Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — Q1 2014 Earnings Presentation
56 slides from Royal Kpn Nv's earnings presentation, Apr 25, 2014
Slide 1: First quarter results 2014
First quarter results 2014 25 April 2014
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 depreciati
Slide 3: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 3
Slide 4: Executive summary
Executive summary Good strategic progress with continued growth in 4G, IPTV and multi play in The Netherlands • Nationwide 4G coverage in The Netherlands, >1 million 4G subscribers • 62k IPTV net adds leading to TV market share of 26% • Triple play penetration increased to 46%, 62k quad play net a
Slide 5: Outlook (continuing operations)
Outlook (continuing operations) • Financial performance stabilizing towards the end of 2014 2014 • Capex < € 1.4bn1 • Capex < € 1.5bn, including Reggefiber1 • Free cash flow (excl. TEFD dividend)2 growth expected in 2015 Limited tax cash out in The Netherlands in coming years due to tax loss on sa
Slide 6: Shareholder remuneration
Shareholder remuneration Recommence dividend, subject to closing E-Plus sale Dividend Additional excess cash • Recommence sustainable dividend • 20.5% stake Telefónica Deutschland payments, DPS of € 0.07 in respect of 2014 − Cash upside via potential dividend payments • Growing DPS expected in respe
Slide 7: E-Plus sale
E-Plus sale Completion expected mid 2014 Confident on regulatory approval Substantial benefits • Combination Telefónica Deutschland and • Increased competitiveness due to creation of E-Plus to realize substantial synergies stronger player in size and market presence • KPN expected to benefit from (d
Slide 8: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 8
Slide 9: Group financial profile
Group financial profile € bn Net debt • Net debt increased to € 10.4bn 12.5 10.4 − Mainly due to intrayear free cash flow phasing 9.8 − Additional shareholder loans to Reggefiber 5.8 6.2 • Average coupon senior bonds 4.9%, average maturity senior bonds 6.9 years Q1 ’13 Q4 ’13 Q1 ’14 Net debt1 Pro fo
Slide 10: Group results Q1 '14 (continuing operations)
Group results Q1 ’14 (continuing operations) E-Plus discontinued operation € m (continuing operations) Q1 ’14 Q1 ’13 % Revenues 1,996 2,175 -8.2% • Adjusted revenues down 7.7% y-on-y Adjusted revenues1 1,989 2,155 -7.7% − Competitive mobile markets and declining Business market size Operating expens
Slide 11: Group cash flow Q1 '14 (continuing operations)
Group cash flow Q1 ’14 (continuing operations) E-Plus discontinued operation € m (continuing operations) Q1 ’14 Q1 ’13 % EBITDA 624 800 -22% • Free cash flow € 402m lower y-on-y Interest paid/received -332 -297 12% mainly due to Tax paid/received 2 -59 n.m. − € 255m less cash from change in working
Slide 12: Capex and Simplification
Capex and Simplification Capex at less elevated levels going forward Less elevated levels going forward First results Simplification program • High investments in recent years, of which • Reduction product portfolio in large part completed Consumer Residential in Q1 ’14 − Capex improvements H1 ’14 l
Slide 13: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 13
Slide 14: Consumer Residential
Consumer Residential Growing profitability €m 20.5% 20.7% • Adjusted revenues 1.0% lower y-on-y 16.8% − Continued decline traditional voice services Financial review -1.0% − Increased promotional activities by competition in Q1 ’14 488 492 483 − IPTV promotions in H2 ’13 leading to lower revenues in
Slide 15: Consumer Residential (cont'd): IPTV net adds
