Koninklijke Kpn Nv

And good afternoon, ladies and gentlemen. Thanks for joining us. Welcome to KPS' third quarter 2021 results webcast. With me today are Joost Farber, our CEO, and Chris Vige, our CFO. As usual, before turning to our presentation, I would like to remind you of the safe harbor on page two of the slides, which 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 harbor. Let me now hand over to our CEO, Joost Vaarwerk.

Thank you, Reinhard, and good afternoon, everyone. Today's results show another important proof point of our strategic progress. Mass market service revenues grew again in the third quarter, supporting service revenue growth for the group as a whole. This time growth was visible in all our mass market segments, most notably in SME segments. We delivered service revenue growth in SME ahead of our commitment to stabilize the four-year end. This is an important milestone for us. as it provides confidence to deliver the turnaround for the entire business segment during our current strategic period. We've seen strong momentum of mobile inflow in recent quarters, and this accelerated thirds of 67,000 net ads across consumer and business this quarter. Consumer mobile service revenues continue to grow, supported by strong performance of our unlimited propositions. And with a solid adjusted EBITDA growth in the third quarter and a strong year-to-date free cash flow, we remain on track and confident that we will deliver on our full year 2021 outlook. At the second quarter result, we announced a 200 million share buyback, reflecting our confidence in the successful execution of our strategy. We've nearly completed this lack of a share buyback program, which we see as the first step to structurally return additional capital to our shareholders in the coming years. We continue to make good progress against the strategic and financial ambitions of our strategy, Accelerate to Grow, and we remain confident that this strategy will create long-term, sustainable value for all our stakeholders. We rolled out Fiverr to 93,000 households in the third quarter, a figure slightly lower than other quarters as a result of the August holiday period. This year we've rolled out to 313,000 homes and over the last 12 months we've added 424,000 homes. We continue to successfully add new fiber customers and upgrade existing customer customers in fiber areas. This will be a key driver for sustainable revenue growth. The joint venture, Glassport, is now fully up and running and has recently started its wholesale broadband access services for wholesale providers. Together with Glassport, we're going to jointly reach 80% of Dutch households by the end of 2026. And after reaching that point, CapEx will come down to a lower, more sustainable level. After returning to growth in the second quarter, we've been able to show continued growth in mobile service revenues this quarter. This was mainly driven by an acceleration of the commercial performance of the last quarter and a higher RQ level. Fixed mobile revenues increased 3.5% and total consumer service revenues grew slightly by 2 million euros. Customer satisfaction remains one of our top priorities and the progress in the last two quarters has been encouraging following a few tougher quarters. It's been pleasing to see how efforts in this area are paying off. Humor MPS recovered strongly to plus 15. This is a reflection of the success of our attractive KPN and Simio lineup, the quality of our products and services, and the customer journey improvements in several areas, such as customers moving into new homes, complimentary fiber upgrades for Coppola, customers in fiber areas, and a new KPN Wi-Fi manager we introduced for our customers. Now let's take a deeper look into our consumer KPIs. Broadband NetApps were again relatively stable this quarter. Within the mix, we see a positive inflow on our KPM brand. This was supported by solid fiber inflow, which level was seasonally lower at 36,000 fiber households, but fully in line with our expectations. Our fiber APA remained significantly higher compared to copper due to the take-up of higher speeds, more value-added services, and more SIMs per household. And importantly, for the first time, our fiber service revenue growth was higher than the copper decline. We've delivered 27,000 postpaid net ads in the third quarter in consumer market, and together with 1.7% higher postpaid ARQ, this led to mobile service revenue growth of 2.4%. Let's now move to the B2B segments. This year, we started to run the business segment by focusing on three distinct customer segments, SME, LCE, and tailored solutions. At our strategy update last November, we committed to stabilization of SME service revenues by the end of this year. We've delivered on that commitment well ahead of plan, driven by solid commercial momentum in both broadband and mobile. This was the main driver