Royal KPN NV · EURONEXT:KPN
Royal KPN NV — KPN — Q1 2013 Earnings Presentation
50 slides from Royal KPN NV's earnings presentation, Apr 23, 2013
Slide 1: First Quarter Results 2013
First Quarter Results 2013 23 April 2013
Slide 2: Disclaimers
Disclaimers This announcement does not constitute an offer to sell, or a solicitation of offers to purchase or subscribe for, securities in the United States. The securities referred herein have not been, and will not be, registered under the US Securities Act of 1933 and may not be offered, exercis
Slide 3: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 3
Slide 4: Highlights Q1 '13
Highlights Q1 ’13 Group • Important steps taken in € 4bn equity equivalent capital raise • Revenues down 8.8% y-on-y due to sale Getronics International (3.9%) and competitive mobile markets • EBITDA € 137m lower y-on-y, partly due to higher commercial investments in Germany of € 63m • Capex € 75m h
Slide 5: Highlights Q1 '13 (cont'd)
Highlights Q1 ’13 (cont’d) The Netherlands • Successful 4G first mover launch • Revenue growth in Consumer Residential • TV market share increased to 24%, leading to No.2 position in Dutch TV market • Promising initial uptake quad play propositions • Good progress FTE reduction program with ~1,100 r
Slide 6: Aligning financial position with strategy
Aligning financial position with strategy Important steps taken in capital raise • Important steps taken in € 4bn equity equivalent capital raise − € 2bn hybrid bonds issued in March − € 3bn rights issue approved at AGM • Substantial reinforcement of balance sheet and financial position − Reduction
Slide 7: Outlook
Outlook On track to realize outlook, dividend outlook adjusted • The Netherlands expected to stabilize towards 2014 • Next phase German strategy expected to lead to service revenue growth combined with lower EBITDA margin, especially in 2013 • Capex in 2013 below € 2.3bn and total planned Capex for
Slide 8: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 8
Slide 9: Group financial profile
Group financial profile Successfully completed € 2bn hybrid bond program Debt € bn • Spectrum auction payment (€ 1,352m) in Q1 ’13 13.9 13.5 13.2 13.0 13.0 • Successfully issued € 2bn hybrid bonds − € 1.1bn non-call 5.5yr, 6.125% coupon 12.5 − $ 600m non-call 10yr, 7% coupon 12.4 12.4 12.0 (6.34% po
Slide 10: Group financial profile (cont'd)
Group financial profile (cont’d) Net debt / EBITDA1 3.0 • Net debt2 / EBITDA3 2.8x at end of Q1 ’13 − Lower 12 months rolling total EBITDA − Spectrum auction impact ~+0.3x 2.7x 2.8x − Partly offset by hybrid bond issuance impact ~-0.2x 2.6x 2.5x 2.4x • Targeting year-end 2013 net debt / EBITDA betwe
Slide 11: Group results Q1 '13
Group results Q1 ’13 €m Q1 ’13 Q1 ’12 % • Revenues down 8.8% y-on-y − Impact sale Getronics International (3.9%) Revenues and other income 2,911 3,191 -8.8% − Regulation impact of € 54m (1.7%) − Lower revenues NetCo, Business, Germany Operating expenses (excl. D&A) 1,917 2,060 -6.9% and Consumer Mob
Slide 12: Group cash flow Q1 '13
Group cash flow Q1 ’13 €m Q1 ’13 Q1 ’12 % • Free cash flow € 48m higher y-on-y Operating profit 365 592 -38% − € 297m more cash from change in Depreciation and amortization1 629 539 17% working capital, mainly due to prepayments made in Q4 2012 Interest paid/received -305 -258 18% Tax paid/received
Slide 13: Financial review – The Netherlands
Financial review – The Netherlands €m • Underlying revenues down 6.1% y-on-y Revenues and other income − Net negative effect from M&A € 88m (4.0%) and -11% incidentals € 11m (0.4%) − Regulation impact of € 8m (0.4%) • EBITDA excl. restructuring costs down 2.5% 1,976 1,907 1,875 1,774 1,759 − Lower r
Slide 14: Financial review – The Netherlands by segment
