Royal KPN NV · EURONEXT:KPN
Royal KPN NV — KPN — Q3 2013 Earnings Presentation
58 slides from Royal KPN NV's earnings presentation, Oct 22, 2013
Slide 1: Third quarter results 2013
Third quarter results 2013 22 October 2013
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: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group review Eelco Blok 4 Concluding remarks Eelco Blok 3
Slide 4: Executive summary
Executive summary Outlook reflects Group profile excluding E-Plus, lowered Capex forecast On track to realize outlook driven by good operational Third quarter performance and stable market shares results 2013 Revenues and EBITDA down, partly offset by growth in Consumer Residential FCF impac
Slide 5: Executive summary (cont'd)
Executive summary (cont’d) ~4,200 FTE reductions since start of the program Structural cost Structural decline in personnel costs ~10% y-on-y savings Simplification of products, client processes, network & IT EGM approved sale of E-Plus to Telefónica Deutschland Strong financial profile KP
Slide 6: Outlook
Outlook Outlook excluding E-Plus, lowered Capex forecast Continuing operations • The Netherlands expected to stabilize towards 2014 • Market outperformance expected in Belgium • 2013 Capex < € 1.7bn, total Capex 2013-2015 period of < € 4.7bn, including Reggefiber as of consolidation1 • Intention to
Slide 7: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group review Eelco Blok 4 Concluding remarks Eelco Blok 7
Slide 8: Group financial profile
Group financial profile € bn Net debt • Net debt relatively stable 12.4 9.5 9.6 • € 1.4bn bond redemptions in first half of 2014 4.62 4.82 • Average coupon senior bonds 5.0%, average maturity senior bonds 6.9 years Q3 ’12 Q2 ’13 Q3 ’13 Net debt1 Pro forma net debt2 Net debt / EBITDA • Net debt / EBI
Slide 9: Group results Q3 '13 (continuing operations)
Group results Q3 ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) Q3 ’13 Q3 ’12 % • Revenues down 7.6% y-on-y − Lower revenues at Business, Consumer Revenues and other income 2,080 2,251 -7.6% Mobile and NetCo, partly offset by revenue growth at Consumer Resident
Slide 10: The Netherlands – operating expenses
The Netherlands – operating expenses Breakdown operating expenses • Operating expenses (excl. D&A and restructuring €m (excl. D&A and restructuring costs) costs) down 2.7% y-on-y -2.7% • Employee benefits down 13% y-on-y 975 971 949 − Structural decline in personnel costs ~10% y-on-y, corrected for
Slide 11: Group results YTD '13 (continuing operations)
Group results YTD ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) YTD ’13 YTD ’12 % Revenues and other income 6,411 7,075 -9.4% • Revenues down 9.4% y-on-y − Lower revenues at Business, NetCo and Operating expenses (excl. D&A) 4,109 4,549 -9.7% Consumer Mobile,
Slide 12: Group cash flow Q3 '13 (continuing operations)
Group cash flow Q3 ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) Q3 ’13 Q3 ’12 % Operating profit 281 456 -38% • Free cash flow € 38m lower y-on-y Depreciation and amortization1 462 411 12% − € 124m lower EBITDA Interest paid/received -168 -118 42% − € 50m hig
Slide 13: Group cash flow YTD '13 (continuing operations)
Group cash flow YTD ’13 (continuing operations) E-Plus discontinued operation € m (continuing operations) YTD ’13 YTD ’12 % Operating profit 928 1,335 -30% • Free cash flow of € 225m YTD ’13, Depreciation and amortization1 1,374 1,191 15% € 176m lower y-on-y Interest paid/received -584 -491 19% − €
Slide 14: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group review Eelco Blok 4 Concluding remarks Eelco Blok 14
Slide 15: Clear strategy in The Netherlands
