Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — Q2 2014 Earnings Presentation
68 slides from Royal Kpn Nv's earnings presentation, Jul 30, 2014
Slide 1: Second Quarter 2014 results
Second Quarter 2014 results 30 July 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 The Netherlands Joost Farwerck 4 International Eelco Blok 5 Concluding remarks Eelco Blok 3
Slide 4: Executive summary
Executive summary On track to reach outlook Conditional approval for sale of E-Plus to Telefónica Deutschland Sale of E-Plus leading to solid financial profile, recommencing dividend payments Attractive 20.5% stake in leading German digital telco Impairment of € 744m leading to € 210m increa
Slide 5: Building on strong fundamentals
Building on strong fundamentals Solid and cash generative company Market leading Solid financial profile Best-in-class networks products Unique multi play Strong cost focus, Challenger in Belgium propositions Simplification Solid and cash generative company Growing dividend in respect of 2015 5
Slide 6: Sale of E-Plus leading to solid financial profile
Sale of E-Plus leading to solid financial profile Strong platform to execute strategy Cash proceeds 20.5% stake Telefónica Deutschland • Majority of € 5.0bn cash proceeds to be used • Leading digital Telco to increase financial flexibility − Combined subscriber market 38% 34% share of 38%2 − 45m sub
Slide 7: Best-in-class networks & market leading products
Best-in-class networks & market leading products Networks ahead of the curve in Europe Best-in-class networks Market leading products • Hybrid upgraded copper / FttH strategy • Strong customer focus and service improving customer loyalty Download 2013 2014 2015 speed1 >40Mbps ~70% ~75% ~80% Market l
Slide 8: Multi play
Multi play1 Unique multi play propositions reducing churn Bundling… 285 235 220 181 55 40 …significantly reducing churn Q2 ’13 Q1 ’14 Q2 ’14 Fixed-mobile bundles - Consumer (k) 1x Multi play seats - Business (k) ~0.75x ~0.60x 46% 47% ~0.25x 42% 1,131 1,264 1,286 1P 2P 3P 4P Churn relative to single
Slide 9: Strong focus on costs
Strong focus on costs Lower Capex and Simplification program Lower Capex going forward Simplification program • High investments in recent years, of which • Simplifying product portfolio, client large part completed processes, networks and IT − Capex reduction H1 ’14 largely driven by phasing out ha
Slide 10: Belgium
Belgium Strong Challenger outperforming the market Mobile centric Challenger strategy Price • Increasing market share leadership • Continued good postpaid net adds Customer • Strong data revenue growth • High network quality, Leading 4G coverage at 55% Service network leadership quality Low cost ope
Slide 11: Outlook (continuing operations)
Outlook (continuing operations)1 On track for stabilizing financial performance towards end 2014 • 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
Slide 12: Shareholder remuneration
Shareholder remuneration Recommencing sustainable dividend payments1 Dividend Additional excess cash • Recommencing sustainable dividend • 20.5% stake Telefónica Deutschland payments, DPS of € 0.07 in respect of 2014 − Cash upside via potential dividend payments • 1/3 interim dividend planned follow
Slide 13: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Eelco Blok 5 Concluding remarks Eelco Blok 13
Slide 14: Group financial profile
Group financial profile € bn Net debt • Pro forma net debt of € 6.3bn per Q2 ’14, 10.4 10.5 9.5 relatively stable q-on-q 6.2 6.3 • Average coupon senior bonds 4.9%, average maturity senior bonds 7.0 years Q2 ’13 Q1 ’14 Q2 ’14 Net debt1 Pro forma net debt2 Net debt / EBITDA • Net debt / EBITDA at ~2.
