Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — H1 2011 Earnings Presentation
56 slides from Royal Kpn Nv's earnings presentation, Jul 26, 2011
Slide 1: Half Year Results 2011
Half Year Results 2011 26 July 2011
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 Carla Smits-Nusteling Operational review The Netherlands Eelco Blok Operational review Mobile International Thorsten Dirks Concluding remarks Eelco Blok 3
Slide 4: Highlights Q2 '11
Highlights Q2 ’11 • Q2 financial results down y-on-y; on track to realize outlook • Progress made with strategic initiatives to strengthen the business in The Netherlands • High underlying growth in Germany at strong margin • First phase of restructuring plan is being implemented to optimize cost st
Slide 5: Financial highlights Q2 '11
Financial highlights Q2 ’11 • Financial performance Q2 ’11 – Revenues and other income € 3,290m, down 1.9% y-on-y • Regulatory impact of € 136m (4.1%) • Net positive incidentals and effect of acquisitions of € 23m – EBITDA of € 1,308m, down 5.6% y-on-y • Regulatory impact of € 56m (4.0%) • Restructu
Slide 6: Outlook
Outlook Confirming outlook Outlook 2011 • EBITDA trend y-on-y improving in H2 EBITDA >€ 5.3bn1 − Solid profitable growth in Germany and Belgium − Lower MTA impact − Implementation of cost optimization initiatives Capex <€ 2bn Free cash flow2 Growth3 Dividend per At least € 0.85 share Outlook 2012: F
Slide 7: Operational structure
Operational structure Closer alignment with market dynamics Board of Management Consumer Consumer Belgium, Business Getronics W&O Germany iBasis wireline wireless RoW De-layering operational structure To be implemented on 1 January 2012 7
Slide 8: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Operational review The Netherlands Eelco Blok Operational review Mobile International Thorsten Dirks Concluding remarks Eelco Blok 8
Slide 9: Group results Q2 '11
Group results Q2 ’11 €m Q2 ’11 Q2 ’10 % YTD ’11 YTD ’10 % Revenues and other income 3,290 3,354 -1.9% 6,525 6,631 -1.6% Operating expenses 2,546 2,515 1.2% 5,069 4,999 1.4% – of which Depreciation1 352 351 0.3% 699 699 flat – of which Amortization1 212 196 8.2% 422 378 12% Operating profit 744 839 -
Slide 10: Group cash flow Q2 '11
Group cash flow Q2 ’11 €m Q2 ’11 Q2 ’10 % • Free cash flow of € 792m in Q2 ’11, up Operating profit 744 839 -11% 12% y-on-y Depreciation and amortization1 564 547 3.1% – € 189m positive tax comparison y-on-y Interest paid/received -95 -107 -11% due to € 237m positive impact Tax paid/received 93 -4 n
Slide 11: Group cash flow YTD '11
Group cash flow YTD ’11 On track to meet full-year free cash flow guidance €m YTD ’11 YTD ’10 % • Free cash flow of € 983m YTD ’11, Operating profit 1,456 1,632 -11% up 5.1% y-on-y Depreciation and amortization1 1,121 1,077 4.1% Interest paid/received -351 -366 -4.1% • Positive tax comparison of € 3
Slide 12: Group financial profile
Group financial profile Maintaining solid financial profile € bn Debt Financing policy 13.8 13.7 13.6 13.6 12.6 12.8 2.5x 2.3 2.3 2.4 2.0x 12.1 12.2 12.5 2.2 2.2 2.2 11.4 11.8 11.8 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Gross Debt Net Debt Net Debt / EBIT
Slide 13: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Operational review The Netherlands Eelco Blok Operational review Mobile International Thorsten Dirks Concluding remarks Eelco Blok 13
Slide 14: Progress in strengthening Dutch Telco
Progress in strengthening Dutch Telco Q1 trends Dutch Telco Progress • Consumer wireless • Consumer wireless – Substitution voice, SMS by data – Short-term measures successful; – Competition in ‘value for money’ segment new mobile propositions in September • Business – Customer retention and focus o
Slide 15: Financial review - Dutch Telco
Financial review - Dutch Telco €m Revenues and other income • Revenues and other income down 3.1% y-on-y -3.1% – Regulatory impact of € 54m (3.1%) – € 24m net positive impact from incidentals 1,758 1,759 – € 17m net positive impact from 1,747 1,740 1,704 1,705 acquisitions – Lower service revenues f
Slide 16: Financial review - Dutch Telco by segment
