Royal KPN NV · EURONEXT:KPN
Royal KPN NV — KPN — Q2 2018 Earnings Presentation
49 slides from Royal KPN NV's earnings presentation, Jul 26, 2018
Slide 1: Q2 2018 Results
Q2 2018 Results 26 July 2018
Slide 2: Safe harbor
Safe harbor Alternative performance measures and management estimates This financial report contains a number of alternative performance measures (non-GAAP figures) to provide readers with additional financial information that is regularly reviewed by management, such as EBITDA and Free Cash Flow (‘
Slide 3: Highlights Q2
Highlights Q2 Services & Innovation Operational Financial5 Improving customer satisfaction1 Ongoing success of convergence and €m Q2 ’18 H1 ’18 NPS Consumer: +14 (Q2 ’17: +13) value strategy in Consumer Adjusted revenues 1,402 2,803 NPS Business: -5 (Q2 ’17: -6) +46k fixed-mobile postpaid
Slide 4: Simplification and digitalization embedded in organization
Simplification and digitalization embedded in organization Driving revenue opportunities and lower spend Use data & analytics ENABLING IMPROVED - Targeted household marketing - Optimized customer service CUSTOMER EXPERIENCE Digitalize - Smarter network investments Removing complexity for customers -
Slide 5: Targeted household approach yielding tangible results
Targeted household approach yielding tangible results Smart analytics driving increased convergence penetration and lower churn Step 3: Step 1: Created uniform digital layer Reaping the benefits1 Reducing churn -6.5% Broadband Control Targeted group advice Unique targeted client advice (shown to cus
Slide 6: Optimizing customer journey
Optimizing customer journey Using Data & Analytics to prevent online-to-offline leakage and deploy best call center agents 30% of interruption calls Facilitating online self-help Routing calls to most suitable agents cause 80% of costs xx%: 2018 € per journey vs. avg xx%: 2016 Decile Total costs (re
Slide 7: Successful up- and cross-sell further strengthening convergence position
Successful up- and cross-sell further strengthening convergence position Increasing SIMs per household leading to lower churn Customers in fixed-mobile bundles More SIMs lead to lower churn Households1 Postpaid customers Increasing SIMs per household2 1.52 1.47 +12% 1.36 44% Q2 ’14 Q2 ’16 Q2 ’18 40%
Slide 8: Continued focus on value in competitive Consumer environment
Continued focus on value in competitive Consumer environment Mobile service revenues impacted by regulation Continued fixed revenue growth and price pressure in mobile-only €m -9.2% 231 208 209 €m +1.7% 472 464 Q2 ’17 Q1 ’18 Q2 ’18 Mobile service revenues -3.5% Q2 ’17 Q2 ’18 Growth of mobile service
Slide 9: New Consumer fixed propositions reflecting value focus
New Consumer fixed propositions reflecting value focus More-for-more at KPN brand1 New Telfort propositions focus on convergence1 Internet Internet Internet Internet Internet Internet & TV All-in-1 Internetonly & TV Internet & TV Internet & 4K TV Internet only Basic & TV Standard & TV Premium & 4K T
Slide 10: Business transformation taking shape
Business transformation taking shape Business revenue growth drivers Q2 ’18 H1 ’18 adjusted adjusted y-on-y growth y-on-y growth Communication Services -7.3% -8.0% Mobile service revenues -6.2% -7.0% IoT 8.3% 22% Broadband & Network services -1.4% -1.4% Fixed voice -15% -15% Other -13% -18% IT Servi
Slide 11: KPN well positioned to cater to smaller businesses
KPN well positioned to cater to smaller businesses Encouraging take-up of new small business proposition Good broadband inflow Migrations margin accretive ~€ 5-10 k 8 2 5 2 1 1 4 3 Q1 ’18 Q2 ’18 Margin on Margin Margin on Consumer uplift small business proposition proposition Migrations from Consume
Slide 12: Several landmark corporate deals in converged communication & IT services
Several landmark corporate deals in converged communication & IT services KPN recognized as #1 Business service provider in The Netherlands for second consecutive year1 IT Workspace Connectivity Management Amongst others Telecom Mobility Datacenters IT Services Management IT Development IT Workspace
Slide 13: Second wave Simplification program on track
Second wave Simplification program on track Run-rate savings realized of ~€ 175m Simplification program run-rate opex and Capex savings €m >350 ~175 ~65 ~110 End 2016 2017 H1 ’18 End 2019 SECOND WAVE Customer centric Next generation Telco Fully virtualized Q2 2018 Results | Simplification | 13
Slide 14: More flexible and simplified network and operating model
More flexible and simplified network and operating model Mobile BSS integration completed with migration of Telfort mobile base End 2013 H1 2018 UNIFORM DIGITAL LAYER (API) Customer interaction layer (BSS) BSS integration Telfort KPN Telfort ~€ 80m run-rate savings1 from KPN Consumer Consumer & Busi
Slide 15: Adjusted revenue trend improving compared to Q1 '18