for the improvement in our business service revenue trend to a decline of 2.7% year-on-year, compared to a level of around minus 5% in previous quarters. The performance in LCE and tailored solution was aligned with our expectations, and as we highlighted earlier, it will take us some more time than in SME to deliver the turnaround there. Business MPS remained at a positive level of plus three as customers continued to value KPM for the stability, the reliability, and quality of our networks and services. Let's dive a little bit deeper into the drivers of the SME turnarounds. Our strong focus on acquiring new and retaining existing customers by migrating to KPI1 is paying off with solid base trends. This in turn provides a strong platform to increase density of product take-up by our customers as we leverage up and cross-sell opportunities. Looking at the revenue development of the three product groups within SME, we can conclude the following. We see healthy broadband-based developments, also supported by fiber and self-employed inflow, and this resulted in a strong growth of broadband and network service revenues. The mobile market remains competitive, resulting in continued price pressure. However, Strong inflow of new mobile customers, among others driven by Unlimited, is now offsetting that effect. This led to stabilization in mobile service revenues in SME in the third quarter, an improving trend compared to minus 11% in Q1 and minus 4% in Q2. And finally, In fixed voice, the pace of the decline here moderated from around minus 20 to approximately minus 10%. And this is partly due to the analyzation of the phase-out of ISDN 2 last year, which reduced the year-on-year headwinds. All in all, good performance in SME, which gives me confidence that we will also deliver a similar turnaround in LC and tailored solutions, the other parts of B2B. In wholesale, revenues increased by more than 7% in the third quarter, supported by our successful open access policy. In mobile, we added 33,000 customers, and that's making a total growth rate growth for the group, including consumer and B2B, of 100,000 this quarter. Also, providers continue to strongly outperform the two incumbents in terms of broadband-based growth. In this third quarter, 18,000 broadband lines were added, reflecting the attractive access terms we offer to service providers. Recently, we entered into several long-term agreements with some of the larger broadband service providers in the Dutch market. ACM is currently conducting its fixed access review, and we strongly believe that we are operating a highly competitive market. With our open wholesale access goal, we guarantee sufficient room for wholesale providers to grow and to compete. And customers in the Dutch market get high-quality services, can easily switch and choose from a wide range of service providers that offer value for money. Now over to Chris for our financial performance. Chris.

Thank you, Joost. Financial performance of KPN. Well, overall, I'm pleased with the development of our key financial metrics this quarter. Let me start by summarizing some of these. Our adjusted revenues increased 1% year-on-year, supported by growth in mass market service revenues. Our adjusted EBDA after leases increased 1.4% at a margin of 46.3% for the quarter, despite a tough comparison base in terms of OPEX. Free cash flow was more or less flat for the last year in Q3. Year-to-date, however, our free cash flow increased 7.1% despite higher CAPEX and taxes paid. Our indirect cost savings run rate this quarter was impacted by several factors. First, the comparable base for the third quarter last year was a tough benchmark to beat this quarter, so this quarter year-on-year is not a good proxy for a normalized run rate. Second, we continue to see some less tailwind from COVID-related cravings. And finally, some other elements affected our staff cost performance this quarter, certainly when compared to last year. These include our recent CLA increase, dotations to employee-related provisions, lower CAPEX charging, and importantly, large restructurings in B2B and TDO. These were effectuated in the first of October, with the full impact visible in Q4, not in Q3. If we look through these specific effects, we see a continued and structural decline in our cost base. This is evidenced by the continued decline of FTEs employed at KPN. For example, our own employee numbers are now significantly and structurally lower, even below 9,800, where we started with 10,100 in the beginning of the year. Our total staff, own staff and third-party staff, external staff, is now 30% lower than Q1 2020, for example. as testimony to our continuous restructuring and structural cost improvements. We expect to pick up the pace of our reported cost savings run rate by Q4 this year, which together with our mass market service revenue performance will drive EBITDA