Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — Koninklijke KPN — Investor Presentation (September 2016)
46 slides from Royal Kpn Nv's investor presentation, September 2016
Slide 1: Investor presentation September 2016
Investor presentation September 2016
Slide 2: Contents
Contents 1 Strategy 2 Performance 3 Appendix
Slide 3: Strategy: Simplify, Grow, Innovate
Strategy Strategic choices embedded in organization Further strengthening our Company SIMPLIFY GROW INNOVATE Digital & simple service Converged Telco Excellent Commercial and delivery & IT services user experience Operational Flexible & simplified Best-in-class secured Applying innovative networks a
Slide 4: External environment reassuring
External environment reassuring Macro-economy stabilizing with improving competitive position IMPROVING MACRO-ECONOMY COMPETITIVE ECONOMIC POSITION 2 ’15-’16 vs. ’14-’15 GDP growth NL1 1.9% 2.1% Germany 4 +1 0.9% The Netherlands 5 +3 -0.7% 2013 2014 2015 2016E United Kingdom 10 -1 Unemployment NL1 7
Slide 5: External environment reassuring (cont'd)
External environment reassuring (cont’d) KPN strongly positioned as only integrated service provider Fixed network FttC, FttH Coax Wholesale KPN N/A Wholesale KPN Broadband market share1 41% 43% N/A N/A 4% TV product perception2 N/A N/A TV market share 1 29% 52% N/A N/A 2% Mobile network 2G, 3G, 4G
Slide 6: Transforming into Business ICT service provider
Transforming into Business ICT service provider 1 Realize growth by strengthening and deepening customer relations 2 Clear market segmentation with a targeted sales approach 3 Strengthen portfolio & distribution via partnerships 4 Rationalize & simplify products and services to create standardized b
Slide 7: Strengthening & deepening customer relations
Strengthening & deepening customer relations Leverage leading position in Telco to grow market share in IT ADDRESSABLE MARKET 2015 (~₠ 13bn) 2020 (~₠ 14bn) Telco market • Fixed Slightly declining • Mobile Market share >50% Telco market1 • UC / Workspace • Cloud • Security Growing IT market • Virtual
Slide 8: KPN well positioned to deliver on customer needs
KPN well positioned to deliver on customer needs Standardized building blocks to deliver productivity CO N S U LT I N G U S T RY S O L U T I O N S IND Applications & Data UR I T Y S ERV I CES Digital Workspace S EC Data Management & Analytics • TA DIG • Workspace as a Service DA ITA & L Hosted & Clo
Slide 9: LE & Corporate
Finalizing transformation is key priority De-risk revenue profile and stabilize revenues in medium-term % y-on-y growth % of total revenues % of total revenues FY 2015 FY 2015 FY 2018 Single play wireless -10% 24% Repricing ongoing 15-20% Mainly -21% 18% Continued rationalization 5-10% SME Tradition
Slide 10: Finalizing transformation is key priority (cont'd)
Finalizing transformation is key priority (cont’d) Improve profitability by stabilizing revenues and reducing indirect costs Reduce indirect costs Simplification program CAGR -4.5% • Portfolio rationalization Other • Automation of delivery and service • Online self-care portal Personnel costs • Firs
Slide 11: Key priorities for the coming years in Consumer
Key priorities for the coming years in Consumer Consumer strategy centered around household 1 Increase penetration of fixed-mobile bundles 2 Reduce churn by increasing loyalty and customer satisfaction 3 Accelerate up- and cross-sell in bundles 4 Grow in TV via cloud-based IPTV platform 5 Benefit fr
Slide 12: Successful bundling strategy
