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%
• we are the best, so we don't need exclusive content

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)