Financial review – The Netherlands by segment • Revenues Consumer Residential increased by €m Consumer Residential 23.4% 9.4% y-on-y 21.9% 21.9% 18.1% 19.0% − Continued growth in TV and FttH revenues − Supported by net positive effect from M&A € 19m +9.4% (4.1%) and incidental € 13m (2.8%) • EBITDA
Slide 15: Financial review – The Netherlands by segment
Financial review – The Netherlands by segment €m • Revenues Business down by 6.0% y-on-y Business 27.3% 26.9% − Lower traffic, decline in traditional services and 26.3% 25.8% 24.6% continued price pressure -6.0% − Reduced order intake corporate customer projects due to macroeconomic conditions − Low
Slide 16: Financial review – IT Solutions & iBasis
Financial review – IT Solutions & iBasis €m IT Solutions1 • Revenues IT Solutions down by 4.8% y-on-y 13.2% 14.0% − Continued price pressure driven by overcapacity 11.8% 8.9% − Market position expected to have remained stable 5.5% -4.8% • EBITDA margin2 at 8.9% 189 170 − FTE reduction program leadin
Slide 17: Operating expenses The Netherlands
Operating expenses The Netherlands Breakdown operating expenses1 • Operating expenses (excl. D&A and restructuring €m (excl. D&A and restructuring costs) costs) down 6.9% y-on-y -6.9% 1,049 1,047 1,045 • Employee benefits down € 14m or 4.3% y-on-y 975 977 − Lower personnel costs as a result of FTE r
Slide 18: FTE reduction program The Netherlands
FTE reduction program The Netherlands ~1,100 FTE reductions in Q1 2013 • ~1,100 FTE reductions realized in Q1 2013, mainly at NetCo, Business and Consumer Residential • ~3,000 FTE reductions since start of reduction program ‒ Partly offset by ~300 FTE increase due to M&A and accelerated investments
Slide 19: Financial review – Germany
Financial review – Germany €m Germany • Revenues Germany down 4.3% y-on-y 38.2% 39.8% 38.5% 39.6% − Regulation impact € 35m (4.4%) 25.0% − Underlying service revenue decline 2.5% 32.1%2 Competition in ethnic prepaid segment and -4.3% continued impact customer optimization 1032 − Higher hardware sa
Slide 20: Financial review – Belgium
Financial review – Belgium Belgium • Revenue decline Belgium 4.2% y-on-y €m 35.7% 36.8% − Regulation impact € 11m (5.8%) 31.4% 31.2% 25.1% − Underlying service revenue growth of 1.9% -4.2% − Mobile market remains very competitive • EBITDA margin1 at 25.1% 191 207 201 205 183 − Regulation impact € 7m
Slide 21: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 21
Slide 22: Operating review – Consumer Residential
Operating review – Consumer Residential 2.07 2.10 1.94 1.97 2.01 per customer RGUs & ARPU 39 39 40 41 42 I. Growing ARPU per customer Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 RGUs (#) Blended ARPU (€) 23% 24% 18% 19% 20% II. Growing TV market share No. 2 position in Dutch TV market 754 717 741 TV 801 77
Slide 23: 'KPN Compleet' Promising initial uptake quad play
‘KPN Compleet’ Promising initial uptake quad play KPN triple play ‘KPN Compleet’ € 60 € 95 + value added services + KPN mobile 45 additional Free unlimited calls Doubling voice, IPTV channels within family SMS and data credits € 35 >30k ‘KPN Compleet’ activations per Q1 ’13 23
Slide 24: Operating review – Consumer Mobile
Operating review – Consumer Mobile €m 45% 45% 44% 45% 45% • Service revenues remain under pressure revenues 387 403 387 378 Service 368 • Market share service revenues stable around 345 360 345 336 328 45%1 in a competitive market Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 Total market share NL1 Wholesale R
Slide 25: Successful launch 4G
Successful launch 4G Creating 4G market leadership Differentiating on quantity & speed • First mover 4G services in The Netherlands Data packages KPN brand (Consumer) • 4G-services integrated in existing high value 3G propositions − Focus on value, upselling to premium bundles Voice/SMS packages KPN
