Second Quarter Results. 22 August 2003

Transcription

1 Second Quarter Results 22 August 2003

2 Safe harbor Certain statements contained in this presentation constitute forwardlooking statements. These statements may include, without limitation, statements concerning future results of operations, the impact of regulatory initiatives on KPN s operations, KPN s and its joint ventures share of new and existing markets, general industry and macroeconomic trends and KPN s performance relative thereto, and statements preceded by, followed by or including the words believes, expects, anticipates or similar expressions. These forwardlooking statements rely on a number of assumptions concerning future events and are subject to uncertainties, and other factors, many of which are outside KPN s control, that could cause actual results to differ materially from such statements. A number of these factors are described (not exhaustively) in KPN s Annual Report on Form 20F for the year ended December 31,

3 General

4 Highlights Q2 Strong operational results EPlus customer base increased to 7.7 mn; since then exceeded 7.8 mn ADSL increased from 418,000 to 513,000 1 Sale of 6.48% stake in Český Telecom for 223 mn Net debt reduced to 10.2 bn Credit ratings improved to Baa1 (stable, Moody s) and BBB+ (positive, S&P) P 1 Installed connections 4

5 Focus on margin and cash flow remains Operating EBITDA margin 1 Free cash flow 32.1% 35.5% 37.8% 38.3% 40.3% 41.0% (in mn) , Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Capex Net debt 13.9 (in mn) (in bn) Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 P 1 Excluding exceptional items 5

6 resulting in increased profitability (in mn) (in mn) 3, Revenues % revenue growth in core divisions Profit before taxes ,043 Q2 02 Fixed Mobile Other ² Q (in mn) (in mn) EBIT Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Profit after taxes Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 ' P 1 Excluding exceptional items 2 Including inter company sales 6

7 Fixed Defending our revenue base >90% +/ 90% >70% >50% Market shares 1 Introduction local CPS Q2 '01 Q4 '01 Q2 '02 Q4 '02 Q2 '03 +/ 90% +/ 80% +/ 65% >50% Revenues stable despite CPS competition Fixed to Mobile substitution ADSL growth Migration to Business DSL and IPVPN Striking the balance between pricing and market share Access lines Local traffic National traffic International traffic Commercial initiatives to defend market share and maximize revenues per customer Consumer market Discount package introduced (BelPlus100) 500,000 customers end Q2 Marketing campaign Conscious caller Business market Growing number of IPVPN customers Introduction of complete DSL portfolio Entrance in WiFi market by acquisition HubHop 2 P 1 Local telephony traffic in minutes; broadband and access in number of lines 2 A leading Dutch WLAN hotspot operator 7

8 Fixed and expanding on broadband X 1,000 Number of broadband connections in the Dutch market 1,600 1,400 1,200 1, Penetration in the Netherlands in top quartile Europe ADSL population coverage of 87% Market share of consumer broadband market approx. 35% 69% of these connections sold via KPN ISP s Target of 675,000 connections as at YE Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Cable ADSL KPN Other ADSL 1 P 1 Including Bit stream 8

9 Mobile Growing market position in Germany and Belgium Strengthen third position by increasing customer base to more than 8 mn end 2003 with margins in Q3 and Q4 of 20 25% Results Q2: 270,000 net adds leading to 7.7 mn customers 23.5% operating EBITDA margin Increase market share and become cash flow positive during 2004 Initiatives: Commercial repositioning with Freedom of Speech and Freedom of Choice campaigns Challenge incumbent fixed line operator with competitive voice offer P 9

10 Mobile Data Services imode In Q2 Subscriber base increased to 353,000 Simplified tariff structure New handsets with JAVA, MMS, camera and video capabilities 430 contract content sites; approx. 7,000 free content sites Second half 2003 Prepaid in NL: introduced in August Prepaid in Germany & Belgium: Q4 Further expansion handset portfolio Target 1 million subscribers end 2003 Network UMTS UMTS rollout Fulfilment of license obligations Market demand for 3G services determines speed of further rollout Integration MobilCom assets Launch Germany: CeBIT 2004 Netherlands: Mid 2004 (Pilot H2 2003) Belgium: Pilot end 2003 Services should work seamlessly UMTS and GSM/GPRS will coexist Capex 1.4 bn 1 up to and including 2005 P bn in Germany; 0.2 bn in The Netherlands; 0.1 bn in Belgium; of total already 0.1 bn spent 10