Consumer Residential (cont’d) Full focus on IPTV to grow multi play customer base 25% 26% • Continued growth IPTV net adds (62k) 24% leading to TV market share of 26% TV market share IPTV net adds & 116 • IPTV main driver for triple play growth 80 62 Q1 ’13 Q4 ’13 Q1 ’14 TV market share1 Net adds (k
Slide 16: Consumer Residential (cont'd): multi play customers
Consumer Residential (cont’d) Continued focus on growing multi play customer base Multi play and FttH customers • Continued growth triple play customer k +6%-points base, penetration up 6%-points y-on-y 46% 44% 40% 1,216 1,264 • 235k quad play customers per Q1 ’14 1,077 − 62k quad play customers add
Slide 17: Consumer Mobile
Consumer Mobile Service revenues remain under pressure €m 35.5% • Market remained competitive, especially due to 15.9% move towards no frills segment 9.9% Financial review -10% • Underlying service revenue decline of 12% 386 353 347 y-on-y 137 − Shift towards SIM-only 35 55 − Lower above bundle usag
Slide 18: Consumer Mobile (cont'd)
Consumer Mobile (cont’d) Retail postpaid net adds promising k 26 • Retail postpaid net adds at 26k − KPN and Hi brands repositioned Postpaid net adds 7 9 − Lower churn by strong focus on existing customers 4 2 and quad play • 4G uptake accelerating, now 610k 4G -20 subscribers in Consumer Mobile (Q4
Slide 19: Business
Business Declining market size leading to lower revenues and margins • Adjusted revenues declined 11% y-on-y €m 23.7% 22.0% 20.0% − Continued decline of total market size driven by Financial review customer rationalization and optimization -11% − Pro-active migration of customers to flat fees at 824
Slide 20: Business (cont'd)
Business (cont’d) De-risking revenues, growing multi play and new services De-risking revenues Growing multi play base • Rapid uptake 4G +10%-points • Focus on growing 155 181 − 412k 4G subscribers 54% 60% bundled services 50% 30 (~27% of total base) 10 7 • Committed ARPU up • KPN ONE to drive 3 10%
Slide 21: NetCo
NetCo €m €m 54.4% 56.0% 52.8% • Adjusted revenues down 6.8% y-on-y − Decline traditional services and lower traffic across Financial review -6.8% segments 603 577 562 − Lower wholesale traffic revenues 328 323 297 • Adjusted EBITDA margin lower at 52.8% − Decline of high margin traditional services
Slide 22: iBasis
iBasis 2.9% • Adjusted revenues down 6.6% y-on-y €m 2.6% 2.2% − Competitive international wholesale traffic market Financial review − Including 1.4% negative currency effect -6.6% 242 232 226 • Adjusted EBITDA margin at 2.2% − High margin revenue decline 7 6 5 − Investments in new services Q1 ’13 Q4
Slide 23: Germany (discontinued operation)
Germany (discontinued operation1) Growing service revenues and market share • Underlying service revenue growth of 3.8% 32.3% €m 25.0% 28.6% y-on-y Financial review +2.5% 835 • Improving service revenue trend driven by 760 779 growing postpaid service revenues and 190 270 223 stabilization of prepai
Slide 24: Germany (cont'd)
Germany (discontinued operation) (cont’d) Continued strong postpaid net adds 24.9 25.5 • Continued strong postpaid net adds of 197k 23.9 k − Majority postpaid net adds from customer base underpenetrated regions Net adds & 282 2491 310 • Further network quality improvements 265 254 197 − LTE launched
Slide 25: Belgium
Belgium Increasing market share €m • Underlying service revenue decline 4.4% 25.1% 24.3% 23.2% y-on-y in competitive market Financial review − Postpaid service revenue trend improving, prepaid -3.3% under pressure 183 181 177 − Continued tariff optimization by customers 46 44 41 • Adjusted EBITDA ma
Slide 26: Belgium (cont'd)
Belgium (cont’d) Continued strong postpaid net adds, ARPU remains under pressure 3.5 3.4 3.4 • Continued strong postpaid net adds k performance customer base 16 − Low postpaid churn levels maintained Net adds & 45 36 28 -8 -42 • BASE Company launched 4G for all customers Q1 ’13 Q4 ’13 Q1 ’14 − 4G co
