Royal KPN N : KPN Q4 2020 Results (Call transcript)

Event transcript

KPN Q4 2020 Results

Wednesday, 27th January 2021

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The information contained in this event transcript is a textual representation of the applicable webcast and while efforts are made to provide an accurate transcription, there may be material errors, omissions, or inaccuracies in the reporting of the substance of the webcast. In no way does Koninklijke KPN N.V. ("KPN") assume any responsibility for any investment or other decisions made based upon the information provided in this event transcript, and KPN advises to use all available information about the company, the stock and the market in any investment or other decision. In particular, the transcript should be regarded in its entire context, including the setting of the webcast in which it was brought and the presentation or any other documents used or published in relation thereto.

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KPN Q4 2020 Results

Wednesday, 27th January 2021

KPN Q4 2020 Results Conference Call

Operator: Good day, ladies and gentlemen. Welcome to KPN's fourth quarter and full year 2020 earnings webcast and conference call. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks. If you would like to ask a question, you may do so by pressing star one on your telephone. Please note that this event is being recorded.

I would now like to turn the call over to your host for today, Mr Reinout van Ierschot, Head of Investor Relations. Go ahead please sir.

Reinout van Ierschot (Head of IR, KPN): Good afternoon, ladies and gentlemen. Thanks for joining us. Welcome to KPN's fourth quarter and full year 2020 results webcast. With me on the call today are Joost Farwerck, our CEO, and Chris Figee, our CFO.

As usual, before turning to our presentation, I'd like to remind you of the Safe Harbour on page two of the slides that also applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements including KPN's expectations with respect to its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the Safe Harbour.

I would now like to hand over to KPN's CEO, Joost Farwerck.

Joost Farwerck (CEO, KPN): Thank you, Reinout. Last year was dominated by COVID and we were able to make a valuable contribution to people, households, businesses, and governments in the Netherlands by keeping everybody connected. And at the same time, we delivered on our full year outlook. And that's what we're going to tell you about today, welcome.

Our networks were ready to accommodate the significant increase in traffic. And our people, people in the shops, in service centres, in operations, sales, our field engineers had to adjust the way of working and I'm grateful to all our colleagues, our KPN colleagues, for making this possible.

We're now in 2021 and the virus is still not under control. Same for the Netherlands. But we know and we have shown that we are a robust and resilient company. Also during the pandemic, we are prepared and we are executing and delivering on our strategy, which we shared with you at the end of November, 'Accelerate to Grow'.

Now, let's start with some highlights from the fourth quarter and the full year 2020.

In the fourth quarter, we saw encouraging developments in our mass-market service revenue trends, driven by Wholesale and we managed to further stabilize our broadband base and grow in postpaid.

This quarter, growth in fiber revenues outweighed the loss on copper service revenues for the first time. And we added close to 320,000 households to our fiber footprint in 2020, and we reached the required weekly rollout speed to deliver half a million homes passed this year. Our efforts in modernizing our mobile network have paid off and our 5G network was recognized as the fastest and most innovative 5G network in the Netherlands and yesterday, we were officially announced as being the best mobile network in the Netherlands by Ookla.

Today, we reiterate our ambitions for 2023. And at the end of the presentation, Chris will give you more details on our financials and walk you through our specified outlook for 2021.

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KPN Q4 2020 Results

Wednesday, 27th January 2021

Let me highlight a few key figures for the fourth quarter. Corrected for a number of divestments, revenues declined by 1% year-on-year. Growth in Wholesale and Consumer Fixed was offset by lower revenues from Business and a bit Consumer Mobile. EBITDA increased 1.2% year-on- year as the effect of lower revenues was more than offset by continued progress in our cost savings.

Full-year Free Cash Flow increased 6.6% year-on-year to € 765 million. And Return on Capital Employed improved significantly to over 10%.

We delivered on our outlook. EBITDA came in at € 2,320 million in line with the specified outlook we gave at the Q3 results. Capex was just within the € 1.1 billion bounds, and Free Cash Flow came in at € 765 million, a bit ahead of our outlook. We reiterate our dividend commitment and we will pay a regular dividend per share of 13 cents over 2020.

Our 'Accelerate to Grow' strategy is supported by three key pillars as outlined during our Strategy Update. And let me briefly remind you of the highlights.