11 Benchmarking Challenging ambition Ambition: Top quartile on all metrics Category Growth Return Efficiency Metric Revenue growth Operating EBITDA growth PBT growth Operating EBITDA margin PBT margin ROIC TSR Revenues per FTE Operating EBITDA per FTE Q1 03 In Q1 KPN outperformed on Operating EBITDA growth PBT growth Revenue per FTE Operating EBITDA per FTE Top quartile 2nd & 3rd quartile Bottom quartile P Peer group: BellSouth, British Telecom, Deutsche Telekom, France Telecom, NTT, Portugal Telecom, SBC, Swisscom, TDC, Telecom Italia, Telecom New Zealand, Telefónica, TeliaSonera 11

12 Benchmarking Top quartile in some metrics, but room to improve other metrics 40% 30% 20% 10% 0% 10% 20% 30% Operating EBITDA 1 Growth Q1 02 Q2 02 Q3 02 Q4 02 Q % 100% 90% 80% 70% 60% 50% 40% Total Shareholder Return Q1'02 Q2'02 Q3'02 Q4'02 Q1'03 KPN Average peers 70% PBT Margin 50% 30% 10% 10% 30% 50% 70% 1 Excluding exceptional items Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Top quartile 2nd & 3rd quartile Bottom quartile KPN 12

13 Regulation KPN has filed for injunction regarding recent OPTA ruling on fixed interconnection rates Existing restrictions on KPN s discount schemes continued by OPTA; KPN objects to being restricted in offering attractive packages to customers No lowering of mobile termination rates required yet 13

14 Corporate Governance KPN s reaction to Dutch draft code Tabaksblat 1 KPN supports initiatives to improve corporate governance KPN will give feedback on a few specific provisions SarbanesOxley Act KPN is in compliance 2 P recommendations; comply or explain principle certification 14

15 Outlook 2003 Excluding impact potential Mobile termination reduction Outlook full year 3 March May August 2003 Growth revenues core activities 1 Fixed Mobile 0 2 % % 0 2 % approx. 10 % flat approx. 10 % Operating EBITDA growth 1 minimum 5 % minimum 5 % 3 minimum 10 %4 Profit before taxes 1 more than 1 bn more than 1 bn 3 approx. 1.4 bn 4 Capex bn approx. 1.5 bn approx. 1.5 bn Free cash flow 5 approx. 1.5 bn approx. 1.8 bn more than 2.0 bn Net debt YE less than 10.5 bn approx. 10 bn less than 9.5 bn P 1 Excluding exceptional items 2 Outlook March: Fixed Networks 02%; Business Solutions: stable 3 Taking into account a possible pension shortfall of 111 mn as at April 30, Taking into account a possible pension shortfall of 54 mn as at July 31, Net cash flow from operating activities after Capex, interest, tax and restructuring expenses 15

16 Financial

17 Financial highlights in Q2 (Reported, in millions) Revenues (2%) Operating EBITDA (+8%) 3,105 3,043 1,164 1,253 Q2 02 Q2 03 Q2 02 Q2 03 EBIT Profit after taxes 6, , P Q2 02 Q2 03 Q2 02 Q

18 Results Q2 Excluding exceptional items, millions Q2 02 Q2 03 % YTD 02 YTD 03 % Revenues 3,083 3,043 1% 6,007 6,039 1% Opex 1,989 1,796 10% 3,973 3,584 10% Operating EBITDA 1,094 1,247 14% 2,034 2,455 21% Depreciation 1 Amortization % 31% 1, , % 28% EBIT % 677 1,199 77% Financial income/expense % % Profit before taxes >100% >100% Income participating interests Minority interests Taxes % 40% 33% % 33% 66% Profit or loss after taxes P 1 Including impairments 18

19 Cost reduction program More progress to be made Total number of personnel (FTE) 47,888 44,080 39,561 37,251 35,837 33,783 16,837 15,840 1,674 15, ,209 14, ,210 ¹ 33,178 13,576 13, ,377 27,265 23,071 21,357 20,533 19,484 19,167 YE '01 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Consolidation & International Temporary personnel Collective labor agreement personnel Collective labor agreement personnel Since YE 2001: reduction of 6,516 FTE (excluding deconsolidation effects) Further reduction expected via social plan and natural attrition 1 Including deconsolidation effect of 512 Q KPN Valley R&D activities and logistics 3,182 FY 2002 (Network Construction, EndUser Services and Software House) and natural attrition 19

20 Pension charges Potential additional P&L charge for 2003 amounts to 54 mn¹ Coverage ratio Desired 285 mn 286 mn Minimum reserve 109% 1 107% 2 54 mn 111 mn 100% P Potential funding 2003 decreased from mn to 54 1 mn Coverage ratio increased to 109% Total remaining funding shortfall is mn; mn to be funded in the next five years 1 Based on situation July 31, Status April 30, Any coverage below 100% has to be funded within 12 months 20