Slide 27: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group operating review Eelco Blok 4 Concluding remarks Eelco Blok 27
Slide 28: Concluding remarks
Concluding remarks Good strategic progress with continued growth in 4G, IPTV and multi play in The Netherlands Service revenues remain under pressure in competitive Dutch mobile market, but retail postpaid net adds promising Business market size declining due to continued customer rationalizat
Slide 29: Q&A
Q&A 29
Slide 30: Annex
Annex Q1 2014 - Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] www.kpn.com/ir
Slide 31: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 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 Stanley Jones +1 212 250 9100 (New York) ADR
Slide 33: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 33
Slide 34: Analysis of adjusted results
Analysis of adjusted results Impact incidentals and restructuring costs €m Q1 ’14 Q1 ’13 EBITDA effect (incl. discontinued operations) Restructuring costs Restructuring Group -4 -17 Release of provisions Incidental NetCo - 17 Revenue & EBITDA effect (incl. discontinued operations) Adjustment contrac
Slide 35: Restructuring costs
Restructuring costs €m Q1 ’14 Q1 ’13 Germany (incl. discontinued operations) - 5 Belgium - - Mobile International (incl. discontinued operations) - 5 Consumer Mobile - -3 Consumer Residential -3 -2 Business 3 -5 NetCo - -3 Other 1 -6 The Netherlands 1 -19 Other -5 -3 KPN Group (incl. discontinued op
Slide 36: Impact regulation
Impact regulation €m Q1 ’14 Q1 ’13 Revenues EBITDA Revenues EBITDA Germany (incl. discontinued operations) -10 -7 -35 -20 Belgium -3 -2 -11 -7 Mobile International (incl. discontinued operations) -13 -9 -46 -27 Consumer Mobile -5 -1 -4 -3 Of which: Mobile Wholesale -1 - - - Business -4 -3 -3 -3 NetC
Slide 37: Operating expenses
Operating expenses €m Q1 ’14 Q1 ’13 % Employee benefits 322 365 -12% Cost of materials 175 112 56% Work contracted out and other expenses 811 796 1.9% Own work capitalized -20 -21 -4.8% Other operating expenses1 84 123 -32% Depreciation2 306 299 2.3% Amortization2 139 146 -4.8% Total operating expen
Slide 38: Operating expenses - analysis: Employee benefits & Cost of materials
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y decrease (Continuing operations) • Lower cost as a result of FTE reduction program 16.8% 16.1% 15.2% 14.8% 14.6% Q-on-Q increase • Lower pension expenses in Q4 2013 due to impact of changes in Dutch law 3
Slide 39: Operating expenses - analysis: Work contracted out & Other
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y increase (Continuing operations) • Higher content costs at Consumer Residential 40.6% • Release of provision in Q1 2013 at NetCo 38.0% 38.7% 37.6% 36.7% • Partly offset by lower traffic costs at Consumer Mobile a
Slide 40: Operating expenses - analysis: Depreciation & Amortization
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 Y-on-Y increase (Continuing operations) • Higher depreciation following fixed and mobile 14.6% 15.3% 15.9% 15.3% network modernization at NetCo 13.8% • Partly offset by phasing out of handset lease at KPN and Hi brands at Con
Slide 41: The Netherlands – operating expenses
The Netherlands – operating expenses Breakdown operating expenses • Operating expenses (excl. D&A, restr. costs and €m (excl. D&A and restructuring costs) impact phasing out handset lease) down 3.5% y-on-y +2.6% / -3.5%1 1,036 977 1,002 • Employee benefit costs down 13% y-on-y 272 269 310 • Cost of
Slide 42: Dutch wireless disclosure