Clear strategy in The Netherlands Focus on creating loyal customers by high quality services Best-in-class Simplification to Bundled services networks support profitability Simplified products Simplified client processes Simplified network & IT 15
Slide 16: Simplification
Simplification Centralized Simplification agenda to support profitability Simplified Simplified Simplified products client processes network & IT • Simple converged line-up • Improve online sales & • Consolidation to reduce service complexity IT systems • Reduce product portfolio • Simplify delivery
Slide 17: Capex
Capex KPN ahead of domestic Capex curve in Europe Increased investments since 2009 Best-in-class fixed & mobile networks Capex-to-sales ratio development • Future proof point-to-point fixed networks, 30% hybrid FttH / copper strategy 27% 25% 22% • 4G market leadership; nationwide coverage 20% end Q1
Slide 18: Consumer Residential financial review
Consumer Residential Growing revenues, improving profitability €m 21.9% 18.5% 21.9% Increasing products per customer Financial review +7.0% 457 480 489 100 89 107 Increasing customer base Q3 ’12 Q2 ’13 Q3 ’13 EBITDA margin (excl. restr. costs) EBITDA (excl. restr. costs) Revenues and other income In
Slide 19: Consumer Residential (cont'd)
Consumer Residential (cont’d) Growing multi play and FttH customer base Bundled services and FttH • Continued growth triple play customers, k +11%-points penetration up 11%-points y-on-y 42% 43% 32% 1,169 1,131 • RGUs per customer increased by 7.3% y-on-y to 2.16 (Q3 ’12: 2.01) 816 429 461 • 86k qua
Slide 20: Consumer Mobile
Consumer Mobile Multi-brand approach to capture all market segments €m 34.4% 35.2% • Underlying service revenue decline 7.4% y-on-y 26.9% in competitive market Financial review -11% 422 389 375 • EBITDA margin1 lower mainly due to change in 145 137 101 handset propositions at KPN and Hi brands Q3 ’1
Slide 21: Business
Business Focus on bundled services and committed revenues 27.5% • Stable market positions maintained in difficult €m 26.3% 26.3% macro environment and competitive market Financial review 25.0%1 -9.0% 710 706 646 • Focus on increasing committed revenues − Bundled services through KPN ONE (integrated
Slide 22: NetCo
NetCo €m 57.0% 55.7% 54.7% • Revenues NetCo down by 6.1% y-on-y mainly €m driven by lower wholesale traffic revenues Financial review -6.1% • EBITDA margin1 at 54.7% 621 587 583 − Decline high margin traditional services 354 327 319 − Higher FttH access costs − Partly offset by lower personnel costs
Slide 23: IT Solutions
IT Solutions 14.0% • Revenues IT Solutions down 11% y-on-y €m 12.3% − Continued price pressure driven by overcapacity 8.5% and postponement large IT investments Financial review − Stable market position -11% 164 164 146 • EBITDA margin1 at 12.3% 23 14 18 − Reduced margin due to lower revenues, partl
Slide 24: iBasis
iBasis 3.6% • Revenues iBasis down 6.1% y-on-y €m 3.4% 2.8% − Competitive market Financial review − Including 2.3% negative currency effect -6.1% 264 247 248 • EBITDA margin1 at 3.6% − Margin pressure offset by focus on costs 9 7 9 Q3 ’12 Q2 ’13 Q3 ’13 EBITDA margin (excl. restr. costs) EBITDA (excl
Slide 25: Germany (discontinued operation)
Germany (discontinued operation1) Market share relatively stable, margin improving €m 38.5% 34.2% • Underlying service revenue decline 2.0% 28.5% y-on-y Financial review 27.0%2 -4.8% 839 803 799 • Regulation impact on revenues of € 42m 323 275 228 (5.0%) Q3 ’12 Q2 ’13 Q3 ’13 EBITDA margin (excl. res
Slide 26: Germany (discontinued operation) (cont'd)
Germany (discontinued operation) (cont’d) Underlying service revenue trend improving 24.0 24.4 24.8 • Strong improvement network quality confirmed by CHIP network test Net adds 284 269 − #3 position in German market 170 − Throughput increased significantly 210 210 207 Urban areas - up to 6.0Mbps Q
