Royal KPN NV · EURONEXT:KPN
Royal KPN NV — Debt Investor Presentation (November 2006)
53 slides from Royal KPN NV's debt investor presentation, November 2006
Slide 1: Bond investor presentation
Bond investor presentation November 2006
Slide 2: Disclaimer
Disclaimer This presentation has been prepared in connection with the Invitation to Tender notes of KPN’s € 1.5 bn 4.75% notes due November 2008 for an amount up to € 750 mn. The Invitation to Tender is being made upon the terms and subject to the conditions set out in the Tender Offer Memorandum da
Slide 3: Disclaimer
Disclaimer We define EBITDA as operating profit before depreciation and impairments of PP&E and amortization and impairments of intangible assets. The measure is used by financial institutions and credit-rating agencies as one of the key indicators of borrowing potential. Many analysts use EBITDA as
Slide 4: Safe harbor
Safe harbor Certain statements contained in this presentation constitute forward-looking statements. These statements may include, without limitation, statements concerning future results of operations, the impact of regulatory initiatives on our operations, our and our joint ventures' share of new
Slide 5: Agenda
Agenda Bieke van Dam-Debruyne, Introduction Head of Corporate Finance KPN Financial results Marcel Smits, CFO KPN Strategy Marcel Smits, CFO KPN Financing Policy Marcel Smits, CFO Concluding remarks Marcel Smits, CFO 5
Slide 6: Tender offer highlights
Tender offer highlights • Target bonds: € 1.5 bn 4.75% Notes due November 2008 • Tender offer for up to € 750 mm aggregate amount • To be funded by a new Euro denominated issue • The offer is subject to sufficient financing being available in new issue market The offer is not made into the US or Ita
Slide 7: Highlights new issue
Highlights new issue • Issuer Koninklijke KPN N.V. • Securities Senior unsecured notes • Currency Euro • Size Benchmark • Tenor To be determined • Documentation KPN €10bn GMTN programme • Change of Control Included • Denominations Minimum € 50,000 • Use of proceeds Refinancing of existing debt • Joi
Slide 8: Expected timetable
Expected timetable Date Event 31 October • Transaction announced • Commencement of invitation to tender 2 November • Investor conference call 7 November • Expiration of invitation to tender • Bookbuilding of new issue 8 November • Announcement of pro-rata factor for tender • Allocation of new issue
Slide 9: Agenda
Agenda Bieke van Dam-Debruyne, Introduction Head of Corporate Finance KPN Financial results Marcel Smits, CFO KPN Strategy Marcel Smits, CFO KPN Financing Policy Marcel Smits, CFO Concluding remarks Marcel Smits, CFO 9
Slide 10: Highlights
Highlights • Mobile outperforming the market – E-Plus and BASE continuing to deliver profitable growth – KPN Mobile the Netherlands gaining market share • Future proofing Fixed division on track – Battle for market share in the Consumer segment leading to increased investment in customer base and li
Slide 11: Financial highlights Q3
Financial highlights Q3 • Continued strong financial performance – Revenues and other income up 3.7% (YTD 2.8%, or 2.1% per guidance definition1) – EBITDA up 4.4% (YTD 8.2%, or 6.7% per guidance definition1) – Strong free cash flow of € 728 mn (YTD € 2,139 mn) – EPS up 20.0% to € 0.18 • YTD sharehol
Slide 12: Group results Q3
Group results Q3 € mn Q3 ’06 Q3 ’05 % • Revenues up 3.5% – Organic growth in Mobile, on top of Revenues and other income 3,037 2,930 3.7% Telfort consolidation – of which Revenues 3,028 2,926 3.5% – Contraction Fixed revenues due to Operating expenses 2,463 2,349 4.9% line loss and price pressure 1
Slide 13: Group results YTD
Group results YTD € mn YTD ’06 YTD ’05 % • Revenues up 2.1% – Telfort consolidation Revenues and other income 9,018 8,770 2.8% – Organic growth at all three Mobile – of which Revenues 8,919 8,737 2.1% operators Operating expenses 7,162 7,117 0.6% – Contraction Fixed revenues 1 – of which Depreciatio
Slide 14: Group cash flow Q3
