2012 was a turbulent and challenging year for the KPN Group. It was a year where we accelerated our commercial and infrastructure investments to stabilize market positions and improve customer service, thus taking the necessary steps to realize our ambitions. These ambitions go hand in hand with our social policy. However, share price development and dividend policy changes impacted our shareholders’ returns.
The effects of the measures needed to become the best service provider were clearly visible in 2012. Our customers were able to see improvements in our services and products. We boosted the quality of our services, but at a slower pace than expected at the beginning of 2012. Investments in our services and products enabled us to achieve our market share targets in both the business and the consumer market. However, the improved operating performance was not reflected in improved financial results.
- 24/7 free helpdesk
launched
- >1M IPTV customers in the Netherlands
Quality of services
The Net Promoter Score, which was considerably higher among consumers than in 2011, proves that we are making the right investments in the quality of our services. Among the reasons for the higher score were the launch of our free 24/7 helpdesk, an improvement in the call center service and the opening of XL shops. The main driver for the increase in broadband customers for the first time in years was our growth in fiber activations and good performance of the Telfort brand. Our new, transparent mobile propositions triggered positive reactions from consumers and business customers. Nevertheless, revenues in the mobile market continued to decrease, partly as a result of a change in customer behavior: people are communicating more and more via apps. Another factor in the drop in our revenues was increasing competition. In the business segment we maintained our market position but the adverse economic conditions had an impact on our customers in 2012. They remained circumspect regarding their ICT investments or postponed them, putting further pressure on prices. The sentiment in the Corporate Market was also characterized by reticence and uncertainty. That confirmed the need to integrate the Business Market segment and parts of Corporate Market. We were once again successful in 2012 with our subsidiaries in our neighboring countries. The number of customers rose substantially in Germany. Primarily as a result of increased price competition, revenue growth slowed in the fourth quarter. Belgium continued to show strong revenue growth, driven by B2B, wholesale and data.
To further improve the quality of our services we ramped up customer-driven investments. We went ahead with upgrading our copper network, enabling us to offer our customers even higher upload and download speeds. We also improved our existing mobile network and we laid the foundations for the mobile network of the future by acquiring an attractive frequency package, including 4G LTE. We have made an energetic start to the rollout of our 4G network, so we expect to have 50% coverage in the summer of 2013. We also expanded our fiber network in 2012 and we strengthened our “fiber position” thanks to the takeover of several fiber service providers. Uncertain economic prospects, the need to strengthen our financial position and the flexibility to finance strategic investments underlay our decision to stop our share buy back program at the start of 2012 and to reduce our 2012 dividend. Unfortunately, these circumstances contributed to a decline in our share price during the year.
Organization
To align our organization with our strategic goals and to be able to respond adequately to the changing market, we revamped our top structure at the beginning of 2012. We formed the Executive Committee and appointed Joost Farwerck as Managing Director Netherlands. There was one change in the composition of the Board of Management in 2012: in September Eric Hageman was officially appointed as Chief Financial Officer, the job he had already partially performed on an interim basis in the previous months, along with Steven van Schilfgaarde.
We are continuing our personnel reduction program in the Netherlands. Consequently, at the end of 2013 the workforce will show a decrease of 4,000 to 5,000 employees in comparison with the start of 2011. We realize the significance of the impact on employees concerned, but a smaller, simpler and more efficient organization is essential if we are to operate at lower cost. A social plan is in place for colleagues who have had to leave the company; this is geared to helping those employees find a new job as quickly as possible.
Corporate Social Responsibility (CSR)
We recorded good results in 2012 in the domain of CSR. We have been increasingly successful in integrating our social policies and thereby making it a self-evident part of our business operations. Through our social themes we explicitly show that, as a telecom and ICT service provider, we can do a lot for the community. “Best ICT infrastructure” is one of our themes for good reason, as it allows us to stress that a modern society cannot do without ICT. Moreover, we are convinced that KPN makes an essential contribution. And the more important ICT becomes, the greater the demands people make on secure and reliable internet traffic. To safeguard this, we give top priority to the theme “Security and privacy”. In terms of procuring green power and saving energy we are now among the world’s “greenest” telecom and ICT companies. Our listing in the Carbon Disclosure Project and the Newsweek Green Rankings prove that we are able to distinguish ourselves through our sustainability framework. We make The New Way of Living and Working possible for a growing number of companies, thereby underlining the positive effects on the environment and society as a whole. Also in the healthcare sector we are able to highlight the value of ICT.
We demonstrate the fine potential of ICT with KlasseContact, the most important project of the KPN Mooiste Contact Fonds. In 2012 we enabled 200 chronically ill children to continue taking lessons via a special communication set. We will give this project additional support in 2013, so that even more children can stay in contact with their class and their classmates. In the fall we added a cultural dimension to our social policies by entering into a partnership with the new Rijksmuseum in Amsterdam.
Special topics
I would especially like to mention two topics that received a lot of attention within the company and in the outside world. In January we were confronted with a computer hack. We took the incident very seriously, we learned our lessons and used this to focus even more on security and privacy, both internally and externally. It goes without saying that we are conscious of how important it is for customers to have confidence in our ability to keep their data secure. We have taken necessary measures, including setting up the Security Operations Center, which reduces the risk of security incidents in the future.
Secondly, the change in our shareholding whereby América Móvil acquired just over 27% of KPN’s shares in June 2012 received a lot of attention. As announced on February 20, 2013 the support of our largest shareholder in our intention to raise EUR 4 billion of equity equivalent capital is a major step towards successful execution of our capital raise. This will consist of a EUR 3 billion rights issue and, in addition, issuance of hybrid capital instruments. I am pleased that important progress has been made towards aligning our financial position with our strategy and that our relationship agreement will enable us to have the benefit of a strong relationship with a global leader in the telecom sector going forward, among other things, by the intended appointment of two individuals, designated by América Móvil, to KPN’s Supervisory Board during the Annual General Meeting (“AGM”) in April 2013.
To conclude
A year ago in this report I wrote, “KPN is a healthy company with stretching customer-oriented and social ambitions”. Those words apply just as much today. We have made good progress and I am pleased with the operational performance as a team. This offers good prospects of success on our strategic path. KPN is a strong and resilient company, thanks to the efforts, knowledge and qualities of thousands of KPN employees.