Connected. By KPN.
Connected. By KPN.
Integrated Annual Report 2015 in facts, figures and people.
Connected. By KPN.
We believe that communication technology enriches life. It is our mission to provide safe, reliable and future-proof networks and services, enabling people, businesses and organizations to be connected anytime, anywhere, adding value to their lives.
This Integrated Annual Report is about facts and figures, but moreover about 100 different people. About their plans, dreams and ambitions. These 100 persons have one thing in common: on a daily basis they use the services and networks of KPN.
They are the inspiration for all our plans and are therefore at the center of this Integrated Annual Report. View their different stories on annualreport
Contents
Connected. By KPN.
KPN at a glance
Report by the Board of Management
Report by the Supervisory Board
4. Introduction by the CEO 6. Our main achievements
in 2015 8. Review of the year 2015 10. Our organization 12. The value we create 14. Our strategy 16. The world around us
Governance 18. Corporate Governance 22. Composition of
the Boards
Group performance 28. Financial and
operational performance 32. Innovation 34. Privacy & Security 38. Quality and reputation 42. Our people 46. Our suppliers 48. Environmental performance
Segment performance 52. Consumer Mobile 53. Consumer Residential 54. Business 58. NetCo 61. iBasis
62. Risk Management and Compliance
66. Regulatory developments
68. Supervisory Board Report
72. Remuneration Report
2
Financial Statements
Appendices
Integrated Annual Report 2015
82. Consolidated Financial Statements
156.Corporate Financial Statements
163. Other Information
Appendices in report 174. Appendix 1:
Analysis of adjusted results YTD 2015 176. Appendix 2: Overview of CSR targets and achievements 178. Appendix 3: Scope, reporting process and materiality determination 185. Appendix 4: Glossary of terms
Digital appendices For an overview of our social and environmental figures, stakeholder dialogue, GRI index and main risks and countermeasures, please see annualreport
189. Colophon
3
Connected. By KPN.
KPN at a glance
Introduction by the CEO Our main achievements Review of the year 2015 Our organization The value we create Our strategy The world around us Governance
Report by the Board of Management
Report by the Supervisory Board
Introduction by the CEO
Investing in an innovative future
Eelco Blok CEO KPN
With innovative products and services that are increasingly valued by our customers, we are acquiring a strong reputation as the integrated ICT service provider in the Netherlands.
For KPN, 2015 is a year we look back on with satisfaction from a commercial, operational and financial perspective. Once again, our Net Promoter Score (NPS) ? the yardstick for customer loyalty and customer satisfaction ? increased across all segments. In consumer markets (both residential and mobile) and the business market, NPS was at an all-time high. This shows we are on the right track as far as the quality of our service is concerned. Customer numbers are growing; on the one hand because we have acquired more new customers and on the other because more of our existing customers have remained loyal to us. Growth figures in the consumer segment were impressive. The business market remained challenging in 2015. We saw a slight improvement at Business in comparison with recent years. As in previous years, the results of our sustainability efforts were most satisfying.
Upgrading our networks for our customers We are responding to the growing customer demand for continuous accessibility, and fast and reliable fixed and mobile connections ? whether for internet, calls, TV or business ? by further improving our infrastructure, which is the foundation on which our service is based. In 2015, we again gave high priority
to updating, improving and maintaining our fixed and mobile networks. We invested substantially in our copper and fiber networks, as a result of which more than two thirds of all households in the Netherlands could benefit from internet speeds of at least 100 megabits per second by the end of the year. More than three million customers now use our 4G mobile network and in May we launched an even faster version (4G+), which is available in the bigger Dutch towns and other parts of the Netherlands. We continued to further integrate our fixed and mobile networks. With our high-quality infrastructure, we make it easy for our customers to use our products and services everywhere.
Simplification Our appealing commercial and operating results are boosted by simplifying our processes, IT and other systems, and our product and services portfolio. After 20 years, we said farewell to our youth brand Hi and transferred our Hi customers to the KPN brand. In April, we announced the sale of our Belgian subsidiary BASE to Telenet. We obtained regulatory approval from the European Commission in February 2016.
Thanks in part to simplification and greater efficiency, we reduced our costs to a fundamentally lower level. However, we realize, this is not yet enough. A new organizational structure, characterized by fewer management tiers, greater flexibility and more direct involvement by the Board of Management, will enhance our service by making it easier for our frontline employees to meet and respond to customers' wishes.
4
Financial Statements
Appendices
Integrated Annual Report 2015
Improved financial results Our financial performance improved in 2015, on the back of positive operating results and our simplification and efficiency campaigns. Although sales in the business market dipped slightly, our cost base improved, partly because we succeeded in systematically reducing our operating expenses. Our solid financial performance is also apparent from the strong growth in Free Cash Flow, which enabled us to grow our dividend in a sustainable way.
On the right sustainable track Our aspiration to become the best service provider can only be achieved if we continue on a sustainable path. KPN became a climate-neutral company in 2015, five years earlier than we had initially planned. Our listing in the Dow Jones Sustainability Index ? for the fourth consecutive year ? confirms once more that sustainability is firmly and permanently embedded in our strategy and execution. Our new data center in Eindhoven received the Dutch ICT Environment Award. Opened in the summer of 2015, it is the first Tier IV and cradle-to-cradle data center in the Netherlands. Moreover, innovative technologies, and smart and efficient IT applications will increasingly contribute to making society more sustainable.