Successful bundling strategy… Strong increase fixed-mobile penetration Steady growth bundling in fixed Medium-term ambition 26% 28% 2011 2015 2015 56% Triple play as % of Fixed-mobile bundles as broadband customers % of broadband customers 2015 Strong growth bundling in mobile1 ~60% 33% 2011 Mobile-
Slide 13: Household at center of service model in Consumer
Household at center of service model in Consumer Significant opportunities to increase share of wallet per household Cross-sell fixed-only Upsell security to mobile services Upsell value Deep-sell by added services increasing SIMs Upsell Smart Cross-sell mobile- life services only to fixed 13 17
Slide 14: Strong competitive positioning in Dutch market
Strong competitive positioning in Dutch market Covering all segments: focus on fixed-mobile bundling and high value STRONG SHIFT TO HIGH VALUE KPN BRAND High Retail postpaid net adds (k) 84 80 80 70 53 57 59 26 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ’14 ’14 ’14 ’14 ’15 ’15 ’15 ’15 Value KPN brand No frills brands
Slide 15: Content aggregation via smart partnerships
Content aggregation via smart partnerships Revenue share model facilitating popular content via IPTV platform Strong focus on partnerships to deliver rich content offering Revenue share model • Partnerships with broadcasters Basic content • Attractive interactive AT IV E functionalities for customer
Slide 16: Expanding superior network position
Expanding superior network position 1 Simplify operating model to improve customer experience and operational effectiveness 2 Expand superior access position by deploying innovative technologies and increasing fiber penetration 3 Finalize build of flexible and simplified integrated network Ensuring
Slide 17: Simplifying our operating model
Simplifying our operating model Second wave of Simplification program to deliver significant savings SIMPLIFICATION PROGRAM RUN-RATE OPEX AND CAPEX SAVINGS (in m) > ₠ 300 > ₠ 750 ~₠ 170 ~₠ 450 ~₠ 280 FIRST WAVE SECOND WAVE END END END END 2013 2015 2016 2019 FROM PRODUCT CENTRIC TO CUSTOMER CENTRIC
Slide 18: Best mobile access provider
Best mobile access provider Investment-led strategy enabling superior customer experience Most time spent on LTE1 Best network for mobile services3 86% 84% 79% 70% 69% 66% 66% 52% 56% 53% 51% KPN NL SE DK CH AU BE DE UK FR 27% Competitive speeds on LTE2 41.4Mbps 40.4Mbps 18% 3% KPN Average NL KPN Co
Slide 19: Staying ahead of demand for mobile data
Staying ahead of demand for mobile data Fully utilizing spectrum position for excellent customer experience 4G CAPACITY ROLL-OUT UTILIZING FULL SPECTRUM TO AHEAD OF DATA GROWTH DEPLOY CARRIER AGGREGATION 10MHz Indicative 4G site roll-out planning1,2 LTE 800 ACTIVE 150% LTE 800 10MHz 20MHz 125% LTE 8
Slide 20: Best fixed access provider
Best fixed access provider Investment-led strategy enabling superior customer experience Rising FttC / FttH penetration Best fixed network quality according to customers1 65% 55% FttC 36% FttH 29% End 2015 Percentage of households FttC / FttH 34% Driving coverage 100Mbps 72% 11% 68% KPN Competitor 1
Slide 21: Ready to upgrade if demand changes
Ready to upgrade if demand changes Cost and time efficient upgrades with FttC investments largely completed in 2016 Costs per home: 3 Roll-out Negligible 87% Activation ~₠ 50 85% Costs per home: 2 72% 400Mbps Roll-out Negligible 68% Activation Negligible 60% 59% Costs per home: 1 Roll-out ~₠ 100 200
Slide 22: Build flexible and simplified integrated network
Build flexible and simplified integrated network Three steps to achieve objective SDN NfV 1 Rationalize 2 Decentralize 3 Virtualize Simplify and reduce spend Content closer to customer Increase network efficiency & effectiveness Started 2010 Started 2015 Scope mainly Expected completion 2019 Expecte