Group cash flow Q3 € mn Q3 ’06 Q3 ’05 % • Free cash flow of € 728 mn Operating result 574 581 -1.2% • Capex up 15.2% Depreciation and amortization1 624 566 10.2% – Continued investment in indoor Interest paid/received -108 -95 13.7% coverage by E-Plus (E-GSM) Tax paid/received -1 2 - Other income -9
Slide 15: Financial highlights Fixed
Financial highlights Fixed Line loss and price pressure impact € mn Q3 ’06 Q3 ’05 YTD ’06 YTD ’05 Revenues and other income 1,630 1,694 4,967 5,149 % change -3.8% -3.5% Operating expenses 1,309 1,298 3,877 3,976 – of which D&A 303 306 879 965 Operating result 321 396 1,090 1,173 EBITDA 623 702 1.968
Slide 16: EBITDA analysis Fixed
EBITDA analysis Fixed1 EBITDA decline traditional business partly offset by new business and efficiency € mn 702 -55 -25 +30 -11 +11 -29 623 Q3 ’05 Q3 '05 Line loss Price and New business Investments in Headcount2 Other Q3 ’06 Q3 '06 Consumer volume customer base Business voice/data 1 Breakdown base
Slide 17: Financial highlights Mobile
Financial highlights Mobile Revenues and margin up in all three countries € mn Q3 ’06 Q3 ’05 YTD ’06 YTD ’05 Revenues and other income 1,689 1,448 4,789 4,177 % change 16.6% 14.7% – of which Service revenues1 1,610 1,358 4,548 3,873 % change 18.6% 17.4% Operating expenses 1,425 1,252 4,063 3,692 – o
Slide 18: Revised outlook
Revised outlook EBITDA and free cash flow for 2006 revised upward Outlook FY 2006 As given 7 February 1 August update October update YTD ’06 Revenues and Low single digit Unchanged Unchanged 2.1% other income1 increase Low single digit Mid single digit EBITDA1,2 Flat 6.7% increase increase Capex € 1
Slide 19: Agenda
Agenda Bieke van Dam-Debruyne, Introduction Head of Corporate Finance KPN Financial results Marcel Smits, CFO KPN Strategy Marcel Smits, CFO KPN Financing Policy Marcel Smits, CFO Concluding remarks Marcel Smits, CFO 19
Slide 20: Investing in our future
Investing in our future KPN very well prepared to deal with challenging market • Multi-brand strategy, leveraging brands and distribution channels • VoIP roll-out at full speed, share in gross adds approximately 45% Attack • DVB-T roll-out on track, analogue switch-off in December • In-country conso
Slide 21: Consumer market
Consumer market Increasing share of VoIP mn Voice subscribers1 mn Broadband connections1,2 4.74 4.56 4.35 1.1 4.11 0,86 0.2 3.83 0,82 0,76 0.7 0,74 0.3 0,67 1,94 2,02 1,87 1,74 1,62 4.3 1,63 1,72 1,80 1,86 1,54 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 KPN P
Slide 22: VoIP
VoIP Market leader in gross additions in Q3 and turnaround in net line loss trend X 1,000 KPN VoIP subscriptions installed • Taking approximately 45% share of VoIP 270 gross additions in Q3 • KPN, Planet, Het Net and Slim covering 156 different segments on a single technological platform 73 – Mass m
Slide 23: Growing subscriber base and continuous addition of new content
TV Growing subscriber base and continuous addition of new content DVB-T IPTV • Digitenne positioned as value-for-money • Mine positioned as premium proposition proposition • Full commercial roll-out starting as of • Subscriber base of 245k by end of Q3 January 2007 • Opportunity for Digitenne when a
Slide 24: Voice in the business market
Voice in the business market Market share in traditional voice stabilizing Market share traditional voice minutes • Increased regulatory flexibility used to introduce new products and services 70% • New propositions and pricing schemes successful since first start in Q1 60% • Market share in traditi
Slide 25: Business market
Business market Moving up the value chain into application management services Developments Business Process • Strong growth in business DSL and Outsourcing Domain of service value-added services Integrators • Up-selling to managed solutions Limited Scope ICT outsourcing (telecom outsourcing) Acquis
Slide 26: Status All-IP
Status All-IP Project on track • IP-based products available and successful, e.g. Fast Internet Access, IP-VPN and E-VPN Portfolio • InternetPlusBellen (VoIP) and Mine (IPTV) available, new services VoIP Connect and Wholesale Broadband Access planned • Backbone Ethernet network covering ~80% of NL •
Slide 27: International mobile challenger strategy
