Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — Koninklijke KPN — Q1 2015 Earnings Presentation
59 slides from Royal Kpn Nv's earnings presentation, Apr 30, 2015
Slide 1: First Quarter 2015 Results
First Quarter 2015 Results 30 April 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 Q1 '15
Highlights Q1 ’15 Strong operational performance driving improved financial performance Services & Innovation Operational Financial & Portfolio Strengthen lead in TV Continued strong base Adjusted revenues: innovation with growth Consumer € 1,919m, -3.5% y-on-y introduction KPN OTT TV +35k b
Slide 5: Differentiating through innovative products
Differentiating through innovative products Leading IPTV product supported by continuous innovation Strong innovation roadmap… Play. by KPN: addressing shift to on demand consumption TV Everywhere 2016 Live TV Pausing 2015 Play. by KPN OTT 2014 Start-over TV LIVE VOD Continued increase Growing TV ma
Slide 6: Consistent value creation in Consumer Mobile
Consistent value creation in Consumer Mobile New data bundles allow carefree usage and upsell opportunity Encourage data usage through innovation… …driving data usage growth ~1,040 ~660 ~310 4G ~260 4G 3G 3G Q1 ’14 Q1 ’15 Average Data Per User (MB)1 …leading to increased upsell +100% ~40% ~20% Feb -
Slide 7: KPN clear leader in convergence
KPN clear leader in convergence Fixed-mobile bundles based on value added rather than discounts Additional value for customers Value creation for KPN Increased revenue Double mobile data per household Limited Free calling in family incremental cost Free TV channels Reduced churn 7
Slide 8: 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 4 3 -11 +8 +8 +8 -4 -5 -19 Q1 ’14 Q1 ’15 Q1 ’14 Q1 ’15 Q1 ’14 Q1 ’15 1 Source: TNS NIPO. Consumer Residential (all brands), Consumer Mobile (all bran
Slide 9: Increasing fiber penetration within fixed network
Increasing fiber penetration within fixed network Copper speeds enhanced through FttC, vectoring and pair bonding Increasing FttH / FttC …driving coverage penetration… of 100Mbps SC FttC Copper FttH ~80% ~85% 55% 57% 45% 28% FttC 23% 23% FttH 22% 27% Q1 ’14 Q1 ’15 end Q1 ’14 Q1 ’15 end 2016 2016 Per
Slide 10: Expanding superior 4G network
Expanding superior 4G network Leverage full spectrum portfolio to further increase available speeds Best national 4G Increasing capacity and speed coverage in Europe Most time spent Triple carrier Fully modernized on LTE in Europe1 aggregation backhaul 90% 10MHz 24% 79% LTE 800 Modernized 73% microw
Slide 11: Building efficient and lean operating model
Building efficient and lean operating model Structurally lower spend through Simplification program Simplification program Rebranding Hi to KPN on track Run-rate FTE savings1 reductions2 >€ 400m 2,000-2,500 end 2016 Marketing cost Reduction reduction3 # of shops ~10% ~20% end Q1 ’15 ~€ 170m ~950 end
Slide 12: Transformation Business segment on track
Transformation Business segment on track Good progress made to address changing market dynamics Transformation Actions Targets Standardized Portfolio reduction1 Improve customer portfolio ~30% satisfaction (NPS) Bundled customer Process Improve propositions simplification First Time Right Simplified
Slide 13: Attractive consideration for BASE Company
Attractive consideration for BASE Company1 Commitment to create shareholder value Attractive valuation Successful Challenger strategy led to strong market position +27% € 1,325m ~21% € 1,047m 3.3m SOTP value2 Transaction value +24% 8.9x 7.2x 1999 Q1 ’15 Customer base Market share Trading multiple Tr
