Royal Kpn Nv · EURONEXT:KPN
Royal Kpn Nv — KPN — H1 2012 Earnings Presentation
63 slides from Royal Kpn Nv's earnings presentation, Jul 24, 2012
Slide 1: Half Year Results 2012
Half Year Results 2012 24 July 2012
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 Eric Hageman 3 Operating review The Netherlands Joost Farwerck 4 Operating review International Thorsten Dirks 5 Concluding remarks Eelco Blok 3
Slide 4: Executive summary
Executive summary • Accelerated investment strategy in The Netherlands on track ‒ Confirming 2012 EBITDA, Capex and FCF outlook • Adjusting shareholder remuneration to balance sustainable dividend level with increased financial flexibility, DPS of € 0.35 for 2012 and at least € 0.35 for 2013 • KPN r
Slide 5: Adjusting shareholder remuneration
Adjusting shareholder remuneration Sustainable dividend level and increasing financial flexibility Increase financial flexibility Shareholder value creation • Continued difficult economic outlook • Commitment to a sustainable dividend policy • Maintaining prudent financial framework is • Retained ca
Slide 6: Outlook
Outlook Confirming EBITDA, Capex and FCF outlook, adjusting DPS 2012 Outlook • Accelerated investment strategy in The EBITDA1 € 4.7 - 4.9bn Netherlands on track ‒ Supporting sustainable profit levels from end-2012 Capex € 2.0 - 2.2bn • Dividend per share outlook adjusted ‒ Increasing financial flexi
Slide 7: Strategic overview The Netherlands
Strategic overview The Netherlands Important progress made Consumer Mobile Consumer Residential NetCo • Introduction new propositions • Improve copper and FttH propositions • Best-in-class fixed & mobile networks • Optimization distribution footprint • Expand addressable market • Up-scaling LTE • St
Slide 8: Strategic overview Mobile International
Strategic overview Mobile International Important progress made • Maintain profitable growth momentum, balancing Germany revenue growth and margin • Introduce innovative value for money data propositions • Expand multi-brand and segment approach • Mobile broadband network for mass market • Driving c
Slide 9: Highlights Q2 '12
Highlights Q2 ’12 • Important steps taken in reinforcing brand positioning Consumer Mobile − Market share stable at 45% • Leading TV proposition in Dutch market − TV market share increased to 19% • Fiber-to-the-Home penetration increasing − 7%-points higher penetration level y-on-y • Good progress i
Slide 10: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Operating review The Netherlands Joost Farwerck 4 Operating review International Thorsten Dirks 5 Concluding remarks Eelco Blok 10
Slide 11: Group financial profile
Group financial profile Taking action to support financial framework € bn Debt Financing policy 13.6 13.5 13.3 13.1 12.8 12.8 12.8 2.5x 2.6 12.5 12.4 2.5 11.9 2.4 2.4 11.7 11.8 2.3 2.0x 2.2 Q1 ’11 Q2 ’11 Q3 ’11 Q4 ’11 Q1 ’12 Q2 ’12 Q1 ’11 Q2 ’11 Q3 ’11 Q4 ’11 Q1 ’12 Q2 ’12 Net debt / EBITDA1 Financi
Slide 12: Group results Q2 '12
Group results Q2 ’12 €m Q2 ’12 Q2 ’11 % • Revenues down 0.8%, excluding impact from sale Getronics International (2.2%) Revenues and other income 3,192 3,290 -3.0% • EBITDA excluding restructuring costs Operating expenses (excl. D&A) 2,053 1,982 3.6% down 9.9% mainly due to Consumer 1 – Depreciation
Slide 13: Group results YTD '12
Group results YTD ’12 €m YTD ’12 YTD ’11 % • Revenues down 1.1%, excluding impact Revenues and other income 6,383 6,525 -2.2% from sale Getronics International (1.1%) • EBITDA excl. restructuring costs down Operating expenses (excl. D&A) 4,140 3,948 4.9% 11% mainly due to Consumer Mobile, 1 – Deprec
Slide 14: Group cash flow Q2 '12
Group cash flow Q2 ’12 €m Q2 ’12 Q2 ’11 % Operating profit 591 744 -21% • Free cash flow of € 534m in Q2 ’12 Depreciation and amortization1 548 564 -2.8% − € 169m lower EBITDA Interest paid/received -121 -95 27% − € 212m negative tax comparison due to Tax paid/received -119 93 n.m. one-off innovatio