Slide 23: Network rationalization to prepare for virtualization
Network rationalization to prepare for virtualization Reducing complexity and associated costs to enable flexibility IP TRANSFORMATION RATIONALIZING & MODERNIZING LEGACY1 100% -200GWh Reduced engergy ~₠ 35m Run-rate opex consumption2 savings3 RATIONALIZING & CONSOLIDATING IP-CORE Legacy ~65% 60% • I
Slide 24: Ahead of the Capex curve
Ahead of the Capex curve KPN built strong fundamentals in past years KPN INVESTED AHEAD OF THE CURVE REDUCING CAPEX 22.3% 20.8% 30% Towards 15-17% 1,440 Capex / sales 20% 1,300 ~1,200 10% 0% Q1 ’10 Q4 ’15 2014 2015 2016 Medium- term KPN The Netherlands1 Telco Sector (domestic integrated operations)2
Slide 25: Growing free cash flow to drive shareholder value
Growing free cash flow to drive shareholder value Developing towards highly cash generative company Strong free cash flow potential Solid financial position 1 Grow revenues in Consumer, stabilize in Business • Committed to investment grade credit profile • 15.5% Telefónica Deutschland stake provides
Slide 26: Medium-term ambitions
Medium-term ambitions Ambition for coming three to five years Consumer growing Revenues Business stabilizing EBITDA Adjusted EBITDA margin The Netherlands ≥ 3%-points increase vs. 2015 Capex Capex The Netherlands trending down towards 15-17% of sales Dividend Growing in line with free cash flow grow
Slide 27: Key priorities for the coming years
Key priorities for the coming years Accelerate up- and cross-sell in bundles Grow in TV and IT services Finalize Business transformation Expand superior access position by deploying innovative technologies and increasing fiber penetration Finalize build of flexible and simplified integrated network
Slide 28: Contents
Contents 1 Strategy 2 Performance 3 Appendix
Slide 29: Increasing penetration of fixed-mobile bundles in Consumer
Increasing penetration of fixed-mobile bundles in Consumer Continued growth Households in Postpaid customers in fixed-mobile bundles1 fixed-mobile bundles 33% 23% 38% 26% Q2 ’15 Q2 ’15 Q2 ’16 Q2 ’16 Fixed-mobile household Fixed-mobile postpaid development development 1,286 1,384 1,172 k 944 k 891 99
Slide 30: Strong growth bundled services within residential households
Strong growth bundled services within residential households Increasing share of wallet drives growing ARPU per household Triple play growth… …driving RGU and ARPU per household growth k q-on-q 3,790 3,764 3,746 3,736 2.10 2.13 3,704 3,684 2.07 2.04 1.97 2.00 1,545 1,468 1,401 1,335 1,270 1,224 -46k
Slide 31: Value focus in Consumer mobile
Value focus in Consumer mobile Strong competitive position driven by high value KPN brand and fixed-mobile bundling Focus on high value KPN brand Customer mix shifting towards high value KPN brand Postpaid net adds Postpaid base Service revenues 80 80 k 70 59 36 231 ~62% ~71% Q2 ’15 Q2 ’15 Q2 ’16 Q2
Slide 32: On track to deliver on key priorities in Business
On track to deliver on key priorities in Business Simplifying portfolio and organization Leveraging strong market positions and Reducing indirect costs distribution reach for growth in IT New multi-year contract with large corporate client for hosting services on top of >10,000 workspaces Agreement
Slide 33: Developing as best-in-class service provider
Developing as best-in-class service provider Further improving customer satisfaction across all segments NPS Consumer residential1 NPS Consumer mobile1 NPS Business1 8 10 8 5 -9 -10 +3 +2 +1 Q2 ’15 Q2 ’16 Q2 ’15 Q2 ’16 Q2 ’15 Q2 ’16 1. Source: TNS NIPO. Consumer residential (all brands), Consumer mo