21 Update Mobile terminating tariffs No reduction forced as of yet Update possible annualized impact ¹ of tariffs as proposed by OPTA millions Revenues Operating EBITDA Fixed Mobile Intercompany KPN Group Most recent court ruling: OPTA does not have jurisdiction in indirect interconnection cases (majority of cases); OPTA has appealed NMa 2 has recommenced its investigation, to be finalized by end of Summer Under the assumption that MTA tariffs decrease from KPN s current level of to Dutch competition authority 21

22 Operating EBITDA margins 1 Overall improvement driven by Fixed 45% 42.5% 43.2% Fixed 40% 38.1% 38.5% 40.3% 41.0% KPN Group 36.9% 37.8% 38.3% 35% 34.2% 35.5% 33.7% 32.1% 33.8% 34.2% 34.5% 34.4% 33.1% Mobile 30% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Fixed continues to benefit from cost reduction program Mobile margin decreases slightly due to subscriber growth EPlus P 1 Excluding exceptional items 22

23 Free cash flow millions Profit or loss after taxes Minority interests Depreciation, amortization and impairments Income from participating interests Results from sale of assets Change in provisions and deferred taxes Net cash flow from operating activities before changes in working capital Inventory Receivables Other current assets Current liabilities Change in working capital Net cash flow from operating activities Capex Free cash flow 1 1 Operational cash flow after Capex, interest, tax and restructuring expenses Q2 02 9, ,123 1, Changes in working capital in Q2 03 mainly relate to Change in accrued interest due to interest payments ( 124 mn) Tax refund on preliminary assessment 2002 ( 194 mn) Payment of pension shortfall 2002 ( 52 mn) 412 Q % > 100% 12% 54% 19% 73% 23

24 Financial profile Solid ratios & improved redemption profile 6 Financial ratios 3 Redemption profile Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 ' Cash z 1.1 '03 '04 '05 '06 '07 '08 '09 '10 '30 Net Debt/Operating EBITDA Operating EBITDA/Net interest Max. covenant renegotiated facility Min. covenant renegotiated facility Cash position in bn per June 30 KPN debt in bn (incl. 0.3 bn consolidated debt) 220 mn redeemed early in June on the Subordinated Convertible Bond, settled on July 3, Including convertible bond of 1.3 bn (after settlement early redemption) 24

25 Taxes Expectations unchanged Tax consequences of the financial restructuring of Mobile Discussions with the tax authorities still ongoing Uncertainties with regard to the tax consequences remain No (deferred) tax liability or (deferred) tax asset recognized Q2 03 Reiteration earlier given expectation that Royal KPN, KPN Mobile and EPlus will not pay corporate taxes during 2003 and 2004 VAT reclaim UMTS licenses Exploring best course of action 25

26 Fixed in Q2 Strong operating EBITDA and EBIT growth (Excluding exceptional items, millions) Revenues (+0.2%) 1,842 1,846 Operating EBITDA (+17%) EBIT (+42%) Fixed Networks Q2 02 Q2 03 Q2 02 Q2 03 Q2 02 Q2 03 Business Solutions Other Fixed Networks Carrier Services Fixed Telephony Interdivision Fixed Networks = Fixed Networks Interdivision Fixed P Fixed Telephony Carrier Services Business Solutions Other Decrease in revenues due to direct billing of internet traffic by ISP s, migration to broadband, competition from CPS and mobile substitution Increase in revenues as result of higher wholesale volumes Slight increase in revenues due to ADSL growth and other revenues Higher revenues from ISP s and SNT were more than offset by lower internal revenues (cost savings) 26

27 Revenue development Fixed ¹ Increase of 0.2% millions 1, , Q2 02 Q2 03 Internet minutes Fixed Telephony Internet originating minutes ISP s ADSL subscription Local voice Fixed Telephony Other traffic Fixed Telephony ISP and telephony subscription Other Business Solutions 2 Other Fixed 1 Total division Fixed, including Business Solutions 2 Excluding ADSL subscription revenues of IP Services 27

28 Mobile in Q2 Further increase in revenues, operating EBITDA and EBIT (Excluding exceptional items, millions) Revenues (+6%) 1,194 1, Operating EBITDA (+4%) EBIT (+58%) Q2 02 Q2 03 Q2 02 Q2 03 Q2 02 Q2 03 KPN Mobile (NL) EPlus BASE Other P KPN Mobile (NL) Continued strong margin performance: 44%; revenue growth 6% EPlus Revenue growth 8%; growth customer base to 7.7 mn BASE Continued improvement of operating EBITDA and operating EBITDA margin 28

