Thursday, November 29, 2018

KPN CMD 2018: no revenue growth; EBITDA and FCF growth from savings

General

  • Strategy
    • organic sustainable growth (note: growth refers to EBITDA, FCF, not to rev)
      • based on innovative operating model and commercial approach
        • based on premium, vlaue, focus, lean
    • value over volume (esp. in LE segment)
      • not competing for market share
      • consumer: grow the converged base
      • business: stabilise service rev & EBITDA (mid 2020) (note: adj e2e EBITDA, i.e. incl Networks portion (not reported after 2016))
    • lean operating model
    • to accelerate strategy for 2019-'21
    • new technology
      • fiber, 4G/5G, virtualisation/cloud
      • faster, higher customer satisfaction, lower costs
      • enables service switch-off (from all-IP) and copper network switch-off (from FTTH)
    • targets lean, faster & more agile company, more flexible, faster time-to-market, faster innovation
    • 3 prios
      • best smart converged infra (add 1m FTTH HP by 2021)
      • focus on profitable growth (add 300k converged HH, convergence to 70% of postpaid; stabilise adjusted e2e EBITDA on business market)
      • accelerate simplification and digitalisation
  • Financial targets
    • progressive dividend
      • based on sustainable FCF growth
        • based on organic EBITDA growth and stable capex
    • plans cost savings 350m by 2021 (not run-rate, i.e. run-rate 350m is reached mid 2021; opex only, this time; net of restructuring costs and incidentals)
    • opex savings large part from restructuring; effect on FCF: cash out after 6 months (pay out severance), accreditive after 12 months)
    • maintains 2018 guidance
    • capex
      • remains 1.1b EUR/yr (excl. spectrum)
      • shift to access networks (FTTH, 5G), from 33% to over 50%
      • IT/TI lower, CPE lower
      • invest in future-prof technology
    • growing FCF (for progressive dividend and deleveraging)
    • mid term target leverage below 2.5 (incl. spectrum)<2 .5="" font="" incl.="" spectrum="">
    • service revenues to stabilise
  • Other
    • 100 developers in Amsterdam (eliminate 5 Indian developers for 1 in Amsterdam)
    • sustainability: green energy (2011), CO2 neutral (2015), 25% energy redux (2020), circular (2025)
    • T-Mobile/Tele2 merger: no substantial change expected; solid players are good for the market
    • open cable: no short-time effect due to long-running existing contracts with wholesale customers
  • Main risks
    • execution
    • declining revenues
    • cord cutting (FT, TV): no
    • engineering capacity for FTTH roll-out: no

Networks

  • Best networks, enable innovative tech, accelerate (simplification, digitalisation)
  • FTTP
    • currently 2.35m FTTH HP (30%), FTTC coverage 50%, FTTS 80%, accelerate FTTO
    • target +1m to 3.4m FTTH HP (over 40%) by YE 2021
      • regional approach, no nationwide coverage (complement with copper and FWA)
      • trusted relationships with 8 or 9 construction companies for complete service package
      • speeding up from end 2019
    • improvements
      • roll-out 650 EUR/home (cheaper labour and equipment, optimised engineering), to be reduced further
      • design in 20 hr (down from 2 yr)
      • raises utilisation 8 pp
      • pay-back time 50% shorter (result of lower capex, higher utilisation, higher ARPU, lower churn)
  • Copper
    • to finalise copper upgrade 2019 (2500 cabinets for 500k HH on FTTC)
    • plans to switch off copper from 2019, customers to be migrated to FTTP (first in 6 areas)
  • Gigabit
    • to add Gfast (FTTB, 1 Gb/s)
    • total reach 1 Gb/s 45% YE 2021 (40% from FTTH, 5% from Gfast), 200 Mb/s 70%
  • Hybrid
    • for rural
    • to add 200k additional subs with DSL/LTE hybrid (50 Mb/s)
  • 5G
    • plans 5G-ready network (i.e. software upgradeable)
    • massive MIMO
    • "4G connects people, 5G connects society"
    • 5G mostly for B2B
    • 5G field labs (agro in Drenthe, urban in Amsterdam, automotive in Helmond, harbour in Rotterdam)
    • government decision on 3.5 GHz band expected 181218
  • Other
    • single core network, from 5 currently (rationalise, centralise, virtualise (NFV, SDN))
    • decentralised CDN at 160 metro core locations (offload 70% of core traffic, low latency)
    • all-IP 100% by YE 2021; enables legacy switch-off (PSTN (450k users), ISDN (160k users), SDH, 3G)
    • plans 28 GWh power savings 2019-'21
    • target 50% virtualisation YE 2021 (currently 5%)
    • reduce 20 to 2 IT stacks (1 for consumer, 1 for business)


Consumer

  • strategy: best access, grow converged base, value
  • targets
    • add 300k converged HH by YE 2021, 70% of postpad base converged in 2021
    • to raise SIMs/HH 10%
  • FTTH raises NPS 15%, ARPU by EUR6, BB share 9pp, lowers churn 34%
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Business

  • targets: stabilise service revenues, stabilise EBITDA (adj, e2e) by mid 2020
  • grow in profitable segments; compete for profitable tenders (in LE segment) only
  • total customers: 350k SoHo, 225k SME, 2k LE
  • to reduce portfolio 50% by 2021
  • to raise connectivity at business parks: 100 Mb/s to 70% (currently 52%)
  • KPN EEN (platform for SME and LE)
    • target penetration to 100% in SME (currently 35%)
    • raises NPS 10 points
    • time-to-market x2
    • low churn (5%)
    • cost to serve -25%
    • 75% fewer IT systems
    • simplified organisation
  • revenue growth SoHo positive, bottoming at SME, still declining in LE

Finance

  • targets 2019-'21: organic EBITDA growth, capex stable (1.1b), FCF growth, progressive dividend
  • past FCF growth from low cash tax (continues), decreased interest (continues; 55% lower o/w 30% result of lower debt, 25% result of lower interest rates), capex (now fixed)
  • now EBITDA growth from opex savings & stabilising rev
  • targets "cable-like margin"
  • opex redux to continue "for a decade"
    • portfolio: rationalise, simplify
    • e2e digitalisation front and back-end
    • all-IP and virtualisation (incl. CPE)
    • IT landscape rationalisation
    • organisational effectiveness
  • execution strategy ESSA (eliminate simplify standardise automate)
  • to provide guidance on FCF, restructuring costs, div with Q4 results (each year)