Royal KPN NV · EURONEXT:KPN
Royal KPN NV — KPN — Q3 2019 Earnings Presentation
54 slides from Royal KPN NV's earnings presentation, December 2019
Slide 1: Investor Presentation Oct-Dec 2019
INVESTOR PRESENTATION Oct-Dec 2019
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 (F
Slide 3: Strategy 2019-2021 Summary presentation
STRATEGY 2019-2021 Summary presentation Capital Markets Day 28 November 2018
Slide 4: Organic value growth, lean operating model
ORGANIC SS Value. — 1 Yotume. Lean operating model.
Slide 5: The ecosystem is evolving: key enabling technologies
The ecosystem is evolving: key enabling technologies - ‘B Fiber 4G/5G Virtualization & Cloud HYBRID NETWORKS & PLATFORMS
Slide 6: The Dutch telecom market: mature and dynamic
6 The Dutch telecom market: mature and dynamic Leading Highly regulated One of the most broadband market competitive performance in markets Europe Average 4G throughput of 42Mbps 52) Fixed access regulation Revenue growth: >98% of population has at least ~ A Europe: +0.4% 400Mbps Capable broadband W
Slide 7: The best converged smart infrastructure
The best converged smart infrastructure. Focus on profitable growth segments. Acceleration of simplification and digitalization.
Slide 8: The best converged smart infrastructure
The best converged smart infrastructure Fiber roll-out Full mobile network Moving to All-IP acceleration modernization +1 million 190% 100% FttH households by end 2021 by end 2021 5G ready by end 2021 Stable Capex envelope: substantial shift in mix
Slide 9: Building the digital highway of the Netherlands
Building the digital highway of the Netherlands the benefits of fiber to society al ERE A Economy Cities Households FUTURE PROOF TECHNOLOGY 10 GIGABIT NETWORK AND MUCH MORE
Slide 10: Strong improvement FttH return profile
Strong improvement FttH return profile Lower roll-out spend due to reduced average costs per home passed Better utilization rate supported by Payback period data driven smart regional approach reduced by ~50% Strong commercial benefits +15% +€6 -34% | | +9%pr Broadband NPS ARPU Churn market share 1.
Slide 11: Acceleration of simplification & digitalization
N Acceleration of simplification & digitalization From 20 to2 From 5 core Simplified converged IT networks to 1 end-to-end stacks organization onge 2019-2021 new net opex ~€ 350 m l l l ion savings program" 1 Indirect opex after leases adjusted for the impact of restructuring costs and incidentals
Slide 12: Business segment strategy 2019 - 2021
Business segment strategy 2019 - 2021 e e e e Vision Mission #1 business service provider in the Netherlands: We create value to our customers with technology A premium connectivity leader, offering undisputed that enables them to run their business safely — quality in terms of service, experience &
Slide 13: Business go-to-market strategy
13 Business go-to-market strategy smartly positioned solutions for every customer Themes Q Client Organizational Employee Productivity Interaction Performance & Collaboration Propositions (2 £299 2990 Ley Ce G-65 i) : i “3 aeoaa KPN SMALL KPN EEN KPN SMART. KPN SMART BUSINESS MKB COMBINATIONS INTEGR
Slide 14: Transformation of operating platform
Transformation of operating platform KPN EEN Migrations’ Clear operational Improved customer benefits post migration lifetime value 100% +10 NPS’ Reprici . . epricing at migration f 2x Reduced cost to serve SME mid 2020 as er Up and cross-sell services LE in 2020 Reduced churn ° ~5% Churn x= Time-to
Slide 15: Network, Operations & IT; Consumer; Business
Network, Operations & IT The best converged smart infrastructure. Enable innovative technologies. Accelerate simplification of operating model. Consumer Best household access and customer experience. Growing converged base and product penetration. Focus on delivering value. Business Converged simpli
Slide 16: Convergence & value focus driving revenue stabilization
Convergence & value focus driving revenue stabilization. New multi-year sustainable opex reduction supports organic Adj. EBITDA AL growth. Stable Capex envelope: substantial shift in the mix. Organic sustainable Adj. EBITDA and FCF growth contributing to progressive dividend and deleveraging.
