Third Quarter Results. 10 November 2003

Transcription

1 Third Quarter Results 10 November 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 CEO Ad Scheepbouwer

4 Highlights Q3 Continued strong operational results 398,000 new mobile customers, of which EPlus 248,000; EPlus customer base reached 8 mn 188,000 new imode customers 96,000 new ADSL connections Early redemptions of 407 mn; in October 671 mn redeemed early Net debt reduced to 9.4 bn 15% stake in Hutchison 3GUK sold for 90 mn Proposed 2003 cash dividend of P

5 Increased revenues and profitability Revenues 1 Operating EBITDA margin 1 (in mn) 3, % revenue growth in core divisions , % 38.3% 37.8% 40.3% 41.0% 41.3% + 1.8% 32.1% Q3 02 Fixed Mobile Other ² Q3 03 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Profit before taxes Profit after taxes 1 (in mn) (in mn) Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 ' Excluding exceptional items 2 Including inter company sales P

6 Broadband Revenue driver Number of Dutch broadband connections X 1,000 1,750 1,500 1,250 1, Q3 '02 Q4 '02 Cable Other ADSL Q1 ' Q2 '03 Fixed Q3 '03 ADSL KPN ADSL Penetration in NL 3 in top quartile Europe Market share KPN increased to 37% ¹ Free broadband Internet offer to Dutch schools Target of more than 700,000 connections as at YE 2003 Introduction of Broadband Portal before YE X 1, Number of imode customers 143 Q3 '02 Postpaid 236 Q4 ' Q1 ' Q2 '03 Prepaid Mobile 541 Q3 '03 imode 188,000 net adds of which 51,000 prepaid Target of 1 million subscribers as at YE / 460 contract sites; +/ 10,000 voluntary sites UMTS Pilots in NL and Germany 5 WLAN Pilots with hot spots in NL and Germany in December 1 Market share total consumer broadband including cable 2 Including Bit stream 3 NL = The Netherlands P

7 Fixed New initiatives to increase revenues and to protect customer base Consumer market Market shares 2 Discount packages 1 successfully introduced 640,000 customers 11% of customer base Business market >90% +/90% +/70% +/55% Introduction local CPS >85% +/ 80% >60% +/50% Migration to Business DSL and IPVPN BelBusiness discount package introduced on October 1 3 Q3 '01 Q1 '02 Q3 '02 Q1 '03 Q3 '03 Access lines National traffic Local traffic International traffic Revenue growth despite CPS competition Fixed to Mobile substitution Migration to Business DSL and IPVPN Balancing act between pricing and market share 6 1 BelPlus and BelPlus200 2 Traffic in minutes; access in number of lines 3 BelZakelijk in September already more than 8,000 business customers signed up P

8 Mobile One company active in three countries Strengthen market position further Target of 9 mn customers end 2004 with margin of 22 25% during 2004 Results Q3: 248,000 net adds leading to 8 mn customers 25% operating EBITDA margin Become a better number one Results Q3: 119,000 net adds leading to 5 mn customers 47% operating EBITDA margin Increase market share Results Q3: 3% growth customer base 1, but slower than targeted Improvement aided brand awareness to 86% 7 1 Compared to Q P

9 Mobile UMTS Rollout Fulfilment of license obligations Market demand for 3G services determines speed of further rollout UMTS and GSM/GPRS will coexist Pilots Pilots in four German cities ongoing (Berlin, Düsseldorf/Duisburg, Munich, Hannover) Customer pilots in Rotterdam and The Hague (Siemens, City of The Hague, Port of Rotterdam, Eneco) Market launch KPN only launches services over UMTS once they meet KPN s standards with respect to quality of network, dual mode handsets and services Germany: to be announced at CeBIT 2004 The Netherlands: starting from mid 2004 Belgium: follows at later stage Capex 1.4 bn 1 up to and including bn in Germany; 0.2 bn in The Netherlands; 0.1 bn in Belgium; of total already 0.1 bn spent

