Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — Q2 2015 Earnings Presentation
63 slides from Royal Kpn Nv's earnings presentation, Jul 29, 2015
Slide 1: Second Quarter 2015 Results
Second Quarter 2015 Results 29 July 2015
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 Q2 '15
Highlights Q2 ’15 Operating strategy yielding results, outlook 2015 strengthened Services & Innovation Operational Financial1 & Portfolio Leading innovator in Strong base growth Adjusted revenues Q2 ’15: Dutch TV Consumer € 1,751m, -3.8% y-on-y Entered into smart +31k broadband net adds co
Slide 5: Differentiating through innovative services
Differentiating through innovative services Next phase TV roadmap: content aggregation through partnerships Strong innovation roadmap Differentiating on functionality and content Play. by KPN 2016 Entering into smart partnerships… Start-over TV Content 2015 aggregation …to provide access to 2014 ful
Slide 6: Consistent value creation in Consumer Mobile
Consistent value creation in Consumer Mobile New mobile data bundles and innovative services drive upsell Strong increase in video consumption… Terabytes Jan 2012 Jul 2015 Mobile video services …resulting in improved driving data usage bundle mix2 growth… ~1,125 ~470 Q2 ’14 Q2 ’15 Q2 ’14 Q2 ’15 <1GB
Slide 7: Clear benefits from convergence
Clear benefits from convergence Increasing number of services per household and decreasing churn Increasing number of Decreasing churn services per household ~3.70 ~16% ~1.50 ~12% 2.24 ~9% ~9% ~5% Fixed RGUs SIMs per fixed- Converged Fixed Postpaid Converged per customer mobile bundle customer custo
Slide 8: Business market changing rapidly
Business market changing rapidly Opportunities to retain value and stabilize revenues in medium-term Business revenue growth drivers Business Traditional Single play Network & IT Multi play New segment voice wireless services services total y-on-y adjusted revenue growth 77% 40% 0% -7.9% -19% -12% -
Slide 9: Transforming the Business segment
Transforming the Business segment Simplification to mitigate revenue pressure Transformation Progress To improve profitability by transforming fixed cost base ~5 to 6% Standardized Portfolio reduction on track y-on-y ~7 to 8% Other portfolio y-on-y ~35%1 Employee benefits Process simplification FTE
Slide 10: 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 8 5 -10 -4 +10 +12 +6 -5 -16 Q2 ’14 Q2 ’15 Q2 ’14 Q2 ’15 Q2 ’14 Q2 ’15 1 Source: TNS NIPO. Consumer Residential (all brands), Consumer Mobile (all br
Slide 11: Increasing fiber penetration within fixed network
Increasing fiber penetration within 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% 57% 60% 47% 29% 35% FttC 24% FttH 23% 28% Q2 ’14 Q2 ’15 end Q2 ’14 Q2 ’15 end 2016 2016 Per
Slide 12: Expanding superior 4G network
Expanding superior 4G network Carrier aggregation driving strong increase in average speeds Utilization of full 1800MHz Driving strong increase in spectrum for carrier aggregation average 4G download speed ~75% 35.8Mbps Carrier 20.4Mbps aggregation end end Q2 ’14 Q2 ’15 10MHz Despite strong increase
Slide 13: Building efficient and lean operating model
Building efficient and lean operating model Standardizing and simplifying processes to drive efficiency gains Simplification program Redesigning customer journey on track Consumer segments Run-rate FTE ~60% of customer savings1 reductions2 processes reduced >€ 400m 2,000-2,500 end 2016 Reducing lead
Slide 14: Strict cost discipline implemented
Strict cost discipline implemented Further enhancing operational excellence Proactive procurement management Optimize IT / TI spend Reduce management layers Savings leading to additional FCF potential 2014 2015 2016 2017 14
Slide 15: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 15
Slide 16: Continued base growth in Consumer Residential