Slide 15: Group cash flow YTD '12
Group cash flow YTD ’12 €m YTD ’12 YTD ’11 % Operating profit 1,155 1,456 -21% • Free cash flow of € 571m YTD ’12 Depreciation and amortization1 1,088 1,121 -2.9% − € 334m lower EBITDA Interest paid/received -379 -351 8.0% − € 187m negative tax comparison due to Tax paid/received -210 -22 >100% one-
Slide 16: Financial review – Dutch Telco
Financial review – Dutch Telco €m • Revenues and other income down 5.1% y-on-y Revenues and other income − Regulatory impact of € 23m (1.3%) -5.1% − Lower revenues mainly in Consumer Mobile and NetCo • EBITDA excluding restructuring costs down 1,704 1,705 1,704 1,651 1,626 1,618 11% y-on-y − € 87m l
Slide 17: Financial review – Dutch Telco by segment
Financial review – Dutch Telco by segment €m • Revenue decline Consumer Mobile 9.4% y-on-y Consumer Mobile − Service revenue decline of 9.6%, impacted by 30.2% 30.4% 28.8% 29.4% 27.6% regulation of € 11m (2.5%) − Supported by € 7m incidental 22.0% • EBITDA margin1 at 30.4% − Supported by introductio
Slide 18: Financial review – Dutch Telco by segment (cont'd)
Financial review – Dutch Telco by segment (cont’d) €m • Revenues Business down by 2.3% y-on-y Business − Regulatory impact of € 6m (1.0%) 35.0% 34.8% − Traditional services decline and price pressure 32.8% 33.4% 31.8% 30.1% partly offset by increasing wireless data revenues • EBITDA margin1 relative
Slide 19: Financial review – Corporate Market & iBasis
Financial review – Corporate Market & iBasis €m Corporate Market1 • Revenues and other income Corporate Market 9.6%2 8.0% 6.1% 6.8% The Netherlands up 0.9% y-on-y 5.0% 1.6% − Supported by book gain sale of Getronics 448 439 499 International (€ 8m) completed on 1 May 2012 424 428 366 347 326 323 307
Slide 20: Financial review – Mobile International by segment
Financial review – Mobile International by segment 43.9% €m 41.6% 42.4% • Revenue growth of 4.9% in Germany 39.8% 38.9% − Service revenue growth of 3.0% Germany 38.2% 38.6%1 − Positive impact sale SNT Inkasso of € 16m (2.0%) 803 838 829 794 842 • EBITDA margin at 39.8% 773 − Lower margin y-on-y due
Slide 21: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Operating review The Netherlands Joost Farwerck 4 Operating review International Thorsten Dirks 5 Concluding remarks Eelco Blok 21
Slide 22: Operating review – Consumer Mobile
Operating review – Consumer Mobile Brand positioning reinforced, capturing all market segments Segmentation reinforced Youth segment Service & Quality Value for money Positioning emphasized Unlimited messaging Flat fee calling / SMS Long phone calls Access based: simplified, flexible and transparent
Slide 23: Operating review – Consumer Mobile (cont'd)
Operating review – Consumer Mobile (cont’d) €m 47% 46% 45% 44% 45% 45% • Service revenues (incl. wholesale) down by 446 9.6% y-on-y 442 430 revenues 406 387 403 − Regulatory impact (2.5%) Service − Supported by € 7m incidental 388 397 386 364 345 360 • Market share service revenues stable at 45%1 Q1
Slide 24: Operating review – Consumer Residential
Operating review – Consumer Residential Market leading TV proposition to support broadband market share “Most complete and richest customer package in the Dutch market”1 Multi-room IPTV HD channels TV on iPad & launched IPTV launched for Laptop IPTV & Digitenne New user interface IPTV on New set & f
Slide 25: Operating review – Consumer Residential (cont'd)
Operating review – Consumer Residential (cont’d) Network upgrades to enable better user experience Network upgrades on track Aligned with regional approach • 70% coverage of Dutch market with at least • Speed upgrades copper network aligned with regional 40Mbps at the end of this year on track appro
Slide 26: Operating review – Consumer Residential (cont'd)
Operating review – Consumer Residential (cont’d) FttH penetration increasing FttH penetration increasing Increasing value of FttH • Solid number of FttH activations in Q2 ’12 with • FttH areas4 successful vs. national average 39k1 net adds leading to 164k homes activated ‒ Broadband market share dev
