handset lease) down 6.4% y-on-y − Operating expenses declined 1.0% y-on-y incl. -1.0% / -6.4%1 phasing out handset lease 1,046 1,036
Slide 32: iBasis
iBasis 3.6% 3.0% • Revenues down 9.0% y-on-y in Q4 ’13 €m 2.9% 2.7% 2.6% − Competitive market Financial review 1,035 − Including 1.9% negative currency effect -9.0% 969 255 248 232 • EBITDA margin1 at 2.6% in Q4 ’13 − Margin pressure offset by focus on costs 7 9 6 30 29 Q4 ’12 Q3 ’13 Q4 ’13 FY ’12 F
Slide 33: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Thorsten Dirks 5 Concluding remarks Eelco Blok 33
Slide 34: Strategic progress Germany
Strategic progress Germany Strong progress on all strategic pillars Strong improvement network quality Continued growth postpaid & data 246 265 254 210 210 207 • Best overall improvement among all operators Postpaid net adds (k) • E-Plus more than doubled data speeds Q3 ’12 Q4 ’121 Q1 ’13 Q2 ’13 Q3
Slide 35: Germany (discontinued operation)
Germany (discontinued operation1) Inflection underlying service revenues 39.6% 39.0% • Underlying service revenue growth of 0.5% €m 32.3% 28.5% y-on-y in Q4 ’13 30.1% Financial review 32.1%2 37.1%2 − Regulation impact on revenues of € 27m (2.9%) in Q4 ’13 -10% / +1.1%2 3,404 3,197 929 799 835 368 1,
Slide 36: Germany (discontinued operation) (cont'd)
Germany (discontinued operation) (cont’d) €m 15.8% 15.4% ~16% • Market share slightly increased to ~16% in Service revenues & market share competitive mobile market environment 782 752 759 Q4 ’12 Q3 ’13 Q4 ’13 Service revenue market share Service revenues € • Postpaid ARPU still influenced by market
Slide 37: Strategic progress Belgium
Strategic progress Belgium Strong progress on all strategic pillars New portfolio1 successful Underpenetrated regions targeted Development distribution postpaid customer base • New portfolio focused on postpaid and data 21% 23% 24% 25% − Successful uptake on postpaid net adds 22% 23% 23% 23% − Prepa
Slide 38: Belgium
Belgium € m 31.2% 27.6% 33.8% • Underlying service revenue decline 9.7% y-on-y 26.0% 26.4% in Q4 ’13 in competitive market Financial review -12% 804 − Postpaid service revenues improving, prepaid under 728 pressure 205 181 181 − Continued tariff optimization by customers 272 64 47 50 192 • EBITDA1 €
Slide 39: Belgium (cont'd)
Belgium (cont’d) Continued strong postpaid net adds performance 3.4 3.3 3.4 • Strong postpaid net adds performance k customer base • Prepaid net adds under pressure Net adds & 16 411 46 − Competitive market 36 − Migration to postpaid 7 -61 • Postpaid churn stabilized, back at level mid Q4 ’12 Q3 ’13
Slide 40: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Thorsten Dirks 5 Concluding remarks Eelco Blok 40
Slide 41: Concluding remarks
Concluding remarks Building on strong fundamentals Simplification leading to lean operating model Financial performance stabilizing towards the end of 2014 Free cash flow growth expected in 2015 Recommence dividend payment in respect of 2014 (€ 0.07), subject to closing E-Plus sale Addit
Slide 42: Q&A
Q&A 42
Slide 43: Annex
Annex Q4 2013 - Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 ir@kpn.com www.kpn.com/ir
Slide 44: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 44
Slide 45: 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 Stanley Jones +1 212 250 9100 (New York) ADR
Slide 46: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 46
Slide 47: Analysis of results (incl. discontinued operations)
Analysis of results (incl. discontinued operations) Impact incidentals, restructuring and regulation €m Q4 ’13 Q4 ’12 FY ’13 FY ’12 Revenue effect MTA reduction Regulation Group -37 -21 -164 -102 Roaming tariff reduction Regulation Group -12 -9 -72 -32 EBITDA effect MTA reduction Regulation Group -1
Slide 48: Restructuring costs
Restructuring costs €m Q4 ’13 Q4 ’12 FY ’13 FY ’12 Germany (incl. discontinued operations) -6 -39 - -39 Belgium - - - - Other - -2 - -2 Mobile International (incl. discontinued operations) -6 -41 - -41 Consumer Mobile -2 - -7 -2 Consumer Residential -1 -4 -17 -27 Business -3 -18 -10 -30 NetCo -3 -22
Slide 49: Impact regulation
Impact regulation €m Q4 ’13 FY ’13 Revenues EBITDA Revenues EBITDA Germany (incl. discontinued operations) -27 -15 -142 -79 Belgium -10 -7 -45 -29 Mobile International (incl. discontinued operations) -37 -22 -187 -108 Consumer Mobile -6 -3 -23 -10 Of which: Mobile Wholesale -1 -2 -3 -2 Business -4 -
Slide 50: Operating expenses
