Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — Koninklijke KPN — Q4 2015 Earnings Presentation
63 slides from Royal Kpn Nv's earnings presentation, Feb 3, 2016
Slide 1: Fourth Quarter and Annual Results 2015
Fourth Quarter and Annual Results 2015 3 February 2016
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 Q4 and 2015
Highlights Q4 and 2015 Record base growth driven by differentiating customer experience Services & Innovation Operational Financial1 & Portfolio Leading innovative TV Strong base growth Adjusted revenues FY ’15 services Consumer in 2015 € 7,018m, -4.5% y-on-y TV Everywhere and Play by +139
Slide 5: Differentiating through innovative services
Differentiating through innovative services Leading innovative TV service driving clear operational benefits Live TV Pausing Start-over TV TV Everywhere Play by KPN Integrating OTT End End End 2013 2014 2015 15 16 16 10 10 Rising customer 6 3 4 satisfaction1 (NPS IPTV)… 83k 77k 62k 64k 69k …leading
Slide 6: Consistent value creation in Consumer Mobile
Consistent value creation in Consumer Mobile Investments in customer base drive high value inflow …but drive consistent value creation ~50% ~45% ~30% Higher handset sales …led to higher +30% volume… base investments… x2 ~20% Q4 ’14 Q3 ’15 Q4 ’15 % of sales >1GB data bundles KPN brand 10GB Q4 ’14 Q3
Slide 7: Successful fixed-mobile strategy
Successful fixed-mobile strategy KPN brand leading the way in convergence …greatly appreciated Successful fixed-mobile strategy… by customers 19% 25 45% 16% 13% 12% 33% 17% 10% 9% 9% 9 9 8% 10% Q1 ’14 Q2 ’14 Q3 ’14 Q4 ’14 Q1 ’15 Q2 ’15 Q3 ’15 Q4 ’15 Consumer Consumer Fixed- Mobile Residential Mobile
Slide 8: Business market transformation ongoing
Business market transformation ongoing Focus to improve profitability and stabilize revenues in medium-term Business revenue growth drivers Fixed cost savings partly offset by investments in new services -8.3% Business total -10% Total fixed costs 100% FY ’14 -20% Traditional voice -23% -12% FTE cos
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 9 9 2 2 -10 -13 +7 +7 +3 Q4 ’14 Q4 ’15 Q4 ’14 Q4 ’15 Q4 ’14 Q4 ’15 1 Source: TNS NIPO. Consumer Residential (all brands), Consumer Mobile (all brands
Slide 10: Improving customer experience fixed network
Improving customer experience fixed network Copper speeds enhanced through FttC, vectoring and pair bonding Increasing FttC / FttH …driving coverage penetration… of 100Mbps SC FttC Copper FttH ~80% ~85% 65% 68% 53% 51% 36% FttC 26% FttH 27% 29% end end end Q4 ’14 Q4 ’15 end Q4 ’14 Q4 ’15 2016 2016 P
Slide 11: Expanding superior 4G network
Expanding superior 4G network Investments in capacity securing best-in-class customer experience Introduction of 4G boosted Investments in capacity driving mobile data growth higher average 4G download speed x2 ~15,000 50Mbps x2 ~7,500 20Mbps ~3,500 Q4 ’13 Q4 ’14 Q4 ’15 end end Q4 ’14 Q4 ’15 4G 2/3G
Slide 12: Simplification target raised to ~€450m due to IT savings
Simplification target raised to ~€ 450m due to IT savings Building efficient and lean operating model Simplification program run-rate IT savings by rationalizing savings target increased back-end operating model Consolidating ~€ 450m 2,000-2,500 Fixed order management IT (BSS) 24 to 1 IT system
Slide 13: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 13
Slide 14: 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 811k 1,172k 485k 701k 28% 33% 17% 21% Q4 ’14 Q4 ’15 Q4 ’14 Q4 ’15 Retail postpaid customers in # of fixed-mobile bu
Slide 15: Investments Consumer Residential paying off
Investments Consumer Residential paying off Strong market position continues to drive operational growth Continued traction amongst households… 83k 77k 62k 64k 69k 49k 55k 43k 41k 35k 40k 31k 33k 6k -7k -7k Broadband net adds IPTV net adds …driving increasing number of RGUs per household… 2.14 2.18
