Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — Koninklijke KPN — Q2 2016 Earnings Presentation
51 slides from Royal Kpn Nv's earnings presentation, Jul 27, 2016
Slide 1: Second Quarter 2016 Results
Second Quarter 2016 Results 27 July 2016
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 and numerical reconciliations are included in KPN’s quarte
Slide 3: Contents
Contents 1 Highlights and operational performance Eelco Blok 2 Financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 3
Slide 4: KPN's strategy firmly on track
KPN’s strategy firmly on track Driving sustainable shareholder value creation 4
Slide 5: Key priorities for the coming years
Key priorities for the coming years 5
Slide 6: Highlights Q2 '16
Highlights Q2 ’16 Services & Innovation Operational Financial2 & Portfolio Focus on excellent customer High value base growth in Adjusted revenues Q2 ’16: experience further enhancing Consumer € 1,676m, -4.3% y-on-y customer loyalty in Consumer Increasing penetration fixed-mobile The Nethe
Slide 7: Increasing penetration of fixed-mobile bundles in Consumer
Increasing penetration of fixed-mobile bundles in Consumer Continued growth Households in Postpaid customers in fixed-mobile bundles1 fixed-mobile bundles 33% 23% 38% 26% Q2 ’15 Q2 ’15 Q2 ’16 Q2 ’16 Fixed-mobile household Fixed-mobile postpaid development development 1,286 1,384 1,172 k 944 k 891 99
Slide 8: Strong growth bundled services within residential households
Strong growth bundled services within residential households Increasing share of wallet drives growing ARPU per household Triple play growth… …driving RGU and ARPU per household growth k q-on-q 3,790 3,764 3,746 3,736 2.10 2.13 3,704 3,684 2.07 2.04 1.97 2.00 1,545 1,468 1,401 1,335 1,270 1,224 -46k
Slide 9: Value focus in Consumer mobile
Value focus in Consumer mobile Strong competitive position driven by high value KPN brand and fixed-mobile bundling Focus on high value KPN brand Customer mix shifting towards high value KPN brand Postpaid net adds Postpaid base Service revenues 80 80 k 70 59 36 231 ~62% ~71% Q2 ’15 Q2 ’15 Q2 ’16 Q2
Slide 10: On track to deliver on key priorities in Business
On track to deliver on key priorities in Business Simplifying portfolio and organization Leveraging strong market positions and Reducing indirect costs distribution reach for growth in IT New multi-year contract with large corporate client for hosting services on top of >10,000 workspaces Agreement
Slide 11: Developing as best-in-class service provider
Developing as best-in-class service provider Further improving customer satisfaction across all segments NPS Consumer residential1 NPS Consumer mobile1 NPS Business1 8 10 8 5 -9 -10 +3 +2 +1 Q2 ’15 Q2 ’16 Q2 ’15 Q2 ’16 Q2 ’15 Q2 ’16 1. Source: TNS NIPO. Consumer residential (all brands), Consumer mo
Slide 12: Contents
Contents 1 Highlights and operational performance Eelco Blok 2 Financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 12
Slide 13: Financial performance reflects intrayear phasing
Financial performance reflects intrayear phasing1 €m Q2 ’16 Q2 ’15 y-on-y % Adjusted revenues 1,676 1,751 -4.3% Adjusted EBITDA 592 602 -1.7% Net profit 162 160 1.3% Capex 312 306 2.0% FCF 254 232 9.5% 1. All figures based on continuing operations, unless stated otherwise 13
Slide 14: Revenue development Q2 '16
Revenue development Q2 ’16 Adjusted revenues1 declined by 4.3% €m 1,751 7 1 0 45 1,676 16 2 7 3 Adj. revenues Consumer Business Wholesale iBasis Other Adj. revenues Q2 ’15 Q2 ’16 1 Q2 ’15 included tax benefit (€ 11m) and higher hardware revenues in Consumer mobile 2 Impact decline traditional servic
Slide 15: Strong focus on growing bundled service revenues
Strong focus on growing bundled service revenues Positive service revenue1 development in Consumer mobile Business revenue growth drivers €m -1.8% +0.7% +2.1% +3.3% +5.9% +1.8% Q2 ’16 Q2 ’16 adjusted % of total 309 y-on-y adjusted 296 15 growth revenues 287 290 11 284 Business total -7.3% 271 285 29
Slide 16: Adjusted EBITDA trend improving vs. last quarter
