Building a platform for sustainable growth Interim results for the year ended 30 September 2012
Business overview Bill Halbert, Executive Chairman
Highlights Revenue & EBITDA performance, in line with our expectations Solid performance in challenging market conditions Profit before tax of 27.6 million, up 2.2% Net debt increased to 94.3 million, comfortably below 1.5x EBITDA Initial deployment of super-fast, fibre-based broadband complete Continuation of roll-out to further 30,000 homes and businesses Growth in Kcom multi-year order backlog Increase in interim dividend of 10.5%, to 1.47p 2
Business focus 3
Highlights - KC KC Growth in both revenue and EBITDA Driven by continued demand for Bundles within consumer market Connectivity services across business market First phase of roll-out of super-fast fibre-based broadband complete Launch of KC TV, based on YouView platform Outperforming market 4
fibre roll-out update 10% of existing customer base covered (450km of fibre) 14,700 consumers 1,100 business premises 80% are FTTP 85% in urban areas Sales penetration: 20% for consumers 30% for businesses Areas with FTTP penetration double those with FTTC/FTTB Higher in rural compared to urban 93% are existing (copper) broadband customers 7% are new to KC broadband approx 4% are upsells from phone only services approx 3% are new customers to KC ARPU: consumer increased by > 4 per month. Entry level bundle: 30 (inc VAT) Entry level fibre: bundle 35 (inc VAT) 98% of sales are for bundle service broadband and telephony 2/3 rds entry level 45mbps bundle at 35 per month 1/3 rd a 100mbps bundle at 50 per month 5
next stage fibre roll-out A further 30k premises over the next two years, covering 30% of network with FTTP Why FTTP? Future proof Better enable the development of over the top services An all fibre network may enable future cost savings Higher performance than FTTC Competitive deployment costs Trialling a KC TV proposition includes broadband, phone bundle and YouView from 42 per month - 12 uplift over current bundle. 6
Highlights - Kcom Kcom Revenue in key strategic focus areas slightly ahead and stable at 122.1 million Overall revenue and EBITDA decline year on year, includes a 7.7 million reduction from one-off network build Focus on long term recurring revenue delivers positive results in local authority, multi-site enterprise and small business market Migration of 1000 schools onto empsn completed successfully Backlog growth 7
Positioning to deliver Focused on core skills and capabilities Exit pure product and maintenance Secure competitive connectivity partner Partner with key organisations to deliver other non-core/specialist areas Clearly defined markets which match capability Investment in customer impacting areas NOC tools, provisioning, core services, people Appointment of MD for Kcom Stephen Long joins in January 8
Financial overview Paul Simpson, Chief Financial Officer
Summary financial results Sept 12 Sept 11 Movement Revenue 188.7 198.0 (5%) EBITDA 1 39.1 40.7 (4%) EBITDA % 21% 21% Operating profit 1 29.8 30.8 (3%) Profit before taxation 1 27.5 27.0 2% Basic EPS (pence) 4.08 3.86 6% Adjusted basic EPS (pence) 2 4.07 3.86 5% Net cash inflow from operations 19.0 35.3 (46%) Net debt 94.3 75.1 ( 19.2m) Interim dividend per share (pence) 1.47 1.33 10% 1 Amounts stated before exceptional items 2 Adjusted basic EPS is Basic EPS adjusted for exceptional items (including the tax impact of the exceptional item) 10
KC Growth in revenue and earnings Revenue Sept 12 Sept 11 Movement KC 47.3 46.4 2% Contact & Publishing 6.3 6.6 (4%) 53.6 53.0 1% EBITDA 27.8 27.6 1% EBITDA % 52% 52% 11