Slide 16: Excellent position in Dutch consumer mobile market
Excellent position in Dutch consumer mobile market High value customer intake driving service revenue growth Continued high retail postpaid net adds… 84k 80k 80k 70k 53k 57k 59k 26k …and a derisked retail postpaid ARPU profile1… € 28 € 28 € 28 € 26 € 26 € 26 € 27 € 25 78% 76% 75% 80% 83% 82% 82% 83%
Slide 17: Challenging environment in Business
Challenging environment in Business Focus on growing multi play and new services Challenging environment Growing multi play Wireless 17k € 37 € 33 472k -4k 301k Wireless Wireless single net adds1 play ARPU2 21% Wireline 14% € 51 € 51 Q4 ’14 Q4 ’15 -26k -33k Traditional Multi play seats Line loss voi
Slide 18: BASE Company's results improving
BASE Company’s1 results improving Improving service revenue trend and profitability Service revenue growth y-on-y Adjusted EBITDA margin flat 29.9% 21.3% -3.8% Q4 ’14 Q4 ’15 Q4 ’14 Q4 ’15 Postpaid net adds Data usage growth continuing 3k +85% ~610 ~330 -1k Q4 ’14 Q4 ’15 Q4 ’14 Q4 ’15 Average Data Pe
Slide 19: Improving financial results (continuing operations)
Improving financial results (continuing operations)1 Q4 FY €m Q4 ’15 Q4 ’14 FY ’15 FY ’14 y-on-y % y-on-y % Adjusted revenues 1,745 1,898 -8.1% 7,018 7,352 -4.5% (-5.9%)2 Adjusted EBITDA 582 630 -7.6% 2,419 2,417 0.1% (-0.7%)2 Net profit 254 -16 n.m. 524 261 >100% Capex 355 414 -14% 1,300 1,239 4.9%
Slide 20: Q4 '15: Revenue trend
Q4 ’15: Revenue trend Consumer growth offset by Business & iBasis Adjusted revenues1 declined by -5.9%2 €m 1,898 15 1,854 11 44 75 8 1,745 30 22 Adj. Tax Adj. Consumer Consumer Business NetCo & iBasis Other Adj. revenues settlement revenues Residential Mobile Other NL revenues Q4 ’14 benefit Q4 ’14
Slide 21: FY '15: Revenue trend improving vs. FY '14
FY ’15: Revenue trend improving vs. FY ’14 Inflection in Consumer still offset by declining business market Adjusted revenues1 declined by -4.5% vs. -5.2% in FY ’14 €m 54 7,352 22 241 47 28 7,018 94 Adj. Consumer Consumer Business NetCo & iBasis Other Adj. revenues Residential Mobile Other NL revenu
Slide 22: Q4 '15: Adjusted EBITDA relatively stable
Q4 ’15: Adjusted EBITDA1 relatively stable Positive impact of cost savings offset revenue decline €m 630 586 21 9 582 44 16 2 0 15 7 3 57 Adj. Tax Adj. Revenues SAC / Traffic Personnel Marke- IT/TI, Change iBasis Other Adj. EBITDA settle- EBITDA SRC, ting Housing, in EBITDA COGS Other provisions Q4
Slide 23: FY '15: Adjusted EBITDA stable y-on-y
FY ’15: Adjusted EBITDA stable y-on-y Positive impact of cost savings offset revenue decline Adjusted EBITDA1 in line with FY ’14 €m 2,417 58 9 2 2,419 0 18 1 3 131 212 Adj. Revenues SAC / Traffic Personnel Marke- IT/TI, Change in iBasis Other Adj. EBITDA SRC, ting Housing, provisions EBITDA COGS Ot
Slide 24: Capex trending down
Capex trending down Continued investments in capacity and Simplification Capex (incl. Reggefiber) lower y-on-y €m 1,440 26 4 1,300 Customer driven 258 ~1,200 132 29 9 284 Fixed access 683 551 Mobile access 132 103 Simplification 282 286 Other 85 76 Capex Customer Fixed Mobile Simpli- Other Capex Cap
Slide 25: Growing free cash flow
Growing free cash flow1 Free cash flow growth supported by lower interest paid €m 146 698 58 12 2 172 1 552 423 20 61 35 FCF Reported Interest Taxes Change Change Other Capex3 Proceeds FCF excl TEFD FCF FY ’14 EBITDA paid paid in in working from real dividend 2 TEFD FY ’15 provisions2 capital estate
Slide 26: Solid financial position
Solid financial position Telefónica Deutschland stake provides additional financial flexibility Lower net debt y-on-y Debt portfolio Net debt € 1.0bn lower vs. Q3 ’15 € bn ~5% TEFD sold for € 805m, ~70% 9.6 expected to be distributed to KPN 8.6 8.7 shareholders in June 2016 7.3 7.5 Net Bond re
