Koninklijke Kpn Nv

Welcome to KPN's fourth quarter and full year 2021 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 1 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. Reiner van Eerskot, Head of Investor Relations. You may begin, sir.

Good afternoon, ladies and gentlemen, and thanks for joining us. Welcome to KPN's fourth quarter and full year 2021 results webcast. With me here today are Joost Vaarwerk, our CEO, and Chris Vigée, our CFO. As usual, before turning to our presentation, I'd 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, Reinhout, and welcome, everyone. I hope you're doing well, and I hope to see you soon in person as we gradually return to the office. Let's start with some highlights from the fourth quarter and the full year results. In 2021, we continued to make good progress against our strategic and financial ambitions. We delivered growth in mass market service revenues, supporting overall group service revenues. SME service revenues grew for the second quarter in a row, providing momentum and confidence that we can stabilize our total business segment service revenues by the end of this year. In consumer, fiber and our converged portfolio are delivering revenue growth every quarter. Mobile service revenues are growing and if fixed, the trend is stabilizing. Wholesale continue to make a strong contribution thanks to our successful open wholesale access policy. And as a result of all that, our EBITDA generation is becoming less dependent on just cost cutting as we are now delivering sustainable mass market service revenue growth. We were able to grow adjusted EBITDA in 2021, supported by improving group service revenues and a lower cost base. We added a record number of households to our fibre footprint in 2021, and we will at least maintain the current pace in the coming years. We were also rewarded for having the best mobile network in the Netherlands for the third time in a row. We reiterate our EBITDA and free cash flow ambitions for 2023. And at the end of the presentation, Chris will give you more details on our financials and walk you through our outlook for this year. Finally, the confidence in our strategy and the successful execution enables us to pay out a progressive dividend and allows us to structurally return additional capital to our shareholders. We completed the €200 million share buyback last year, and we now intend to execute a share buyback program of €300 million in 2022. We delivered on our 2021 outlook. EBITDA came in at 2.35 billion in line with the outlook we gave at the full year 2020 results. CapEx was around 1.2 billion and Free Cash Flow came in at 784 million, slightly ahead of our outlook. We reiterate our dividend commitment and we will pay a regular dividend per share of 13.6 cents over 2021. We've made strong progress in the first year of our accelerate to grow strategy. As a reminder, I give you the three key pillars of the strategy. First, leverage and expand our superior networks. Second, grow and strengthen our customer base. And thirdly, continue to simplify and streamline our operating model. I will touch upon our progress on these pillars in today's presentation. So let's start with the first one. We realized the greatest-ever annual fiber rollout in the Dutch market. We connected 433,000 households, and if you add the Glasport joint venture to this, it was over half a million homes in the Netherlands. In the meantime, and visible in our homes activated, we continue to add new retail and wholesale fiber customers, and we upgrade existing customers from copper to fiber. Today, we cover more than 40% of the Netherlands and jointly with Gosport, we expect to reach approximately 80% of Dutch households by the end of 2026. And after reaching that point, capex will come down to a much lower sustainable level. Let's delve a little deeper into our fiber business case. First on penetration, we see a significantly higher network penetration in fiber areas over time. Typically, one year after the first connection in an area, the penetration increases by about 7 percentage points. And this at the end rises even further after 7 years, when our average network penetration reaches over 60% for retail and wholesale together. On ARPA, while we do not directly charge a premium for fiber, it's clear that today fiber customers on average have an almost 11% higher ARPA. And that is because fiber customers buy higher access speed levels and more value added services such as content packages. And as we continue to roll out fiber, we expect that the growing fiber footprint will result in an improved penetration rate for retail and wholesale. In fact, our retail fiber base is likely to surpass our copper base mid this year. Finally, on spend related to fiber, alongside lower maintenance and service costs, we also foresee savings as we gradually shut down our copper network in the coming years, starting early next year. All in all, fiber is clearly at the heart of our strategy to create long-term value for all stakeholders. In our mobile network, we have modernized over 4,000 sites to date and our 5G network already covers more than 80% of the population on 700 MHz spectrum. We also made preparations for the 3.5 GHz spectrum, allowing for an even better 5G experience as soon as it becomes available, which is most likely to be early next year. Finally, we're also proud to announce that Ookla named us the best mobile network with the best coverage and the