Slide 34: Revenue development Q2 '16
Revenue development Q2 ’16 Adjusted revenues1 declined by 4.3% €m 1,751 7 1 0 45 1,676 16 2 7 3 Adj. revenues Consumer Business Wholesale iBasis Other Adj. revenues Q2 ’15 Q2 ’16 1 Q2 ’15 included tax benefit (€ 11m) and higher hardware revenues in Consumer mobile 2 Impact decline traditional servic
Slide 35: LE&Corporate
Strong focus on growing bundled service revenues Positive service revenue1 development in Consumer mobile Business revenue growth drivers €m -1.8% +0.7% +2.1% +3.3% +5.9% +1.8% Q2 ’16 Q2 ’16 adjusted % of total 309 y-on-y adjusted 296 15 growth revenues 287 290 11 284 Business total -7.3% 271 285 29
Slide 36: Adjusted EBITDA trend improving vs. last quarter
Adjusted EBITDA1 trend improving vs. last quarter Positive impact of cost savings not yet fully compensating declining revenues Adjusted EBITDA1 declined by 1.7% €m 602 35 2 592 0 14 3 56 2 1 2 3 4 Adj. EBITDA Revenues Cost of Personnel IT/TI Other iBasis Other Adj. EBITDA Q2 ’15 goods & expenses op
Slide 37: Financial improvement expected in H2 2016
Financial improvement expected in H2 2016 Positive impact Simplification, Business transformation and commercial progress Lower innovation spend following completion large projects Simplification program Phase out of legacy 1 ~€ 100m run-rate savings to be realized in H2 ’16 Procurement mana
Slide 38: Free cash flow influenced by usual intrayear phasing
Free cash flow1 influenced by usual intrayear phasing Strong growth in FCF expected in H2 ’16 €m 1,138 44 34 145 263 110 214 104 630 6 Reported Change in Change Taxes Interest paid Capex Other FCF excl TEFD FCF H1 ’16 EBITDA provisions in working received TEFD dividend capital (paid) H1 ’16 dividend
Slide 39: Solid financial position
Solid financial position Reduced gross debt resulting in lower cash interest payments Lower gross debt y-on-y Debt portfolio € bn Fitch Ratings upgraded KPN to BBB, stable 8.6 outlook 7.8 7.8 7.3 6.8 1.0 Net debt € 1.4bn higher vs. Q1 ’16 Net € 1.2bn capital repayment in June 2016 related 5.4
Slide 40: Contents
Contents 1 Strategy 2 Performance 3 Appendix
Slide 41: 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 Jonathan Montanaro +1 212 250 9100 (New York)
Slide 42: Corporate Social Responsible Strategy
Corporate Social Responsible Strategy Successful CSR strategy1 Social and environmental achievements 2015 Mooiste Contact Fonds (MCF) connects chronically ill children 18% 77% 73% 2 723 children virtually present at school Collaboration with Nederlandse Hartstichting to vs. 2010 vs. 70% end 20
Slide 43: Dutch wireless disclosure
Dutch wireless disclosure Service revenues (€ m) Q2 ’16 Q2 ’15 y-on-y % Consumer 290 296 -2.0% Business1 167 178 -6.2% Other2 39 42 -7.1% KPN The Netherlands 496 516 -3.9% SAC/SRC per subscriber (€) Q2 ’16 Q2 ’15 y-on-y % Consumer (postpaid)3 225 213 5.6% Business (mobile only – mainly SME) 240 218
Slide 44: Debt portfolio
Debt portfolio Breakdown of € 8.8bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 8.8bn) Nominal debt by currency Other GBP2 1% EUR Hybrid bonds Eurobonds 23% 63% 23% 67% Global bonds USD2 9% 14% Bond redemption profile Fixed vs. floating interest € bn 1.1 1.2 0.9 0.9 1.0 0.8
Slide 45: Fixed infrastructure
Fixed infrastructure Next round of upgrades Download Active in speed network (up to) CO VDSL2 50Mbps VDSL2 pair bonding CO 100Mbps SC Vectoring 120Mbps Bonded vectoring SC 240Mbps Bonded VPLUS SC 400Mbps NG.PON SC >1Gbps FttH ODF Fiber Copper 1Gbps 45
Slide 46: 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
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