Financial review - Dutch Telco by segment €m 26.9% 29.2% 28.1% 29.6% 29.1% 28.4% • Revenue decline of 3.7% y-on-y Consumer − Regulatory impact of € 27m (2.7%); net positive impact incidental € 11m 969 990 991 990 941 953 − Lower wireless revenues and stable performance wireline Q1 '10 Q2 '10 Q3 '10
Slide 17: Operating review - Consumer wireless
Operating review - Consumer wireless1 Service revenues impacted by regulation and changing customer behavior €m 48% 47% 47% 47% 47% 46% • Service revenues down 8.7% y-on-y – Regulatory impact of € 25m (5.6%) – Impact from changing customer behavior on Service 434 448 443 430 399 409 service revenues
Slide 18: Consumer wireless - update of trends
Consumer wireless - update of trends Smartphones and new apps change customer behavior Smartphone penetration1 Trends % 80 • Number of data customers increasing 60 60% • Smartphones and new communication apps drive SMS 40 42% - and in second instance voice - to data substitution 20 • Expansion of (f
Slide 19: Consumer wireless - update on initiatives
Consumer wireless - update on initiatives Short-term measures successful, new mobile propositions announced Currently September 2011 Reduce ‘out of bundle’ revenue exposure Reduce churn ‘value for money’ New bundles across brand portfolio segment • Actively upsell ‘out of bundle’ • Integrated data /
Slide 20: Operating review - Consumer wireline
Operating review - Consumer wireline • RGUs per customer relatively stable 1.9 1.9 RGUs per customer 1.8 1.8 1.8 1.8 − PSTN / ISDN line loss offset by TV additions − Lower PSTN / ISDN churn − Decreasing broadband churn offset by Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 lower broadband acquisitions
Slide 21: Operating review - Consumer wireline (cont'd)
Operating review - Consumer wireline (cont’d) Continued growth in TV market share, strategic innovation roadmap on track Growing TV market share Expanding addressable market 13% 14% 14% 15% 16% 16% • Hybrid VDSL and FttH strategy 416 – VDSL upgrades ongoing 245 302 360 147 193 – FttH roll-out contin
Slide 22: Copper upgrades - pair bonding
Copper upgrades - pair bonding Supporting multi-room HD TV proposition and increasing bandwidth VDSL VDSL bonding VDSL bonding Activation steps Timeline from CO1 from SC1 Bandwidth per 9-50 Mbps 18-100 Mbps 50-100 Mbps Completed: 1st Pilot subscriber 20 Mbps avg. 40 Mbps avg. 75 Mbps avg. • ~100 fri
Slide 23: Operating review - Business wireless
Operating review - Business wireless €m -2.8% 248 246 236 239 • Service revenues decline 2.8% y-on-y 228 230 – Impact from regulation € 17m (6.9%) Service – Positive impact Yes Telecom of € 7m revenues1 – Maintaining market share in competitive Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 wireless mark
Slide 24: Operating review - Business wireline
Operating review - Business wireline Continued pressure on traditional services €m flat • Continued impact from decline in traditional business Revenues1 373 338 331 335 346 337 • Positive impact from Atlantic Telecom acquisition (€ 12m) Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 1.4 1.4 1.4 1.4 1.3
Slide 25: Operating review - Getronics
Operating review - Getronics Relatively stable market position in difficult market €m Revenues and other income -3.3% • Revenues declining 3.3% y-on-y 474 478 476 538 472 462 – Clients postponing investments and reducing transaction size • Price pressure in market results in lower EBITDA margin Q1 '
Slide 26: Operating review - iBasis
Operating review - iBasis Focus on balancing revenue growth with profitability €m Financial 4.1% 3.8% 4.1% • Focus on balancing revenue growth with 3.2% 3.0% 3.1% profitability – Q2 revenues up 3.8% y-on-y to € 246m, despite ~13% negative currency effect – EBITDA margin of 4.1% despite some price 24
Slide 27: The Netherlands - concluding remarks
The Netherlands - concluding remarks • Consumer wireless trends in line with Q1; short term measures successful • Structural step in moving to data centric wireless portfolio with new mobile propositions • Consumer wireline innovation roadmap on track • Good customer retention management at Business
Slide 28: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Operational review The Netherlands Eelco Blok Operational review Mobile International Thorsten Dirks Concluding remarks Eelco Blok 28