Slide 14: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 14
Slide 15: 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 customer1 77k 52% € 44 62k € 42 46% 35k -7k Broadband IPTV Triple play ARPU net adds net adds Q1 ’14 Q1 ’15 Q1 ’14
Slide 16: Strong competitive position in Dutch mobile market
Strong competitive position in Dutch mobile market Base growth driving improving service revenue trend Consumer Mobile Strong retail Derisked ARPU Improving service postpaid net adds profile revenue trend 59k 46% € 28 € 26 -3.5% % committed ARPU 20% 26k 78% 83% -15% Retail postpaid 4G Retail postpai
Slide 17: 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 bundle continues to increase 792k 539k 323k 24% 235k 19% 9% 10% Q1 ’14 Q1 ’15 Q1 ’14 Q1 ’15 Retail postpaid customer
Slide 18: Challenging environment in Business
Challenging environment in Business Focus on growing multi play Challenging environment Multi play growth Wireless 370k 61k € 39 € 34 181k 17% 20k 8% Q1 ’14 Q1 ’15 Wireless Wireless single Multi play seats net adds1,2 play ARPU2,3,4 Mobile customers in multi play as x% x% % of mobile customer base W
Slide 19: BASE Company service revenue trend improving
BASE Company service revenue trend improving Lower net adds reflect challenging market Service revenue Adjusted EBITDA margin impacted trend improving by competitive environment 23.2% 22.5%1 -2.0% 15.4% -6.2% Service revenue Q1 ’14 Q1 ’15 growth y-on-y Q1 ’14 Q1 ’15 Lower customer intake Data usage
Slide 20: Improvement financial results
Improvement financial results1… …driven by strong operational performance €m Q1 ’15 Q1 ’14 y-on-y % Adjusted revenues 1,919 1,989 -3.5% Adjusted EBITDA 622 621 0.2% Net profit 15 3 >100% Capex 357 337 5.9% FCF 34 -292 n.m. 1 All figures based on continuing operations, unless stated otherwise. BASE C
Slide 21: Revenue trend improving
Revenue trend improving Stabilizing Consumer revenues still offset by declining business market Adjusted revenues declined by 3.5% vs -7.7% in Q1 ’14 €m 1,989 0 3 1 50 1 1,919 8 9 Adj. Consumer Consumer Business NetCo & Belgium iBasis Other Adj. Revenues Residential Mobile Other NL Revenues Q1 ’14 Q
Slide 22: Continued improvement in EBITDA trend
Continued improvement in EBITDA trend Revenue decline offset by positive impact cost savings Additional site tax expense €m 7 6 621 13 7 622 42 2 3 12 0 15 54 Adj. Revenues SAC / Traffic Personnel Marke- IT/TI, Change Belgium iBasis Other Adj. EBITDA SRC, ting Housing, in EBITDA COGS Other NL provis
Slide 23: Continued improvement in EBITDA trend (cont'd)
Continued improvement in EBITDA trend (cont’d) Positive contribution Consumer, Business still challenging €m Additional site tax expense 21 6 621 1 7 622 12 0 15 19 Adj. Consumer Consumer Business NetCo & Belgium iBasis Other Adj. EBITDA Residential Mobile Other NL EBITDA Q1 ’14 Q1 ’15 The Netherlan
Slide 24: Simplification to drive down Capex The Netherlands
Simplification to drive down Capex The Netherlands Capex The Netherlands including Reggefiber lower y-on-y Capex The Netherlands incl. Reggefiber Capex-to-sales ratio improving €m 3531 Other2 332 14 Customer 2 driven 60 30% 65 Converged 31 network 38 Mobile 66 network 58 21.6% 20% Fixed network1 182
Slide 25: Improvement in free cash flow
Improvement in free cash flow Free cash flow Q1’15 higher y-on-y driven by different intrayear phasing €m 156 34 1 0 20 114 109 11 -292 21 FCF Reported Interest Taxes paid Change in Change Other Capex Proceeds FCF Q1 ’14 EBITDA paid provisions in working from real Q1 ’15 capital estate 1 2 3 1 Lower