Adjusted EBITDA1 trend improving vs. last quarter Positive impact of cost savings not yet fully compensating declining revenues Adjusted EBITDA1 declined by 1.7% €m 602 35 2 592 0 14 3 56 2 1 2 3 4 Adj. EBITDA Revenues Cost of Personnel IT/TI Other iBasis Other Adj. EBITDA Q2 ’15 goods & expenses op
Slide 17: Financial improvement expected in H2 2016
Financial improvement expected in H2 2016 Positive impact Simplification, Business transformation and commercial progress Lower innovation spend following completion large projects Simplification program Phase out of legacy 1 ~€ 100m run-rate savings to be realized in H2 ’16 Procurement mana
Slide 18: Free cash flow influenced by usual intrayear phasing
Free cash flow1 influenced by usual intrayear phasing Strong growth in FCF expected in H2 ’16 €m 1,138 44 34 145 263 110 214 104 630 6 Reported Change in Change Taxes Interest paid Capex Other FCF excl TEFD FCF H1 ’16 EBITDA provisions in working received TEFD dividend capital (paid) H1 ’16 dividend
Slide 19: Solid financial position
Solid financial position Reduced gross debt resulting in lower cash interest payments Lower gross debt y-on-y Debt portfolio € bn Fitch Ratings upgraded KPN to BBB, stable 8.6 outlook 7.8 7.8 7.3 6.8 1.0 Net debt € 1.4bn higher vs. Q1 ’16 Net € 1.2bn capital repayment in June 2016 related 5.4
Slide 20: Contents
Contents 1 Highlights and operational performance Eelco Blok 2 Financial performance Jan Kees de Jager 3 Outlook and concluding remarks Eelco Blok 20
Slide 21: On track for outlook 2016
On track for outlook 2016 Outlook 2016 Shareholder remuneration Adjusted EBITDA in line with 2015 Intended DPS of € 10ct in respect of 2016 Capex ~€ 1.2bn € 3.3ct interim dividend in respect of 2016 Ex-dividend date: 29 July 2016 Free cash flow > € 650m (excl. TEFD Payment date: 3 Augu
Slide 22: Key financial priorities for coming years
Key financial priorities for coming years Predictable cash generation the basis for attractive shareholder returns 22
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Slide 24: Q2 2016 – Information Pack
Contents Q2 2016 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] ir.kpn.com 24
Slide 25: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 25
Slide 26: 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 Jonathan Montanaro +1 212 250 9100 (New York)
Slide 27: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 27
Slide 28: Corporate Social Responsible Strategy
Corporate Social Responsible Strategy Successful CSR strategy1 Social and environmental achievements 2015 Mooiste Contact Fonds (MCF) connects chronically ill children 18% 77% 73% 2 723 children virtually present at school Collaboration with Nederlandse Hartstichting to vs. 2010 vs. 70% end 20
Slide 29: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 29
Slide 30: Group results Q2 '16 (continuing operations)
Group results Q2 ’16 (continuing operations) 1 (€ m) Q2 ’16 Q1 ’16 Q2 ’15 y-on-y % Revenues 1,676 1,689 1,741 -3.7% Adjusted revenues 1,676 1,689 1,751 -4.3% Operating expenses (excl. D&A) 1,097 1,130 1,173 -6.5% EBITDA 579 559 568 1.9% Adjusted EBITDA 592 568 602 -1.7% Depreciation 252 251 274 -8.0
Slide 31: Group results YTD '16 (continuing operations)
Group results YTD ’16 (continuing operations)1 (€ m) YTD ’16 YTD ’15 y-on-y % Revenues 3,365 3,499 -3.8% Adjusted revenues 3,365 3,509 -4.1% Operating expenses (excl. D&A) 2,227 2,355 -5.4% EBITDA 1,138 1,144 -0.5% Adjusted EBITDA 1,160 1,197 -3.1% Depreciation 503 547 -8.0% Amortization 289 253 14%
Slide 32: Group cash flow Q2 '16 (continuing operations)
Group cash flow Q2 ’16 (continuing operations) 1 (€ m) Q2 ’16 Q2 ’15 y-on-y % EBITDA 579 568 1.9% Interest paid/received -37 -79 -53% Tax paid/received -6 -2 >100% Change in provisions2 -7 -9 -22% Change in working capital2 -67 -90 -26% Other movements 104 149 -30% Net cash flow from operating activ
Slide 33: Group cash flow YTD '16 (continuing operations)
Group cash flow YTD ’16 (continuing operations) 1 (€ m) YTD ’16 YTD ’15 y-on-y % EBITDA 1,138 1,144 -0.5% Interest paid/received -263 -301 -13%. Tax paid/received 44 -12 n.m. Change in provisions2 -34 -10 >100% Change in working capital2 -145 -69 >100% Other movements 104 149 -30% Net cash flow from