Sustainability is only one aspect of our corporate social responsibility and involvement. We also carry out activities under the banner of the KPN Mooiste Contact Fonds, which enables vulnerable groups in society to maintain social contact, such as chronically ill children and the elderly. In 2015, we enabled more than 800 sick children to stay in touch with their classroom from home or hospital via a communication set and keep up with their schoolwork. And we launched the Zilverlijn project with the National Foundation for the Elderly, where KPN volunteers call lonely seniors for a friendly chat. We are also working with the Dutch Kidney Foundation (Nierstichting) to make portable artificial kidneys a reality, thereby improving the lives of kidney patients.
Privacy & Security remains a top priority The role that we play in society involves a certain vulnerability to security threats. We do our utmost to protect our customers and networks, and, moreover, enable our customers to protect themselves. By offering security services and being transparent about how and why we use certain data, we show our customers that we respect their privacy and safeguard their digital security at the same time.
Proud employees We have high ambitions to improve the quality of our service even further. We create a work environment where inspiring leadership is the norm and our employees feel appreciated, having opportunities to develop their talents for the benefit of our customers. Our employee engagement was the best in three years and rose by seven percentage points to 77%. More than 80% of employees are proud to work for KPN. This gives rise to a business culture with high employee involvement.
New partnerships for new products We are eager to form partnerships with talented, innovative companies, to foster outside-in innovation and enhance our involvement with start-ups. To that end, we set up KPN Ventures, an investment fund that enables us to partner with start-ups. Such interaction speeds up the development and commercialization of innovative applications. Another promising partnership is with French Actility, which is helping us realize a cost-effective and sustainable connection to the Internet of Things. We launched the so-called LoRA network in November in The Hague and Rotterdam and will implement it incrementally throughout the Netherlands up to June 2016.
ICT is the driver of innovative services The Internet of Things will create a world in which everyday objects and appliances ? even animals ? are connected to the internet and can share information with each other. In just five years, there will be an estimated 50 billion of these connections, although it's not clear how soon markets and society will adopt the technology or recognize its far-reaching opportunities. This is the world that KPN is investing in. We help our customers in their digital transformation. New technology applications create new economic opportunities and contribute to a safer and cleaner world, thereby addressing one of the greatest challenges of our time.
I firmly believe we will succeed, as long as we embrace the development and implementation of innovative, advanced technologies, making ICT the driver of progress and the catalyst for a better climate.
Confidence in the future Our good operational and commercial performance and stabilized financial performance give us great confidence in the future, in which sustainability and innovation will play an increasingly important role. KPN will persistently do its utmost best to make a difference for our customers and Dutch society as a whole by connecting them in a reliable and sustainable manner, thus making their personal and working lives more free, more simple and more fun.
"Our good operational and commercial performance and the improved financial performance give us great confidence"
Watch Eelco's story: annualreport/eelcoblok
5
Connected. By KPN.
KPN at a glance
Introduction by the CEO Our main achievements Review of the year 2015 Our organization The value we create Our strategy The world around us Governance
Report by the Board of Management
Report by the Supervisory Board
Our main achievements in 2015
Improving our performance
Adjusted EBITDA1,2
In billions of EUR
Adjusted EBITDA margin1,2
Capital expenditures1
In billions of EUR
Free Cash Flow1
In billions of EUR
5
4
32.9
34.5
3
36.6
2
1
0
2.8
2.4
2.4
2013
2014
2015
Customer satisfaction
Net Promoter Score
in the Netherlands
3
0
-3
-6
-9
-12
-10
-3
3
2013
2014
2015
Realized cost savings Simplification program3
In millions of EUR
1.75
1.40
1.05
0.70
0.35
0
1.4
1.2
1.3
2013
2014
2015
Consumer customer base growth
In thousands
450
139
360
270
33
180
90
44
0
10
2013
Mobile Postpaid
220
289
2014
2015
Fixed Broadband
Energy consumption
In petajoules
1.60
1.20
0.80
0.40
0.0
-0.4 0.4
-0.2
0.7
2013
2014
2015
Reputation
RepTrak pulse score
75
60
45
30
15
0
62.6
2013
69.7 2014
69.2 2015
Households with 100Mbps coverage
300 240 180 120 60 0
2013
~140 2014
~280 2015
5
4
3
2
1
0
3.69
2013
Energy consumed by KPN
75
60
45
2.28
2.53
30
15
3.50 2014
3.48
0
2015
Estimated energy consumption avoided by KPN customers4
22% 2013
50% 2014
68% 2015
1) Based on continuing operations. 2) EBITDA adjusted for the impact of restructuring costs and incidentals.
Reconciliations for 2014 and 2015 to be found in Appendix 1.
6
3) For more information, please see p25 of this report.
4) E stimated avoided energy consumption by customers from the use of our ICT solutions compared with K PN own energy consumption. For more information, please see p49 of this report.
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