29 EPlus in Q2 Growth customer base continues mn customers ARPU % 45% 46% 47% 46% 46% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 blended postpaid prepaid Margin % 30.1% 28.4% 30.2% 27.1% 23.5% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 P 1 Operating EBITDA margin 29

30 Other in Q2 Continued improvement operating EBITDA and EBIT (Excluding exceptional items, millions) Revenues ( 32%) Operating EBITDA EBIT Q2 02 Q2 03 Q2 02 Q2 03 Q2 02 Q2 03 Revenue decline due to sale of Directory Services and lower revenues from retail activities and Xantic Operating EBITDA increase due to cost reduction program, partially offset by sale of Directory Services 30

31 Conclusion Solid performance in Q2 Strong margin expansion Further net debt reduction Net profit fourth quarter in a row Further expansion of EPlus customer base Strong growth of ADSL connections P Focus for next quarters Focus on margin and cash flow Focus on top line Further increase EPlus customer base Strengthen market position BASE Improve customer satisfaction Grow mobile data Pursue further ADSL growth Introduce new attractive fixed telephony offerings 31

32 Q & A

33 Annex For more information please contact: KPN Investor Relations Tel: mailto: Please visit our renewed IR web pages

34 Management focus Moving from short term cash to longer term value focus Past Shortterm focus Repair balance sheet Positive free cash flow Present Midterm focus Future Longterm focus Optimal leverage Rationalization and restructuring Customer satisfaction Maximize bottom line growth Bestin inclass benchmarking Profitable topline growth 34

35 Dividend Policy Conditions to resume dividend payments Structural 1 positive free cash flow Credit Rating of at least 2 : Baa2 at Moody s BBB at S&P Structural 1 net profit Net debt of around 10 billion Most likely a proposal for dividend policy will be made at the AGM in Structural = realized for a full year and expected to be sustainable ² Related to KPN's 1.5 bn credit facility (undrawn) 35

36 Corporate Governance Compliance with SarbanesOxley Act Current Supervisory Board members all independent nonexecs Audit Committee in place, with qualified financial expert Internal control system further strengthened during 2002 (letters of representation, code of conduct for financial managers) Comprehensive risk management system currently being further improved Disclosure committee in place As of 2003, Audit Committee decides all new assignments to auditor¹ Whistle blower procedure introduced KPN joined Stichting Communicatiekanaal ² in April 2003 Signing of 302 certificate 1 Previous threshold was: assignments above 1 mn 2 Foundation Communication Channel: aims to improve communication with investors and proxy voting 36

37 Results Q2 (Reported) millions Q2 02 Q2 03 % YTD 02 YTD 03 % Revenues 3,105 3,043 2% 6,364 6,711 5% Opex 1,941 1,790 8% 4,141 3,578 14% Operating EBITDA 1,164 1,253 8% 2,223 3,133 41% Depreciation 1 Amortization , % 98% 1,326 7,519 1, % 97% EBIT 6, ,622 1,824 Financial income/expense % % Profit before taxes 7, ,206 1,390 Taxes Income participating interests Minority interests 795 1, % 822 1, % Profit or loss after taxes 9, , Including impairments 37

38 Exceptional items Impact on operating EBITDA millions Q2 02 Q2 03 YTD 02 YTD 03 Mobile division Gain resulting from the termination agreement MobilCom 222 Book profit on the sale of UMC 15 Book profit on the sale of Pannon GSM 335 Fixed division Writedown of assets held for sale and inventories Provision for future losses on maintenance contracts KPNQwest 125 Release restructuring provision 6 6 Provision for settlement and related issues KPNQwest and charges related to KPN Belgium Other activities Book profit on the sale of Directory Services 435 Book loss on the sale of Network Construction 5 68 Book profit on the sale on real estate Total impact on operating EBITDA

39 Exceptional items Impact on EBIT & net profit millions Q2 02 Q2 03 YTD 02 YTD 03 Total impact on operating EBITDA Impairment charges Goodwill EPlus and BASE (Mobile) UMTS license EPlus and UMTS/GSM licenses (Mobile) Goodwill on KPNQwest (Other activities) Fixed assets relating to KPNQwest Fixed Networks Business Solutions Other activities Fixed assets KPN Belgium Intangible fixed assets Goodwill on SNT 3,168 4, ,168 4, Total impact on EBIT 7, , Total impact on profit or loss before taxes 7, , Taxation Valuation allowance deferred tax assets EPlus and BASE Tax effect on exceptional items Income from participating interests Adjustment to net realizable value Hutchison 3G UK Adjustment to net realizable value Český Telecom Impairment net asset value KPNQwest Minority interest Minority s share of impairment goodwill and tax effect SNT , , Total impact on profit or loss after taxes 9, ,