Dutch wireless disclosure Q1 ’14 Q1 ’13 % Service revenues (€ m) 527 613 -14% − Consumer retail 277 328 -16% − Business 210 241 -13% − Other1 40 44 -9.1% SAC/SRC per subscriber (€) − Consumer retail2 213 153 39% − Business 214 261 -18% 1 Includes amongst others Consumer Mobile wholesale and visitor
Slide 43: Tax
Tax P&L Cash flow Fiscal units (€ m) Q1 ’14 Q1 ’13 Q1 ’14 Q1 ’13 The Netherlands -14 -19 4 -591 Germany 8 -14 -2 -1 Belgium 1 - - 1 Other -3 -2 -2 -1 Total reported tax (incl. discontinued operations) -8 -35 0 -60 Of which discontinued operations 8 -14 -2 -1 Reported tax continuing operations -16 -2
Slide 44: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 44
Slide 45: Debt summary
Debt summary € bn Q1 ’14 Q4 ’13 % Nominal debt 13.44 14.42 -6.8% Eurobonds 10.08 10.83 -6.9% Global bonds 0.76 0.76 - Hybrid bonds 2.03 2.03 - Credit facility - - - Preference shares (issued to Foundation Preference Shares B KPN)1 - 0.26 -100% Financial leases and other loans 0.57 0.54 5.6% Adjustme
Slide 46: Debt portfolio
Debt portfolio Breakdown of € 13.4bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 13.4bn) Nominal debt by currency Other Hybrid bonds 5% 19% 71% 15% Global bonds 5% 10% Eurobonds 75% EUR USD 2 GBP 2 € bn Bond redemption profile Fixed vs. floating interest 1.5 1.3 1.3 1.1 1.0
Slide 47: Treatment of hybrid bonds
Treatment of hybrid bonds KPN & Credit rating agencies IFRS • Each tranche of the hybrid bonds is recognized as 50% • EUR tranche is a perpetual, accounted for as equity equity and 50% debt by the rating agencies − Coupon payments treated as equity distribution, hence not expensed through P&L, not i
Slide 48: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 48
Slide 49: Regulation: MTA rates across the Group
Regulation MTA rates across the Group • ACM decision to base MTA rates on ‘pure BULRIC’ of € 1.019 cent per minute as of 1 September 2013 is under appeal • Dutch court suspended ACM decision and mandated interim rates NL based on ‘plus BULRIC’ of € 1.861 cent per minute € ct / min Until 7 July ’10 7
Slide 50: Unbundling tariffs
Unbundling tariffs Unbundling in copper network Category Monthly tariff Line sharing (LLU) € 0.12 / line MDF Node SDF colocation KPN / Telco Fully unbundled (LLU) € 7.03 / line ~28,000 1,350 MDF colocation € 936.36 footprint / year Street cabinets local exchanges € 5.32 / line shared Wholesale Broad
Slide 51: Spectrum in The Netherlands
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*59.4 Paired 2*14.6 2*
Slide 52: Spectrum in Germany
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*59.4 Paired 2*4.95 2*9.9 2*4.95 2*4.95 2*9.9 2*4.95 2*9.9 2*9.9 Curren
Slide 53: Spectrum in Belgium
Spectrum in Belgium 800MHz BASE Belgacom Mobistar 2*30 Paired 2*10 2*10 2*10 900MHz BASE Belgacom Mobistar 2*34 Paired 2*10 2*12 2*12 1.8GHz BASE Belgacom Mobistar 2*63.6 Paired 2*22 2*20.8 2*20.8 2.1GHz Belgacom BASE Telenet Mobistar 2*59.4 Paired 2*15 2*14.8 2*14.8 2*14.8 Current status 2.1GHz B M
Slide 54: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 54
Slide 55: Infrastructure: Deploying mix of technologies going forward
Infrastructure Deploying mix of technologies going forward VDSL from CO1 VDSL pair bonding Vectored VDSL Pair bonded vectored (VDSL-CO) CO (VDSL-CO) from SC1 VDSL from SC FttH Wireless CO CO CO CO ODF1 SC SC up to 40 Mbps DS1 up to 80 Mbps DS up to 120 Mbps DS up to 240 Mbps DS up to 500 Mbps up to
Slide 56: Roadmap to Reggefiber consolidation
Roadmap to Reggefiber consolidation Option structure Reggefiber financials FY 2013 Option I1 Option II3 Option III (in € m) • Additional 10% • Additional 9% • Remaining 40% Revenue 119 Ownership stake • 51% ownership • 60% ownership • 100% ownership Opex (excl. D&A) 36 Option type Call and Put optio