First, we leverage and expand our superior networks. The fiber business case has proven itself, so we will ramp up further and cover the Netherlands with fiber. Second, we grow and strengthen our customer base in Consumer and in Business, supported by differentiated services and an outstanding digital customer experience. And third, we will further simplify and streamline our operating model, supporting new ways of working digitally and we will - we launched a next wave of cost savings. And together, these strategic priorities support our ambition, our ambition to connect the Netherlands to a sustainable future, to grow mass-market service revenues by the end of this year and to grow EBITDA and to provide attractive shareholder returns covered by a growing Free Cash Flow.

Now, let's start with the first pillar, which is our focus on the leveraging and expanding our superior networks. Fiber is at the heart of our strategy to return to growth in the mass market. And investing in fiber creates value for KPN as it sees attractive returns driven by increased network penetration, more loyal customers who are increasingly willing to pay for quality and lower maintenance costs.

And this year, we will ramp up our fiber production further to a run rate of approximately 500,000 households. And this means we will cover more than half of the country with fiber in 2023 and almost two-thirds by the end of 2025.

Then let's look at the details of the acceleration. In fourth quarter, we expanded our fiber footprint with 112,000 homes passed. That means an average of more than 8,000 homes passed per week and exceeding over 10,000 homes during some weeks. So, we reached the required run rate to deliver on our target of approximately of half a million per year.

We activated our 5G network in July right after we obtained the spectrum licenses. We modernized more than 2,800 sites to date and our 5G network already reaches 70% of the Netherlands on 700 Megahertz spectrum, the real 5G. And we're proud that Ookla awarded us, as I just mentioned, as the best mobile network in the Netherlands, being the fastest, the fastest download speed, the fastest upload speed, the best coverage. So, that is quite important for us as a company. After a couple of years, the best network in Netherlands again.

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KPN Q4 2020 Results

Wednesday, 27th January 2021

So outperforming on all main metrics when it comes to networks. Download speed of 90Mbps average, above 90Mbps, upload speeds of average 20Mbps. And our coverage is more than 30% better than the number two.

So next to this, our brand new 5G network is recognized as the most innovative by Umlaut Connect and this is an excellent position to provide differentiated 5G services to our customers and the first we launched already in the fourth quarter.

So we will discuss our segment performance by turning to our second pillar, enhance the customer focus.

In Consumer, we focus on delivering the best digital access and best customer experience. Our ambitious fiber plans are fuelling base growth and the ambition is to grow service revenues by the end of this year. In Q4 last year, we saw an improving trends in fixed service revenues, declining a bit less than 1% year-on-year.

Growing service revenues from fiber were offset by declining service revenues from copper and the continued decline of legacy services: traditional voice and digitenne mainly. So we're although still declining at 2.1% year-on-year in the fourth quarter, we see the trends for mobile service revenues steadily improving.

In the fourth quarter, our net promoter score stood at plus 11 and has come down during the year. As customer satisfaction is one of our main priorities, this result is, of course, disappointing, and we have taken actions to restore customer appreciation. We saw increasing WiFi usage and rising customer expectations now the majority in the Netherlands is working from home, resulting in pressure at our customer service centres.

And during the fourth quarter and into Q1 of this year, we invested to increase capacity to improve the customer satisfaction. We also experienced some technical issues with the changed interface of the IPTV product. And we have updated our software to resolve this.

Now let's take a deeper look into Consumer KPIs. We've seen solid fiber inflow reflected by 20,000 new customers on fiber, fuelling a further stabilization of broadband net adds. Fixed ARPU increased 4% year-on-year in the fourth quarter. Postpaid net adds were in positive territory for the second quarter and at the same time, we kept the postpaid ARPU broadly stable at € 17. And that's despite a lot of roaming as a result of COVID-19. We see a higher inflow ARPU and driven by increased demand for unlimited bundles.

Now we see fiber clearly outperforming copper, confirming our decision to accelerate our rollout. In fact, fiber revenues grew more than 8% in the quarter. And for the first time, the year on year improvement in fiber revenues more than offset the decline in copper revenues, and this led to higher total on broadband revenues.

As of the first quarter, we will improve our Consumer segment disclosure to better reflect our focus on convergence and on households. We've identified fixed-mobile,fixed-only and postpaid-only households. And reassuringly, we see an increasing number of fixed-mobile households as we improve our convergence penetration. And we measure the value from each household by Average Revenue per Address or ARPA, next to ARPU, which is based on products. And the added value of using ARPA besides ARPU can for instance be explained by example our kids SIM. This product might not seem attractive based on a € 9.5 ARPU, but it's significantly increasing customer satisfaction, lowering the churn and improving ARPA.

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