Slide 29: Financial review - Mobile International
Financial review - Mobile International Service revenue flat and good profitability despite severe MTA impact Wireless service €m flat • Q2 service revenues flat revenues – Severe regulatory impact of € 82m (8.3%) 987 1,025 999 989 − High underlying growth in Germany 927 946 − Strong underlying grow
Slide 30: Financial review - Mobile International by segment
Financial review - Mobile International by segment Continued underlying growth in all segments, severe regulatory impact €m 45.4% 41.8% 43.0% 41.8% 39.3% 38.9% • Q2 service revenues flat y-on-y (-0.5%) Germany • Severe regulatory impact of € 61m on service revenues (7.9%), € 31m on EBITDA (9.0%) 850
Slide 31: Operating review - Germany
Operating review - Germany High underlying service revenue growth of 7.5% at strong margin Net adds 20.4 21.0 21.5 • Good performance of ‘Mein BASE’ in both voice 19.9 19.3 19.6 and data – High number of postpaid net adds (102k) 351 434 456 – Regional focus and strong captive channel performance 249
Slide 32: Strategic building blocks
Strategic building blocks Grow mobile Challenger strategy with data Building blocks Key 2015 objective Network • Mobile broadband network for mass market Service revenue • Quality on eye-level with competition market share1 • Clear cost leadership 2010 Commercial • Innovative ‘value for money’ data
Slide 33: Progress Germany
Progress Germany Strong growth in data supported by accelerated network roll-out Strong data growth Accelerated network roll-out • High speed data network roll-out through multiple partnerships running ahead of schedule • >75% of own customer base covered with BASE Lutea BASE Tablet high speed data
Slide 34: Operating review - Belgium
Operating review - Belgium1 Strong underlying growth of 8.9%, service revenues impacted by regulation Net adds 3.9 3.9 3.7 3.7 3.6 3.6 • Underlying service revenue growth of 8.9% y-on-y in Q2 136 – Regional focus with increasing number of shops 44 53 24 9 – Clean-up of ~220k inactive prepaid custome
Slide 35: Agenda
Agenda Chairman’s review Eelco Blok Group financial review Carla Smits-Nusteling Operational review The Netherlands Eelco Blok Operational review International Thorsten Dirks Concluding remarks Eelco Blok 35
Slide 36: Concluding remarks
Concluding remarks • Q2 financial results down y-on-y; on track to realize outlook • Progress made with strategic initiatives to strengthen the business in The Netherlands • High underlying growth in Germany at strong margin • First phase of restructuring plan is being implemented to optimize cost s
Slide 37: Q&A
Q&A
Slide 38: Annex
Annex For further information please contact KPN Investor Relations Tel: +31 70 44 60986 [email protected] www.kpn.com/ir
Slide 39: Analysis of results
Analysis of results Key items worth mentioning in results interpretation €m Q2 ’11 Q2 ’10 YTD ’11 YTD ’10 Revenue effect MTA reduction Group -132 -23 -259 -78 Roaming tariff reduction Group -4 -15 -10 -30 EBITDA effect MTA reduction Group -55 1 -108 -19 Roaming tariff reduction Group -1 -11 -4 -24 R
Slide 40: Restructuring costs
Restructuring costs €m Q2 ’11 Q2 ’10 YTD ’11 YTD ’10 Germany - -2 - -2 Belgium - - - - Rest of World -2 - -2 - Mobile International -2 -2 -2 -2 Consumer - -1 -1 -2 Business - - - - Wholesale & Operations - 6 - 3 IT NL - - - - Other -1 - -1 - Dutch Telco -1 5 -2 1 Getronics -7 1 -12 1 The Netherlands
Slide 41: Regulation
Regulation MTA reductions and upcoming spectrum auctions MTA reductions implemented across the Group Upcoming spectrum auctions • KPN’s suspension request has been rejected, annulment • Concept auction document published procedure is ongoing NL NL • Preliminary timing indicates Q1 2012 € ct / min Un
Slide 42: Impact MTA reduction
Impact MTA reduction €m Q2 ’11 YTD ’11 1 1 Revenues EBITDA Revenues EBITDA Germany -58 -30 -111 -57 Belgium -21 -13 -42 -27 Mobile International -79 -43 --153 --84 Consumer -27 -10 -55 -19 Of which: Mobile Wholesale -2 -1 -4 -2 Business -16 -2 -33 -4 Wholesale & Operations -13 - -25 -1 Intercompany
Slide 43: Operating expenses