Slide 27: Operating review – Consumer Residential (cont'd)
Operating review – Consumer Residential (cont’d) 1.89 1.92 1.94 1.97 • RGUs per customer continued to increase 1.85 1.87 per customer RGUs & ARPU ‒ More triple play in customer mix, 753k triple play 38 38 39 39 39 39 packages (vs. 565k in Q2 ’11) ‒ Shift from standard to premium packages ‒ Net line
Slide 28: Operating review – Business
Operating review – Business Multi-brand approach addressing diverging customer needs • Comprehensive Telco & ICT portfolio for each business segment ‒ Bundled & integrated propositions small office/home office (SoHo) & Flagship brand small & medium-sized enterprises (SME) ‘Trusted ‒ Customised solut
Slide 29: Operating review – Business wireless
Operating review – Business wireless €m flat • Service revenues and market share stable 245 253 254 254 252 253 y-on-y revenues1 ‒ Impact from regulation € 6m (2.4%) Service ‒ Increased customer base and usage leading to mobile data revenue growth ‒ Introduction of new mobile proposition for SME, LE
Slide 30: Operating review – Business wireline
Operating review – Business wireline €m -7.1% • Revenues down 7.1% y-on-y 346 337 ‒ Further decline in traditional services Revenues 325 318 324 313 ‒ Maintaining strong market share in competitive market • Continued focus on performance new portfolio ‒ Flat fee propositions Q1 ’11 Q2 ’11 Q3 ’11 Q4
Slide 31: Operating review – Corporate Market
Operating review – Corporate Market Revenues and other income • Revenues and other income Corporate Market €m (The Netherlands) The Netherlands up 0.9% y-on-y 0.9% ‒ Supported by € 8m book gain on the sale of Getronics International 347 326 323 307 300 326 • Divestment of Getronics International fin
Slide 32: Operating review – iBasis
Operating review – iBasis Financial • Revenue growth of 6.1% y-on-y €m ‒ Including 4.4% positive currency effect 4.1% 3.1% 2.7% 2.8% 2.7% 2.7% • Total minutes increased 6.3% y-on-y • Average revenue per minute of € 3.9ct 226 246 256 249 255 261 • Focus remains on balancing revenue growth Q1 ’11 Q2 ’
Slide 33: Operating expenses Dutch Telco
Operating expenses Dutch Telco Further improvements underlying cost structure Breakdown operating expenses Dutch Telco • Operating expenses (excluding D&A and (excl. D&A and restructuring costs) restructuring costs) up 1.4% y-on-y driven by investments to strengthen Dutch market 1.4% positions €m 81
Slide 34: Cost saving and quality improvements
Cost saving and quality improvements FTE reductions Increase efficiency by delayering and Indirect FTE simplifying organizational model Direct operational management, remove management layer, simplifying decision making process Outsourcing and off-shoring of activities Optimization & standardi
Slide 35: Capex in The Netherlands
Capex in The Netherlands Increase customer driven investments • Reallocation of Capex to customer driven investments, 2010 2011 2012E strengthening market positions 9% 17% ~5% 10% 15% • Mobile network investments to increase due to large scale 14% 14% ~20% ~30% LTE roll-out Partly offset by lower fi
Slide 36: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Operating review The Netherlands Joost Farwerck 4 Operating review International Thorsten Dirks 5 Concluding remarks Eelco Blok 36
Slide 37: Operating review – Germany
Operating review – Germany Promising introduction of postpaid all-net flat propositions Market positioning Strategic progress Postpaid Prepaid • Further strengthening of Mein BASE brand Own brands Traditional No-frills No-frills • Uncovered segments in value for money postpaid market; attacking post
Slide 38: Operating review – Germany (cont'd)