Slide 17: Convergence & value focus driving revenue stabilization
Convergence & value focus driving revenue stabilization PA HE SS Consumer Business Wholesale Grow base and Accelerate growth in Grow WBA/VULA value of converged convergence households Selective growth in IT Value over volume Maintain disciplined Strategy
Slide 18: Acceleration of simplification
Acceleration of simplification Digitalization & virtualization Rationalization and End-to-end digitalization simplification of and automation front- portfolio. end and back-end. IT landscape Organizational rationalization. effectiveness. opex reductions All-IP network and virtualization.
Slide 19: Stable Capex envelope
Stable Capex envelope € 11bn per annum in 2019-2021 (/TI Substantial shift in the mix enabling higher investments Pest 2016-2018 in access Commercial ~35% Other ~5O% ier Access
Slide 20: Committed to solid financial profile
Committed to solid financial profile Solid investment Optimized balance Medium-term grade credit profile sheet position leverage Moone: saa | Stable Interest payments Net debt Cexcl. all leases) / Adjusted EBITDA AL S&P Global BBB / Stable = < ? 5x Ratings e FitchRatings 888 /Stable
Slide 21: Q3 2019 Results October 2019
Q3 2019 RESULTS 25 October 2019 & kpn
Slide 22: Highlights Q3 2019
22 Highlights Q3 2019 Strong cost Smart converged management infrastructure Net indirect opex savings Successful € 37m 5G test ~70k € 103m YTD 2019 FttH homes passed YTD Recognized for sustainability efforts #2 most sustainable telco worldwide Dow Jones Sustainability Index
Slide 23: The best converged smart infrastructure
The best converged smart infrastructure. Focus on profitable growth segmenis. Acceleration of simplification and digitalization.
Slide 24: Update: accelerated fiber roll-out strategy
Update: accelerated fiber roll-out strategy Further ramping up Connecting more Using latest capacity and more homes technology >60 ~70k ~1Gbps projects up and running homes passed YTD First live G-PON connection with customers
Slide 25: Update: mobile network modernization
25 Update: mobile network modernization first sites upgraded in The Hague area Typical current site 4 frequency bands 2x2 MIMO 1Gbps backhaul 2 antennas Not 5G ready ~150 site configurations ~80% Fris Typical modernized site 6-8 frequency bands 4X or higher order MIMO 10Gbps backhaul 1 antenna 5G re
Slide 26: Best household access and customer experience
Best household access and customer experience. Growing converged base and product penetration. Focus on delivering value.
Slide 27: Introduced a new converged proposition: KPN Hussel
7 Introduced a new converged proposition: KPN Hussel targeting higher Customer Lifetime Value Fully flexible One converged Introducing new household customer benefits including proposition: journey unlimited mobile complete freedom data and kids SIM to mix & match services ONE-STOP-SHOP: BROADBAND +
Slide 28: Customer experience & recognition
Customer experience & recognition record-high Consumer NPS Consumer NPS' Business NPS' Awards in WN Q3 2019 Q3 2019 i“ Strongest €) Dutch brand? Best Q3 2018 03 2018 retail chain® of relative weights of underlying businesses, source: Kantar TNS
Slide 29: Consumer convergence in the quarter
29 Consumer convergence in the quarter Households Postpaid SIM cards converged converged SIMs per +5k households +15k postpaid base 1.6 household 1404k total converged households 2,246k total converged SIMs Q3 2018: 1.53 O/ converged O/ converged 49 % broadband customers 62 %o all brands Q3 2018: 45
Slide 30: Consumer Fixed in the quarter