10 Benchmarking Ambition: Top quartile in as many metrics as possible Category Growth Return Efficiency Metric Revenue growth Operating EBITDA growth PBT growth Operating EBITDA margin PBT margin ROIC FCF margin TSR Revenues per FTE Operating EBITDA per FTE Q2 03 Three metrics in top quartile Further room for improvement Top quartile 2nd & 3rd quartile Bottom quartile 9 Peer group: BellSouth, British Telecom, Deutsche Telekom, France Telecom, NTT, Portugal Telecom, SBC, Swisscom, TDC, Telecom Italia, Telecom New Zealand, Telefónica, TeliaSonera P

11 Outlook 2003 Excluding impact potential reduction Mobile termination rates Outlook full year 3 March May August November 2003 Growth revenues core activities 1 Fixed 0 2 % % flat flat Mobile 5 10 % approx. 10 % approx. 10 % approx. 9 % Operating EBITDA growth 1 minimum 5 % minimum 5 % 3 minimum 10 % 4 minimum 12 % 5 Profit before taxes 1 more than 1 bn more than 1 bn 3 approx. 1.4 bn 4 approx. 1.5 bn 5 Capex bn approx. 1.5 bn approx. 1.5 bn maximum 1.5 bn Free cash flow 5 approx. 1.5 bn approx. 1.8 bn more than 2.0 bn approx. 2.4 bn Net debt YE less than 10.5 bn approx. 10 bn less than 9.5 bn approx. 9 bn 10 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, Taking into account a possible pension shortfall of 13 mn as at October 31, Net cash flow from operating activities after Capex, interest, tax and restructuring expenses P

12 CFO Maarten Henderson

13 Financial highlights in Q3 (Reported, in millions) Revenues (+1%) Operating EBITDA (+7%) 3,057 3,082 1,175 1,263 Q3 02 Q3 03 Q3 02 Q3 03 EBIT (+14%) Profit after taxes (+104%) Q3 02 Q3 03 Q3 02 Q P

14 Results Q3 Excluding exceptional items, millions Q3 02 Q3 03 % YTD 02 YTD 03 % Revenues 3,027 3,082 2% 9,034 9,121 1% Opex 1,882 1,808 4% 5,855 5,392 8% Operating EBITDA 1,145 1,274 11% 3,179 3,729 17% Depreciation % 1,699 1,635 4% Amortization % % EBIT % 1,174 1,855 58% Financial income/expense % % Profit before taxes % 334 1,216 >200% Income participating interests Minority interests Taxes % % Profit or loss after taxes Including impairments P

15 Continued focus on cash Operating EBITDA 1 Free cash flow (in mn) 940 1,094 1,145 1,200 1,208 1,247 1,274 (in mn) , Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Capex Net debt (in mn) (in bn) Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 ' Excluding exceptional items P

16 Operating EBITDA margins 1 Total margin continues to improve 50% 40% 30% 34.2% 36.9% 35.5% 38.1% 37.8% 38.5% 38.3% 42.5% 40.3% 33.7% 33.8% 34.2% 34.5% 34.4% 32.1% 43.2% 41.0% 33.1% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 ' % 41.2% 34.5% KPN Group Fixed Mobile Fixed margin YonY increase due to cost reduction program QonQ decline due to low margin projects (Business Solutions) and lower wholesale tariffs Mobile margin QonQ increase driven by EPlus and KPN Mobile NL 15 1 Excluding exceptional items P

17 Financial profile Solid ratios & further improved redemption profile 6 Financial ratios 3 Redemption profile Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Net Debt/Operating EBITDA Operating EBITDA/net interest Max. covenant credit facility Min. covenant credit facility Cash z '03 '04 '05 '06 '07 '08 '09 '10 '30 Cash position in bn KPN debt in bn (incl. 0.2 bn consolidated debt) 0.7 bn redeemed early in October Early redemptions Q3 result in approx. 10 mn savings on net interest as of 2004 Rehedge results in approx. 35 mn savings on net interest as of Including Convertible bond of 1.1 bn, Global bond (EUR) of 0.7 bn (both after settlement early redemptions October) 2 Including Eurobond bn, Eurobond bn (both after settlement early redemptions October)