Continued base growth in Consumer Residential Increasing revenues per household through upsell strategy Successful Increasing triple Increasing ARPU upsell strategy play penetration per customer 64k 54% € 43 € 42 43k 47% 31k -7k Broadband IPTV Triple play ARPU net adds net adds Q2 ’14 Q2 ’15 Q2 ’14
Slide 17: Inflection reached in Consumer Mobile
Inflection reached in Consumer Mobile Continued strong customer intake driving service revenue growth Continued strong retail Derisking Driving service postpaid net adds ARPU profile revenue growth 70k 62% € 28 € 27 +3.1% 53k % committed ARPU 27% 76% 78% -11% Retail postpaid 4G Retail postpaid Servi
Slide 18: Good multi play growth in Consumer
Good multi play growth in Consumer Successful take-up driving customer loyalty and reducing churn Number of households with Mobile customers in fixed-mobile fixed-mobile bundle rising bundles continues to increase 891k 608k 399k 26% 285k 21% 10% 13% Q2 ’14 Q2 ’15 Q2 ’14 Q2 ’15 Retail postpaid custom
Slide 19: Challenging environment in Business
Challenging environment in Business Focus on growing multi play, cloud portfolio strengthened Challenging environment Growing new services Wireless Multi play 16k € 38 € 35 421k 220k 5k 19% 10% Wireless Wireless single Q2 ’14 Q2 ’15 net adds1 play ARPU2 Multi play seats Mobile customers in multi pla
Slide 20: BASE Company operating in competitive market
BASE Company1 operating in competitive market Adjusted EBITDA margin improving Service revenues Adjusted EBITDA margin 27.2% 21.9% -3.7% -3.9% Service revenue Q2 ’14 Q2 ’15 growth y-on-y Q2 ’14 Q2 ’15 New tariff plans introduced Data usage growth continuing to support customer intake 16k +80% ~430 7
Slide 21: Improving financial results (continuing operations)
Improving financial results…(continuing operations)1 …driven by strong operational performance €m Q2 ’15 Q2 ’14 y-on-y % Adjusted revenues 1,751 1,820 -3.8% Adjusted EBITDA 602 593 1.5% Net profit 160 352 -55% Capex 306 275 11% FCF 232 70 >100% 1 All figures based on continuing operations, unless st
Slide 22: Revenue trend improving
Revenue trend improving Stable Consumer revenues still offset by declining business market Adjusted revenues1 declined by 3.8% vs -7.4% in Q2 ’14 €m 20 1,820 2 3 0 65 1,751 29 Adj. Consumer Consumer Business NetCo & iBasis Other Adj. revenues Residential Mobile Other NL revenues Q2 ’14 Q2 ’15 The Ne
Slide 23: Adjusted EBITDA stabilized
Adjusted EBITDA stabilized1 Positive impact of cost savings offset revenue decline €m 9 3 1 1 602 593 9 11 8 26 43 Adj. Revenues SAC / SRC, Traffic Personnel Marke- IT/TI, Change in iBasis Other Adj. EBITDA COGS ting Housing, provisions EBITDA Other NL Q2 ’14 Q2 ’15 The Netherlands2 (€ +16m) Adjuste
Slide 24: Adjusted EBITDA stabilized (cont'd)
Adjusted EBITDA stabilized1 (cont’d) Positive contribution Consumer Mobile, Business remains challenging €m 31 16 1 602 593 8 1 30 Adj. EBITDA Consumer Consumer Business NetCo & iBasis Other Adj. EBITDA Q2 ’14 Residential Mobile Other NL Q2 ’15 The Netherlands (€ +16m) 1 All figures based on continu
Slide 25: Simplification to drive down Capex The Netherlands
Simplification to drive down Capex The Netherlands Investments in capacity and Simplification currently at higher level Capex The Netherlands H1 ’15 €m 636 Project Target Customer driven 134 IPTV and broadband base growth ~80% FttC / FttH FttC / FttH roll-out Fixed access 274 penetration in 2016 R
Slide 26: Improvement in free cash flow
Improvement in free cash flow1 Free cash flow H1’15 higher y-on-y supported by lower interest paid €m 146 262 100 6 1 116 146 66 154 1 -206 20 FCF Reported Interest Taxes Change Change Other Capex Proceeds FCF excl TEFD FCF H1 ’14 EBITDA paid paid in in working from real dividend 2 TEFD H1 ’15 provi
Slide 27: Solid financial position
Solid financial position Telefónica Deutschland stake provides additional financial flexibility Lower net debt y-on-y Debt portfolio € bn Gross debt € 1.0bn lower vs. Q1 ’15 Reducing interest payments by 11.8 ~€ 40m as of 2016 10.5 9.6 Average maturity senior bonds 8.6 Net 7.4 years 7.3 7.3 1.