Customers (000 s) KC Growth in consumer and business Sept 12 Sept 11 Movement Consumer Voice Usage 3.5 3.7 (5%) Subscriptions Voice & Broadband 20.8 19.9 4% Business Voice usage & rental 9.1 9.3 (2%) Broadband & data 11.3 10.8 5% Consumer & Business Other 2.6 2.7 (4%) 47.3 46.4 140 Consumer Customer Numbers 40.00 Consumer ARPU s 120 100 80 60 40 20 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0 KC Talk Broadband Bundles 0.00 KC Talk Broadband Bundles Sep-11 Sep-12 Sep-11 Sep-12 12
Kcom Stable revenue position Sept 12 Sept 11 Movement Revenue Strategic focus areas 122.1 121.7 - Network build - 7.7 (100%) Other 15.4 18.4 (16%) 137.5 147.8 (7%) EBITDA 14.5 16.1 (10%) EBITDA % 11% 11% 13
Kcom Growth focus H1 FY13 () H1 FY12 () 19.9 20.0 27.6 74.6 25.7 76.0 Enterprise Public Sector Wholesale Revenue from strategic focus areas stable Public sector growth of 7.4% Macro-economic environment impacting enterprise decision making Growth in multi-year backlog 14
PLC financial matters Pensions IAS19 deficit only small increase of 1.1m from March 12 to 15.0m EBITDA includes credit of 0.8m. Change of accounting rules from next financial year means credit only occurs if scheme in surplus and would be reflected in net interest Share schemes 13.4m shares acquired during year for satisfaction of EIP and LTCIP schemes Further 4.8 million of shares to purchase for remaining obligations: 0.4m FY13 2.2m FY14 2.2m FY15 Taxation Absent mitigating deductibles, anticipate 3m- 4m cash liability for FY13 15
Movement in debt in period Reconciliation of Movement in debt Sept 12 Sept 11 Movement Net cash inflow from operations (pre-exceptional & pensions) 22.0 40.9 (18.9) Exceptional items (2.4) (2.2) (0.2) Pensions (0.6) (3.4) 2.8 Net cash inflow from operations 19.0 35.3 (16.3) Capex (14.3) (10.9) (3.4) Interest (2.0) (3.8) 1.8 Dividends (13.8) (12.9) (0.9) Share scheme purchases (10.0) (0.2) (9.8) Other 2.1 (0.6) 2.7 Total (19.0) 6.9 (25.9) 16
Investment profile Balance Sheet additions Six months to Sep 11 Six months to Mar 12 Six months to Sep 12 Network, including NGA 1.8 5.2 5.6 Infrastructure, software licenses and systems related 4.2 3.5 7.7 Propositions and customer driven 3.2 4.6 2.5 Other 1.4 0.5 1.5 Total 10.6 13.8 17.3 17
Debt: EBTIDA Outstanding cash conversion and debt reduction 180% EBITDA to Operating Cash Conversion 1 200 Debt movement 3.00 160% 140% 120% 100% 80% 60% 40% Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Six Months Ended Cumulative EBITDA to Operating Cash Conversion 100% Conversion 180 160 140 120 100 80 60 40 20 0 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Six Months Ended Debt Debt:EBITDA 2.50 2.00 1.50 1.00 0.50 - Cumulative EBITDA to cash conversion exceeds 100% Anticipate improvement in EBITDA to cash conversion in the second half Debt comfortably below 1.5x EBITDA 1 EBITDA pre exceptional. Operating cashflows pre-exceptional & pension 18
Outlook Bill Halbert, Executive Chairman
Outlook KC continues to outperform peers Kcom winning market share, in spite of economic conditions 10% dividend reflects confidence in current performance and future prospects 20
Appendices 21
Segmental Performance Revenue Sept 12 Sept 11 Movement KC 53.6 53.0 1% Kcom 137.5 147.8 (7%) PLC (2.4) (2.8) 14% 188.7 198.0 (5%) EBITDA Sept 12 Sept 11 Movement KC 27.8 27.6 1% Kcom 14.5 16.1 (10%) PLC (3.2) (3.0) (7%) 39.1 40.7 (4%) 22
Kcom Restatement Sept 12 Revenue Sept 11 Sept 12 EBITDA Sept 11 Kcom & Smart 126.8 137.7 12.1 13.4 Eclipse 10.7 10.1 2.4 2.7 137.5 147.8 14.5 16.1 23
Pensions Movement in IAS19 Deficit Sept 12 Mar 12 Movement Assets 183.7 185.5 (1.8) Liabilities (198.7) (199.4) 0.7 Deficit (15.0) (13.9) (1.1) IAS19 costs Sept 12 Sept 11 Movement Return on assets (5.4) (5.5) 0.1 Interest Cost 4.6 4.7 (0.1) Charge/(Credit) (0.8) (0.8) - IAS19 assumptions Sept 12 Sept 11 CPI Inflation 2.0% 2.3% Discount Rate 4.4% 5.1% Expected return on assets 6.1% 6.9% 24