30 Consumer Fixed in the quarter Broadband base’ Fixed ARPU Impacted by brand strategy Price increase effective from 1 June 2019 1 Corrected for migrations to and new customers of small business propositions (7k) Fixed revenues Flat ..... Bundled services # Traditional voice + Digitenne ¥
Slide 31: Consumer Mobile in the quarter
Consumer Mobile in the quarter Growing postpaid = Postpaid ARPU Mobile service base KPN brand Stable g-on-q revenues +36k 23%. € 17 € 194m Q2 2019: +17k Q3 2018: € 18 Q3 2018: € 210m
Slide 32: Business revenue trend in the quarter
32 Business revenue trend in the quarter continues to be impacted by strategic actions Adjusted revenues y-on-y growth trend Q3 2019 Communication Services -8.9% Mobile service revenues 77h loT 24% Broadband & Network Services -18% Fixed Voice -21% Other -17% IT Services (a.0. security, cloud, works
Slide 33: Migrations from legacy portfolio
Migrations from legacy portfolio SME customers LE customers Small business portfolio 68% SME base 45% LE base 35% converged O migrated! © migrated’ © customers Q2 2019: 59% Q2 2019: 33% Q2 2019: 34% 1 Migrated from traditional fixed voice and legacy broadband services 33
Slide 34: Financial highlights Q3 2019
Financial highlights Q3 2019 Adjusted revenues Adjusted EBITDA after leases €1,372m €599m -1.8% y-on-y +2.9% y-on-y Q3 2018: € 1,398m Q3 2018: € 582m Free Cash Flow (excl. TEFD dividend) € 226m -2.2% Y-On-y Q3 2018: € 231m
Slide 35: Financial performance Q3 and YTD 2019
Financial performance Q3 and YTD 2019 key P&L metrics 35 €m Q32018 Q32019 Ay-on-y YTD 2018 YTD 2019 Ay-on-y Consumer 748 731 -2.2% 2,230 2,182 -2.1% Business 520 502 -3.6% 1,589 1,514 47% Wholesale 157 166 5.2% 465 482 3.6% Other -28 -26 ~4.6% -81 -85 4.6% Adjusted revenues’ 1,398 1,372 1.8% 4,202 4
Slide 36: Adjusted revenues declined y-on-y
36 Adjusted revenues declined y-on-y €m ° f -1 8 % 1398 | pT 8 1 1,372 ee i = _ ae 19 Adj. revenues Consumer Business Wholesale Other Cincl. Adj. revenues Q3 2018 eliminations) Q3 2019
Slide 37: Solid growth Adjusted EBITDA AL
Solid growth Adjusted EBITDA AL supported by simplification and digitalization 1 1 599 582 Bo 2 2 Adj. EBITDA Revenues Cost of goods Personnel IT/TI Other operating Adj. EBITDA after leases & services expenses expenses! after leases Q3 2018 Q3 2019 1 Incl. lease-related expenses
Slide 38: Indirect opex savings program on track
Indirect opex savings program on track € 103m ~€ 350m net savings YTD target 2019 - 2021
Slide 39: FCF Q3 and YTD 2019
FCF Q3 and YTD 2019 YTD mainly impacted by change in working capital €m Q3 2018 =Q32019 Ay-on-y YTD 2018 YTD 2019 Ay-on-y Adjusted EBITDA after leases 582 599 2.9% 1,720 1,756 2.1% Interest lease liabilities 8 7 -11% 25 22 -12% Depreciation right-of-use asset 37 34 -7.6% 1 104 5.8% Restructuring -39
Slide 40: FCF development YTD 2019
FCF development YTD 2019 YTD 2019 em 1,980 98 a -€ 132m... 1,756 , 32 _—_ y y 157 YTD 2018: € 574m 265 7 | 795 442 | “ | Adj. Lease- Restructuring EBITDA Changein Changein _ Interest Taxes Capex Other? FCF EBITDA AL related & YTD 2019 provisions’ —_ working paid paid (excl. TEFD YTD 2019 expenses _
Slide 41: Solid financial position
41 Solid financial position €m 6509 6141 5.934 5,920 5,554 Q3 2018 Q2 2019 Q3 2019 e@ Gross debt Net debt Q3 2019 leverage ratio 2.3X Q2 2019: 2.4x
Slide 42: Outlook 2019 and 2019 - 2021 ambitions
Outlook 2019 and 2019 - 2021 ambitions organic sustainable growth Outlook 2019 2019 - 2021 ambitions Adjusted EBITDA Slightly growing compared with 2018 Organic growth €11bn Stable at € 11bn annually At least € 700m! Three-year mid-single digit CAGR® driven by EBITDA AL growth Regular DPS € 125 cent
Slide 43: Organic value growth, lean operating model
ORGANIC So Malue. — Volume. Lean . operating model.