Slide 15: Group results Q2 '14 (continuing operations)
Group results Q2 ’14 (continuing operations) € m (continuing operations) Q2 ’14 Q1 ’14 Q2 ’13 y-on-y % • Adjusted revenues down 7.0% y-on-y Revenues 2,004 1,996 2,156 -7.1% − Competitive mobile markets and declining Adjusted revenues1 1,989 1,989 2,139 -7.0% Business market size Opex (excl. D&A) 937
Slide 16: Group results YTD '14 (continuing operations)
Group results YTD ’14 (continuing operations) € m (continuing operations) YTD ’14 YTD ’13 % Revenues 4,000 4,331 -7.6% • Adjusted revenues down 7.4% y-on-y Adjusted revenues1 3,978 4,294 -7.4% − Competitive mobile markets and declining Business market size Operating expenses (excl. D&A) 2,309 2,772
Slide 17: Group cash flow Q2 '14 (continuing operations)
Group cash flow Q2 ’14 (continuing operations) € m (continuing operations) Q2 ’14 Q2 ’13 % EBITDA 1,067 759 41% • Free cash flow higher y-on-y at € 72m Interest paid/received -123 -119 3.4% mainly due to Tax paid/received -15 -77 -81% − € 105m lower Capex Change in provisions1 -489 -47 >100% − € 35m
Slide 18: Group cash flow YTD '14 (continuing operations)
Group cash flow YTD ’14 (continuing operations) € m (continuing operations) YTD ’14 YTD ’13 % • Free cash flow € 382m lower y-on-y EBITDA 1,691 1,559 8.5% mainly due to Interest paid/received -455 -416 9.4% − € 319m lower EBITDA, excluding € 451m Tax paid/received -13 -136 -90% pension provision rel
Slide 19: Capex review
Capex review First results Simplification program visible in The Netherlands Less elevated investment levels Continued network investments in The Netherlands in Belgium H1 2013 H1 2014 H1 2013 H1 2014 (€ 770m) (€ 568m) (€ 74m) (€ 73m) 64 71 5 6 8 6 123 134 278 17 13 116 51 52 288 253 Customer driven
Slide 20: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Eelco Blok 5 Concluding remarks Eelco Blok 20
Slide 21: Operational progress across segments
Operational progress across segments Consumer Consumer Business Residential Mobile Net adds driven by 4G, Continued growth IPTV, improved brand Business market size triple and quad play positioning and multi play declining Today Continued promotional Shift to SIM-only Stable market posit
Slide 22: Simplification program
Simplification program First operational results realized since start of program Product portfolio Client processes IT & networks • Consumer Residential • Reduction inbound • ~5% of IT applications − ~85% reduction realized, calls reduced now 4 KPN propositions (FttH / copper combined) ~10% H1 ’13 H
Slide 23: Simplification program (cont'd)
Simplification program (cont’d) First cost savings realized in H1 2014 Cost savings FTE reductions • H1 ’14 Capex & opex savings ~€ 75m y-on-y • ~350 FTE reductions in H1 ’14 in driven by less IT spend and FTE reductions The Netherlands • >€ 300m run-rate Capex and opex savings • Simplification prog
Slide 24: Operating review The Netherlands
Operating review The Netherlands Financial performance stabilizing towards end 2014 €m 43.2% • Adjusted revenues 7.6% lower y-on-y 37.0% 37.8% − Competitive mobile markets and declining Financial review Business market size -7.6% 1,718 1,591 1,588 • Adjusted EBITDA 13% lower (excl. impact 742 589 60
Slide 25: Consumer - multi play
Consumer - multi play Continued focus on multi play reducing churn Continued growth triple play and… …focus on growing fixed-mobile bundles k +5%-points k 285 46% 47% 235 42% 1,264 1,286 1,131 235 273 55 55 Q2 ’13 Q1 ’14 Q2 ’14 Q2 ’13 Q1 ’14 Q2 ’14 Triple play as % of broadband customers Triple play
Slide 26: Consumer Residential
Consumer Residential €m 20.7% 22.3% • Adjusted revenues 0.8% lower y-on-y 18.5% − Ongoing decline traditional voice services Financial review -0.8% − Continued promotional activities by competition in H1 ’14 480 483 476 − Partly offset by growing FttH revenues 89 100 106 • Adjusted EBITDA margin hig
Slide 27: Consumer Residential (cont'd)
Consumer Residential (cont’d) 26% 26% • Continued promotional activities by 24% competition TV market share IPTV net adds & 82 62 43 • Market leading IPTV proposition driving IPTV net adds, TV market share at 26% Q2 ’13 Q1 ’14 Q2 ’14 TV market share1 Net adds (k) • 2 million TV customers reached Bro
Slide 28: Consumer Mobile