18 Taxes Expectations unchanged Main issues under discussion Fiscal valuation of KPN Mobile per December 2002 Recognition of German transparent branch offices for Dutch tax purposes Fiscal valuation of 77.49% stake in EPlus per February 2001 and December 2002 Qualification of investments in and loans to EPlus Current status Discussions with the tax authorities still ongoing Uncertainties with regard to tax consequences remain No (deferred) tax liability or (deferred) tax asset recognized in Q3 03 Reiterate previously stated expectation that Royal KPN, KPN Mobile and EPlus will not pay corporate taxes during 2003 and 2004 VAT reclaim UMTS licences Exploring best of course of action 17

19 Fixed in Q3 Revenue growth and strong growth of operating EBITDA and EBIT (Excluding exceptional items, millions) Revenues (+0.8%) 1,815 1,830 Operating EBITDA (+9%) EBIT (+22%) Fixed Networks Q3 02 Q3 03 Q3 02 Q3 03 Q3 02 Q Business Solutions Other Fixed Networks Carrier Services Fixed Telephony Interdivision Fixed Networks = Fixed Networks Interdivision Fixed Fixed Telephony Carrier Services Business Solutions Other 18 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 Increase in revenues due to ADSL growth and other revenues Higher revenues from ISP s were more than offset by lower revenues of SNT (deconsolidation) and lower internal revenues (cost savings) P

20 Revenue development Fixed ¹ Increase of 0.8% millions , ,830 Q3 02 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 3 Q Total division Fixed, including Business Solutions 2 Excluding ADSL subscription revenues of IP Services ( 30 mn) 3 Increase of wholesale revenues offset by SNT (deconsolidation) and lower internal revenues P

21 Mobile in Q3 Further increase in revenues, operating EBITDA and EBIT Revenues (+7%) Operating EBITDA (+8%) (Excluding exceptional items, millions) EBIT (+18%) 1,243 1, Q3 02 Q3 03 Q3 02 Q3 03 Q3 02 Q3 03 KPN Mobile (NL) EPlus BASE Other KPN Mobile (NL) Revenue growth 5%; customer base of 5.0 mn; continued strong margin EPlus Revenue growth 6%; growth customer base to 8.0 mn BASE Revenue growth 3%; growth customer base to 1.2 mn 20 P

22 Mobile in Q3 Traffic and subscription revenues increase in all countries KPN Mobile (NL) EPlus BASE % +11% % Q3 02 Q3 03 Q3 02 Q3 03 Q3 02 Q3 03 Traffic and subscription Other (including equipment sales) 21 P

23 EPlus Growth continues with stable mix and ARPU mn customers ARPU % 45% 46% 47% 46% 46% 47% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 blended postpaid prepaid Margin % 30.1% 28.4% 30.2% 27.1% 23.5% 25.1% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 ' Operating EBITDA margin P

24 Q & A

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27 Annex For more information please contact: KPN Investor Relations Tel: Fax: mailto: Over/about KPN Investor Relations

28 Other in Q3 Continued improvement operating EBITDA and EBIT (Excluding exceptional items, millions) Revenues ( 18%) Operating EBITDA (+117%) EBIT Revenue decline due to sale of Directory Services and lower revenues from retail activities and Xantic 1 Operating EBITDA increase due to cost reduction program, partially offset by sale of Directory Services 27 Q3 02 Q3 03 Q3 02 Q3 03 Q3 02 Q Driven by a lower dollar rate

29 Pension charges Potential additional P&L charge for 2003 amounts to 13 mn ¹ Coverage ratio Desired mn Minimum reserve 109.7% 1 13 mn 100% Potential funding 2003 decreased from 54 1 mn to 13 2 mn Coverage ratio increased to 109.7% Required minimum reserve decreased to 109.9% Total remaining funding shortfall is mn; mn to be funded in the next 5 years, 58 mn on annual basis When the coverage ratio reaches the minimum reserve level at December 2003, the five year period in which KPN has to fund the shortfall between the minimum level and the desired level, starts already then. This would result in a charge of approx. 55 mn Based on situation July 31, Based on situation October 31, Any coverage below 100% has to be funded within 12 months 4 Based on 40% equity