International mobile challenger strategy Tailored to the market environment Market environment Our strategy Decreasing prices, Lean • Become the leanest and most profitable cost pressure operating model operator in all our markets Need for scale to • Continue to use wholesale and diversified Wholesa
Slide 28: E-Plus challenger strategy
E-Plus challenger strategy In August 2005 we said we would do things differently Customer • Handpick segments with tailored offerings targeting Proposition • Turn core services into great value Channels • Redesign pull & its economics Deployment • Focus regionally, maximizes impact of pull-actions R
Slide 29: E-Plus highlights Q3
E-Plus highlights Q3 Successful challenger strategy delivering profitable growth • Strengthening E-Plus brand, launch of “CleverOne” proposition Multi-brands • Youth brand “Vybemobile” launched with Universal Music • 10 MVNOs with strong and new distribution channels to address Wholesale previously
Slide 30: E-Plus: impact of new strategy
E-Plus: impact of new strategy 3.6 mn subscribers in new segments and acceleration of service revenue growth X 1,000 Subscribers new propositions Acceleration of service revenue growth 3,586 10.9% 2,850 9.8% 8.1% 7.6% 2,046 4.3% 1,079 415 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q3 '05 Q4 '05 Q1 '06 Q2 '0
Slide 31: E-Plus going forward
E-Plus going forward Execution ‘Be Best Challenger’ strategy • Further up-scaling of new brands: BASE, Simyo and strengthening of E-Plus brand Multi-brands • In addition, addressing individual segments directly and / or through wholesale partners • Continue to develop innovative products and attract
Slide 32: BASE
BASE Profitable growth in competitive market • “Member Gets Member” campaign launched at the beginning of September targeted at Post Paid customers Customer • Further segment-targeted offerings such as professionals tariffs pull • Leverage on wholesale partnerships for specific market segments or st
Slide 33: National mobile strategy
National mobile strategy Tailored to the market environment Market environment Our strategy Decreasing prices, • Accelerate new services and broadband Value focus cost pressure products, optimize current portfolio Need for scale to • Increase revenue market share and extract achieve EBITDA Telfort a
Slide 34: KPN Mobile the Netherlands
KPN Mobile the Netherlands Continued build-out of our market leadership • Outperforming the market with strong focus on Post Paid and multi-brands • Hi has successfully claimed MMS in youth market, as it did Multi-brands previously with SMS • Ay Yildiz launched to serve specific needs of Turkish com
Slide 35: Agenda
Agenda Bieke van Dam-Debruyne, Introduction Head of Corporate Finance KPN Financial results Marcel Smits, CFO KPN Strategy Marcel Smits, CFO KPN Financing Policy Marcel Smits, CFO Concluding remarks Marcel Smits, CFO 35
Slide 36: Financing highlights YTD
Financing highlights YTD Financial flexibility maintained, despite significant return to shareholders Bondholder (Protection) Shareholder (Remuneration) • € 1.25 bn in bonds issued in March ’06 to • € 0.7 bn final dividend 2005 paid in April refinance short-term debt (€ 0.32 per share) • € 0.8 bn bo
Slide 37: Financing policy
Financing policy Rating floor of Baa2 / BBB • Target net debt / EBITDA1 range of 2.0 – 2.5 times – Accommodating an attractive dividend policy and maximizing returns to shareholders – Maintaining flexibility to invest in and grow KPN’s business • Maintain minimum credit rating of Baa2 (Moody’s) and
Slide 38: Group financial profile
Group financial profile € bn Debt Financing policy 10.9 11.0 2.5x 10.8 10.0 10.4 2.0x 1.9 1.8 1.9 9.4 1.7 1.7 8.9 8.8 7.9 8.2 Q3 ’05 Q4 ’05 Q1 ’06 Q2 ’06 Q3 ’06 Q3 ’05 Q4 ’05 Q1 ’06 Q2 ’06 Q3 ’06 Gross Debt Net Debt Net Debt / EBITDA1 Financial framework range € bn Redemption profile • Gross debt up
Slide 39: Debt summary
Debt summary € bn Q3 ’06 Q2 ’06 6% Bonds 8.19 8.38 67% Eurobonds 6.02 6.28 27% Global bonds 2.17 2.10 Other debt 1.91 1.05 2 Other loans at Royal KPN 1.86 1.00 1 1 Consolidated debt 0.05 0.05 EUR USD GBP Fair value financial instruments 0.86 0.95 42% Total debt 10.96 10.38 – of which short-term 1.87
