Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — FY2011 Earnings Presentation
66 slides from Royal Kpn Nv's earnings presentation, Jan 24, 2012
Slide 1: Annual Results 2011
Annual Results 2011 24 January 2012
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. These non-GAAP figures should not be viewed as a substitute for KPN’s GAAP figures. KPN defines EBITDA as operating result before depreciation and im
Slide 3: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Eric Hageman The Netherlands Eelco Blok International Thorsten Dirks Concluding remarks Eelco Blok 3
Slide 4: Executive summary
Executive summary • 2011 outlook for EBITDA, FCF and Capex achieved, FY ’11 DPS confirmed at € 0.85 • KPN continues to adjust to a changing external environment and accelerates transition in The Netherlands under its ”Strengthen, Simplify and Grow” strategy • Investment strategy acceleration in 2012
Slide 5: Executive summary (cont'd)
Executive summary (cont’d) • In Germany and Belgium we are investing in mobile network and are balancing revenue growth and EBITDA margin • We remain fully committed to shareholder value creation – Pursuing the right investment strategy including strategic investments (e.g. spectrum, fiber) – Pay-ou
Slide 6: KPN's external environment
KPN’s external environment Macro developments and industry trends Changing customer behavior Technological opportunities • Growing data demand • Smartphones and tablets • Single access (triple / quad play packages) • HSPA evolved, LTE • Fiber • Shift voice / SMS to data • Pair bonding, vectoring • C
Slide 7: Group review 2011
Group review 2011 Putting KPN’s 2011 performance in perspective Highlights Challenges • 2011 outlook achieved • The Netherlands’ overall performance not Group • Leading margins despite disappointing meeting our expectations domestic performance (EBITDA margin ~39%) • Introduction of integrated data,
Slide 8: Performance versus outlook 2011
Performance versus outlook 2011 Results in line with outlook, € 0.85 dividend per share for 2011 Outlook Reported 2011 2011 • EBITDA in line with outlook EBITDA1 >€ 5.3bn € 5.3bn • Capex at high end, investments to strengthen Dutch Telco and Capex <€ 2bn € 2.0bn accelerate network roll-out in German
Slide 9: The Netherlands strategy
The Netherlands strategy Accelerated transition leading to sustainable profit levels 2012 - 2015 Sustainable profit levels The Netherlands at sustainable profit levels from end-2012 Regain 45% broadband market share1 Stable Consumer wireless and Business 2011 / 2012 market shares Accelerated t
Slide 10: Accelerated transition in The Netherlands
Accelerated transition in The Netherlands Overview of the planned improvements Scope Improvements • Structural changes improving underlying cost structure this year The Accelerate FTE reduction, also via off-shoring / out-sourcing, Simplify Netherlands in Dutch Telco (back office, network and IT)
Slide 11: International strategy
International strategy Continue to invest in data and grow mobile Challenger business Next steps 2015 strategy highlights Germany • Maintain profitable growth momentum, balancing revenue growth and margin • Continue nationwide HSPA+ roll-out and • >20% market share1 option to upgrade to LTE • 35% -
Slide 12: Outlook 2012
Outlook 2012 Outlook reflecting transition year 2012 Outlook EBITDA1 € 4.7 - 4.9bn Capex € 2.0 - 2.2bn Free cash flow2 € 1.6 - 1.8bn Dividend per € 0.90 share 1 Excluding restructuring costs 2 Free cash flow defined as cash flow from operating activities, plus proceeds from real estate, minus Capex
Slide 13: Outlook 2012 (cont'd)
Outlook 2012 (cont’d) We remain fully committed to shareholder value creation Focus on shareholder remuneration Shareholder value creation / excess cash • € 0.57 remainder of € 0.85 dividend per share to be • Commitment to an attractive dividend policy and paid in April ’12 returning excess cash to
Slide 14: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Eric Hageman The Netherlands Eelco Blok International Thorsten Dirks Concluding remarks Eelco Blok 14
Slide 15: Detailed outlook 2012
Detailed outlook 2012 € bn 5.3 • 2012 EBITDA outlook at € 4.7 - 4.9bn 0.2 5.1 ‒ Transition period Consumer 0.2 - 0.4 4.7 - 4.9 wireless; further step down in 2012 ‒ Investments in Consumer wireline to strengthen market position ‒ Business market size declining due to price pressure, continued ration
Slide 16: Group results
Group results €m FY ’11 FY ’10 % • Revenues down 1.8% due to The Netherlands Revenues and other income 13,163 13,398 -1.8% Operating expenses 10,614 10,148 4.6% • EBITDA excluding restructuring costs 1 down 3.8%, mainly due to Consumer, – of which Depreciation 1,540 1,409 9.3% 1 Business and Corpora
Slide 17: Group cash flow
Group cash flow In 2011, 90% of FCF returned to shareholders €m FY ’11 FY ’10 % • Free cash flow of € 2,449m Operating profit 2,549 3,250 -22% Depreciation and amortization1 2,589 2,226 16% • € 338m lower reported EBITDA is offset Interest paid / received -637 -736 -13% by: Tax paid / received -231