30 Results Q3 (Reported) millions Q3 02 Q3 03 % YTD 02 YTD 03 % Revenues 3,057 3,082 1% 9,421 9,793 4% Opex 1,882 1,819 3% 6,023 5,397 10% Operating EBITDA 1,175 1,263 7% 3,398 4,396 29% Depreciation Amortization % 5% 1,892 7,601 1, % 96% EBIT % 6,095 2,427 n.a. Financial income/expense % % Profit before taxes % 6,935 1,788 n.a.% Taxes Income participating interests Minority interests % 43% n.a. 1,012 1, % n.a. >200% Profit or loss after taxes % 9,549 1,092 n.a. 29

31 Exceptional items Impact on operating EBITDA millions Q3 02 Q3 03 YTD 02 YTD 03 Mobile division Gain resulting from the termination agreement MobilCom Book profit on the sale of UMC Book profit on the sale of Pannon GSM Settlement Indonesian intermediate holding companies of Telkomsel Fixed division Writedown of assets held for sale and inventories Release restructuring provision Provision for settlement and related issues KPNQwest and charges related to KPN Belgium Additional loss on sale of SNT France Write down of short term receivables BS Other activities Book profit on the sale of Directory Services Book loss on the sale of Network Construction Book profit on the sale on real estate Addition restructuring provision Total impact on operating EBITDA

32 Exceptional items Impact on EBIT & net profit millions Q3 02 Q3 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 Impariment on tangible fixed assets Fixed Total impact on EBIT Total impact on profit or loss before taxes ,882 5, ,269 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 ,

33 Operating expenses Further decrease Excluding exceptional items, millions Q3 02 Q3 03 % YTD 02 YTD 03 % Salaries and social security contributions % 1,479 1,270 14% Cost of materials % % Work contracted out and other expenses 1,022 1,056 +3% 3,065 2,932 4% Other % % Total 1,882 1,808 4% 5,855 5,392 8% bn % % 60% 55% Q Q Q Q Q Q Q % OPEX % of operating revenues 32

34 Personnel costs Substantial progress since YE 2001 Reduction of 17,249 FTE in total of which 10,411 CLA FTE 1 First discussions started on new CLA 17,249 47,888 44,080 39,561 16,837 37,251 35,837 15,840 33,783 33,178 15,761 30,639 1,674 15, ,457 13,576 13, , ,032 10,411 ¹ 29,377 27,265 23,071 21,357 20,533 19,484 19,167 18,966 YE '01 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Consolidation & International Temporary personnel Collective labor agreement personnel 33 1 Collective labor agreement personnel, including deconsolidation effects of 3,694 FTE 2 Q0nQ decline mainly related to deconsolidation of SNT Scandinavia and France

35 Analysis operating expenses Salaries & Cost of materials in mn Salaries 18% 17% 16% 15% 14% 13% Deconsolidation and sale of noncore activities Lower number of personnel due to reorganisation % 11% 300 Q Q Q Q Q Q Q % Salaries and social security contributions % of operating revenues in mn 300 Cost of materials 10% As from Q higher number of mobile handsets sold % 8% 7% 6% Partially offset by deconsolidation and sale of noncore activities 150 5% 4% 100 Q Q Q Q Q Q Q % Materials % of operating revenues 34

36 Analysis operating expenses Work contracted out & Other in mn Work contracted out 38% 36% Delivery Mobirail project Higher bonuses and dealer commissions % 32% 30% Deconsolidation and sale of noncore activities 400 Q Q Q Q Q Q Q % Work contracted out and other expenses % of operating revenues Other Lower due to deconsolidation and sale of noncore activities in mn % 250 8% % 4% 50 2% 0 0% Q Q Q Q Q Q Q Other operating expenses % of operating revenues 35

37 Depreciation and amortization Excluding exceptional items, Q3 02 Q3 03 % % millions Depr. Amort. Depr. Amort. Depr. Amort. Fixed % 29% Fixed Networks % 17% Business Solutions % Mobile % 1.4% Other % 25% Total % 5% Excluding exceptional items, YTD 02 YTD 03 % % millions Depr. Amort. Depr. Amort. Depr. Amort. Fixed 1, % 32% Fixed Networks % 29% Business Solutions % Mobile % 20% Other % 38% Total 1, , % 22% 36