Slide 27: Belgium
Belgium Strong performance in competitive market €m 36.8% • Underlying service revenue decline 7.1% y-on-y 26.8% 26.0% in competitive market Financial review -10% 201 183 181 74 49 47 • Regulation impact on revenues of € 11m (5.5%) Q3 ’12 Q2 ’13 Q3 ’13 EBITDA margin (excl. restr. costs) EBITDA (excl
Slide 28: Belgium (cont'd)
Belgium (cont’d) Focus on strong network position 3.7 • Focus on strong 3G and 4G network position 3.4 3.3 − #1 voice quality − Joint #1 data quality − 4G launched in 15 cities, aim to cover majority of Net adds 234 53 46 population end-2014 -3 − BASE Company to participate in 800MHz auction -54 -61
Slide 29: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Steven van Schilfgaarde 3 Group review Eelco Blok 4 Concluding remarks Eelco Blok 29
Slide 30: Concluding remarks
Concluding remarks • Investments in customers and networks yielding operational results • Focus on bundled services delivered over high quality networks • Large Simplification program to support profitability and reduce Capex • Sale of E-Plus approved by EGM, regulatory approval expected mid-2014 •
Slide 31: Q&A
Q&A 31
Slide 32: Annex
Annex Q3 2013 - Information Pack For further information please contact KPN Investor Relations +31 70 44 60986 [email protected] www.kpn.com/ir
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: 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 35: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 35
Slide 36: Analysis of results
Analysis of results Impact incidentals, restructuring and regulation €m Q3 ’13 Q3 ’12 YTD ’13 YTD ’12 Revenue effect MTA reduction Regulation Group -44 -21 -127 -81 Roaming tariff reduction Regulation Group -28 -19 -60 -23 EBITDA effect MTA reduction Regulation Group -20 -8 -63 -29 Roaming tariff re
Slide 37: Restructuring costs
Restructuring costs €m Q3 ’13 Q3 ’12 YTD ’13 YTD ’12 Germany (incl. discontinued operations) 1 - 6 - Belgium - - - - Mobile International (incl. discontinued operations) 1 - 6 - Consumer Mobile - -1 -5 -2 Consumer Residential -4 -2 -16 -23 Business 2 - -7 -12 NetCo -2 -3 -7 -20 Other -7 - -32 -3 Dut
Slide 38: Impact regulation
Impact regulation €m Q3 ’13 YTD ’13 Revenues EBITDA Revenues EBITDA Germany (incl. discontinued operations) -42 -22 -115 -64 Belgium -11 -7 -35 -22 Mobile International (incl. discontinued operations) -53 -29 -150 -86 Consumer Mobile -7 -3 -17 -7 Of which: Mobile Wholesale - - -2 Business -10 -7 -16
Slide 39: Operating expenses (continuing operations)
Operating expenses (continuing operations) €m Q3 ’13 Q3 ’12 % Employee benefits 307 336 -8.6% Cost of materials 146 146 flat Work contracted out and other expenses 782 795 -1.6% Own work capitalized -17 -17 flat Other operating expenses1 119 124 -4.0% Depreciation2 319 273 17% Amortization2 143 138
Slide 40: Operating expenses - analysis
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y decrease (Continuing operations) • Lower costs as a result of FTE reduction program 18.1% 16.2% 16.5% 16.8% • Release of provision for several incentive schemes 14.9% 15.2% 14.8% in Q3 2013 Q-on-Q decreas
Slide 41: Operating expenses - analysis
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y decrease (Continuing operations) • Lower traffic costs Consumer Mobile and iBasis 38.0% 37.6% • Lower costs due to sale of KPN Spain and Ortel 36.1% 36.7% 34.9% 34.9% 35.3% Switzerland • Partly offset by higher c
Slide 42: Operating expenses - analysis
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 Y-on-Y increase (Continuing operations) • Increased customer driven investments, including 14.6% 15.3% handset lease model Consumer Mobile 13.8% 13.0% 12.1% 10.5% 10.8% Q-on-Q increase • Increased customer driven investments,