Slide 18: Capex
Capex Investing in the long-term sustainability of our business €m Group Capex 2,047 1,925 1,767 1,809 • Group Capex increased 13% in 2011 653 725 ‒ Accelerated mobile broadband network roll-out 555 645 ‒ Fixed network upgrades ‒ Customer driven investments 1,262 1,203 1,160 1,316 • Capex in The Net
Slide 19: Financing principles
Financing principles Continued commitment to prudent financing policy Credit rating Prudent financing policy Financing 2.5 2.4 2.2 2.3 2.3 2.2 2.2 2.3 Q1 ’10 Q2 ’10 Q3 ’10 Q4 ’10 Q1 ’11 Q2 ’11 Q3 ’11 Q4 ’11 • Current ratings: Baa2 and BBB+ • Committed to minimum credit rating of • Net debt1 / EBITDA
Slide 20: Group financial profile
Group financial profile Maintaining solid financial profile € bn Debt Financing policy 13.8 13.7 13.5 13.6 13.5 12.6 12.8 12.8 2.5x 12.8 2.5 12.1 12.2 12.5 2.2 2.3 2.3 2.2 2.2 2.4 2.3 2.0x 11.8 11.9 11.7 11.4 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11
Slide 21: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Eric Hageman The Netherlands Eelco Blok International Thorsten Dirks Concluding remarks Eelco Blok 21
Slide 22: Financial review - Dutch Telco
Financial review - Dutch Telco €m Revenues and other income • Revenues and other income down 2.1% y-on-y -2.1% – Regulatory impact of € 51m (2.9%) – € 56m net positive impact from incidentals – € 17m net positive impact from acquisitions 1,758 1,759 1,747 – Lower revenues mainly in Consumer 1,740 1,
Slide 23: Financial review - Dutch Telco by segment
Financial review - Dutch Telco by segment €m 29.2% 29.6% 29.1% 28.1% 28.4% 26.9% 27.6% 25.8% • Revenue decline of 7.7% y-on-y Consumer − Regulatory impact of € 27m (2.7%) − Lower wireless and wireline revenues 969 990 991 990 941 953 927 914 • Margin decline due to higher promotional costs in wirele
Slide 24: Simplification, quality and reputation
Simplification, quality and reputation Driving customer satisfaction and reputation in The Netherlands Some examples of initial progress in 2011 Customer calls -/- 25% Delivery process -/- 5% Simplified letters • Decreased IPTV • Communication delivery times from simplified ~3 weeks to ~1 week 2010
Slide 25: Strategic review - Consumer wireless
Strategic review - Consumer wireless Initial positive results new portfolio, market share under pressure Consumer wireless • First steps in transition period Consumer wireless Strategic • New propositions launched progress • Expanding own distribution, 11 new shops opened Bottom • Initial positive r
Slide 26: Operating review - Consumer wireless
Operating review - Consumer wireless1 Transition period accompanied by lower service revenues €m 48% 47% 47% 47% 47% 46% 45% 44% Service 434 448 443 430 399 409 395 revenues 375 • Transition period for Consumer wireless – New propositions since September 2011 Q1 ’10 Q2 ’10 Q3 ’10 Q4 ’10 Q1 ’11 Q2 ’1
Slide 27: Operating review - Consumer wireless (cont'd)
Operating review - Consumer wireless (cont’d) Positive initial results new portfolio, further steps to increase competitiveness Performance Percentage of postpaid base on new propositions Contracted ARPU as percentage of total ARPU1 % 20 % 70 15 KPN brand 60 10 5 Hi brand 0 0 Aug Sep Oct Nov Dec Q3
Slide 28: Strategic review - Consumer wireline
Strategic review - Consumer wireline Continued investments in triple play strategy to improve market shares Consumer wireline • Leading TV proposition and continued growing TV market share Strategic • Network prepared for pair bonding progress • Upgraded speeds copper network commercially available
Slide 29: Operating review - Consumer wireline
Operating review - Consumer wireline 1.9 1.9 1.9 1.9 1.8 1.8 1.8 1.8 • RGUs per customer steadily increasing RGUs per customer − PSTN / ISDN line loss offset by IPTV additions − FttH customer base at 90% triple play ratio Q1 ’10 Q2 ’10 Q3 ’10 Q4 ’10 Q1 ’11 Q2 ’11 Q3 ’11 Q4 ’11 42% 42% 42% 41% 41% 41
Slide 30: Operating review - Consumer wireline (cont'd)
Operating review - Consumer wireline (cont’d) Gaining TV market share and upgrading speeds to increase customer loyalty Gaining TV market share Speed upgrades • Propositions significantly improved in 2011 • Speed upgrades to come through in 2012 ‒ Leading TV proposition in The Netherlands ‒ Competit
Slide 31: Operating review - Consumer wireline (cont'd)
Operating review - Consumer wireline (cont’d) Positive results in FttH areas, supporting broadband market share FttH roll-out and activations Increasing broadband market share • Record # of homes passed rolled-out in 2011 • Broadband market share in FttH areas1 6%- • Activations run-rate increasing,
Slide 32: Network The Netherlands
Network The Netherlands Integrated regional commercial and network approach Regional integrated commercial and Clear network investment criteria network approach • Clear business case criteria for FttH versus copper 1. FttH local approach upgrades Propensity to buy (income level, demographics) 2.