38 Taxes Reported Q3 and YTD Reported 1, millions Q3 03 YTD 03 Fiscal unities P&L charge Payments () Receipts (+) P&L charge Payments () Receipts (+) Divisions Fixed/Other 92 No Dutch Mobile activities 164 No No 2 German Mobile activities No No Belgian Mobile activities No No 256 No Charge Q3 Cash Q3 Charge YTD Cash YTD 37 1 Including YTD exceptionals of 28 mn ( 9 mn in Q2 and 19 mn in Q3) in Fixed Division and Other activities 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 2002 ( 194 mn)

39 Net result affiliates Income from participating interests Excluding exceptional items, millions Q3 02 Q3 03 YTD 02 YTD 03 UMC Český Telecom 24 Infonet Hutchison 3G UK 13 KPNQwest 113 Other Total Minority interests KPN Mobile (2.16% NTT DoCoMo owned) Other Total

40 Cash flow millions Q3 02 Q3 03 YTD 02 YTD 03 Net cash flow provided by operating activities 1,336 1,188 2,778 2,946 Capex Sale of noncore assets Other (including real estate) Net cash flow from investing activities Redemptions ,531 1,577 Early redemptions ,598 2,344 1 Other (new loans and purchase own shares) Net cash flow used in financing activities ,056 3,893 Changes in cash and cash equivalents , Q3 03 including 241 mn rehedge cross currency swap

41 Free cash flow millions Q3 02 Q3 03 YTD 02 YTD 03 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 , ,493 1, ,015 1, , ,883 Inventory Receivables Other current assets Current liabilities Change in working capital Net cash flow from operating activities 1,336 1,188 2,778 2,946 Capex Free cash flow 2 1, ,058 2, Including effect termination MobilCom agreement in Q Operational cash flow after Capex, interest, tax and restructuring expenses

42 Working capital millions Q3 03 millions YTD Positive cash flow 260 mn Positive cash flow 63 mn 19 1 Decrease trade receivables Increase accrued interest Increase accounts payable Decrease inventory Other changes Further decrease trade receivables Accrued interest MobilCom receivable Capital tax paid 2 Decrease accounts payable Decrease inventory Other changes 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)

43 Capex Excluding exceptional items, millions Q3 02 Q3 03 % YTD 02 YTD 03 % Fixed % % % revenues 9% 7% 5% 6% Fixed Networks % % % revenues 6% 5% 4% 4% Business Solutions % % % revenues 14% 10% 9% 10% Mobile % % % revenues 10% 16% 10% 11% KPN Mobile (NL) 9 49 >200% >200 % % revenues 2% 8% 1% 6% EPlus % % % revenues 11% 20% 13% 14% BASE % % % revenues 57% 48% 42% 36% Other 1 0 n.a. 6 0 n.a. Other n.a % Total % % % revenues 8% 11% 8% 9% 42 1 Including effects deconsolidation / transfers Network Construction

44 Balance sheet Assets billions Liabilities and equity billions ,5 4,4 4,4 4,4 4,3 4,2 4,4 4,4 Goodwill Licenses Group equity Provisions ,0 10,7 10,2 10,0 Other Fixed assets Current assets Long term liabilities Short term liabilities ,6 2,7 2,6 3,8 2,6 2,5 1,6 1,7 Cash YE 02 Q1 03 Q2 03 Q3 03 YE 02 Q1 03 Q2 03 Q3 03 Net profit contributes to group equity Decreasing total balance due to gross debt reduction 43

45 Further improved financial position Net debt reduction of 32% within last 12 months bn 24 Net debt Gross debt Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 44

46 Debt summary billions Q3 02 Q2 03 Q3 03 Subordinated convertible bonds Subordinated loans Eurobonds Global bonds Other loans at Royal KPN Consolidated debt EPlus Other Total debt of which shortterm Cash and cash equivalents Total net debt Amount outstanding as per June 30, excluding early redemption of 220 mn with settlement on July 3