Slide 28: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 28
Slide 29: Outlook 2015 strengthened
Outlook 2015 strengthened Strong operational performance and strict cost discipline supporting outlook Outlook continuing operations 2015 Shareholder remuneration Adjusted EBITDA in line with 2014 Intended DPS of € 8.0ct in respect of 2015 Capex < € 1.3bn € 3.0ct interim dividend, subject to
Slide 30: Q&A
Q&A 30
Slide 31: Q2 2015 – Information Pack
Q2 2015 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] ir.kpn.com 31
Slide 32: 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 32
Slide 33: 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 34: 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 34
Slide 35: Group results Q2 '15 (continuing operations)
Group results Q2 ’15 (continuing operations) (€ m) Q2 ’15 Q1 ’15 Q2 ’14 y-on-y % Revenues 1,741 1,758 1,835 -5.1% Adjusted revenues 1,751 1,758 1,820 -3.8% Operating expenses (excl. D&A) 1,173 1,182 805 46% EBITDA 568 576 1,030 -45% Adjusted EBITDA 602 595 593 1.5% Depreciation 274 273 292 -6.2% Amo
Slide 36: Group results YTD '15 (continuing operations)
Group results YTD ’15 (continuing operations) (€ m) YTD ’15 YTD ’14 y-on-y % Revenues 3,499 3,665 -4.5% Adjusted revenues 3,509 3,643 -3.7% Operating expenses (excl. D&A) 2,355 2,050 15% EBITDA 1,144 1,615 -29% Adjusted EBITDA 1,197 1,175 1.9% Depreciation 547 574 -4.7% Amortization 253 257 -1.6% Op
Slide 37: Group cash flow Q2 '15 (continuing operations)
Group cash flow Q2 ’15 (continuing operations) (€ m) Q2 ’15 Q2 ’14 y-on-y % EBITDA 568 1,030 -45% Interest paid/received -79 -123 -36% Tax paid/received -2 -15 -87% Change in provisions1 -9 -492 -98% Change in working capital1 -90 -51 76% Other movements (incl. TEFD dividend) 149 -4 n.m. Net cash fl
Slide 38: Group cash flow YTD '15 (continuing operations)
Group cash flow YTD ’15 (continuing operations) (€ m) YTD ’15 YTD ’14 y-on-y % EBITDA 1,144 1,615 -29% Interest paid/received -301 -455 -34% Tax paid/received -12 -13 -7.7% Change in provisions1 -10 -607 -98% Change in working capital1 -69 -169 -59% Other movements (incl. TEFD dividend) 149 -3 n.m.
Slide 39: Financials by segment
Financials by segment Consumer Residential Consumer Mobile 22.3% 22.0% 21.9% 20.9% 17.7% 14.4% 476 483 478 354 344 374 106 101 105 61 82 51 Q2 ’14 Q1 ’15 Q2 ’15 Q2 ’14 Q1 ’15 Q2 ’15 Business NetCo 21.0% 54.5% 57.4% 57.7% 18.7% 18.6% 727 680 662 560 547 544 305 314 314 153 127 123 Q2 ’14 Q1 ’15 Q2 ’1
Slide 40: Financials by segment (cont'd)
Financials by segment (cont’d) iBasis Belgium (discontinued operations) 2.2% 2.2% 2.6% 27.2% 21.9% 15.4%1 231 227 234 178 169 169 39 261 46 5 5 6 Q2 ’14 Q1 ’15 Q2 ’15 Q2 ’14 Q1 ’15 Q2 ’15 Adjusted revenues (€ m) Adjusted EBITDA (€ m) Adjusted EBITDA margin 1 Including € 12m site tax expense related
Slide 41: Analysis of adjusted results Q2 '15
Analysis of adjusted results Q2 ’15 Impact incidentals and restructuring costs on revenues & EBITDA Revenues (€ m) Q2 ’15 Q2 ’14 Revenue related provision Business -10 - Sale of fixed assets (hardware) Business - 5 Change in provision NetCo - 10 KPN Group -10 15 Of which discontinued operations - -
Slide 42: Analysis of adjusted results YTD '15
Analysis of adjusted results YTD ’15 Impact incidentals and restructuring costs on revenues & EBITDA Revenues (€ m) YTD ’15 YTD ’14 Revenue related provision Business -10 - Sale of fixed assets (hardware) Business - 5 Change in provision NetCo - 17 KPN Group -10 22 Of which discontinued operations -
Slide 43: Restructuring costs
Restructuring costs (€ m) Q2 ’15 Q2 ’14 YTD ’15 YTD ’14 Consumer Mobile - -1 -3 -1 Consumer Residential -1 -3 -2 -6 Business -25 -16 -32 -13 NetCo -5 -1 -8 -1 Other 3 -4 2 -3 The Netherlands -28 -25 -43 -24 iBasis - - - - Belgium (incl. discontinued operations) - -3 - -3 Other activities -7 -4 -11 -