Adjusted revenue trend improving compared to Q1 ’18 Adjusted revenues declined by 1.5%1 €m 1,424 2 10 1,402 19 15 Adj. revenues Consumer Business Wholesale Other (incl. Adj. revenues Q2 ’17 eliminations) Q2 ’18 +0.5% Growth of adjusted revenues, excluding € 29m regulation impact (roaming & MTA / FTA
Slide 16: Adjusted EBITDA growth driven by Simplification and digitalization
Adjusted EBITDA growth driven by Simplification and digitalization Adjusted EBITDA increased by 1.3% 40.0% 41.1% €m 3 577 10 569 19 3 Lower traffic costs due to 1 reduction MTA tariffs 22 1 2 Ongoing Simplification and 2 digitalization savings Adj. EBITDA Revenues Cost of goods Personnel IT/TI Other
Slide 17: Free cash flow growth driven by lower interest paid and higher EBITDA
Free cash flow growth driven by lower interest paid and higher EBITDA Growing free cash flow1 Free cash flow components €m €m 347 1,110 8 98 248 162 25 347 481 5 H1 ’17 H1 ’18 Reported Change in Change Interest Taxes Capex Other FCF excl. EBITDA provisions in working paid paid TEFD H1 ’18 capital di
Slide 18: Solid financial position
Solid financial position Intention to redeem € 1.1bn hybrid bond from existing cash Lower debt level Hybrid redemption at first call date2 Successful execution of strategy since issuance in 2013 € bn Realignment proportion hybrid capital to balance sheet 7.3 7.2 7.2 Saving € 67m annual coupon
Slide 19: Outlook 2018
Outlook 2018 Outlook 20181 Shareholder remuneration Adjusted EBITDA in line with 2017 Intended regular DPS of € 12ct in respect of 2018 Interim dividend of € 4ct to be paid on 2 August 2018 Capex ~€ 1.1bn Intention to grow regular DPS in line with FCF growth profile Free cash flow (excl.
Slide 20: Key priorities on track
Q&A Key priorities on track Accelerate up and cross-sell in bundles Grow in TV and IT services Finalize Business transformation Finalize build of flexible and simplified integrated network and operating model Expand superior access position by deploying innovative technologies and increasing fiber p
Slide 21: Q2 2018 – Information Pack
Q2 2018 – Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] ir.kpn.com
Slide 22: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 23: KPN ADR program
KPN ADR program KPN has a sponsored Level 1 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) ADR broker
Slide 24: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 25: Leading in Corporate Social Responsibility
Leading in Corporate Social Responsibility Successful CSR strategy1 Social and environmental achievements in Q2 ’18 2017 KPN received highest ISS QualityScore for new Environmental and Social benchmarks Employee Engagement Environment Privacy & Security KPN KlasseContact had 248 new placements i
Slide 26: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 27: Group results Q2 '18 (continuing operations)
Group results Q2 ’18 (continuing operations) (€ m) Q2 ’18 Q1 ’18 Q2 ’17 y-on-y % Revenues 1,402 1,402 1,427 -1.7% Adjusted revenues 1,402 1,402 1,424 -1.5% Operating expenses (excl. D&A) 847 847 877 -3.5% EBITDA 555 555 550 1.0% Adjusted EBITDA 577 569 569 1.3% Depreciation 240 242 249 -3.5% Amortiz
Slide 28: Group results YTD '18 (continuing operations)
Group results YTD ’18 (continuing operations) (€ m) YTD ’18 YTD ’17 y-on-y % Revenues 2,803 2,878 -2.6% Adjusted revenues 2,803 2,875 -2.5% Operating expenses (excl. D&A) 1,693 1,799 -5.9% EBITDA 1,110 1,079 2.9% Adjusted EBITDA 1,146 1,126 1.8% Depreciation 482 495 -2.6% Amortization 210 209 0.5% O
Slide 29: Group cash flow Q2 '18 (continuing operations)
Group cash flow Q2 ’18 (continuing operations) (€ m) Q2 ’18 Q2 ’17 y-on-y % EBITDA 555 550 1.0% Interest paid/received -43 -42 2.6% Tax paid/received -20 -13 54% Change in provisions1 -1 19 n.m. Change in working capital1 -15 -61 -76% Other movements 47 71 -34% Net cash flow from operating activitie
Slide 30: Group cash flow YTD '18 (continuing operations)
Group cash flow YTD ’18 (continuing operations) (€ m) YTD ’18 YTD ’17 y-on-y % EBITDA 1,110 1,079 2.9% Interest paid/received -162 -196 -17% Tax paid/received -25 -13 87% Change in provisions1 8 27 -71% Change in working capital1 -98 -154 -37% Other movements 43 75 -42% Net cash flow from operating
Slide 31: Dutch mobile service revenues
Dutch mobile service revenues Service revenues (€ m) Q2 ’18 Q2 ’17 y-on-y % Consumer 209 231 -9.2% Business1 141 148 -5.0% Other2 41 36 15% KPN The Netherlands 391 414 -5.6% 1 Includes M2M service revenues Q2 2018 Results | Information Pack | Group results overview | 31 2 Includes amongst others Who
Slide 32: Tax YTD '18
Tax YTD ’18 P&L Cash flow Regions (€ m) YTD ’18 YTD ’17 YTD ’18 YTD ’17 The Netherlands -76 -64 -25 -13 Other -3 -2 -3 1 Total reported tax -79 -66 -28 -12 Of which discontinued operations -3 -2 -3 1 Reported tax from continuing operations -76 -64 -25 -13 Effective tax rate continuing operations 24.