fastest 5G in the Netherlands for the third time in a row. We will discuss our second performance by turning to our second pillar, enhanced customer focus. Customer satisfaction remains a top priority and our efforts are paying off. In 2021, consumer net promoter score increased to plus 16 as we successfully invested in quality improvements and in the customer journey. The net promoter score of the business segment increased to plus 4, our best result ever as customers value KPN B2B for its quality networks and quality services. We believe that customer satisfaction, by the way, goes hand in hand with employee satisfaction. And as such, I'm pleased with the outcome of our employee engagement survey, which shows that 82% of our employees feel engaged at KPN despite the COVID situation. And within the market, this is a top tier level of employee engagement. In the consumer market, we are focused on delivering the best digital access and the best customer experience. To provide the best digital access, we continued our successful Super Wi-Fi campaign in 2021. We made the one gig proposition more accessible by lowering the price point while doubling the upload speed. We also introduced better hardware, for example, a new, more energy efficient version of the 4K SettleBox. Furthermore, we successfully invested in quality improvements in customer journeys, such as the introduction of our new app, the MyKPN app, and the new online shop. Recently, we announced and extended new entertainment partnerships with FirePlay and ESPN. And earlier this year, we integrated the Microsoft Game Pass Ultimate into our offerings. And these long-term distribution partnerships across a range of products enable our customers to have access to the best content and games. This year, we achieved consistent mobile service revenue growth supported by strong customer inflow, particularly on our unlimited data proposition. We intend to broaden this trend to fix service revenues as well. The underlying trend in fixed is improving as fiber broadband service revenue growth is more than offsetting the copper decline. And combined, we are well on track to grow consumer service revenues in 2022. Now let's take a deeper look into our fourth quarter KPIs. We've seen solid fiber inflow reflected by 43,000 new customers, offsetting churning copper customers. And this led to 3,000 broadband net adds. Fixed ARPU increased 0.9% year-on-year. And combined and excluding the impact of the revenue correction earlier this year, this led to stabilizing fixed service revenues in the fourth quarter. We see continued solid trends in mobile. Our postpaid base increased by 70,000 and postpaid ARPU grew almost a percentage. Combined, this led to continued growth in mobile service revenue. Let's now move to the B2B segment. At our strategy update in November 2020, we committed to stabilization of SME service revenues by the end of last year. We delivered on this a bit ahead of the plan already last quarter. This trend continued in the fourth quarter with SME service revenues increasing almost 5% points year-on-year, a very good improvement on the declines seen in the first half. The performance in LCE and tailored solution was in line with our expectations. In SME, we have seen solid mobile and broadband-based trends supported by our attractive KPN1 platform and KPN1 propositions. This also provides a strong platform to increase the density of product take-up by our customers as we leverage and cross-sell opportunities. This year, we implemented a clear segmented customer focus in our B2B approach with SME, LCE, and tailored solutions. and the strategy of SME and LCE is pretty much aligned, but they are in a different stage of transformation. LCE is lagging SME by about one to two years, so we're on the right track, but it will take some more time to turn LCE around. That being said, we delivered service revenue growth in SME in the second half of 2021, and this was an important milestone for us, and we are now confident that we can stabilize business service revenues by the end of this year. also showed a strong performance during 2021, supported by mobile and broadband growth and reflecting the attractive access terms we offer to other service providers in the Netherlands. As you all know, our regulator HCM is currently still conducting its fixed access review and it expects to start their consultation before the end of this quarter. From our perspective, we believe that we are operating in a highly competitive market where wholesale providers continue to outperform the market in terms of subscriber growth. And with our open wholesale access model, we guarantee sufficient room for wholesale providers to grow and to compete, and still offering customers in the Dutch market a wide variety of high-quality, affordable services. Now, finally, I will turn to sustainability. As highlighted by Chris during our virtual ESG webinar last month, ESG is at the heart of our strategy. In 2021, we published our ambition to become net zero by 2040 and also incorporated ESG into two core financing instruments. Our commitment to sustainability is evidenced by several important independent ESG benchmarks. For example, in November, we recognized as a member of the Dow Jones Sustainability World Index for the 10th year in a row. Looking back over the past 10 years, KPN is the only telco that has been mentioned every year. Now let me hand over to Chris to give you more details on our financials.