47 Early redemptions millions Q3 03 YTD 03 October 03 Open Market Repurchases Subordinated convertible bond Eurobond Eurobond Global bond (EUR) Other Financial leases EPlus 0 26 Private loans 0 5 BellSouth loan 0 1,638 Total 407 2,

48 Bonds portfolio Overview changes during life of bonds millions Principal in GBP / USD Principal in 2002 in Early redemptions Q1 Q3 03 in Early redemptions risk in Rehedge currency YTD 03 in GBP / USD Outstanding principal YTD 03 in Outstanding principal at October Outstanding principal Sub. convertible bond , ,214 1,127 Eurobond Eurobond ,500 1,500 1,500 Eurobond , Eurobond , ,895 1,569 Eurobond GBP Global bond USD Global bond USD 1,750 2,002 1,750 2,002 2,002 Global bond USD 1,000 1, , Global bond , Total 12,129 1, ,342 9,671 47

49 Debt portfolio Total gross debt as at end Q3: 11.1 bn 1 Syndicated loan Convertible 2% bond 11% Other consolidated Other debt 3% 2% Eurobonds 46% 29% 3% 68% EUR USD GBP 2 10% 90% 2 Global bonds 36% Fixed (incl swapped) Floating 48 1 Including money market, other short term funding 2 Foreign currency amounts hedged into Euro

50 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 97.84% 22.51% 77.49% KPN Mobile Total gross debt bn 2.16% EPlus 4 Total gross debt 15.1 bn 13.0 bn 0.1 bn Financial leases 49 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 13.1 bn)

51 Fixed YTD Strong operating EBITDA and EBIT growth (Excluding exceptional items, millions) Revenues (+0.4%) 5,496 5,518 1,507 1,515 1,384 1,245 2,036 2,113 2,843 2,735 Fixed Networks Operating EBITDA (+17%) EBIT (+40%) 2,000 2, , ,126 1,451 1, ,309 1, YTD 02 YTD 03 YTD 02 YTD 03 YTD 02 YTD 03 Business Solutions Other Fixed Networks Carrier Services Fixed Telephony Interdivision Fixed Networks = Fixed Networks Interdivision Fixed Fixed Telephony Carrier Services Business Solutions Other 50 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 were more than offset by lower revenues of SNT (deconsolidation) and lower internal revenues (cost savings)

52 KPIs Fixed Fixed Networks Q3 02 Q1 03 Q2 03 Q3 03 YTD 03 Market shares Local National International Fixed to Mobile > 80% < 70% +/ 55% < 70% >80% >65% >50% >65% +/ 80% +/ 65% >50% +/ 65% +/ 80% > 60% +/ 50% +/ 65% +/ 80% > 60% +/ 50% +/ 65% Channels PSTN ISDN 2/15/20/30 10,041 6,377 3,664 9,992 6,257 3,735 9,979 6,218 3,761 9,934 6,166 3,768 9,934 6,166 3,768 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) Total Division Fixed Number of calls per channel per day 2 Average duration per call in seconds

53 Fixed Networks dynamics Decrease in minutes; increase in connections billion minutes connections x 1, ,517 1,555 6,377 6,166 Q3 02 Internet Internet Domestic Other minutes minutes traffic Q3 03 Fixed Telephony ISP s Fixed Telephony Q3 02 Q3 03 Decrease of 6.3% in minutes PSTN ISDN ADSL 52

54 Discount packages Introduced in Q2 & Q3 03 BelPlus 100 minutes 1,3 for 2.16 per month, additional to subscription fee 10 % discount on all national and international minutes Attractive if most calls are local BelPlus minutes 2,3 for 4.50 per month, additional to subscription fee 12.5 % discount on all national and international minutes Surplus balance minutes valid for two additional months Attractive if most calls are national BelBusiness (BelZakelijk) Choose applicable call credit for each site, plus small additional charge per connection 5 Valid 24 hours a day and 7 days per week on all local, national, fixedtomobile and international calls 3,4 All connections per site can use 1 bundle Balance 12 months valid, change of discount package free of charge Call credit per month Local 4% 4% 4% 4% 4% 4% National 10 % 11 % 12 % 13 % 14 % 15 % Discount FixedtoMobile 3% 3% 3% 3% 3% 3% International 15 % 17 % 19 % 21 % 23 % 25 % 53 1 Call credit of 2.25 for local calls in the evening and weekends, equalling approximately 100 minutes 2 Call credit for national calls in the evening and weekends. The credit includes 30 call setups 3 Internet, 0900 en mobile numbers are excluded 4 Star services, 0676, 084, 087 and 090xnumbers are excluded 5 Varies from 0.55 (PSTN) to 9 (ISDN30)