Slide 26: Solid and flexible financial position
Solid and flexible financial position Telefónica Deutschland stake provides additional financial flexibility Lower net debt y-on-y Telefónica Deutschland stake provides flexibility € bn 12.4 Upcoming bond redemption will not be refinanced, reducing 10.4 gross debt by ~€ 1bn 9.6 9.6 Net Average m
Slide 27: Contents
Contents 1 Highlights Eelco Blok 2 Operational and financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 27
Slide 28: Outlook maintained, BASE Company excluded
Outlook maintained, BASE Company excluded Growing DPS with potential for additional shareholder remuneration Outlook continuing operations 2015 Shareholder remuneration Adjusted EBITDA stabilized by Intended DPS of € 0.08 in respect of end-2015 2015 Capex < € 1.3bn Growing DPS expected in re
Slide 29: Q&A
Q&A 29
Slide 30: Q1 2015 – Information Pack
Q1 2015 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] www.kpn.com/ir 30
Slide 31: 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 31
Slide 32: 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 33: 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 33
Slide 34: Group results Q1 '15
Group results Q1 ’151 (€ m) Q1 ’15 Q4 ’14 Q1 ’14 y-on-y % Revenues 1,919 2,105 1,996 -3.9% Adjusted revenues 1,919 2,068 1,989 -3.5% Operating expenses (excl. D&A) 1,316 1,414 1,372 -4.1% EBITDA 603 691 624 -3.4% Adjusted EBITDA 622 669 621 0.2% Depreciation 296 324 306 -3.3% Amortization 142 149 13
Slide 35: Group cash flow Q1 '15
Group cash flow Q1 ’151 (€ m) Q1 ’15 Q1 ’14 y-on-y % EBITDA 603 624 -3.4% Interest paid/received -223 -332 -33% Tax paid/received -9 2 n.m. Change in provisions2 -1 -115 -99% Change in working capital2 21 -135 n.m. Other movements - 1 -100% Net cash flow from operating activities 391 45 >100% Capex
Slide 36: Financials by segment
Financials by segment Consumer Residential Consumer Mobile €m 20.7% 20.2% 20.9% €m 17.7% 15.9% 11.1% 483 480 483 347 352 344 100 97 101 55 61 39 Q1 ’14 Q4 ’14 Q1 ’15 Q1 ’14 Q4 ’14 Q1 ’15 Business NetCo €m 20.0% 19.9% 18.7% €m 56.9% 57.4% 52.8% 730 747 680 562 566 547 297 322 314 146 149 127 Q1 ’14 Q
Slide 37: Financials by segment (cont'd)
Financials by segment (cont’d) iBasis Belgium €m 2.2% 2.4% 2.2% €m 23.2% 21.3% 15.4%1 226 248 227 177 178 169 41 38 261 5 6 5 Q1 ’14 Q4 ’14 Q1 ’15 Q1 ’14 Q4 ’14 Q1 ’15 Adjusted revenues Adjusted EBITDA Adjusted EBITDA margin 1 Including € 12m site tax expense related to Q2-Q4 ’15 period 37
Slide 38: Analysis of adjusted results
Analysis of adjusted results Impact incidentals and restructuring costs on revenues & EBITDA Revenues (€ m) Q1 ’15 Q1 ’14 Adjustment contract revenues NetCo - 7 KPN Group - 7 EBITDA (€ m) Q1 ’15 Q1 ’14 Restructuring costs Group -19 -4 Adjustment contract revenues NetCo - 7 KPN Group -19 3 38
Slide 39: Restructuring costs
Restructuring costs (€ m) Q1 ’15 Q1 ’14 Consumer Mobile -3 - Consumer Residential -1 -3 Business -7 3 NetCo -3 - Other -1 1 The Netherlands -15 1 iBasis - - Belgium - - Other activities -4 -5 KPN Group -19 -4 39
Slide 40: Dutch wireless disclosure
Dutch wireless disclosure Service revenues (€ m) Q1 ’15 Q1 ’14 % Consumer retail 271 277 -2.2% Business1,2 178 190 -6.3% Other3 37 40 -7.5% KPN The Netherlands 486 507 -4.1% SAC/SRC per subscriber (€) Q1 ’15 Q1 ’14 % Consumer retail4,5 163 182 -10% Business 195 214 -8.9% 1 Includes partial allocatio
Slide 41: Tax