Slide 44: Dutch wireless disclosure
Dutch wireless disclosure Service revenues (€ m) Q2 ’15 Q2 ’14 % YTD ’15 YTD ’14 % Consumer retail 296 283 4.6% 567 560 1.3% Business1 178 189 -5.8% 356 379 -6.1% Other2 42 46 -8.7% 79 86 -8.1% KPN The Netherlands 516 518 -0.4% 1,002 1,025 -2.2% SAC/SRC per subscriber (€) Q2 ’15 Q2 ’14 % Consumer re
Slide 45: Tax
Tax P&L Cash flow Regions (€ m) Q2 ’15 Q2 ’14 Q2 ’15 Q2 ’14 The Netherlands -25 -93 -1 -14 Belgium -2 -1 - - Other -3 - -1 -1 Total reported tax -30 -94 -2 -15 Of which discontinued operations -2 -1 - - Reported tax continuing operations -28 -93 -2 -15 Effective tax rate continuing operations 14.9%
Slide 46: 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 46
Slide 47: Consumer Residential
Consumer Residential Broadband IPTV 40% 40% 40% 27% 28% 25% 35 31 77 64 43 -7 Q2 ’14 Q1 ’15 Q2 ’15 Q2 ’14 Q1 ’15 Q2 ’15 Net adds (k) Broadband market share1 Net adds (k) TV market share1,2 RGUs and ARPU per customer 2.12 2.22 2.24 42 44 43 Q2 ’14 Q1 ’15 Q2 ’15 ARPU per customer (€ ) RGUs per custome
Slide 48: Consumer Mobile
Consumer Mobile Postpaid net adds Retail postpaid ARPU € 59 70 28 27 53 26 % committed ARPU -12 -2 ~83% -24 ~76% ~78% Q2 ’14 Q1 ’15 Q2 ’15 Retail (k) Wholesale (k) Q2 ’14 Q1 ’15 Q2 ’15 Service revenues Committed ARPU breakdown 42% 42% 44% 6% 6% 6% Incoming (MTA) 323 303 333 3.1% 5% 8% 10% Above bund
Slide 49: Business
Business Wireless services Wireless service revenues 1,787 1,792 €m 1,710 -5.8% y-on-y 38 34 35 189 178 178 % committed 70% 81% 84% single play ARPU Q2 ’14 Q1 ’15 Q2 ’15 Q2 ’14 Q1 ’15 Q2 ’15 Wireless single play ARPU (€)1 Wireless service revenues (€ m)3 Wireless customers (k)2 Voice & Internet wire
Slide 50: Belgium (discontinued operations)
Belgium (discontinued operations) Net adds ARPU 3.2 3.3 3.2 31 31 31 16 0 7 -3 -41 9 8 8 -195 Q2 ’14 Q1 ’15 Q2 ’15 Q2 ’14 Q1 ’15 Q2 ’15 Postpaid (k) Prepaid (k) Postpaid (€) Prepaid (€) Customers (m) Service revenues ~21% ~21% ~21% 155 149 149 Q2 ’14 Q1 ’15 Q2 ’15 Service revenues (€ m) Service reve
Slide 51: 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 51
Slide 52: Debt summary
Debt summary1 (€ bn) Q2 ’15 Q1 ’15 % Eurobonds 6.67 7.67 -13% Global bonds 0.76 0.76 n.m. Hybrid bonds 2.03 2.03 n.m. Financial leases and other loans 0.13 0.13 n.m. Nominal debt 9.59 10.59 -9.4% Equity credit hybrid bonds -1.01 -1.01 n.m. Cash collateral on derivatives 0.04 0.00 n.m. Adjustments to
Slide 53: 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 1.0 0.8 0.8 0.9 0.9
Slide 54: 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 55: 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 55
Slide 56: Regulation
Regulation MTA rates across the Group The Netherlands ACM decision to base MTA rates on ‘pure BULRIC’ of € 1.019 cent per minute as of 1 September 2013 is under appeal (Court announced prejudicial questions to European Court of Justice) Dutch Court suspended ACM decision and mandated interim rat
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 900MHz1 BASE Proximus Mobistar 2*34 (Paired) 2*10 2*12 2*12 1.8GHz2 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 BASE M
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 Download speed1 >40Mbps 2014 2015 2016 ~75% ~85% ~90% CO VDSL2 50Mbps VDSL2 pair bonding 100Mbps ~50% ~70% ~85% CO 100Mbps ≥200Mbps ~27% ~55% ~70% SC Vecto
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 will be included as financial asset1 Fair value of KPN’s stake will be based on Telefónica Deutschland’s share price and adjusted quarterly Fair value movements will be recorded in other comprehensive income Significant or