55 KPIs Fixed Business Solutions Q3 02 Q1 03 Q2 03 Q3=YTD 03 Leased lines (x1000) Analogue 62% 61% 63% 64% Digital 38% 39% 37% 36% VAS Frame Relay (# ports) 9,975 10,691 10,281 9,410 LanI (# routers) 2 5,870 5,961 6,206 6,581 ADSL (x1000) Installed % Lite (384/128 kbit/s) 1% 39% 46% 52% % Basic (1024/320 kbit/s) 87% 54% 47% 43% % Extra (2048/640 kbit/s) 12% 8% 6% 6% 54 1 As from Q1 2003, only leased lines with external revenues are stated. Figures 2002 are restated accordingly 2 Restated as from Q1 2003

56 KPIs Fixed Internet subscribers X 1,000 Q3 02 Q1 03 Q2 03 Q3=YTD 03 Active ISP customers Planet Internet Het Net XS4ALL Total 144 1, , , ,529 Paying ISP customers 99% 99% 100% 100% Number of broadband subscriptions Planet Internet Het Net XS4ALL Total Local exchanges Number DSL enabled Population reach 67% 85% 87% 87% 55

57 Mobile YTD Further increase in revenues, operating EBITDA and EBIT (Excluding exceptional items, millions) Revenues (+9%) Operating EBITDA (+9%) EBIT (+45%) 3,486 3,802 1,182 1, , , ,660 1, YTD 02 YTD 03 YTD 02 YTD 03 YTD 02 YTD 03 KPN Mobile (NL) EPlus BASE Other KPN Mobile (NL) Revenue growth 6% YTD; continued strong margin performance: 45% EPlus Revenue growth 14% YTD; Growth customer base to 8.0 mn BASE Continued improvement of operating EBITDA and operating EBITDA margin 56

58 KPIs Mobile KPN Mobile (NL) Q3 02 Q1 03 Q2 03 Q3 03 YTD 03 Market share base 41.8% 40.7% 40.5% 40.6% 40.6% Customers (1,000) Postpaid Of which imode Prepaid Of which imode 5,044 1, ,237 4,908 1, ,008 4,919 1, ,989 5,038 1, , ,038 1, , ARPU ( ) Postpaid Prepaid Nonvoice as % of ARPU 6% 8% 8% 9% 8% SAC ( ) 1 Postpaid 1 Prepaid SRC ( ) n.a MoU (minutes) Postpaid Prepaid numbers contain SRC elements, 2003 numbers do not

59 KPN Mobile (NL) Growing customerbase and improved margin mn customers ARPU % 34% 36% 37% 39% 39% 39% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 blended postpaid prepaid Margin % 42.3% 43.0% 45.0% 44.2% 44.1% 44.8% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 ' Operating EBITDA margin

60 KPIs Mobile EPlus Q3 02 Q1 03 Q2 03 Q3 03 YTD 03 Market share base 12.4% 12.4% 12.6% 12.7% 12.7% Customers (1,000) 7,034 7,446 7,716 7,964 7,964 Postpaid Of which imode Prepaid 3, ,783 3, ,993 3, ,138 3, ,257 3, ,257 ARPU ( ) Postpaid Prepaid Nonvoice as % of ARPU 13% 16% 15% 14% 15% SAC ( ) Postpaid Prepaid SRC ( ) n.a MoU (minutes) Postpaid Prepaid

61 EPlus Growth continues with stable mix and ARPU mn customers ARPU % 45% 46% 47% 46% 46% 47% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 blended postpaid prepaid Margin % 30.1% 28.4% 30.2% 27.1% 23.5% 25.1% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 ' Operating EBITDA margin

