Royal KPN NV · EURONEXT:KPN
Royal KPN NV — KPN — Q3 2018 Earnings Presentation
40 slides from Royal KPN NV's earnings presentation, Oct 24, 2018
Slide 1: Q3 2018 Results
Q3 2018 Results 24 October 2018
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 Q3
Highlights Q3 Services, Sustainability & Organization Operational Financial3 €m Q3 ’18 YTD ’18 Record-high customer satisfaction in both Ongoing success of convergence and value Business and Consumer segments1 focus in Consumer Adjusted revenues 1,399 4,202 NPS Consumer: +17 (Q3 ’17: +14) 68
Slide 4: Focus on value in competitive Consumer mobile environment
Focus on value in competitive Consumer mobile environment Service revenues impacted by Stabilizing postpaid ARPU Successful value focused lower base in mobile-only due to increasing KPN share in brand mix convergence strategy -3.3% €m € 18.5 € 18.5 217 56% 210 all brands 25% 23% 49% 75% 77% Q3 ’17 Q
Slide 5: Successful converged household strategy in Consumer Residential
Successful converged household strategy in Consumer Residential Solid convergence take-up Continued growth fixed revenues €m +0.4% 483 484 45% 40% Q3 ’17 Q3 ’18 Q3 ’17 Q3 ’18 Q3 ’18: +26k F-M Fixed revenues broadband customers Q3 2018 Results | Consumer | 5
Slide 6: Business transformation taking shape
Business transformation taking shape Customer satisfaction positive for the first time Business revenue growth drivers Record-high NPS Q3 ’18 Q3 ’18 adjusted % of total y-on-y growth adj. revenues +1 Communication Services -7.9% 63% Mobile service revenues -4.9% 24% IoT -10% 2.2% Broadband & Network
Slide 7: Adjusted revenues declined by 1.6%
Adjusted revenues declined by 1.6% €m 1,422 4 9 1,399 16 11 Adj. revenues Consumer Business Wholesale Other (incl. eliminations) Adj. revenues Q3 ’17 Q3 ’18 Q3 2018 Results | Financial performance | 7
Slide 8: Adjusted EBITDA flat y-on-y, excluding CLA impact related to H1 '18
Adjusted EBITDA flat y-on-y, excluding CLA impact related to H1 ’18 Adjusted EBITDA decreased by 1.2% €m 41.7% 41.8% 592 1 Lower traffic costs 3 585 14 13 € 10m impact of Collective Labor 23 14 Agreement (CLA) retrospectively 2 applied from 1 January 2018, of which € 7m related to H1 ’18 1 2 3 Adj.
Slide 9: Solid financial position supported by growing free cash flow
Solid financial position supported by growing free cash flow Growing free cash flow1 Redeemed € 1.1bn hybrid bond from existing cash €m € bn +14% 581 7.3 7.2 512 6.6 6.3 6.2 5.8 2.7x2 2.5x 2.7x YTD ’17 YTD ’18 Q3 ’17 Q2 ’18 Q3 ’18 Gross debt3 x.x x.x Net debt / EBITDA Net debt 1 Excluding TEFD divid
Slide 10: Outlook 2018
Outlook 2018 Outlook 20181 Shareholder remuneration Adjusted EBITDA in line with 2017 Intended regular DPS of € 12ct in respect of 2018 Capex ~€ 1.1bn Intention to grow regular DPS in line with FCF growth profile Free cash flow (excl. TEFD dividend) growing to ~€ 800m Previous outlook: F
Slide 11: Q&A: Key priorities on track
Q&A Key priorities on track Accelerate up and cross-sell in bundles Grow in TV and IT services Finalize Business transformation Finalize build of flexible and simplified integrated network and operating model Expand superior access position by deploying innovative technologies and increasing fiber p
Slide 12: Q3 2018 – Information Pack
Q3 2018 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 ir@kpn.com ir.kpn.com 12
Slide 13: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 13
Slide 14: 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 15: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 15
Slide 16: Leading in Corporate Social Responsibility
Leading in Corporate Social Responsibility Successful CSR strategy1 Social and environmental achievements in Q3 ’18 2017 KPN included in the Dow Jones Sustainability World Index for the 7th consecutive year Employee Engagement Environment Privacy & Security KPN’s charity fund started a partnersh
Slide 17: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 17
Slide 18: Group results Q3 '18 (continuing operations)
Group results Q3 ’18 (continuing operations) (€ m) Q3 ’18 Q2 ’18 Q3 ’17 y-on-y % Revenues 1,399 1,402 1,412 -0.9% Adjusted revenues 1,399 1,402 1,422 -1.6% Operating expenses (excl. D&A) 853 847 853 0.1% EBITDA 546 555 559 -2.4% Adjusted EBITDA 585 577 592 -1.2% Depreciation 243 240 247 -1.7% Amorti
Slide 19: Group results YTD '18 (continuing operations)
Group results YTD ’18 (continuing operations) (€ m) YTD ’18 YTD ’17 y-on-y % Revenues 4,202 4,290 -2.0% Adjusted revenues 4,202 4,297 -2.2% Operating expenses (excl. D&A) 2,547 2,652 -4.0% EBITDA 1,656 1,638 1.1% Adjusted EBITDA 1,731 1,718 0.8% Depreciation 725 741 -2.3% Amortization 319 310 2.8% O
Slide 20: Group cash flow Q3 '18 (continuing operations)