Slide 33: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 34: Consumer
Consumer Fixed-Mobile KPIs Fixed-Mobile household development Fixed-Mobile postpaid development 43% 44% 53% 54% 40% 47% 1,944 1,721 1,664 2,417 2,256 2,200 1,733 1,934 1,980 1,156 1,280 1,299 Q2 ’17 Q1 ’18 Q2 ’18 Q2 ’17 Q1 ’18 Q2 ’18 F-M households (k) Fixed-only households(k) F-M postpaid base (k)
Slide 35: Consumer (cont'd)
Consumer (cont’d) Residential KPIs Household base (k) ARPU per household (€) 3,572 3,536 3,499 42 43 43 670 577 551 384 395 391 2,518 2,564 2,556 Q2 ’17 Q1 ’18 Q2 ’18 Q2 ’17 Q1 ’18 Q2 ’18 Not bundled Not bundled (BB only) Bundled (PSTN & Digitenne) Broadband IPTV 40% 41% 32% 32% 8 25 10 10 -52 -8 Q2
Slide 36: Consumer (cont'd)
Consumer (cont’d) Mobile KPIs Mobile net adds (k) Mobile postpaid ARPU (€) 91 20 3 18 18 -10 -20 -34 -50 Q2 ’17 Q1 ’18 Q2 ’18 Q2 ’17 Q1 ’18 Q2 ’18 Postpaid net adds Prepaid net adds Committed ARPU Non-committed ARPU Wireless service revenues (€ m) 231 209 -9.2% 208 y-on-y Q2 ’17 Q1 ’18 Q2 ’18 Servic
Slide 37: Business
Business Total Mobile Multi play (mainly SME) 1,834 1,858 1,865 512 545 391 25 23 23 34 32 32 Q2 ’17 Q1 ’18 Q2 ’18 Q2 ’17 Q1 ’18 Q2 ’18 Business mobile ARPU (€) ARPU per multi play seat (€) Total Business mobile customer base (k) Multi play seats (k)1 Fixed voice Broadband 503 293 283 285 451 515 42
Slide 38: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 39: Debt portfolio
Debt portfolio Breakdown nominal debt1 (total € 8.3bn) Nominal debt by currency Other 2% GBP2 Hybrid bonds 24% 24% Euro bonds EUR 65% 61% Global bonds USD2 9% 15% Bond redemption profile (€ bn) Fixed vs. floating interest3 1.1 0.9 1.0 Floating 0.8 15% 0.6 0.6 0.6 0.6 0.6 0.5 0.4 0.5 0.1 Fixed ’18 ’1
Slide 40: 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 41: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 42: IFRS changed revenue recognition rules
IFRS 15 changed revenue recognition rules Example 1: Handset sales via own channels Accounting for this example Contract components (€) Value Revenue / (€) Month 1 Month 2 … Month 24 Total cost Non-service revenue (handset) 528 - … - 528 Contract duration (months) 24 Service revenues 30 30 … 30 720
Slide 43: IFRS changed revenue recognition rules (cont'd)
IFRS 15 changed revenue recognition rules (cont’d) Example 2: Handset sales via third parties Accounting for this example Contract components (€) Value Revenue / (€) Month 1 Month 2 … Month 24 Total cost Service revenues 30 30 … 30 720 Contract duration (months) 24 P&L Total revenues 30 30 … 30 720
Slide 44: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 45: Spectrum in The Netherlands
Spectrum in The Netherlands 800MHz Tele2 VodZig KPN 2*30 (Paired) 2*10 2*10 2*10 900MHz VodZig KPN T-Mob 2*35 (Paired) 2*10 2*10 2*15 1.8GHz KPN VodZig T-Mob 2*70 (Paired) 2*20 2*20 2*30 2.1GHz VodZig KPN T-Mob KPN VodZig T-Mob 2*59.4 (Paired) 2*14.6 2*14.8 2*10 2*5 2*5 2*10 2.6GHz T-Mob KPN Tele2 1
Slide 46: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 47: Fixed infrastructure
Fixed infrastructure Active in Download speed Network VDSL2 CO ~50Mbps VDSL2 pair bonding CO ~100Mbps Vectoring SC ~120Mbps Bonded vectoring SC ~240Mbps Bonded VPLUS SC ~400Mbps NG.PON SC >1Gbps FttH ODF ~1Gbps Fiber Copper Q2 2018 Results | Information Pack | Fixed infrastructure | 47
Slide 48: Contents
Contents 1 KPN ADR Program 2 CSR strategy 3 Group results overview 4 Group KPI overview 5 Debt overview 6 IFRS 15 7 Spectrum 8 Fixed infrastructure 9 Telefónica Deutschland stake
Slide 49: 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 Due to IFRS 9, as of 1 January 2018, f