40 Operating expenses Further decrease Excluding exceptional items, millions Q2 02 Q2 03 % YTD 02 YTD 03 % Salaries and social security contributions % 1, % Cost of materials % % Work contracted out and other expenses 1, % 2,043 1,876 8% Other % % Total 1,989 1,796 10% 3,973 3,584 10% 40

41 Analysis operating expenses Salaries & Cost of materials 499 Salaries 12% 437 Deconsolidation and sale of noncore activities Lower number of personnel due to reorganisation Q2 '02 Q2 '03 Cost of materials % 237 Higher number of mobile handsets sold Partially offset by deconsolidation and sale of noncore activities Q2 '02 Q2 '03 41

42 Analysis operating expenses Work contracted out & Other Work contracted out 5% 1, Lower purchasing costs of traffic Higher bonuses and dealer commissions Deconsolidation and sale of noncore activities Q2 '02 Q2 '03 Other Lower due to deconsolidation and sale of noncore activities % 164 Q2 '02 Q2 '03 42

43 Depreciation and amortization Excluding exceptional items, millions Q2 02 Depr. Amort. Q2 03 Depr. Amort. % Depr. % Amort. Fixed Fixed Networks Business Solutions % 8% 1% 29% 29% Mobile Other % 6% 31% 43% Total % 31% Excluding exceptional items, millions YTD 02 Depr. Amort. YTD 03 Depr. Amort. % Depr. % Amort. Fixed Fixed Networks Business Solutions % 8% 2% 33% 33% Mobile Other % 3% 27% 41% Total 1, , % 28% 43

44 Taxes Reported 1, millions Q2 03 YTD 2003 Fiscal unities P&L charge Payments () P&L charge Payments () Receipts (+) Receipts (+) Divisions Fixed/Other Dutch Mobile activities 146 No No 2 German Mobile activities No No Belgian Mobile activities No No Charge Q2 Cash in Q2 Charge YTD Cash in YTD 1 Including exceptional of 9 mn 2 Losses of German mobile activities can temporarily be deducted from the Dutch mobile profits This results in a postponed payment for Dutch mobile activities (excluding the effects from refinancing KPN Mobile) 3 Cash inflow relates to refund of preliminary tax assessment

45 Net result affiliates Income from participating interests Excluding exceptional items, millions Q2 02 Q2 03 YTD 02 YTD 03 UMC Český Telecom Infonet Hutchison 3G UK 7 13 KPNQwest 113 Other Total Minority interests KPN Mobile (2.16% NTT DoCoMo owned) Other Total

46 Cash flow millions Q2 02 Q2 03 YTD 02 YTD 03 Net cash flow provided by operating activities ,442 1,758 Capex Sale of noncore assets Other (including real estate) Net cash flow from investing activities Redemptions Early redemptions Other 3, ,465 1, ,519 1, ,492 1, Net cash flow used in financing activities 4,404 3,104 4,821 3,172 Changes in cash and cash equivalents 3,965 2,133 3,181 1,011 46

47 Free cash flow millions Profit or loss after taxes Minority interests Depreciation, amortization and impairments Income from participating interests Results from sale of assets Change in provisions and deferred taxes Net cash flow from operating activities before changes in working capital Inventory Receivables Other current assets Current liabilities Change in working capital Net cash flow from operating activities Q2 02 9, ,123 1, Q YTD 02 9, ,845 1, , ,442 YTD , , ,758 Capex Free cash flow ,293 Changes in working capital in YTD 03 mainly relate to Positive effect on accrued interest due to lower interest payments Payment capital tax in Q1 03 ( 77 mn) Effects termination MobilCom agreement in Q1 03 Tax refund on preliminary assessment 2002 in Q2 03 ( 194 mn) Payment of pension shortfall 2002 in Q2 03 ( 52 mn) 1 Including effect termination MobilCom agreement in Q Operational cash flow after Capex, interest, tax and restructuring expenses 47

48 Working capital millions Q2 millions YTD Positive cash flow 89 mn Negative cash flow 197 mn Small increase trade receivables Decrease accrued interest Decrease accounts payable Increase inventory Other changes 3 Further decrease trade receivables Accrued interest MobilCom receivable Capital tax paid 2 Decrease accounts payable Increase inventory Other changes 3 1 Change in balance position (includes noncash effects) 2 Related to Mobile restructuring 3 Including preliminary tax refund over 2002 ( 194 mn) and payment pension shortfall 2002 ( 52 mn) 48