Slide 43: Financial review - The Netherlands
Financial review - The Netherlands €m • Lower revenues due to Business, Consumer Revenues and other income Mobile and NetCo, partly offset by growth at Consumer Residential -6.4% • EBITDA down 11% due to − Lower revenues 1,774 1,735 1,661 − Impact change handset propositions € 19m (2.4%) at KPN and
Slide 44: Dutch wireless disclosure
Dutch wireless disclosure Q3 ’13 Q3 ’12 % Service revenues (€ m) 592 639 -7.3% − Consumer retail 312 345 -9.6% − Business 234 245 -4.5% − Other1 46 49 -6.1% SAC/SRC per subscriber (€) − Consumer retail2 172 174 -1.1% − Business 244 320 -24% 1 Includes amongst others Consumer Mobile wholesale and vis
Slide 45: Tax
Tax P&L Cash flow Fiscal units (€ m) Q3 ’13 Q3 ’12 Q3 ’13 Q3 ’12 The Netherlands -37 -45 -811) -1211) IT Solutions 25 6 - -1 Germany -102 -27 1 - Belgium - -8 - - Other -2 -1 -1 - Total reported tax (incl. discontinued operations) -116 -75 -81 -122 Of which discontinued operations -101 -27 1 Reporte
Slide 46: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 46
Slide 47: Debt summary
Debt summary € bn Q3 ’13 Q2 ’13 % Nominal debt 14.38 14.55 -1.2% Eurobonds 10.83 11.37 -4.7% Global bonds 0.76 0.76 flat Hybrid bonds 2.03 2.03 flat Credit facility - - flat Preference shares (issued to Foundation Preference Shares B KPN)1 0.26 - n.m. Financial leases and other loans 0.50 0.39 28% E
Slide 48: Debt portfolio
Debt portfolio Breakdown of € 14.4bn nominal debt1 including hybrid bonds Breakdown nominal debt1 (total € 14.4bn) Breakdown by currency Other 6% 18% Hybrid bonds 73% 14% Global bonds 5% 9% Eurobonds 75% EUR USD2 GBP2 € bn Bond redemption profile Fixed vs. floating interest 1.4 1.5 1.3 1.3 1.1 1.0 1
Slide 49: 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 50: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 50
Slide 51: Regulation
Regulation MTA rates across the Group • ACM decision MTA rates based on ‘pure BULRIC’ of € 1.019 cent per minute as of 1 September 2013 under appeal • Dutch court suspended ACM decision and mandated interim rates NL based on ‘plus BULRIC’ of € 1.861 cent per minute instead € ct / min Until 7 July ’1
Slide 52: Unbundling tariffs
Unbundling tariffs Unbundling in copper network Category Monthly tariff MDF Node Line sharing (LLU) € 0.12 / line SDF colocation KPN / Telco Fully unbundled (LLU) € 6.86 / line ~28,000 1,350 MDF colocation € 913.52 footprint / year street cabinets local exchanges € 5.32 / line shared Wholesale Broad
Slide 53: 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 54: 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*64.35 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 Curre
Slide 55: Spectrum in Belgium
Spectrum in Belgium 800MHz To be auctioned 2013 2*30 Paired 2*10 2*10 2*10 900MHz BASE Belgacom Mobistar 2*34 Paired1 2*10 2*12 2*12 1.8GHz BASE Belgacom Mobistar 2*63.6 Paired1 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 56: Contents
Contents 1 KPN ADR program 2 Group results analysis 3 Debt overview 4 Regulation & Spectrum 5 Fixed infrastructure & Reggefiber 56
Slide 57: Infrastructure
Infrastructure Deploying mix of technologies going forward VDSL from VDSL pair bonding (Vectored) VDSL ADSL on central office central office from copper (VDSL-CO) (VDSL-CO) street cabinet FttH Wireless Central Central Central Central office office office office ODF1 Street cabinet up to 20 Mbps DS2
Slide 58: Roadmap to Reggefiber consolidation
Roadmap to Reggefiber consolidation Option structure Reggefiber financials FY 2012 Option I1 Option II3 Option III Reggefiber FY 2012 (€ m) • Additional 10% • Additional 9% • Remaining 40% Revenue 73 Ownership stake • 51% ownership • 60% ownership • 100% ownership Opex 19 Option type Call and Put op