Slide 33: Strategic review - Business & Corporate Market
Strategic review - Business & Corporate Market Stable market shares in a competitive environment Business & Corporate Market • Stable market shares in competitive ICT and Telco market Strategic • Distribution footprint increased progress • Significant steps in outsourcing and off-shoring • Getronics
Slide 34: Operating review - Business wireless
Operating review - Business wireless €m +0.8% • Service revenues up 0.8% y-on-y 248 246 236 230 239 240 238 228 – Impact from regulation € 19m (8.1%) Service – Positive impact from Yes Telecom of € 8m revenues1 – Data driving service revenue growth – Future proof integrated data / voice / SMS Q1 ’10
Slide 35: Operating review - Business wireline
Operating review - Business wireline Continued pressure on traditional services €m -5.4% 373 338 331 335 346 337 325 317 • Continued impact traditional services migration to IP-based services Revenues1 • Positive contribution from Atlantic Telecom acquisition (€ 12m) Q1 ’10 Q2 ’10 Q3 ’10 Q4 ’10 Q1 ’
Slide 36: Operating review - Corporate Market (Getronics)
Operating review - Corporate Market (Getronics) Restructuring program in progress, aligning cost base with lower revenue level €m Revenues and other income -3.3% • Revenues declined 3.3% in Q4 y-on-y 538 – Clients postponing investments, mainly in 520 474 478 476 472 462 447 governmental and financi
Slide 37: Operating review - iBasis
Operating review - iBasis Continued revenue growth while managing profit levels €m Financial 4.1% 3.8% 4.1% • Continued revenue growth driven by external 3.2% 3.1% revenues 3.0% 2.7% 2.8% – Q4 revenues up 6.4% y-on-y, including ~0.4% positive currency effect 237 248 234 226 246 256 249 193 • FY 2011
Slide 38: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Eric Hageman The Netherlands Eelco Blok International Thorsten Dirks Concluding remarks Eelco Blok 38
Slide 39: Financial review - Mobile International
Financial review - Mobile International Strong profitable growth combined with continued accelerated investments €m Wireless service +1.2% • FY 2011 service revenues up 1.0% revenues – Despite severe regulatory impact of € 286m (7.3%) 1,025 999 1,033 1,011 927 987 946 989 − High underlying growth in
Slide 40: Financial review - Mobile International by segment
Financial review - Mobile International by segment Continued underlying growth in all segments at attractive margins €m 45.4% 41.8% 43.0% 41.8% 42.2% 44.1% 39.3% 38.9% • FY 2011 service revenues flat y-on-y (0.2%) Germany • Severe regulatory impact of € 226m on service revenues (7.3%), € 116m on EBI
Slide 41: Operating review - Germany
Operating review - Germany High underlying service revenue growth in 2011 of 7.6% at strong margin Net adds 21.0 21.5 22.1 22.7 • Record number of net adds in FY 2011 19.6 19.9 20.4 19.3 – 1,866k prepaid net adds driven by wholesale (+64% y-on-y) – 424k postpaid net adds (+41% y-on-y) with high 351
Slide 42: Strategic progress Germany
Strategic progress Germany Accelerated mobile broadband network roll-out to capture data growth Mobile broadband network • Roll-out progress Mobile broadband coverage German population − ~€ 500m investments in network roll-out in 2011 (total Capex € 600m including IT, shops) − HSPA+ roll-out ahead o
Slide 43: Strategic progress Germany (cont'd)
Strategic progress Germany (cont’d) Strong progress on all strategic building blocks Commercial actions Service revenue market share1 • Data uptake well on track 18% >18% − Pure data service revenue growth 62% y-on-y − Postpaid uptake strong; 40% of new subscribers take data package >7% − Large unta