Slide 40: Agenda
Agenda Bieke van Dam-Debruyne, Introduction Head of Corporate Finance KPN Financial results Marcel Smits, CFO KPN Strategy Marcel Smits, CFO KPN Financing Policy Marcel Smits, CFO Concluding remarks Marcel Smits, CFO 40
Slide 41: Concluding remarks
Concluding remarks • Strong performance in challenging markets • Mobile continuing to outperform and delivering profitable growth • Future proofing our Fixed business • EBITDA and free cash flow outlook for 2006 further revised upward • Financing policy with Net debt / EBITDA2 range of 2.0 – 2.5 tim
Slide 42: Q&A
Q&A
Slide 43: Annex
Annex For further information please contact KPN Investor Relations Tel: +31 70 44 60986 Fax: +31 70 44 60593 [email protected] www.kpn.com
Slide 44: Balance sheet
Balance sheet Assets Equity and liabilities € bn € bn 23.4 22.7 23.8 22.6 22.4 23.4 22.7 23.8 22.6 22.4 4,0 4,6 5,0 5,5 4,6 4,6 4,7 5,1 4,8 3,8 Goodwill Group equity 4 4,2 1,9 1,7 1,6 4,4 1,7 1,7 4,5 4,4 4,3 1 Licenses Provisions 2 Other non- Non-current 10,5 10,5 11,6 11,7 9,9 9,8 11,6 current asse
Slide 45: Capex
Capex1 € mn Q3 ’06 Q3 ’05 % YTD ’06 YTD ’05 % Mobile 242 166 45.8% 597 443 34.8% % Revenues Mobile 14% 11% 12% 11% E-Plus 151 96 57.3% 367 263 39.5% % Revenues E-Plus 20% 13% 17% 13% KPN Mobile NL 59 43 37.2% 137 110 24.5% % Revenues KPN Mobile NL 8% 7% 6% 6% BASE 32 27 18.5% 94 70 34.3% % Revenues
Slide 46: Personnel
Personnel Continuing decline, predominantly in the Netherlands • Personnel reduction Y-on-Y -395 about 400 FTE, of which 430 in the Netherlands 26,598 • Y-on-Y acquisition effects 26,316 26,176 26,033 25,921 in the Netherlands of 6.752 6.684 6.734 1,342 FTE 6.807 6.787 • Excluding acquisition effect
Slide 47: Acquisitions in 2006
Acquisitions in 2006 Strengthening our market position and building capabilities In country consolidation Activity Internet service provider 1 Integrated ICT solutions Hotspot operator at Amsterdam Airport Closed network connecting health care providers National wholesale provider + business retail
Slide 48: Pensions
Pensions Significant decrease of shortfall, no immediate funding obligation • New Dutch guidelines on financing of pension fund as of Dutch 1 January ’05 Guidelines “FTK”1 • Regular contribution increased, only immediate additional funding of shortfall if coverage ratio falls below 105% • Coverage r
Slide 49: Status update MTA
Status update MTA Many issues still under debate, limited visibility on further timing Regulatory proposal Current status • Lowering in 3 linear steps by July ’08 • Dutch court1 annulled – KPN, Vodafone: from 11.0 to 5.50 cents OPTA’s decision to regulate The MTA – Orange, T-Mobile: from 12.4 to 7.0
Slide 50: Operating review Fixed by segment
Operating review Fixed by segment € mn Revenues and other income € mn EBITDA (margin) Consumer Consumer 583 589 572 573 557 15.8% 13.8% 14.0% 12.0% 11.8% 92 81 80 69 66 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Business Business 16.2% 669 13.7% 14.1% 644 647 1 12.2% 626 6
Slide 51: Operating review E-Plus
Operating review E-Plus Continuing to deliver profitable growth Continued strong customer growth (21%) Continued increase of service revenue share Customers (mn) 11.9 12.2 (Post Paid %) 11.4 13.2% 10.7 (49%) (49%) 10.1 (50%) 12.8% (52%) (52%) 176 12.1% Net adds 316 11.8% 11.8% 77 518 111 219 333 308
Slide 52: Operating review KPN Mobile the Netherlands
Operating review KPN Mobile the Netherlands1 Outperforming the market following strong focus on Post Paid Strong focus on Post Paid Outperformance on service revenue growth Customers (mn) 8.1 8.1 8.3 8.5 (Post Paid %) 46.7% 47.5% (43%) (44%) 46.1% 46.3% (40%) (41%) 5.7 (44%) 37.7% Net adds 190 106 1
Slide 53: Operating review BASE
Operating review BASE Continued growth due to successful wholesale partnerships Strong uptake in net adds Continued increase in revenue market share Customers (mn) 2.1 2.2 2.0 2.0 1.9 Net adds ~15% ~14% >14% >13% >13% 5 53 76 57 31 28 62 33 15 11 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q3 ’05 Q4 ’05 Q1 ’
Royal KPN — Debt Investor Presentation (November 2006) on 6ix