Slide 26: Operating review – Business
Operating review – Business Focus on data centric fixed-mobile propositions 51 €m 51 49 49 48 • Service revenues and ARPU continue to be Wireless service under pressure revenues 252 253 245 246 246 • Stable market positions maintained • Growth new services (health verticals) Q1 ’12 Q2 ’12 Q3 ’12 Q4
Slide 27: Operating review – Germany
Operating review – Germany Strong growth postpaid net adds continued € m 15.7% 15.8% 15.9% 15.8% ~15% • Underlying service revenue decline of 2.5% y- on-y revenues Service 767 791 809 782 714 • Prepaid revenues under pressure due to competition and lower usage Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 Serv
Slide 28: Operating review – Germany (cont'd)
Operating review – Germany (cont’d) Execution next phase German Challenger strategy Improved network quality Strong postpaid focus Improving cost structure • Improving customer experience • Improved network quality • Structural cost reductions − Speeds up to 21 Mbps supports data & postpaid growth t
Slide 29: Operating review – Belgium
Operating review – Belgium Competitive mobile market € m >19% ~20% ~20% >20% ~20% • Underlying service revenue growth of 1.9% y-on-y revenues Service 170 180 181 185 162 • Postpaid net adds negative at 8k − Competitive mobile market environment Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 Q1 ’13 − Effect from newly
Slide 30: Operating review – Belgium (cont'd)
Operating review – Belgium (cont’d) New propositions introduced New mobile propositions Fixed line services SNOW • Tariff plans for both consumers and B2B customers − No contract term − Unlimited voice & SMS − Spotify premium (consumers) − Internet anywhere (B2B customers) SMS Voice Data • Increasin
Slide 31: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 31
Slide 32: Concluding remarks
Concluding remarks • Important steps taken in € 4bn equity equivalent capital raise • Execution of strategy is well on track • The Netherlands expected to stabilize towards 2014 • Successful 4G first mover launch in The Netherlands • Next phase German strategy; service revenue growth expected at low
Slide 33: Q&A
Q&A 33
Slide 34: Annex
Annex Annex For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] www.kpn.com/ir
Slide 35: Analysis of results
Analysis of results Impact regulation, incidentals and restructuring €m Q1 ’13 Q1 ’12 Revenue effect MTA reduction Regulation Group -40 -30 Roaming tariff reduction Regulation Group -14 -1 EBITDA effect MTA reduction Regulation Group -22 -10 Roaming tariff reduction Regulation Group -11 -1 Restructu
Slide 36: Restructuring costs
Restructuring costs €m Q1 ’13 Q1 ’12 Germany 5 - Belgium - - Mobile International 5 - Consumer Mobile -3 - Consumer Residential -2 -1 Business - -11 NetCo -3 - Other -6 -1 Dutch Telco -14 -13 IT Solutions -5 -3 The Netherlands -19 -16 Other -3 -3 KPN Group -17 -19 36
Slide 37: Impact regulation
Impact regulation €m Q1 ’13 Q1 ’12 Revenues EBITDA Revenues EBITDA Germany -35 -20 - - Belgium -11 -7 -7 -4 Mobile International -46 -27 -7 -4 Consumer Mobile -4 -3 -14 -4 Of which: Mobile Wholesale - - -4 - Business -3 -3 -5 -3 NetCo -1 - -5 - Intercompany - - - - The Netherlands -8 -6 -24 -7 KPN G
Slide 38: Operating expenses
Operating expenses €m Q1 ’13 Q1 ’12 % Employee benefits 436 505 -14% Cost of materials 174 264 -34% Work contracted out and other expenses 1,125 1,143 -1.6% Own work capitalized -30 -28 7.1% Other operating expenses1 212 176 20% Depreciation2 409 330 24% Amortization2 220 209 5.3% Total 2,546 2,599
Slide 39: Operating expenses - analysis: Employee benefits & Cost of materials