Slide 44: Operating review - Belgium
Operating review - Belgium1 Strong underlying service revenue growth of 15% in Q4 2011 Net adds • Underlying service revenue growth accelerating 4.1 4.1 3.6 3.6 3.7 3.7 3.9 3.9 (15%) y-on-y, outgrowing regulation impact (3.6%) – Strong performance continues across all channels 152 136 driven by new
Slide 45: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Eric Hageman The Netherlands Eelco Blok International Thorsten Dirks Conclusion Eelco Blok 45
Slide 46: Concluding remarks
Concluding remarks • KPN continues to adjust to a changing external environment and accelerates transition in The Netherlands under its ”Strengthen, Simplify and Grow” strategy • 2011 results in line with outlook • Investment strategy will strengthen incumbent market positions and ensure sustainable
Slide 47: Q&A
Q&A
Slide 48: Annex
Annex For further information please contact KPN Investor Relations Tel: +31 70 44 60986 [email protected] www.kpn.com/ir
Slide 49: Analysis of results
Analysis of results Key items worth mentioning in results interpretation €m Q4 ’11 Q4 ’10 FY ’11 FY ’10 Revenue effect MTA reduction Regulation Group -94 -68 -459 -180 Roaming tariff reduction Regulation Group -7 -5 -27 -44 Book gain on sale of towers & real estate Incidental W&O 70 2 120 45 Sale of
Slide 50: Restructuring costs
Restructuring costs €m Q4 ’11 Q4 ’10 FY ’11 FY ’10 Germany - -1 - -2 Belgium -1 - -2 - Rest of World - - -3 - Mobile International -1 -1 -5 -2 - Consumer -2 3 -5 1 Business -3 - -3 - Wholesale & Operations -7 -2 -8 1 IT NL - - - - Other -2 - -4 - Dutch Telco -14 1 -20 2 Corporate Market (Getronics)
Slide 51: Impact MTA reduction
Impact MTA reduction €m Q4 ’11 FY ’11 1 1 Revenues EBITDA Revenues EBITDA Germany -41 -22 -212 -111 Belgium -3 -1 -54 -33 Mobile International -44 -23 --266 --144 Consumer -27 -13 -101 -37 Of which: Mobile Wholesale -2 -1 -8 -4 Business -17 -3 -61 -9 Wholesale & Operations -10 - -44 -2 Intercompany
Slide 52: Operating expenses
Operating expenses €m Q4 ’11 Q4 ’10 % Employee benefits 480 462 3.9% Cost of materials 285 281 1.4% Work contracted out and other expenses 1,127 1,140 -1.1% Own work capitalized -31 -28 11% Other operating expenses2 198 175 13% Depreciation1 470 357 32% Amortization1 410 231 77% Total 2,939 2,618 12
Slide 53: Operating expenses - analysis: Employee benefits & Cost of materials
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y increase 15.5% 14.7% 14.9% 14.6% • Increase in the Collective Labor Agreement (CLA) 14.1% 14.4% 13.7% 13.7% and payment of CLA in Q4 ’11 instead of Q3 ’10 Q-on-Q increase 506 • Release of several incentiv
Slide 54: Operating expenses - analysis: Work contracted out & Other
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y decrease 34.1% 34.2% 34.8% 34.6% 34.7% 34.8% 34.2% • Lower traffic costs 33.8% Q-on-Q decrease • Lower traffic costs 1,160 • Lower access fees Germany 1,116 1,144 1,140 1,106 1,136 1,134 1,127 • Partly offset by
Slide 55: Operating expenses - analysis: Depreciation & Amortization
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 Q-on-Q decrease 14.3% • One-off adjustment depreciation mobile towers at 11.4% 10.6% 10.5% 10.6% 10.6% 10.9% 10.7% 10.8%2 W&O and Belgium in Q3 115 348 351 353 357 347 352 371 355 Q1 ’10 Q2 ’10 Q3 ’10 Q4 ’10 Q1 ’11 Q2 ’11 Q3
Slide 56: Tax