49 Capex Excluding exceptional items, millions Fixed % revenues Fixed Networks % revenues Business Solutions % revenues Q % 67 4% 55 11% Q % 83 5% 66 13% % 22% 24% 20% YTD % 116 3% 68 7% YTD % 124 4% % % 23% 7% 51% Mobile % revenues KPN Mobile (NL) % revenues EPlus % revenues BASE % revenues Other Other 91 8% 8 1% 49 9% 34 41% % 36 6% 64 11% 17 21% % >100% 31% 50% 0% <100% % 14 1% % 54 35% % 51 4% % 47 30% % >100 % 12% 13% n.a. <100 % Total % revenues 225 7% 267 9% 19% 480 8% 465 8% 3% 49

50 Acquisition MobilCom 3G assets Accounting treatment An equal amount added to investments and provisions, related to expected dismantling of redundant sites No cash outflow since an equal amount to the purchase price ( 20 mn) was received from MobilCom as a credit for licenses that were not included Licenses to be acquired not yet provided for 50

51 Balance sheet Net profit contributes to group equity Decreasing total balance due to gross debt reduction Assets billions Liabilities and equity billions Goodwill Group equity Licenses Other Fixed assets Provisions Long term liabilities Current assets Cash Short term liabilities YE 02 Q1 03 Q2 03 YE 02 Q1 03 Q

52 Further improved financial position Reduction over 30% within last 12 months bn Net debt Gross debt Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 1 Including Subordinated Convertible Bond with full amount of 1.5 bn, excluding early redemption of 220 mn with settlement on July 3 52

53 Debt summary billions Subordinated convertible bonds 1 Subordinated loans (including BellSouth in Q1) Eurobonds (including FRNs) Global bonds Other loans at Royal KPN 1 Consolidated debt EPlus Other Total debt of which shortterm Cash and cash equivalents Total net debt Q Q Amount outstanding as per June 30, excluding early redemption of 220 mn with settlement on July 3 53

54 Early redemptions millions Open Market Repurchases 7.5% Global bond 2005 (EUR) Subordinated convertible bond 1 Q YTD Other Financial leases EPlus Private loans BellSouth loan 0 5 1, ,638 Total 1,643 1,696 1 In June KPN redeemed early 0.2 bn of the 1.5 bn Subordinated Convertible Bond, which was settled on July 3 54

55 Debt portfolio Total gross debt Q2: 11.8 bn 1 Convertible bond 13% 3 Other consolidated Syndicated loan Other debt 2% 3% 3% Eurobonds 43% 30% 2% EUR USD 2 GBP 2 3% 68% Global bonds 36% 97% Fixed (incl swapped) Floating 1 Including money market, other short term funding 2 Foreign currency amounts hedged into Euro 3 Amount outstanding as per June 30 ( 1.5 bn), excluding early redemption of 220 mn with settlement on July 3 55

56 Mobile structure Royal KPN Equity stake Debt 4.7 bn 100% 5.5 bn KPN Mobile Holding 1 Total gross debt bn NTT DoCoMo 2.0 bn 22.5% 77.5% 97.84% KPN Mobile Total gross debt bn 2.16% EPlus 4 Total gross debt 14.9 bn 12.9 bn 0.1 bn Financial leases 1 KPN Mobile Holding includes GMI (which is financed via shareholder loans from Royal KPN of 2.8 bn and owns 22.5% of EPlus Holding) 2 Including nearly 100% of external EPlus financing (financial leases) 3 Including 77.5% of external EPlus financing (financial leases) 4 EPlus includes EPlus Holding (gross debt 2.0 bn) and EPlus (gross debt 12.9 bn) 56

57 Fixed YTD Strong operating EBITDA and EBIT growth (Excluding exceptional items, millions) Revenues (+0.2%) Operating EBITDA (+21%) EBIT (+51%) 3,681 3,688 1, ,349 1,412 1, , Fixed Networks 1,309 1, YTD 02 YTD 03 YTD 02 YTD 03 YTD 02 YTD , Business Solutions Other Fixed Networks Carrier Services Fixed Telephony Interdivision Fixed Networks = Fixed Networks Interdivision Fixed Fixed Telephony Carrier Services Business Solutions Other Decrease in revenues due to direct billing of internet traffic by ISP s, migration to broadband, competition from CPS and mobilesubstitution Increase in revenues as result of higher wholesale volumes Slight increase in revenues due to ADSL growth and other revenues Higher revenues from ISP s and SNT were more than offset by lower internal revenues (cost savings) 57