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y decrease 16.0% • Lower costs due to sale of Getronics International 15.0% 14.3% 13.3% 14.4% • Lower personnel costs as a result of FTE reduction program Q-on-Q decrease 505 452 404 440 436 • Lower personn
Slide 40: Operating expenses - analysis: Work contracted out & Other
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y decrease 38.8% • Lower costs due to sale of Getronics International 37.7% 36.2% 36.2% 36.5% • Lower dealer commissions and traffic costs Consumer Mobile • Partly offset by higher content and activation costs Cons
Slide 41: Operating expenses - analysis: Depreciation & Amortization
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 Y-on-Y increase 13.6% 14.3% 14.1% • Increased customer driven investments (e.g. handsets and settop boxes related to IPTV and FttH) 10.4% 10.7% Q-on-Q decrease • Additional depreciation assets under construction 413 437 338 4
Slide 42: Tax
Tax P&L Cash flow Fiscal units (€ m) Q1 ’13 Q1 ’12 Q1 ’13 Q1 ’12 The Netherlands -22 -51 -591 -811 IT Solutions 3 3 -1 -4 Germany -14 -27 -1 -4 Belgium - -7 1 - Other -2 -2 - -2 Total reported tax -35 -84 -60 -91 Effective tax rate 19.7% 21.2% • Q1 ’13 effective tax rate of 19.7% in line with expect
Slide 43: Debt portfolio
Debt portfolio Breakdown of € 14.5bn nominal debt1 Breakdown nominal debt1 (total € 14.5bn) Breakdown by currency 17% Other 74% Hybrid bonds 3% 14% Global bonds 9% 5% Eurobonds 78% 2 EUR USD 2 GBP € bn Bond redemption profile Fixed vs. floating interest 1.4 1.5 1.3 1.3 1.1 1.0 1.0 1.0 1.0 0.8 0.7 0.
Slide 44: Debt summary
Debt summary € bn Q1 ’13 Q4 ’12 % Nominal debt 14.51 12.98 12% Eurobonds 11.37 11.91 -4.5% Global bonds 0.76 0.76 0.0% Hybrid bonds 2.03 - n.m. Credit facility - - n.m. Financial leases and other loans 0.35 0.31 13% Equity credit hybrid bonds -1.01 - n.m. Gross debt1 13.50 12.98 4.0% Of which short-
Slide 45: Dutch wireless disclosure
Dutch wireless disclosure Q1 ’13 Q1 ’12 % Service revenues (in € m) 619 646 -4.2% − Consumer retail 328 345 -4.9% − Business 246 252 -2.4% − Other1 45 49 -8.2% SAC/SRC per subscriber − Consumer retail2 153 149 2.7% − Business 261 258 1.2% 1 Includes amongst others Consumer Mobile wholesale and visit
Slide 46: Regulation: MTA rates across the Group
Regulation MTA rates across the Group NL • ACM published draft decision and determined MTA rate of 1.017 cent per minute effective as from 1 September 2013 • Formal decision expected after national consultation round and notification with EC and will be open for appeal Until 7 € ct / min 7 July ’10
Slide 47: Regulation (cont'd): Spectrum in The Netherlands
Regulation (cont’d) 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*5
Slide 48: Regulation (cont'd): Spectrum in Germany
Regulation (cont’d) Spectrum in Germany 800MHz O2 VOD DT 2*30 Paired 2*5 2*5 2*5 2*5 2*5 2*5 900MHz E+ O2 DT VOD 2*34.8 Paired 2*5 2*5 2*12.4 2*12.4 1.8GHz DT E+ O2 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+ O2 DT 2*64.35 Paired 2*4.95 2*9.9 2*4.95 2*4.95 2*9.9 2*4.
Slide 49: Infrastructure: Deploying mix of technologies going forward
Infrastructure Deploying mix of technologies going forward VDSL from VDSL pair bonding (Vectored) VDSL ADSL on central office central office from copper (VDSL-CO) (VDSL-CO) street cabinet FttH Wireless Central Central Central Central office office office office ODF1 Street cabinet up to 20 Mbps DS2
Slide 50: Unbundling tariffs
Unbundling tariffs Unbundling in copper network Category Monthly tariff MDF Node Line sharing (LLU) € 0.12 / line SDF colocation KPN / Telco Fully unbundled (LLU) € 6.86 / line MDF colocation € 913.52 footprint / year ~28,000 1,350 street cabinets local exchanges € 5.32 / line shared Wholesale Broad