Royal KPN NV · EURONEXT:KPN
Royal KPN NV — KPN — Q2 2019 Earnings Presentation
53 slides from Royal KPN NV's earnings presentation, May 3, 2019
Slide 1: Investor Presentation Q2 2019
INVESTOR PRESENTATION Q2 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 growth: value, 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
The Dutch telecom market: mature and dynamic Leading Highly regulated One of the most @On,e broadband market competitive performance in markets Europe Average 4G throughput of 42Mbps L Fixed access regulation Revenue growth: 98% of lation has at least My Europe: +0.4% >98% of population has at leas
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: FttH access investments driving higher returns
FttH access investments driving higher returns 415% +t€6 -34% +9%pr ARPU Churn Broadband market share
Slide 11: 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 12: Focus on profitable growth segments
Focus on profitable growth segments Consumer Business SME base LE & Corporate +300k 100% Value over Converged households by end 2021 on KPN EEN’ volume by mid 2020 10% ° Stabilized Postpaid base end-to-end Adjusted EBITDA AL’ converged in 2021 mid 2020 1 Traditional fixed voice and legacy broadband
Slide 13: Transformation of operating platform
Transformation of operating platform KPN EEN Migrations to KPN EEN' 100% SME mid 2020 LE in 2020 Clear operational benefits post migration +10 NPS’ fazter Time-to-market ~5% Churn Improved customer lifetime value Repricing at migration Reduced cost to serve Up and cross-sell services Reduced churn
Slide 14: Acceleration of simplification & digitalization
14 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 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: Organic sustainable commercial growth
Premium. Innovative Value. operating ORGANIC model. SUSTAINABLE FOCUS. commercial GROWTH approach. Lean.
Slide 22: Q1 2019 Results April 2019
Q1 2019 RESULTS 26 April 2019
Slide 23: Highlights Q1 2019
2 Highlights Q1 2019 Solid start new cost savings program € 27m net indirect opex savings' On track to realize full-year outlook Adjusted EBITDA after leases -0.3% 5-0: Q1 2019: € 563m 1 Indirect opexafter leases, adjusted for the impact of restructuring costs and incidentals Sale iBasis completed F
Slide 24: The best converged smart infrastructure
The best converged smart infrastructure. Focus on profitable growth segmenis. Acceleration of simplification and digitalization.
Slide 25: Strong start to converged infrastructure roll-out
Strong start to converged infrastructure roll-out Started accelerated Future proof ‘Outstanding’ FttH roll-out technology rating in mobile P3 test Up to Te. = TOGbps = 967... Symmetrical 2018: 940 points Partnering with Nokia to Ramping up for deploy latest technologies +1m FitH households G-PON & X
Slide 26: Continuously improving customer experience
Continuously improving customer experience record-high NPS in both segments Consumer NPS' Business NPS' Reputation award? Q12019 Q12019 A Q12018 Q12018 1 2018 restate elative weights of underlying businesses, source: Kantar TNS 26 2industry adju r
Slide 27: Brand strategy
7 Brand strategy one strong powerful brand: KPN Quality & Accelerate on Signature time-to-market convergence features of all brands under one brand EFFICIENT OPERATING MODEL
Slide 28: Solid results in Consumer Fixed
Solid results in Consumer Fixed Converged Broadband Fixed ARPU households base’ +14k so +1 € 46 5, 1 Corrected for migrations to, and new customers of, small business proposition launched in Q4 2017 (8k) 28
Slide 29: Solid KPN brand in competitive mobile market
Solid KPN brand in competitive mobile market Postpaid ARPU Stabilizing postpaid Converged under pressure base KPN brand postpaid base € 17 -5.0% =1 k net adds y-on-y KPN brand Q1 2018: € 18 Q4 2018: -8k All brands KPN brand
Slide 30: Strategic actions impacting Business revenue
Strategic actions impacting Business revenue migrations accelerating, core IT services growing Adjusted revenues Strategic actions y-on-y growth trend Q12019 re) Communication Services 7.6% 5 0) % S M E base Mobile service revenues -8.8% migra ted oT 58% Q4 2018: 41% Broadband & Network Services 17%
Slide 31: Solid progress small business migrations
Solid progress small business migrations value accretive Strong converged ARPU accretive penetration migrations 33% ofsmallbusiness ~ © broadband base ARPU. ARPU uplift ARPU. Consumer small business proposition Proposition
Slide 32: Lean and digital operations
Lean and digital operations Cost to serve KPN EEN significantly KPN EEN lowers complexity ° ° > 25% -15% lower by 2021 of IT systems by 2021 Simplified end-to-end organization New management structure & accelerate integration of recent acquisitions STABILIZED END-TO-END ADJUSTED EBITDA AL MID-2020
Slide 33: IFRS: four financial KPIs introduced
IFRS 16 four financial KPls introduced Adjusted . Adjusted _ Leverage ratio she, tenes indirect opex Free cash flow ‘Net “ ~ “ leases)’ after leases ‘Adjusted EBITDA AL (Adjusted EBITDA AL’)
Slide 34: Financial highlights Q1 2019