Consumer Mobile €m 35.2% • Underlying service revenue decline of 9.3% 15.9% 14.4% y-on-y (Q1 ’14: -12%) Financial review − Continued shift towards SIM-only -9.0% − Lower above bundle usage 389 347 354 − Lower price levels y-on-y 137 55 51 • Adjusted EBITDA margin lower y-on-y Q2 ’13 Q1 ’14 Q2 ’14 −
Slide 29: Consumer Mobile (cont'd)
Consumer Mobile (cont’d) High postpaid net adds k 53 • High retail postpaid net adds of 53k − Driven by good performance KPN and Telfort Postpaid net adds 26 brands 7 • Strong focus on existing customers leading to lower churn -7 -12 − Good uptake multi play -20 − Nationwide 4G coverage Q2 ’13 Q1 ’1
Slide 30: Business
Business Simplification program accelerated Focus on revenues… … and reducing costs • Growing 4G customer base, now 525k • Simplification program accelerated subscribers (Q1 ’14: 412k) 31% • ~150 FTE reductions in H1 ’14 24% − ~400-500 FTE reductions expected FY ’14 1% • Streamlining product portfol
Slide 31: Business (cont'd)
Business (cont’d) Continued rationalization leading to declining market size • Adjusted revenues declined 11% y-on-y €m 22.8% 20.0% 21.0% − Continued decline of market size driven by Financial review customer rationalization and optimization -11% 813 730 727 • Adjusted EBITDA margin at 21.0% 185 146
Slide 32: NetCo
NetCo €m €m 55.3% 52.8% 54.5% • Adjusted revenues down 5.6% y-on-y − Decline traditional services and lower traffic across Financial review -5.6% segments 593 − Lower wholesale traffic revenues 562 560 328 297 305 • Adjusted EBITDA margin at 54.5% − Decline of high margin traditional services Q2 ’13
Slide 33: iBasis
iBasis 2.8% • Adjusted revenues down 6.5% y-on-y €m 2.2% 2.2% − Competitive international wholesale traffic market Financial review − Including 1.8% negative currency effect -6.5% 247 226 231 • Adjusted EBITDA margin at 2.2% − Decline high margin revenues, partly offset by 7 5 5 cost focus Q2 ’13 Q1
Slide 34: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Eelco Blok 5 Concluding remarks Eelco Blok 34
Slide 35: Germany (discontinued operation)
Germany (discontinued operation1) Good net adds, growing profitability €m 28.6% 32.4% €m 15.8% >16% 27.0% 15.3%2 Service revenues Financial review & market share +4.9% 774 779 812 764 731 760 209 223 263 Q2 ’13 Q1 ’14 Q2 ’14 Q2 ’13 Q1 ’14 Q2 ’14 Adjusted EBITDA margin Adjusted EBITDA Service revenue
Slide 36: Belgium
Belgium €m • Underlying service revenue decline 1.9% 26.8% 23.2% 21.9% y-on-y (Q1 ’14: -4.4%) in competitive market Financial review − Postpaid service revenue growth, prepaid remains -2.7% under pressure 183 177 178 − Continued tariff optimization by customers 49 41 39 • Adjusted EBITDA margin at 2
Slide 37: Belgium (cont'd)
Belgium (cont’d) Continued good postpaid net adds, ARPU relatively stable 3.4 3.4 3.2 • Continued good postpaid net adds k − Mobile market remains competitive customer base Net adds & 53 28 16 -54 -42 • Prepaid net adds of -58k in Q2 ’14, adjusted -195 for technical correction Q2 ’131 Q1 ’14 Q2 ’14
Slide 38: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 The Netherlands Joost Farwerck 4 International Eelco Blok 5 Concluding remarks Eelco Blok 38
Slide 39: Concluding remarks
Concluding remarks Continued growth 4G, IPTV and multi play in The Netherlands Unique multi play propositions reducing churn Simplification program driving significant cost savings, accelerated in Business segment Strong Challenger outperforming the market in Belgium Sale of E-Plus leading
Slide 40: Q&A
Q&A 40
Slide 41: Annex
Annex Q2 2014 - Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] www.kpn.com/ir
Slide 42: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 42
Slide 43: 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 44: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 44
Slide 45: Analysis of adjusted results Q2 '14
Analysis of adjusted results Q2 ’14 Impact incidentals Revenues (€ m) Q2 ’14 Q2 ’13 Sale of fixed assets (hardware) Business 5 - Change in provision NetCo 10 -6 Adjustment deferred revenues Germany - 29 Book gain sale IS&P Business - 23 KPN Group 15 46 Of which discontinued operations - 29 KPN Group
Slide 46: Analysis of adjusted results YTD '14
Analysis of adjusted results YTD ’14 Impact incidentals 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 Consumer Mobile KPN Group 22 66 Of wh
Slide 47: Restructuring costs