Group cash flow Q3 ’18 (continuing operations) (€ m) Q3 ’18 Q3 ’17 y-on-y % EBITDA 546 559 -2.4% Interest paid/received -78 -82 -5.6% Tax paid/received - - n.m. Change in provisions1 26 3 >100% Change in working capital1 -4 19 n.m. Other movements 1 3 -70% Net cash flow from operating activities 491
Slide 21: Group cash flow YTD '18 (continuing operations)
Group cash flow YTD ’18 (continuing operations) (€ m) YTD ’18 YTD ’17 y-on-y % EBITDA 1,656 1,638 1.1% Interest paid/received -240 -278 -14% Tax paid/received -25 -13 89% Change in provisions1 34 30 15% Change in working capital1 -101 -134 -25% Other movements 44 77 -43% Net cash flow from operating
Slide 22: Dutch mobile service revenues
Dutch mobile service revenues Service revenues (€ m) Q3 ’18 Q3 ’17 y-on-y % Consumer 210 217 -3.3% Business1 137 145 -5.4% Other2 43 41 2.6% KPN The Netherlands 389 403 -3.4% 1 Includes M2M service revenues Q3 2018 Results | Information Pack | Group results overview | 22 2 Includes amongst others Wh
Slide 23: Tax YTD '18
Tax YTD ’18 P&L Cash flow Regions (€ m) YTD ’18 YTD ’17 YTD ’18 YTD ’17 The Netherlands -103 -92 -25 -13 Other -5 -4 -3 1 Total reported tax -108 -96 -28 -12 Of which discontinued operations -5 -4 -3 1 Reported tax from continuing operations -103 -92 -25 -13 Effective tax rate continuing operations
Slide 24: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 24
Slide 25: Consumer
Consumer Fixed-Mobile KPIs Fixed-Mobile household development Fixed-Mobile postpaid development 44% 45% 54% 56% 40% 49% 1,898 1,664 1,598 2,410 2,200 2,139 1,791 1,980 2,032 1,189 1,299 1,325 Q3 ’17 Q2 ’18 Q3 ’18 Q3 ’17 Q2 ’18 Q3 ’18 F-M households (k) Fixed-only households (k) F-M postpaid base (k)
Slide 26: Consumer (cont'd)
Consumer (cont’d) Residential KPIs Household base ARPU per household (€) 3,599 3,499 3,464 43 43 45 639 551 525 397 391 388 2,564 2,556 2,551 Q3 ’17 Q2 ’18 Q3 ’18 Q3 ’17 Q2 ’18 Q3 ’18 Not bundled Not bundled (BB only) (k) Bundled (k) (PSTN & Digitenne) (k) Broadband IPTV 41% 41% 32% 32% 57 40 10 10
Slide 27: Consumer (cont'd)
Consumer (cont’d) Mobile KPIs Mobile net adds Mobile postpaid ARPU 13 19 18 18 -2 -10 -14 -34 -39 Q3 ’17 Q2 ’18 Q3 ’18 Q3 ’17 Q2 ’18 Q3 ’18 Postpaid net adds (k) Prepaid net adds (k) Committed ARPU (€) Non-committed ARPU (€) Wireless service revenues 217 209 210 -3.3% y-on-y Q3 ’17 Q2 ’18 Q3 ’18 Ser
Slide 28: Business
Business Total Mobile Multi play (mainly SME) 1,863 1,865 1,863 545 581 436 24 23 22 34 32 31 Q3 ’17 Q2 ’18 Q3 ’18 Q3 ’17 Q2 ’18 Q3 ’18 Business mobile ARPU (€) ARPU per multi play seat (€) Total Business mobile customer base (k) Multi play seats (k)1 Fixed voice Broadband 463 515 532 291 285 287 31
Slide 29: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 29
Slide 30: Debt portfolio
Debt portfolio Breakdown nominal debt1 (total € 7.2bn) Nominal debt by currency Other Hybrid bonds GBP2 1% 13% 28% Global bonds 11% Euro bonds EUR 75% 55% USD2 17% Bond redemption profile (€ bn) Fixed vs. floating interest3 0.9 1.0 0.8 Floating 0.6 0.6 0.6 0.6 0.6 0.5 0.5 17% 0.4 0.1 Fixed ’18 ’19 ’
Slide 31: Treatment of hybrid bonds
Treatment of hybrid bonds KPN & Credit rating agencies IFRS Each tranche of the hybrid bonds is recognized as 50% GBP and USD tranche have 60 years specified maturity, equity and 50% debt by the rating agencies accounted for as financial liability Coupon payments treated as regular bond coupon
Slide 32: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 32
Slide 33: IFRS changed revenue recognition rules
IFRS 15 changed revenue recognition rules Example 1: Handset sales via own channels Accounting for this example Contract components (€) Value Revenue / (€) Month 1 Month 2 … Month 24 Total cost Non-service revenue (handset) 528 - … - 528 Contract duration (months) 24 Service revenues 30 30 … 30 720
Slide 34: IFRS changed revenue recognition rules (cont'd)
IFRS 15 changed revenue recognition rules (cont’d) Example 2: Handset sales via third parties Accounting for this example Contract components (€) Value Revenue / (€) Month 1 Month 2 … Month 24 Total cost Service revenues 30 30 … 30 720 Contract duration (months) 24 P&L Total revenues 30 30 … 30 720
Slide 35: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 35
Slide 36: Spectrum in The Netherlands
Spectrum in The Netherlands 800MHz Tele2 VodZig KPN 2*30 (Paired) 2*10 2*10 2*10 900MHz VodZig KPN T-Mob 2*35 (Paired) 2*10 2*10 2*15 1.8GHz KPN VodZig T-Mob 2*70 (Paired) 2*20 2*20 2*30 2.1GHz VodZig KPN T-Mob KPN VodZig 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
Slide 37: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 37
Slide 38: 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 Q3 2018 Results | Information Pack | Fixed infrastructure | 38
Slide 39: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake 39
Slide 40: 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 Due to IFRS 9, as of 1 January 2018, f