Tax P&L Cash flow Regions (€ m) Q1 ’15 Q1 ’14 Q1 ’15 Q1 ’14 The Netherlands -10 -14 -9 4 Belgium 3 1 1 - Other - -3 -1 -2 Total reported tax -7 -16 -9 2 Effective tax rate 31.8% 80.3% The effective tax rate for Q1 ’15 of 31.8% is mainly caused by non-deductible expenses for tax purposes Correcte
Slide 42: 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 42
Slide 43: Consumer Residential
Consumer Residential Broadband IPTV 40% 40% 40% 26% 27% 27% 41 35 83 77 62 -7 Q1 ’14 Q4 ’14 Q1 ’15 Q1 ’14 Q4 ’14 Q1 ’15 Net adds (k) Broadband market share1 Net adds (k) TV market share1 RGUs and ARPU per customer2 2.18 2.22 2.09 42 44 44 Q1 ’14 Q4 ’14 Q1 ’15 ARPU per customer (€) RGUs per customer
Slide 44: Consumer Mobile
Consumer Mobile Postpaid net adds Retail postpaid ARPU k € 57 59 28 26 26 26 % committed ARPU 7 -20 ~78% ~80% ~83% -24 Q1 ’14 Q4 ’14 Q1 ’15 Retail Wholesale Q1 ’14 Q4 ’14 Q1 ’15 Service revenues Committed ARPU breakdown 42% 42% 42% 6% 6% 6% Incoming (MTA) 314 309 303 -3.5% 6% 5% Above bundle 8% y-on
Slide 45: Business
Business Wireless services Wireless service revenues 1,787 €m 1,694 1,726 -6.3% y-on-y 39 37 34 190 186 178 % committed single play ARPU 69% 75% 81% Q1 ’14 Q4 ’14 Q1 ’15 Q1 ’14 Q4 ’14 Q1 ’15 Wireless single play ARPU (€)1,2,4 Wireless service revenues2,4,5 Wireless customers (k)3,4 Voice & Internet
Slide 46: Belgium
Belgium Net adds ARPU k 3.4 3.3 3.3 € 31 30 31 28 3 0 -3 9 9 8 -42 -31 Q1 ’14 Q4 ’14 Q1 ’15 Q1 ’14 Q4 ’14 Q1 ’15 Postpaid Prepaid Postpaid Prepaid Customers (m) Service revenues ~21% ~21% ~21% 152 152 149 Q1 ’14 Q4 ’14 Q1 ’15 Service revenues (€ m) Service revenue market share 46
Slide 47: 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 47
Slide 48: Debt summary
Debt summary (€ bn) Q1 ’15 Q4 ’14 % Eurobonds 7.67 7.67 - Global bonds 0.76 0.76 - Hybrid bonds 2.03 2.03 - Financial leases and other loans 0.13 0.24 -46% Nominal debt 10.59 10.70 -1.0% Equity credit hybrid bonds -1.01 -1.01 - Cash collateral on derivatives 0.00 -0.11 -100% Adjustments to nominal d
Slide 49: Debt portfolio
Debt portfolio Breakdown of € 10.6bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 10.6bn) Nominal debt by currency Other 2% GBP2 Hybrid bonds Eurobonds EUR 20% 19% 72% 68% Global bonds USD2 7% 12% Bond redemption profile Fixed vs. floating interest € bn 1.1 1.2 1.0 1.0 0.8 0
Slide 50: 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, accounted recognized as 50% equity and 50% for as equity debt by the rating agencies Coupon payments treated as equity distribution, hence not expensed through Definiti
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: 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 53: 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 54: 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 55: 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*70.2 (Paired) 2*23.4 2*23.4 2*23.4 2.1GHz Proximus BASE Mobistar 2*44.6 (Paired) 2*15 2*14.8 2*14.8 2.1GHz BASE M
Slide 56: 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 56
Slide 57: Fixed infrastructure
Fixed infrastructure 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 >40Mbps 100Mbps 200Mbps ~50% ~27% ~70% ~55% ~85% ~70% SC Vectoring Bonded 100Mbps 500Mbps ~27% ~30% ~33% SC vectoring Super v
Slide 58: 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 58
Slide 59: Telefónica Deutschland stake
Telefónica Deutschland stake Accounting treatment Balance sheet Stake included as financial asset1 Fair value of KPN’s stake based on Telefónica Deutschland’s share price and adjusted quarterly Fair value movements recorded in ‘other comprehensive income’ Significant or prolonged value decre