growth well into 2022. Finally, please note that our capex spend is well under control. Fiber spend is up, as we planned to do, and non-fiber capex is down since last year, as testimony to our enhanced capex vigilance. If we dive into revenue growth, we see we delivered mass market service revenue growth again this quarter, which also led to growth in the group's overall service revenues. This is an important proof point for the success of our strategy and the first step towards sustainable top-line growth for KPM. All three mass market segments contributed to the 2.2% growth in the third quarter. also grew by 9.4%, mainly driven by broadband and mobile business, and some support from seasonality and several smaller incidentals. SME service revenues inflected a 2.9% growth, driven by the success of our KPCAPI and AIM portfolio. In consumer, mobile service revenues continued to grow. As Joe said, fiber broadband service revenues were higher this quarter than the declining copper, but again there was some offsetting effect by declining legacy services. Albeit small, it's important to note that our mass market segment is now no longer depending on wholesale to show stable to small growth from here on. Also excluding wholesale, there's some growth. Our growth phase is widening. In terms of revenue growth going forward, we expect some technical headwinds in the year-on-year comparison Q4. We'll still grow our mass market service revenues, but do technical comparisons at a slightly slower pace than Q3. Notably, B2B will face a tougher revenue comp due to the spike in Q4 last year, which is mainly related to pass-through revenues in LCE and TEL solutions. And in B2C, more than half of the €8 million revenue correction we booked in the first quarter was actually related to the fourth quarter of last year, providing a more difficult comp for fixed service revenues next quarter. We expect both effects to be technical in nature and temporary and fade again in Q1 next year, after which our top-line growth will resume around the current pace. So in summary, our revenue will continue to grow. The base comparisons will prove difficult to read in Q4 and Q1, but underlying, there's solid growth rate in the mass market sphere of revenues. In terms of cash, we've seen strong cash generation this year, despite higher CAPEX and taxes. A higher capex related to the accelerated cyber rollout caused our operational free cash flow to decline, but this was counted by several other line items. More favorable developments in working capital, as our continued effort to reduce working capital intensity is paying off. 38 million euros lower cash interest paid as a result of bond redemptions last year, and lower cash restructuring impact. Our free cash flow margin improved to 13.7% of revenues, and is on a clear path to improve further, in line with our guidance. Our balance sheet continues to be resilient. Committed liquidity, consisting of over €700 million cash and short-term investments and a €1 billion undrawn sustainability link to RCF, covers debt maturities well through to 2023. In the quarter, we extended our RCF but added a sustainability-linked feature to it. This underlines our commitment to sustainable operations and sustainability-oriented financing strategies. Versus Q2, net debt increased by 92 million euros, mainly driven by the 4.5 cents per share interim dividend in August for a total of 189 million euros, and 90 million euros worth of share repurchase in August and September as part of the 200 million share buyback program for 2021. nearly completed. And again, these were partly offset by free cash flow generated during the quarter. Our levels ratio of 2.3 times is one notch higher compared to last quarter, but still comfortably below our ceiling of 2.5 times. And reassured by our current financial performance and good strategic progress, we confidently reiterate our 2021 outlook and our ambitions for 2023. So to summarize, as we noted in our statement this morning, the successful execution of our strategic plan enables us to return additional capital to our shareholders, who had a €200 million share buyback this year, which has nearly been completed at this point in time. Execution of our strategy is on track, and we remain focused on delivering long-term value to all our stakeholders. And today's results show another important proof point of the success and impact of our strategy. After returning to mass market service revenue growth in Q2, we've delivered growth in SME service revenues this quarter. The number of business segments that have inflected increases gradually. Our margins, both in EBITDA and free cash flow terms, developed favorably, and we feel confident about the cash-generating rate of the group. And we remain fully on track to deliver our full year 2021 guidance and commitments. Thank you for listening. Now let's turn to your questions.