58 KPIs Fixed Fixed Networks Q2 02 Q1 03 Q2 03 YTD 03 Market shares Local National International Fixed to Mobile >85% +/ 70% +/ 55% +/ 70% >80% >65% >50% >65% +/ 80% +/ 65% >50% +/ 65% +/ 80% +/ 65% >50% +/ 65% Channels PSTN ISDN 2/15/20/30 10,040 6,446 3,594 9,992 6,257 3,735 9,979 6,218 3,761 9,979 6,218 3,761 Call rate 1 Call duration Minutes (in bn) BU Fixed Telephony Local/National Internet International Fixed to Mobile BU Carrier Services, of which Originating Internet (MIACO) Number of calls per channel per day 2 Average duration per call in seconds 58

59 Fixed Networks dynamics Decrease in minutes; increase in connections billion minutes connections x 1, ,489 1,556 6,446 6,218 Q2 02 Internet Internet Domestic Other Q2 03 minutes Fixed Telephony minutes ISP s traffic Fixed Telephony Q2 02 Q2 03 Decrease of 4.7% in minutes PSTN ISDN ADSL 59

60 KPIs Fixed Business Solutions Q1 02 Q1 03 YTD 3 03 Leased lines (1,000) 1 Analogue Digital % 37% 91 61% 39% 82 63% 37% VAS Frame Relay (# ports) LanI (# routers) 2 9,307 5,961 10,691 5,961 10,281 6,206 ADSL Installed % Lite (254/64 kbit/s) % Basic (768/128 kbit/s) % Extra (1536/256 kbit/s) % 12% % 54% 8% % 47% 6% 1 As from Q1 2003, only leased lines with external revenues are stated. Figures 2002 are restated accordingly 2 Restated as from Q YTD = Q2 60

61 KPIs Fixed Internet subscribers X 1,000 Active ISP customers Planet Internet Het Net XS4ALL Total Q ,368 Q ,486 YTD ,489 Paying ISP customers 92% 99% 100% Number of broadband subscriptions Planet Internet Het Net XS4ALL Total Local exchanges Number DSL enabled Population reach % % % 1 YTD = Q2 61

62 Mobile YTD Further increase in revenues, operating EBITDA and EBIT (Excluding exceptional items, millions) Revenues (+10%) Operating EBITDA (+11%) EBIT (+71%) 2,243 2, ,179 1, ,069 1, YTD 02 YTD 03 YTD 02 YTD 03 YTD 02 YTD 03 KPN Mobile (NL) EPlus BASE Other KPN Mobile (NL) Continued strong margin performance: 44%; revenue growth 7% EPlus Growth customer base to 7.7 mn BASE Continued improvement of operating EBITDA and operating EBITDA margin 62

63 KPIs Mobile KPN Mobile (NL) Q2 02 Q1 03 Q2 03 YTD 03 Market share base 42% 41% 41% 41% Customers (1,000) Postpaid Of which imode Prepaid 5,188 1, ,414 4,908 1, ,008 4,919 1, ,989 4,919 1, ,989 ARPU ( ) Postpaid Prepaid SAC ( ) 1 Postpaid 1 Prepaid SRC ( ) n.a MoU (minutes) Postpaid Prepaid numbers contain SRC elements, 2003 numbers do not 63

64 KPN Mobile (NL) Improving customer mix mn customers ARPU % 34% 36% 37% 39% 39% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 blended postpaid prepaid Margin % 43.0% 45.0% 44.2% 44.1% 44.8% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 1 Operating EBITDA margin 64

65 KPIs Mobile EPlus Q2 02 Q1 03 Q2 03 YTD 03 Market share base 13% 12% 13% 13% Customers (1,000) Postpaid Of which imode Prepaid 7,093 3, ,900 7,446 3, ,993 7,716 3, ,138 7,716 3, ,138 ARPU ( ) Postpaid Prepaid SAC ( ) Postpaid Prepaid SRC ( ) n.a MoU (minutes) Postpaid Prepaid

66 EPlus Growth customer base continues mn customers ARPU % 45% 46% 47% 22 46% 46% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 blended postpaid prepaid Margin % 30.1% 28.4% 30.2% 27.1% 23.5% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 1 Operating EBITDA margin 66

67 KPIs Mobile BASE Q2 02 Q1 03 Q2 03 YTD 03 Market share base 14% 14% 14% 14% Customers (1,000) Postpaid Of which imode Prepaid 1, , , , ARPU ( ) Postpaid¹ Prepaid¹ SAC ( ) Postpaid Prepaid SRC ( ) n.a. n.a. n.a. n.a. MoU (minutes) Postpaid¹ Prepaid¹ Restated to include visitor roaming 67

68 BASE Improved ARPU mn customers ARPU % 25% 25% 23% 23% 23% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 blended postpaid prepaid Margin % 18.3% 12.5% 4.8% 0.0% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 3.8% 1 Operating EBITDA margin 68