Slide 44: Information pack
INFORMATION PACK CSR New converged proposition Tax KPI overview Debt portfolio Treatment of hybrid bonds Fixed infrastructure Spectrum
Slide 45: Doing business in a sustainable manner
Doing business in a sustainablemanner Leading position in benchmarks MEMBER OF Dow Jones Sustainability Indices In Collaboration with RobecoSAM «@® EURONEXT Reputationranking' 4 eo Dutch VIBEQiris # companies INDICES RepTrak Pulse2019 1 Industry adjusted, source: Reputation institute Awards Achievem
Slide 46: New converged proposition set-up
New converged proposition set-up FMC benefits on Mobile and/or Entertainment Broadband' Mobile’ Speed €/month Data €/ month kids sim 1GB_ 7.50 2niy™ 50 Mbps 42.50 OGB 10 100 Mbps 4750 2GB 15 200 Mbps 50 5GB 1750 500 Mbps 55 10GB 22.50 Techdesk 5 20GB 24 36 Shy Unlimited S/m TV" Options €/ month 1STB
Slide 47: Example new propositions: KPN Hussel
Example new propositions: KPN Hussel Q AXA PA»oa Si al g | es Cexample) Mobile 10GB Broadband 50Mbps TV 1x STB Entertainment Spotify €79 vs. € 81.5 for previous proposition Cou p | es Cexample) Mobile 10GB+5GB Broadband 100Mbps TV 2x STB Entertainment Netflix € 105.5 vs. € 1055 for previous proposit
Slide 48: Tax Q3 and YTD 2019
48 Tax Q3 and YTD 2019 P&L Cash flow Regions (€ m) Q32018 Q32019 YTD2018 YTD 2019 Q3 2018 Q32019 YTD 2018 YTD 2019 The Netherlands -23 -42 91 -103 - > -25 7 Other -3 = -5 = -1 = -3 Total reported tax -26 42 -96 -103 1 - -28 7 Of which discontinued operations -3 - 5 - -1 - -3 Reported tax from contin
Slide 49: KPI overview
49 KPI overview Consumer fixed Consumer mobile Business Q3 2018 Q3 2019 Q3 2018 _Q3 2019 Q32018 Q3 2019 Household base (k) Postpaid base (k) Customer base (k) F-M households 1,325 1,404 F-M postpaid customers 2,032 2246 Mobile 1,863 1819 Fixed-only households 2,139 1,877 Mobile-only postpaid custome
Slide 50: Debt portfolio
Debt portfolio Nominal debt" Nominal debt Fixed vs. floating Bond redemption by type by currency interest® profile 1%} € 6.5bn HB Eurobonds HM cur Hi Fixed 19 '20 21 '22 23 '24'25 '26'28'29'30 32 HB Global bonds OS cpr’ Hl Floating {71 UsD hybrid (st call) GBP HB Hybrid bonds MB usp’ (71 GBP hybrid
Slide 51: Treatment of hybrid bonds
Treatment of hybrid bonds KPN & credit rating agencies IFRS Each tranche of the hybrid bonds is recognized as 50% equity and GBP and USD tranche have 60 years specified maturity, accounted for 50% debt by the rating agencies as financial liability = Coupon payments treated as regular bond coupon, he
Slide 52: Fixed infrastructure
Fixed infrastructure co | VDSL2 co } VDSL2 pair bonding {sc } Vectoring (sc } Bonded vectoring {sc | Bonded VPlus { Pop | FttH — P2P Passive FttH — G-PON split Passive split FttH — XGS-PON Fiber Copper DE OE EEE Download speed ~5OMbps ~100Mbps ~120Mbps ~240Mbps ~400Mbps ~1Gbps ~1Gbps Up to 10Gbps Ac
Slide 53: Spectrum in the Netherlands
Spectrum in the Netherlands 800MHz (Paired) 900MHz (Paired) 1.8GHz (Paired) 2.1GHz (Paired) 2.6GHz (Unpaired) 2.6GHz (Paired) Total VodZig 210 KPN 2°20 VodZig 2714.6 KPN 169.6MHz VodZig 210 KPN 210 KPN 210 KPN 214.8 VodZig 2°20 VodZig 179.2MHz KPN VodZig 25 5 2*30 235 2°70 2°59.4 160 2°65 578.8MHz
Slide 54: KPN Investor Relations
KPN Investor Relations ®irkpn.com