Slide 27: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 27
Slide 28: Priorities for 2016
Priorities for 2016 Accelerate up- and cross-sell in bundles Grow in TV and new services Transformation of Business segment Differentiate on network quality by deploying innovative technologies and increasing fiber penetration Further Simplification to build efficient and lean operating model 28
Slide 29: Outlook 2016
Outlook 2016 Adjusted EBITDA In line with 2015 Capex ~ € 1.2bn Free cash flow > € 650m (excl. TEFD dividend) Additional cash flow via expected dividend from 15.5% stake in Telefónica Deutschland 29
Slide 30: Continuing attractive shareholder remuneration
Continuing attractive shareholder remuneration DPS of € 10ct plus additional € 13ct announced in respect of 2016 Attractive shareholder Clear guiding principles for remuneration policy additional shareholder remuneration Intended regular DPS of € 8ct in Excess cash could be utilized for respect
Slide 31: Q&A
Q&A 31
Slide 32: Q4 2015 – Information Pack
Q4 2015 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 ir@kpn.com ir.kpn.com 32
Slide 33: 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 33
Slide 34: 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 35: 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 35
Slide 36: Group results Q4 '15 (continuing operations)
Group results Q4 ’15 (continuing operations) (€ m) Q4 ’15 Q3 ’15 Q4 ’14 y-on-y % Revenues 1,745 1,764 1,933 -9.7% Adjusted revenues 1,745 1,764 1,898 -8.1% Operating expenses (excl. D&A) 1,167 1,162 1,277 -8.6% EBITDA 578 602 656 -12% Adjusted EBITDA 582 640 630 -7.6% Depreciation 282 276 285 -1.1%
Slide 37: Group results FY '15 (continuing operations)
Group results FY ’15 (continuing operations) (€ m) FY ’15 FY ’14 y-on-y % Revenues 7,008 7,409 -5.4% Adjusted revenues 7,018 7,352 -4.5% Operating expenses (excl. D&A) 4,684 4,543 3.1% EBITDA 2,324 2,866 -19% Adjusted EBITDA 2,419 2,417 0.1% Depreciation 1,105 1,129 -2.1% Amortization 511 525 -2.7%
Slide 38: Group cash flow Q4 '15 (continuing operations)
Group cash flow Q4 ’15 (continuing operations) (€ m) Q4 ’15 Q4 ’14 y-on-y % EBITDA 578 656 -12% Interest paid/received -71 -119 -40% Tax paid/received 31 66 -53% Change in provisions1 -43 -280 -85% Change in working capital1 81 -94 n.m. Other movements 1 6 -83% Net cash flow from operating activitie
Slide 39: Group cash flow FY '15 (continuing operations)
Group cash flow FY ’15 (continuing operations) (€ m) FY ’15 FY ’14 y-on-y % EBITDA 2,324 2,866 -19% Interest paid/received -485 -704 -31% Tax paid/received 18 38 -53% Change in provisions1 -44 -894 -95% Change in working capital1 30 -224 n.m. Other movements (incl. TEFD dividend) 153 5 >100% Net cas
Slide 40: Financials by segment
Financials by segment Consumer Residential Consumer Mobile 23.3% 23.9% 20.2% 20.4% 13.4% 11.1% 480 486 491 352 376 367 97 113 100 90 39 49 Q4 ’14 Q3 ’15 Q4 ’15 Q4 ’14 Q3 ’15 Q4 ’15 Business NetCo 19.9% 18.9% 56.9% 60.6% 60.5% 17.1% 747 655 672 566 548 547 322 332 331 149 124 115 Q4 ’14 Q3 ’15 Q4 ’15
Slide 41: Financials by segment (cont'd)
Financials by segment (cont’d) iBasis Belgium (discontinued operations) 2.4% 2.5% 2.8% 29.9% 27.1% 21.3% 248 241 218 178 170 174 38 46 52 6 6 6 Q4 ’14 Q3 ’15 Q4 ’15 Q4 ’14 Q3 ’15 Q4 ’15 Adjusted revenues (€ m) Adjusted EBITDA (€ m) Adjusted EBITDA margin 41
Slide 42: Analysis of adjusted results Q4 '15 & FY '15
Analysis of adjusted results Q4 ’15 & FY ’15 Impact incidentals on revenues Revenues incidentals (€ m) Q4 ’15 Q4 ’14 FY ’15 FY ’14 Change in revenue related provision Business 6 - -4 - Adjustment deferred revenues Business -6 5 -6 5 Sale of fixed assets (hardware) Business - - - 5 Change in provisio
Slide 43: Analysis of adjusted results Q4 '15 & FY '15 (cont'd)