Operating expenses €m Q4 ’13 Q4 ’12 % Employee benefits 301 375 -20% Cost of materials 186 151 23% Work contracted out and other expenses 797 823 -3.2% Own work capitalized -20 -20 flat Other operating expenses1 216 234 -7.7% Depreciation2 328 297 10% Amortization2 155 472 -67% Total operating expen
Slide 51: Operating expenses - analysis
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y decrease (Continuing operations) • Lower cost as a result of FTE reduction program 18.1% 16.2% 16.5% 16.8% • Lower pension expenses due to impact of 14.9% 15.2% 14.8% 14.6% changes in Dutch law as per 1 J
Slide 52: Operating expenses - analysis
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y decrease (Continuing operations) • Lower traffic costs Consumer Mobile and iBasis 38.0% 38.7% • Lower costs due to sale of KPN Spain and Ortel 36.7% 37.6% 35.3% 36.1% 34.9% 34.9% Switzerland • Partly offset by hi
Slide 53: Operating expenses - analysis
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 Y-on-Y increase (Continuing operations) • Increased customer driven investments, including 15.3% 15.9% handset lease model at Consumer Mobile 14.6% 13.0% 13.8% 12.1% • Additional depreciation assets under construction at 10.5
Slide 54: Dutch wireless disclosure
Dutch wireless disclosure Q4 ’13 Q4 ’12 % Service revenues (€ m) 556 633 -12% − Consumer retail 283 336 -16% − Business 228 246 -7.3% − Other1 45 51 -12% SAC/SRC per subscriber (€) − Consumer retail2 197 165 19% − Business 214 311 -31% 1 Includes amongst others Consumer Mobile wholesale and visitor
Slide 55: Tax
Tax P&L Cash flow Fiscal units (€ m) Q4 ’13 Q4 ’12 Q4 ’13 Q4 ’12 The Netherlands 7 -56 -341 -1421 IT Solutions 5 4 - - Germany -52 22 3 -12 Belgium 1 8 - - Other 24 - -1 - Total reported tax (incl. discontinued operations) -15 -22 -32 -154 Of which discontinued operations 52 -22 -3 12 Reported tax c
Slide 56: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 56
Slide 57: Debt summary
Debt summary € bn Q4 ’13 Q3 ’13 % Nominal debt 14.42 14.38 0.3% Eurobonds 10.83 10.83 - Global bonds 0.76 0.76 - Hybrid bonds 2.03 2.03 - Credit facility - - - Preference shares (issued to Foundation Preference Shares B KPN)1 0.26 0.26 - Financial leases and other loans 0.54 0.50 8.0% Adjustments to
Slide 58: Debt portfolio
Debt portfolio Breakdown of € 14.4bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 14.4bn) Breakdown by currency Other 17% Hybrid bonds 6% 74% 14% Global bonds 9% 5% Eurobonds 75% EUR USD 2 GBP 2 € bn Bond redemption profile Fixed vs. floating interest 1.4 1.5 1.3 1.3 1.1 1.0
Slide 59: 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 60: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 60
Slide 61: Regulation
Regulation MTA rates across the Group • ACM decision MTA rates based on ‘pure BULRIC’ of € 1.019 cent per minute as of 1 September 2013 under appeal • Dutch court suspended ACM decision and mandated interim rates NL based on ‘plus BULRIC’ of € 1.861 cent per minute instead € ct / min Until 7 July ’1
Slide 62: Unbundling tariffs
Unbundling tariffs Unbundling in copper network Category Monthly tariff Line sharing (LLU) € 0.12 / line MDF Node SDF colocation KPN / Telco Fully unbundled (LLU) € 6.86 / line ~28,000 1,350 MDF colocation € 913.52 footprint / year Street cabinets local exchanges € 5.32 / line shared Wholesale Broad
Slide 63: 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 64: Spectrum in Germany
Spectrum in Germany 800MHz O2 VOD DT 2*30 Paired 2*5 2*5 2*5 2*5 2*5 2*5 900MHz E+ O2 DT VOD 2*34.8 Paired 2*5 2*5 2*12.4 2*12.4 1.8GHz DT E+ O2 VOD E+ 2*69.8 Paired 2*5 2*5 2*5 2*5 2*5 2*17.4 2*5 2*5 2*17.4 2.1GHz VOD E+ O2 DT 2*64.35 Paired 2*4.95 2*9.9 2*4.95 2*4.95 2*9.9 2*4.95 2*9.9 2*9.9 Curre
Slide 65: Spectrum in Belgium
Spectrum in Belgium 800MHz BASE Belgacom Mobistar 2*30 Paired 2*10 2*10 2*10 900MHz BASE Belgacom Mobistar 2*34 Paired 2*10 2*12 2*12 1.8GHz BASE Belgacom Mobistar 2*63.6 Paired 2*22 2*20.8 2*20.8 2.1GHz Belgacom BASE Telenet Mobistar 2*59.4 Paired 2*15 2*14.8 2*14.8 2*14.8 Current status 2.1GHz B M
Slide 66: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 66
Slide 67: Infrastructure
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 68: Roadmap to Reggefiber consolidation
Roadmap to Reggefiber consolidation Option structure Reggefiber financials FY 2012 Option I1 Option II3 Option III Reggefiber FY 2012 (€ m) • Additional 10% • Additional 9% • Remaining 40% Revenue 73 Ownership stake • 51% ownership • 60% ownership • 100% ownership Opex 19 Option type Call and Put op