Operating review – Germany (cont’d) Network roll-out on track Mobile broadband for mass market Network roll-out on track • Unique spectrum position allowing mobile broadband 2012 for mass market via HSPA+ ‒ Four blocks in a row in 2.1GHz band, • On track to reach target of >80% highest of all operat
Slide 39: Operating review – Germany (cont'd)
Operating review – Germany (cont’d) • High postpaid net adds (179k) following Net adds introduction new propositions in no-frills 22.7 23.1 23.5 21.0 21.5 22.1 segment ‒ Yourfone introduced in April ‒ simyo introduced in May 434 518 458 ‒ Blau introduced in June 456 263 240 179 • Net adds prepaid at
Slide 40: Operating review – Belgium
Operating review – Belgium Commercial initiatives to further strengthen Challenger position Commercial initiatives to support growth Investments mobile broadband network roll-out • Launch of ‘Your Mobile Freedom’ (May 2012), • BIPT license elimination of contract duration for all BASE ‒ KPN Group Be
Slide 41: Operating review – Belgium (cont'd)
Operating review – Belgium (cont’d) Continued strong profitable growth in Belgium Net adds • Continued strong underlying service revenue 4.3 4.4 growth of 12% 3.9 3.9 4.1 4.1 ‒ Strong performance driven by mobile data, B2B, wholesale and interconnect traffic ‒ Continued market outperformance leading
Slide 42: Contents
Contents 1 Chairman’s review Eelco Blok 2 Group financial review Eric Hageman 3 Operating review The Netherlands Joost Farwerck 4 Operating review International Thorsten Dirks 5 Concluding remarks Eelco Blok 42
Slide 43: Concluding remarks
Concluding remarks • Accelerated investment strategy in The Netherlands on track ‒ Important steps taken in reinforcing brand positioning Consumer Mobile ‒ Leading TV proposition in Dutch market and FttH penetration increasing ‒ Good progress FTE reduction program ‒ Promising introduction of postpai
Slide 44: Q&A
Q&A 44
Slide 45: Annex
Annex Annex For further information please contact KPN Investor Relations Tel: +31 70 44 60986 [email protected] www.kpn.com/ir
Slide 46: Analysis of results
Analysis of results Impact regulation, incidentals and restructuring €m Q2 ’12 Q2 ’11 YTD ’12 YTD ’11 Revenue effect MTA reduction Regulation Group -30 -132 -60 -259 Roaming tariff reduction Regulation Group -3 -4 -4 -10 EBITDA effect MTA reduction Regulation Group -11 -55 -21 -108 Roaming tariff re
Slide 47: Restructuring costs
Restructuring costs €m Q2 ’12 Q2 ’11 YTD ’12 YTD ’11 Germany - - - - Belgium - - - - Rest of World - -2 - -2 Mobile International - -2 - -2 Consumer Mobile -1 - -1 - Consumer Residential1 -20 - -21 -1 Business -1 - -12 - NetCo -17 - -17 - Other -2 -1 -3 -1 Dutch Telco -41 -1 -54 -2 Corporate Market
Slide 48: Impact MTA reduction
Impact MTA reduction €m Q2 ’12 YTD ’12 1 1 Revenues EBITDA Revenues EBITDA Germany - - - - Belgium -7 -3 -13 -6 Mobile International -7 -3 -13 -6 Consumer Mobile -11 -5 -25 -9 Of which: Mobile Wholesale -1 - -5 - Business -6 -2 -11 -5 NetCo -6 -1 -11 -1 Intercompany - - - - The Netherlands -23 -8 -4
Slide 49: Operating expenses
Operating expenses €m Q2 ’12 Q2 ’11 % Employee benefits 480 471 1.9% Cost of materials 236 232 1.7% Work contracted out and other expenses 1,142 1,136 0.5% Own work capitalized -29 -30 -3.3% Other operating expenses1 224 173 29% Depreciation2 337 352 -4.3% Amortization2 211 212 -0.5% Total 2,601 2,5
Slide 50: Operating expenses - analysis Employee benefits & Cost of materials
Operating expenses - analysis Employee benefits & Cost of materials €m Employee benefits Y-on-Y increase 16.8% • Higher pension costs mainly relating to UK and US 14.9% 14.4% 14.6% 15.2% Getronics pension funds (€ 17m) and The 13.7% Netherlands (€ 5m) • Partly offset by lower costs due to sale of Ge
Slide 51: Operating expenses - analysis Work contracted out & Other
Operating expenses - analysis Work contracted out & Other €m Work contracted out Y-on-Y increase 36.2% 36.2% • Higher traffic costs at iBasis and Germany 34.6% 34.7% 34.8% 34.2% • Higher content related expenses • Partly offset by lower traffic costs across all segments of Dutch Telco 1,106 1,136 1,