Operating expenses €m Q2 ’11 Q2 ’10 % Salaries and social security contributions 471 493 -4.5% Cost of materials 232 199 17% Work contracted out and other expenses 1,136 1,144 -0.7% Own work capitalized -30 -25 -20% Other operating expenses 173 157 10% Depreciation1 352 351 flat Amortization1 212 19
Slide 44: Operating expenses - analysis
Operating expenses - analysis Salaries and social security contributions & Cost of materials €m Salaries and social security Y-on-Y decrease • Reduction of own personnel in The Netherlands and 15.5% 14.7% 14.9% 14.4% Getronics, partly offset by increase at Mobile 14.1% 13.7% International Q-on-Q dec
Slide 45: Operating expenses - analysis
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y decrease • Lower traffic costs due to regulatory tariff cuts across 34.1% 34.2% 34.8% 33.8% 34.6% 34.7% all segments • Partly offset by increase at Mobile International and iBasis due to higher traffic 1,116 1,14
Slide 46: Operating expenses - analysis
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 10.6% 10.5% 10.6% 10.6% 10.9% 10.7% 348 351 353 357 347 352 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Depreciation % of Revenues €m Amortization1 Y-on-Y increase • Higher amortization costs due to new spectrum licenses 5.6% 5
Slide 47: Personnel
Personnel • Decrease of 523 FTE y-on-y – Reduction of 412 FTE in The Netherlands 32,203 (excl. Getronics) from all segments 31,121 30,654 30,534 30,598 30,599 4,369 – Increase of 492 FTE at Mobile International 3,990 3,934 3,843 3,827 3,826 (including SNT Germany) – Getronics domestic: reduction of
Slide 48: Tax
Tax P&L Cash flow Fiscal units (€ m) Q2 ’11 Q2 ’10 Q2 ’11 Q2 ’10 Dutch activities1 -107 -111 95 -2 Getronics 9 -2 - 1 German Mobile activities -28 -33 -1 -1 Belgian Mobile activities -10 -16 - - Other -2 -7 -1 -2 Total reported tax -138 -169 93 -4 Effective tax rate 24.5% 26.2% • KPN has reached an
Slide 49: Share repurchase progress
Share repurchase progress Date1 Value (€ m) Shares (m) Avg. share price (€) Q1 ’11 178.4 15.2 11.71 April 107.1 9.5 11.29 May 252.3 24.3 10.40 June 136.0 13.6 10.03 Q2 ’11 495.4 47.3 10.47 July2 32.4 3.4 9.57 Total 706.2 65.9 10.72 • € 1bn share repurchase program for 2011 started on 21 February 201
Slide 50: Debt portfolio
Debt portfolio Breakdown of € 13.6bn gross debt1 12% 81% Other Financial 7% Global bonds 6% 9% instrum ents 2% EUR USD2 GBP2 10% 90% Eurobonds Fixed Floating (incl. swapped) 83% 1 Book value of interest bearing financial liabilities plus the fair value of financial instruments (excluding Reggefiber)
Slide 51: Dutch wireless services disclosure
Dutch wireless services disclosure Q2 ’11 Q1 ’11 Q2 ’10 Service revenues (€ m) 702 698 761 − Consumer 409 399 448 − Business 239 230 246 − Other Dutch activities1 54 69 67 SAC / SRC (€) − Consumer 164 146 157 − Business 224 225 215 1 Indicates amongst others Mobile Wholesale NL, Simyo and visitor ro
Slide 52: Infrastructure
Infrastructure Deploying mix of technologies going forward ADSL on copper VDSL from VDSL from FttH Wireless central office street cabinet (VDSL-CO) Central office Central office Central office ODF1 Street cabinet up to 20 Mbps down up to 40 Mbps down 30-40 Mbps down >100 Mbps >14 Mbps down up to 2 M
Slide 53: 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 € 6.54 / line colocation KPN / Telco MDF colocation1 € 871.20 / footprint / year ~28,000 1,350 street cabinets local exchanges MDF backhaul Commercial pricin
Slide 54: 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 1x25 2x15 1x5 2x20
Slide 55: Spectrum in Belgium
Spectrum in Belgium KPNgB Proximus Mobistar 900MHz 2x10.8 2x12 2x12 KPNgB Proximus Mobistar Prox Mob Free 1.8GHz 2x5.8 2x5.8 2x22 2x15 2x15 2x11.4 Current KPNgB Proximus Mobistar Telenet & Voo Free 2.1GHz status 2x15 1x5 2x15 1x5 2x15 1x5 2x14.8 1x5 Free 2.6GHz 140MHz paired, 50MHz unpaired1 KPNgB P
Slide 56: Service revenues growth Mobile International
Service revenues growth Mobile International Service revenues growth Germany Service revenues growth Belgium 7.7% 7.9% 11.9% 7.5% 10.4% 9.7% 8.4% 8.9% 8.1% 4.4% 4.0% 6.6% 7.2% 4.0% 2.8% 2.5% 2.0% 1.0% 1.8% -0.7% -0.5% -2.3% -3.9% -5.3% Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q1 '10 Q2 '10 Q3 '10 Q