62 KPIs Mobile BASE Q3 02 Q1 03 Q2 03 Q3 03 YTD 03 Market share base ¹ 14.2% 14.1% 14.1% 14% 14% Customers (1,000) 1,145 1,131 1,131 1,162 1,162 Postpaid Of which imode Prepaid ARPU ( ) Postpaid ¹ Prepaid ¹ Nonvoice as % of ARPU 15% 16% 15% 15% 15% SAC ( ) Postpaid Prepaid SRC ( ) n.a. n.a. n.a. n.a. n.a. MoU (minutes) Postpaid Prepaid ¹ Market share Q is based on an estimate (therefore only rounded figure available)

63 BASE Growth customer base combined with ARPU increase mn customers ARPU % 25% 25% 23% 23% 23% 23% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 % post paid Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 blended postpaid prepaid Margin % 4.8% 3.8% 0.0% 18.2% 18.3% 13.6% Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 ' Operating EBITDA margin

64 Other YTD Revenues ( 25%) 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 and sale of Network Construction, partially offset by sale of Directory Services 63

65 New Telecommunications Act Introduction in The Netherlands delayed (to probably start Q1 2004); the proposed law has passed the Second Chamber on November 4 th and will be considered in the First Chamber shortly Market definitions and dominancy test will be based on general competition law instead of current sector specific regulation OPTA must substantiate its decisions by means of an assessment of the foreseeable relevant consequences, which provides KPN with a certain sense of comfort about the roll of OPTA The Minister of Economic Affairs is required to propose a policy on telecommunication with subsequent guidelines for OPTA After implementation, market definition of broadband market and fixed to mobile call termination will be important issues 64

66 Regulation Fixed Interconnection tariffs Tariff per minute in eurocents Originating 1 On July 24, OPTA targeted new rates for origination (10%) and termination (5%) Originating tariffs were already in middle of EU range Norway Denmark Ireland UK Sweden OPTA '03'04 Luxembourg Spain KPN '02'03 Italy Terminating 1 Germany Portugal Finland Austria Greece Terminating tariffs were already amongst the lowest KPN has lodged an appeal at OPTA; reaction not expected shortly Court has not granted injunction; KPN might temporarily fall back to tariffs OPTA '03'04 UK Norway Ireland KPN '02'03 Sweden Denmark Luxembourg Belgium Spain Portugal Italy Germany Austria Finland Greece 65 1 Source: Analysis

67 Comparison retail tariffs 1 fixed telephony Consumer basket Amounts in euros per year per subscriber Portugal Finland Norway Belgium Italy Ireland France Germany UK Austria KPN s tariffs low in European context Subscriptions in higher end of the range Traffic rates in bottom end the of range Denmark KPN KPN Spain Sweden Luxembourg Subscription Traffic 66 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%)

68 Regulation Fixed Restrictions on discount packages On August 6, OPTA decided not to allow KPN any additional scope for discounts and savings packages KPN objects to being restricted in offering attractive packages to customers Currently only limited number of discount schemes offered, for example flat fee schemes not allowed 67

69 Update Dutch Mobile terminating tariffs No reduction enforced as of yet Update possible annualized impact ¹ of tariffs as proposed by OPTA millions Fixed Mobile The Netherlands Intercompany KPN Group Revenues Operating EBITDA 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 Under the assumption that MTA tariffs decrease from KPN s current level of to Dutch competition authority

70 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 (December 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 69 1 Dutch competition authority

71 Benchmarking 140% Total Shareholder Return 120% 100% 80% 60% Q2'02 Q3'02 Q4'02 Q1'03 Q2 '03 KPN Average peers 70

72 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: Cash flow from operations / capex Share price at end of period x adjusted number of shares/share price at start of period Time frame defined as x 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 71

73 Management focus Moving from short term cash to longer term value focus Past Present Future Shortterm focus Midterm focus Longterm focus Repair balance sheet Positive free cash flow Optimal leverage Rationalization and restructuring Customer satisfaction Maximize bottom line growth Bestin inclass benchmarking Profitable topline growth 72