Slide 34: Financials by segment
Financials by segment The Netherlands Consumer Business 59.6% 58.4% 58.7% 60.5% 60.3% 60.6% 774 771 767 618 589 573 461 450 450 374 355 347 Q2 ’15 Q1 ’16 Q2 ’16 Q2 ’15 Q1 ’16 Q2 ’16 Wholesale Network, Operations & IT 67.9% 69.4% 69.6% 184 180 184 125 125 128 -291 -276 -305 Q2 ’15 Q1 ’16 Q2 ’16 Q2 ’1
Slide 35: Dutch wireless disclosure
Dutch wireless disclosure Service revenues (€ m) Q2 ’16 Q2 ’15 y-on-y % Consumer 290 296 -2.0% Business1 167 178 -6.2% Other2 39 42 -7.1% KPN The Netherlands 496 516 -3.9% SAC/SRC per subscriber (€) Q2 ’16 Q2 ’15 y-on-y % Consumer (postpaid)3 225 213 5.6% Business (mobile only – mainly SME) 240 218
Slide 36: Tax Q2 '16
Tax Q2 ’16 P&L Cash flow Regions (€ m) Q2 ’16 Q2 ’15 Q2 ’16 Q2 ’15 The Netherlands -49 -25 -5 -1 Belgium - -1 - - Other -2 -3 -1 -1 Total reported tax -51 -29 -6 -2 Of which discontinued operations - -1 - - Reported tax from continuing operations -51 -28 -6 -2 Effective tax rate continuing operation
Slide 37: Tax YTD '16
Tax YTD ’16 P&L Cash flow Regions (€ m) YTD ’16 YTD ’15 YTD ’16 YTD ’15 The Netherlands -59 -34 45 -10 Belgium 3 2 - 1 Other -4 -3 -1 -2 Total reported tax -60 -35 44 -11 Of which discontinued operations 3 2 - 1 Reported tax from continuing operations -63 -37 44 -12 Effective tax rate continuing ope
Slide 38: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 38
Slide 39: Consumer
Consumer Fixed-Mobile KPI’s Fixed-Mobile household Fixed-Mobile postpaid development development 38% 35% 31% 33% 26% 23% 2,343 2,246 2,542 3,142 2,816 2,740 1,286 1,384 888 944 891 622 Q2 ’15 Q1 ’16 Q2 ’16 Q2 ’15 Q1 ’16 Q2 ’16 F-M base (k) Fixed-only base (k) F-M base (k) Mobile-only base (k) F-M pe
Slide 40: Consumer (cont'd)
Consumer (cont’d) Residential KPI’s Household base (k) RGUs and ARPU per household 3,764 3,704 3,684 1,002 845 810 2.10 2.13 2.00 466 425 414 769 764 766 38 40 40 1,527 1,670 1,694 Q2 ’15 Q1 ’16 Q2 ’16 Q2 ’15 Q1 ’16 Q2 ’16 Not bundled Dual play (PSTN & Digitenne) ARPU per household (€) Not bundled (
Slide 41: Consumer (cont'd) – Mobile KPI's
Consumer (cont’d) Mobile KPI’s Mobile net adds Mobile postpaid ARPU 70 € 36 27 26 231 25 % committed ARPU -2 -38 ~78% ~85% ~85% -58 Q2 ’15 Q1 ’16 Q2 ’16 Q2 ’15 Q1 ’16 Q2 ’16 Postpaid (k) Prepaid (k) Service revenues Committed ARPU breakdown 41% 42% 6% 6% 6% Incoming (MTA) 296 287 290 -2.0% 3% 4% Abo
Slide 42: Business
Business Total Business Mobile Multi play (mainly SME)2 276 1,792 1,792 1,809 47 68 178 175 167 -6.2% 41 44 35 y-on-y Q2 ’15 Q1 ’16 Q2 ’16 Q2 ’15 Q1 ’16 Q2 ’16 Total Business mobile service revenues1 (€ m) ARPU per multi play seat (€) Total Business mobile customer base (k) Multi play seats (k) Mobi
Slide 43: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 43
Slide 44: Debt portfolio
Debt portfolio Breakdown of € 8.8bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 8.8bn) Nominal debt by currency Other GBP2 1% EUR Hybrid bonds Eurobonds 23% 63% 23% 67% Global bonds USD2 9% 14% Bond redemption profile Fixed vs. floating interest € bn 1.1 1.2 0.9 0.9 1.0 0.8
Slide 45: 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 for recognized as 50% equity and 50% debt by as equity the rating agencies Coupon payments treated as equity distribution, hence not expensed through P&L, not i
Slide 46: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 46
Slide 47: 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 2.1GHz VOD KPN T-Mob KPN VOD T-Mob 2*59.4 (Paired) 2*14.6 2*14.8
Slide 48: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 48
Slide 49: Fixed infrastructure
Fixed infrastructure Next round of upgrades Download Active in speed network (up to) CO VDSL2 50Mbps VDSL2 pair bonding CO 100Mbps SC Vectoring 120Mbps Bonded vectoring SC 240Mbps Bonded VPLUS SC 400Mbps NG.PON SC >1Gbps FttH ODF Fiber Copper 1Gbps 49
Slide 50: Contents
Contents 1 KPN ADR program 2 CSR strategy 3 Group results analysis 4 Group KPI overview 5 Debt overview 6 Spectrum 7 Fixed infrastructure 8 Telefónica Deutschland stake 50
Slide 51: 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 decreas