Financial highlights Q1 2019 Adjusted revenues Adjusted EBITDA after leases €1,362m €563m:" -2.9% y-on-y -0.3% y-on-y Q1 2018: € 402m Q1 2018: € 565m Free Cash Flow (excl. TEFD dividend) € 69m 202 intrayear phasing -43% y-on-y Q1 2018: € 121m
Slide 35: Financial performance Q1 2019
Financial performance Q1 2019 key P&L metrics €m Q12018 Q12019_ Ay-on-y Consumer 744 728 -2.1% Business 533 506 4.9% Wholesale 152 157 3.0% Other -26 -30 13% Adjusted revenues’ 1,402 1,362 2.9% Adjusted direct costs’ 321 309 -3.8% Adjusted indirect costs after leases’ 516 489 5.2% Adjusted EBITDA af
Slide 36: Adjusted revenues declined y-on-y
36 Adjusted revenues declined y-on-y €m 0, i 29 % 1,402 | 15 5 3 | —-- a 26 Adj. revenues Consumer Business Wholesale Other Cincl. Q12018 eliminations) Adj. revenues Q12019
Slide 37: Adjusted EBITDA AL in line with last year
Adjusted EBITDA AL in line with last year supported by simplification and digitalization €m ‘0, [ -0.3 % Y 5 20 1 563 6 Or -4) Adj. EBITDA Revenues Cost of goods Personnel IT/TI Other operating Adj. EBITDA after leases & services expenses expenses! after leases Q12018 Q12019 1 Incl. lease-related ex
Slide 38: Net indirect opex savings
Net indirect opex savings Solid start new cost savings program" Basis for net opex reduction program savings target € 27m € 2,015m net savings in Q1 2019 FY 2018 total adjusted indirect 1 Target 2019 - 2021: -€ 350m operating expenses after leases 1 Indirect c ucturing costs and incidentals
Slide 39: Financial performance Q1 2019 - FCF
Financial performance Q1 2019 - FCF y-on-y mainly impacted by restructuring & Capex €m Q12018 Q12019_ Ay-on-y Adjusted EBITDA after leases 565 563 -0.3% Interest lease liabilities 9 8 -12% Depreciation right-of-use asset 38 35 75% Restructuring -13 -36 >100% Incidentals = = nm. EBITDA 598 570 4.7% I
Slide 40: FCF impacted by intra-year phasing in Q1
FCF impacted by intra-year phasing in Q1 Q12019 ; ‘ss : a 570 3 ™ 43% y-on-y L_. Q1 2018: € 121m Adj. Lease- Restructuring EBITDA Changein Changein Interest Taxes Capex Other! FCF EBITDA AL related Q12019 provisions working paid paid (excl. TEFD Q1 2019 expenses capital dividend) Q1 2019 1 Incl. rep
Slide 41: Solid financial position
41 Solid financial position Sm yp 6494 5772 5,832 6,036 Q12018 Q4 2018 Q12019 e@ Gross debt Net debt Senior bond redeemed € 465m 7.5% coupon EIB facility signed on 1 April 2019 € 300m for mobile network investments
Slide 42: Leverage ratio reflects leases as operational
Leverage ratio reflects leases as operational rather than core financing instrument Leverage ratio Q1 2019 Net debt excluding leases Lease expenses considered opex Net debt (excl. all leases) 2 Net debt incl. all leases = 2.5x Adjusted EBITDA AL O4 2018: 25x Adjusted EBITDA = 2.7x < 25x Q4 2018: 27x
Slide 43: Outlook 2019 and 2019 - 2021 ambitions
Outlook 2019 and 2019 - 2021 ambitions organic sustainable growth Outlook 2019 2019 - 2021 ambitions Adjusted EBITDA AL In line with 2018 Organic growth €11bn Stable at € 11bn annually Front-end loaded restructuring charges leading Three-year mid-single digit CAGR' to incidentally lower FCF compared
Slide 44: Organic growth: value, lean operating model
ORGANIC So Malue. — Volume. Lean . operating model.
Slide 45: Information pack
INFORMATION PACK CSR Tax KPI overview Debt portfolio Treatment of hybrid bonds Fixed infrastructure Spectrum
Slide 46: Doing business in a sustainable manner
Doing business in a sustainablemanner Leading position in benchmarks Achievements in Q1 2019 MEMBER OF Reuse & PN takes back customer's Dow Jones recycle old mobile phones Sustainability Indices In Collaboration with RobecoSAM «@® Digital Teaching method for digital skills . launched by KPN Mooiste
Slide 47: Tax Q1 2019
Tax Q1 2019 P&L Cash flow Regions (€ m) Q12018 —Q12019 Q12018_ ~—Q12019 The Netherlands -28 -24 5 > Other 1 2 71 2 Total reported tax -29 26 6 - Of which discontinued operations -1 2 1 2 Reported tax from continuing operations -28 -24 5 - Effective tax rate continuing operations 22.0% 21.2% The effe
Slide 48: KPI overview
KPI overview Consumer fixed Consumer mobile Business Q12018 Q12019 Q12018 Q12019 Q12018 Q12019 Household base (k) Postpaid base (k) Customer base (k) F-M households 1,280 1358 F-M postpaid customers. 1,934 2126 Mobile 1,858 1,829 Fixed-only households 2,256 2,037 Mobile-only postpaid customers 1721
Slide 49: Debt portfolio
Debt portfolio Nominal debt" Nominal debt Fixed vs. floating Bond redemption by type by currency interest® profile 1%] € 6.7bn 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 50: 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 51: Fixed infrastructure
51 Fixed infrastructure Co} VDSL2 iam VDSL2 pair bonding See) (or) Vectoring SC (op) Bonded vectoring SC (on) Bonded VPlus SC (Pop | FttH — P2P Passive FttH — XGS / GPON EEE EE \ CO J} split Fiber Copper Download speed ~50Mbps ~100Mbps ~120Mbps ~240Mbps ~400Mbps ~1Gbps Up 10 10Gbps Active in network
Slide 52: 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 53: Contact Information
Contact Information: KPN Investor Relations @ +3170 44 60986 © [email protected] @ irkpn.com