Restructuring costs €m Q2 ’14 Q2 ’13 YTD ’14 YTD ’13 Germany (incl. discontinued operations) -6 - -6 5 Belgium -3 - -3 - Mobile International (incl. discontinued operations) -9 - -9 5 Consumer Mobile -1 -2 -1 -5 Consumer Residential -3 -10 -6 -12 Business -16 -14 -13 -19 NetCo -1 -2 -1 -5 Other -4 -
Slide 48: Impact regulation
Impact regulation €m Q2 ’14 Q2 ’13 Revenues EBITDA Revenues EBITDA Germany (incl. discontinued operations) -13 -11 -38 -22 Belgium -3 -2 -13 -8 Mobile International (incl. discontinued operations) -16 -13 -51 -30 Consumer Mobile -6 -3 -6 -1 Of which: Mobile Wholesale -2 -1 -2 - Business -5 -3 -3 -1
Slide 49: Operating expenses
Operating expenses €m Q2 ’14 Q2 ’13 % Employee benefits (incl. release of pension provision) -133 324 n.m. Cost of materials 181 130 39% Work contracted out and other expenses 780 812 -3.9% Own work capitalized -22 -20 10% Other operating expenses1 131 151 -13% Depreciation2 319 312 2.2% Amortizatio
Slide 50: Operating expenses - analysis
Operating expenses - analysis Employee benefits & Cost of materials €m Y-on-Y decrease Employee benefits • Lower cost as a result of FTE reduction program (Continuing operations) 16.8% 16.1% 15.9%1 15.2% 14.8% 14.6% Q-on-Q decrease -133 • Release of provisions for several incentive 365 324 307 301 3
Slide 51: Operating expenses - analysis
Operating expenses - analysis Work contracted out & Other Y-on-Y decrease €m Work contracted out • Lower IT costs due to Simplification program at (Continuing operations) 40.6% NetCo 38.0% 38.7% 39.0% • Less external personnel 36.7% 37.6% • Lower traffic costs at Consumer Mobile Q-on-Q decrease 796
Slide 52: Operating expenses - analysis
Operating expenses - analysis Depreciation & Amortization Y-on-Y and Q-on-Q increase €m Depreciation1 • Higher depreciation due to fixed and mobile (Continuing operations) network modernization at NetCo 15.3% 15.9% 15.3% 16.0% • Partly offset by phasing out of handset lease at all 13.8% 14.6% brands
Slide 53: The Netherlands - operating expenses
The Netherlands - operating expenses • Operating expenses (excl. D&A, restr. costs and impact Breakdown operating expenses phasing out handset lease) down 3.8% y-on-y €m (excl. D&A and restructuring costs) +1.9% / -3.8%1 • Employee benefit costs decreased 2.2% y-on-y 1,002 989 971 • Cost of material
Slide 54: Dutch wireless disclosure
Dutch wireless disclosure Q2 ’14 Q2 ’13 % Service revenues (€ m) 540 612 -12% − Consumer retail 283 325 -13% − Business1 212 244 -13% − Other2 45 43 4.7% SAC/SRC per subscriber (€) − Consumer retail3 215 X162 33% − Business 226 283 -20% 1 Includes partial allocation of multi play revenues to mobile
Slide 55: Tax
Tax P&L Cash flow Fiscal units (€ m) Q2 ’14 Q2 ’13 Q2 ’14 Q2 ’13 The Netherlands -94 31 -142 -801 Germany -2953 1 -1192 1 Belgium -1 -1 - 1 Other - - -1 1 Total reported tax (incl. discontinued operations) -390 31 -134 -77 Of which discontinued operations -295 1 -119 - Reported tax continuing operat
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 Q2 ’14 Q1 ’14 % Nominal debt 12.80 13.44 -4.8% Eurobonds 9.43 10.08 -6.4% Global bonds 0.76 0.76 - Hybrid bonds 2.03 2.03 - Financial leases and other loans 0.58 0.57 1.8% Adjustments to nominal debt -1.02 -1.02 - Equity credit hybrid bonds -1.01 -1.01 - Cash collateral on derivati
Slide 58: 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 4% 20% 70% 16% 10% Global bonds 6% Eurobonds 74% 2 2 EUR USD GBP € bn Bond redemption profile Fixed vs. floating interest 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 to base MTA rates on ‘pure BULRIC’ of € 1.019 cent per minute as of 1 September 2013 is under appeal (decision expected end of September 2014) • Dutch court suspended ACM decision and mandated interim rates NL based on ‘plus BULRIC’ of € 1.861 cen
Slide 62: 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 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 TEFD VOD DT 2*30 Paired 2*5 2*5 2*5 2*5 2*5 2*5 900MHz E+ TEFD DT VOD 2*34.8 Paired 2*5 2*5 2*12.4 2*12.4 1.8GHz DT E+ TEFD 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+ TEFD DT 2*59.4 Paired 2*4.95 2*9.9 2*4.95 2*4.95 2*9.9 2*4.95 2*9.9 2*9.
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 1.8GHz1 BASE Belgacom Mobistar 2*63.6 Paired 2*22 2*20.8 2*20.8 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 Unpair
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 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