Slide 52: Operating expenses - analysis Depreciation & Amortization
Operating expenses - analysis Depreciation & Amortization €m Depreciation1 Y-on-Y decrease 14.3% • Extension economic lifetime fiber network at NetCo 10.9% 10.7% 11.4% 10.8%2 10.5% 10.7% Q-on-Q increase • Introduction new mobile propositions, incl. handset 115 lease model at Consumer Mobile and Germ
Slide 53: Tax
Tax P&L Cash flow Fiscal units (€ m) Q2 ’12 Q2 ’11 Q2 ’12 Q2 ’11 Dutch activities -54 -107 -1121 951 Corporate Market 3 9 -2 - German activities -36 -28 -1 -1 Belgian activities -3 -10 - - Other -2 -2 -4 -1 Total reported tax -92 -138 -119 93 Effective tax rate 22.1% 24.5% • In Q2 ’12, the effective
Slide 54: Debt portfolio
Debt portfolio Breakdown of € 13.3bn gross debt1 16% 78% Global Other 6% bonds 3% 6% 2 2 EUR USD GBP 1% Eurobonds 91% 99% Fixed Floating3 (incl. swapped) 1 Nominal value of interest bearing financial liabilities related to these liabilities 2 Foreign currency amounts hedged into EUR 3 Excluding bank
Slide 55: Dutch wireless disclosure
Dutch wireless disclosure €m Q2 ’12 Q2 ’11 % Service revenues 664 700 -5.1% − Consumer retail 360 397 -9.3% − Business1 253 253 flat − Other2 51 50 2.0% SAC/SRC − Consumer retail3 168 156 7.7% − Business 277 242 14% 1 Since Q2 ’11 including Yes Telecom 2 Includes amongst others Consumer Mobile whole
Slide 56: Mobile International wireless disclosure
Mobile International wireless disclosure Service revenues growth Germany Service revenues growth Belgium 15.0% 11.4% 11.1% 11.8% 8.1% 8.1% 8.9% 7.9% 7.5% 7.2% 7.8% 6.3% 5.3% 4.2% 4.2% 3.5% 3.0% 3.0% 1.0% 1.2% -0.5% -0.6% -3.9% -5.3% Q1 ’11 Q2 ’11 Q3 ’11 Q4 ’11 Q1 ’12 Q2 ’12 Q1 ’11 Q2 ’11 Q3 ’11 Q4 ’
Slide 57: Regulation MTA reductions
Regulation MTA reductions MTA reductions implemented across the Group NL • In Q3 ’11, the Dutch Court overruled OPTAs MTA tariff decision and determined a new tariff as of 1 September 2012 of € 2.40 cent per minute instead of € 1.20 cent per minute € ct / min Until 7 July 7 July ’10 Sep ’10 Jan ’11
Slide 58: Regulation Spectrum in The Netherlands
Regulation Spectrum in The Netherlands Total Free 800MHz 2*30 2*30 MHz Vodafone T-Mobile KPN 900MHz To be auctioned 2*35 2*12.5 2*10 2*12.5 Vodafone T-Mobile KPN Free 1.8GHz 2*70 2*5 2*30 2*20 2*15 Current status • 1.9GHz Free 14.7MHz unpaired 1*14.7 Vodafone T-Mobile KPN Free 2*60 2.1GHz 1*20 2*15
Slide 59: Regulation Spectrum in Germany
Regulation 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 DT VOD VOD 2*34.8 Paired 2*5 2*5 2*5 2*7*4 2*5 2*7.4 1.8GHz DT E+ O2 VOD E+ 2*70.2 Paired 2*5 2*5 2*5 2*5 2*5 2*5 2*5 2*7.4 2*5.4 2*5 2*5 2*5 2*7.4 2.1GHz VOD E+ O2 DT 2*60 Paired 2*5 2*5 2*5 2*5 2*5
Slide 60: Corporate Governance Shareholder rights at General Meeting
Corporate Governance Shareholder rights at General Meeting Supervisory board % of votes Quorum approval required in General Meeting required Enquiry right 0.07%1 - Shareholder rights Agenda right € 50m or 1% - Right to convene EGM 10% - Issuance and acquisition of shares 50%+ - Excluding or
Slide 61: Personnel
Personnel • Decrease of 3,626 FTE y-on-y 31,084 31,040 – Reduction of 65 FTE personnel domestic 30,534 30,598 30,859 from all segments 3,826 3,827 4,010 4,016 4,104 – Increase of 866 at personnel abroad (incl. 26,972 23 transfer of 1,232 FTE from SNT to Germany) to support growing business 7,791 7,6
Slide 62: Infrastructure
Infrastructure Deploying mix of technologies going forward VDSL from VDSL pair bonding ADSL on central office central office VDSL 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 up to 50 Mb
Slide 63: Unbundling tariffs
Unbundling tariffs Unbundling in current network Category Monthly tariff Line sharing (LLU)1 € 0.11 / line MDF Node Fully unbundled (LLU)1 € 6.69 / line SDF colocation KPN / Telco MDF colocation1 € 891.24 / footprint / year ~28,000 1,350 MDF backhaul Commercial pricing, not regulated street cabinets