Analysis of adjusted results Q4 ’15 & FY ’15 (cont’d) Impact incidentals on EBITDA EBITDA incidentals (€ m) Q4 ’15 Q4 ’14 FY ’15 FY ’14 Change in revenue related provision Business 6 - -4 - Adjustment deferred revenues Business -7 5 -7 5 Sale of fixed assets (hardware) Business - - - 5 Release of as
Slide 44: Restructuring costs
Restructuring costs (€ m) Q4 ’15 Q4 ’14 FY ’15 FY ’14 Consumer Mobile -2 - -10 -1 Consumer Residential -1 -1 -4 -8 Business -2 -8 -39 -26 NetCo -3 -1 -14 -4 Other - -13 -8 -15 The Netherlands -8 -23 -75 -54 iBasis - - - - Belgium (incl. discontinued operations) -1 -1 -1 -4 Other activities -6 -7 -25
Slide 45: Dutch wireless disclosure
Dutch wireless disclosure Service revenues (€ m) Q4 ’15 Q4 ’14 % FY ’15 FY ’14 % Consumer retail 284 275 3.3% 1,160 1,123 3.3% Business1 176 186 -5.4% 711 748 -4.9% Other2 38 40 -5.0% 154 166 -7.2% KPN The Netherlands 498 501 -0.6% 2,025 2,037 -0.6% SAC/SRC per subscriber (€) Q4 ’15 Q4 ’14 % Consume
Slide 46: Tax
Tax P&L Cash flow Regions (€ m) Q4 ’15 Q4 ’14 Q4 ’15 Q4 ’14 The Netherlands -34 78 31 66 Belgium -28 -4 - - Other - - -7 -49 Total reported tax -62 74 24 16 Of which discontinued operations 28 4 7 49 Reported tax continuing operations -34 78 31 66 Effective tax rate continuing operations 11.8% 83.9%
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: Consumer Residential
Consumer Residential Broadband IPTV 28% 29% 40% 41% 41% 26% 83 41 33 40 69 55 Q4 ’14 Q3 ’15 Q4 ’15 Q4 ’14 Q3 ’15 Q4 ’15 Net adds (k) Broadband market share1 Net adds (k) TV market share1 RGUs and ARPU per customer 2.18 2.26 2.29 44 43 44 Q4 ’14 Q3 ’15 Q4 ’15 ARPU per customer (€) RGUs per customer 1
Slide 49: Consumer Mobile
Consumer Mobile Postpaid net adds Retail postpaid ARPU € 28 26 25 % committed ARPU 80 80 57 ~80% ~77% ~83% 7 8 13 Q4 ’14 Q3 ’15 Q4 ’15 Q4 ’14 Q3 ’15 Q4 ’15 Retail (k) Wholesale (k) Service revenues Committed ARPU breakdown 42% 44% 44% 6% 6% 6% Incoming (MTA) 309 338 317 2.6% 4% Above bundle 6% 9% y-
Slide 50: Business
Business Wireless services Wireless service revenues 1,726 1,794 1,790 -5.4% y-on-y 37 186 179 176 34 33 % committed single play ARPU 75% 84% 88% Q4 ’14 Q3 ’15 Q4 ’15 Q4 ’14 Q3 ’15 Q4 ’15 Wireless single play ARPU (€)1 Wireless service revenues3 (€ m) Wireless customers (k)2 Voice & Internet wirelin
Slide 51: Belgium (discontinued operations)
Belgium (discontinued operations) Net adds ARPU 3.3 3.2 3.2 30 31 30 3 13 -31 -18 -1 9 8 9 -65 Q4 ’14 Q3 ’15 Q4 ’15 Q4 ’14 Q3 ’15 Q4 ’15 Postpaid (k) Prepaid (k) Postpaid (€) Prepaid (€) Customers (m) Service revenues ~21% ~20% ~20% 152 150 152 Q4 ’14 Q3 ’15 Q4 ’15 Service revenues (€ m) Service rev
Slide 52: 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 52
Slide 53: Debt summary
Debt summary (€ bn) Q4 ’15 Q3 ’15 % Eurobonds 6.67 6.67 0.0% Global bonds 0.76 0.76 0.0% Hybrid bonds 2.03 2.03 0.0% Financial leases and other loans 0.13 0.13 0.0% Nominal debt 9.59 9.59 0.0% Equity credit hybrid bonds -1.01 -1.01 0.0% Cash collateral on derivatives 0.09 0.04 >100% Adjustments to n
Slide 54: 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 0.9 0.9 1.0 0.8 0.8
Slide 55: 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 56: 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 56
Slide 57: 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 58: 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 59: Spectrum in Belgium
Spectrum in Belgium Current status 800MHz BASE Proximus Mobistar 2*30 (Paired) 2*10 2*10 2*10 900MHz BASE Proximus Mobistar 2*34,2 (Paired) 2*10.2 2*12.2 2*11.8 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
Slide 60: 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 60
Slide 61: 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 ~51% ~68% ~85% CO 100Mbps ≥200Mbps ~27% ~59% ~70%
Slide 62: 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 62
Slide 63: 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