69 Traffic and subscription revenues increase KPN Mobile (NL) EPlus BASE % +7% % Q2 02 Q2 03 Q2 02 Q2 03 Q2 02 Q2 03 Traffic and subscription Other (incl. handset sales) 69

70 Other YTD Revenues ( 28%) Operating EBITDA (Excluding exceptional items, millions) EBIT YTD 02 YTD 03 YTD 02 YTD 03 YTD 02 YTD 03 Revenue decline due to sale of Directory Services and Network Construction and lower revenues from retail activities and Xantic Operating EBITDA increase due to cost reduction program, partially offset by sale of Directory Services 70

71 New Telecommunications Act Based on the new EU Directives Introduction in The Netherlands delayed (to probably end 2003); hearing of sector players on August 28 Market definitions and dominancy test will be based on general competition law instead of current sector specific regulation Exante remedies in case of dominance should be proportional to the nature of the market failure Discussions with regulator about definition broadband market New regulatory framework: power to the national regulators, after implementation in national law, to regulate fixed to mobile call termination rates of all operators 71

72 Regulation Fixed Interconnection tariffs On July 24, OPTA set new rates for origination (10%) and termination (5%) Originating tariffs were already in middle of EU range Terminating tariffs were already amongst the lowest KPN has lodged an appeal 72 Greece Greece Austria Finland Finland Austria Germany Germany Portugal Italy Tariff per minute in eurocents 0.18 Originating Norway Denmark Ireland UK Sweden OPTA Luxembourg Spain KPN Italy Terminating 1 OPTA UK Norway Ireland KPN Sweden Denmark Luxembourg Belgium Spain Portugal 1 Source: Analysis

73 Comparison retail tariffs 1 Consumer basket Amounts in euros per year per subscriber Portugal Finland Norway Belgium Italy Ireland France Germany UK Austria Denmark KPN s tariffs competitive in European context Subscriptions in top end of the range Traffic rates in bottom end the of range KPN KPN Spain Sweden Luxembourg Subscription Traffic 1 OECD retail basket including VAT 2 After increase in international tariffs per May 15 and national tariffs per July 1 (+ 3.5%) 3 Before increase in international tariffs per May 15 and national tariffs per July 1 (+ 3.5%) 73

74 Regulation Fixed Restrictions on discount packages On August 6, OPTA decided not to allow KPN any extra scope for discounts and savings packages KPN objects to being restricted in offering attractive packages to customers Existing schemes such as the discount package introduced on July 1 and Friends & Family numbers may continue 74

75 Regulation Mobile Other relevant developments International roaming Pending investigation of excessive pricing by all UK and German operators; recent focus on UK Under new regulatory framework, national regulators will have to investigate wholesale international roaming market and may regulate prices in case of dominancy Dealer payments NMa 1 fined all mobile operators for in total 88 mn (Dec 02) KPN considers its fine of 31.3 mn disproportionate KPN has appealed in March to NMa; decision expected end of this year Total procedure may take several years 1 Dutch competition authority 75

76 Hutchison 3G UK Status funding call KPN did not honour the funding call Hutchison Whampoa issued a fair price notice under the shareholders agreement and started proceedings to establish whether the funding call notice was valid 25 April, 2003 May 27, 2003 June 2, 2003 November 10, 2003 KPN issued a default put option notice under the shareholders agreement Trial 76

77 Benchmarking Summary of metric definitions Metric Revenue growth Operating EBITDA growth PBT growth Operating EBITDA margin PBT margin Return on Invested Capital Free cash flow margin Total Shareholder Return Revenue per FTE Operating EBITDA per FTE Definition Total reported revenues / exceptional items for current period/ Total reported revenues / exceptional items for same period in prior year Reported operating EBITDA / exceptional items for current period/ Reported operating EBITDA / exceptional items for same period in prior year Reported PBT / exceptional items for current period/ Reported PBT / exceptional items for same period in prior year Reported operating EBITDA / exceptional items for current period/ Reported revenues / exceptional items for current period Reported PBT / exceptional items for current period/ Reported revenues / exceptional items for current period NOPLAT / exceptional items for current period/ Unweighted average Invested Capital in current period FCF for the current period/reported revenues for the current period FCF defined as: operating EBITDA less gross Capex Share price at end of period x adjusted number of shares/share price at start of period Time frame defined as 5 quarters from Q Total reported revenues / exceptional items for current period/ Unweighted average number of FTEs during the current period Reported operating EBITDA / exceptional items for current period/ Unweighted average number of FTEs during the current period 77