Tax P&L Cash flow Fiscal units (€ m) Q4 ’11 Q4 ’10 Q4 ’11 Q4 ’10 Dutch activities -104 -92 -741 -181 Corporate Market (Getronics) 37 -7 -2 -2 German Mobile activities 47 23 -4 -1 Belgian Mobile activities -12 -6 - - Other -1 -1 -2 -4 Total reported tax -33 -83 -82 -25 Effective tax rate 8.4%2 15.1%
Slide 57: € 1bn share repurchase program for 2011
€ 1bn share repurchase program for 2011 Date1 Value (€ m) Shares (m) Avg. share price (€) Q1 ’11 178.4 15.2 11.71 Q2 ’11 495.4 47.3 10.47 Q3 ’11 326.2 34.2 9.54 Total 1,000 96.7 10.34 • € 1bn share repurchase program for 2011 finalized on 23 September 2011 – Share repurchase program started on 21 Fe
Slide 58: Debt portfolio
Debt portfolio Breakdown of € 12.8bn gross debt1 12% Global bonds 6% 82% Other 5% 6% 2 2 EUR USD GBP 4% Eurobonds 96% 89% Fixed Floating (incl. swapped) 1 Nominal value of interest bearing financial liabilities related to these financial liabilities 2 Foreign currency amounts hedged into EUR 58
Slide 59: Dutch wireless services disclosure
Dutch wireless services disclosure Q4 ’11 Q4 ’10 % Service revenues (€ m) 666 735 -9.4% − Consumer 375 430 -13% − Business1 238 236 0.8% − Other Dutch activities2 53 69 -23% SAC/SRC (€) − Consumer 164 168 -2.4% − Business 244 234 4.3% 1 Since Q2 ’11 including Yes Telecom 2 Includes among others Mobi
Slide 60: Service revenues growth Mobile International
Service revenues growth Mobile International Service revenues growth Germany Service revenues growth Belgium 15.0% 11.9% 11.4% 9.7% 10.4% 8.1% 8.4% 8.1% 8.9% 7.7% 7.9% 7.5% 7.2% 7.8% 6.6% 7.2% 4.0% 4.4% 4.0% 2.8% 2.0% 2.5% 3.5% 1.0% 1.2% 1.8% -0.7% -0.5% -0.6% -2.3% -3.9% -5.3% Q1 ’10 Q2 ’10 Q3 ’10
Slide 61: Regulation
Regulation MTA reductions and spectrum auctions MTA reductions implemented across the Group Upcoming spectrum auctions • The Dutch Court overruled OPTAs MTA tariff decision and • Auction rules published (6 January NL determined a new tariff as of 1 September 2012 of € 2.40 2012) cent per minute inst
Slide 62: Spectrum in The Netherlands
Spectrum in The Netherlands Total Free 800MHz 2x30 2x30 MHz Vodafone T-Mobile KPN 900MHz To be auctioned 2x35 2x12.5 2x10 2x12.5 Vodafone T-Mobile KPN Free 1.8GHz 2x70 2x5 2x30 2x20 2x15 Current • 1.9-2.0 Free 14.7 status GHz 14.7MHz unpaired Vodafone T-Mobile KPN Free 2x60 2.1GHz 1x20 2x15 1x5 2x20
Slide 63: Spectrum in Belgium
Spectrum in Belgium KPNgB Proximus Mobistar 900MHz 2x10.8 2x12 2x12 KPNgB Proximus Mobistar Prox Mob Free 1.8GHz 2x22 2x15 2x15 2x5.8 2x5.8 2x11.4 Current KPNgB Proximus Mobistar Telenet & Voo Free 2.1GHz status 2x15 1x5 2x15 1x5 2x15 1x5 2x14.8 1x5 KPNgB Proximus Mobistar BUCD Free 2.6GHz 2x15 2x15
Slide 64: Personnel
Personnel • Increase of 485 FTE y-on-y 32,203 – Reduction of 23 FTE in The Netherlands, 31,121 30,654 30,599 30,534 30,598 30,859 31,084 from all segments excluding Corporate 4,369 3,990 3,934 3,843 3,826 3,827 4,010 4,016 Market (Getronics) – Increase of 817 FTE at Mobile International (including S
Slide 65: Infrastructure
Infrastructure Deploying mix of technologies going forward VDSL Pair VDSL from ADSL on Bonding VDSL from central office FttH Wireless copper central office street cabinet (VDSL-CO) (VDSL-CO) Central Central Central Central office office office office ODF1 Street cabinet up to 20 Mbps DS up to 40 Mbp
Slide 66: Unbundling tariffs
Unbundling tariffs Unbundling in current network Category Monthly tariff Line sharing (LLU)1 € 0.11 / line MDF Node SDF Fully unbundled (LLU)1 € 6.68 / line colocation KPN / Telco MDF colocation1 € 890.37 / footprint / year ~28,000 1,350 street cabinets local exchanges MDF backhaul Commercial pricin