Results Second Quarter August 2004

Transcription

1 Results Second Quarter August 2004

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 and Form 20F for the year ended December 3, All figures shown throughout this presentation are unaudited. Certain figures may be subject to rounding differences. 2

3 Agenda Introduction Financial results Ad Scheepbouwer CEO Maarten Henderson CFO Business performance Ad Scheepbouwer CEO 3

4 Ad Scheepbouwer CEO

5 Financial Highlights Q Net result more than doubled to 369 mn Net sales flat Continued challenging environment Dutch market (Fixed 6%, KPN Mobile Netherlands 4%) Continued strong growth in our international markets (Germany +3%, Belgium +30%) Lower operating expenses (5%)( 6 mn) which more than compensated lower operating revenues (%)( 27 mn) Increase in margins of both Fixed and international Mobile operations 0.8 bn of cash returned to shareholders 606 mn dividend 28 2 mn shares repurchased Additional bn of share buy backs announced Interim dividend of 0.08 per share declared Including dividend on shares purchased for option plans, dividend amounts to 6 mn 2 Remainder of 500 mn share repurchases, of which 33 mn settled in July 04 5 p

6 Industry leading cash return to shareholders 2003 dividend of 606 mn in Q2 Share repurchase program of 500 mn completed Share repurchase program of bn announced Interim dividend 2004 of 0.08 per share declared 5% of total market capitalization returned 2 Refinancing of peak debt 05/ 06 increases flexibility for future cash returns Including dividend on shares purchased for option plans, dividend amounts to 6 mn 2 Expected cash return in 2004 divided by market capitalization as of June 30, p

7 Maarten Henderson CFO

8 Headlines P&L mn 3,043 Operating revenues 3,082 3,4 Operating revenues Net sales 3,09 3,06 2 mn Operating result ,960 3,009 2,998 2,903 2, Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 mn Profit before taxes mn Profit after taxes , Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Including 36 mn book gains (Eutelsat) 2 Including 20 mn book gains (PTC) For further information about book gains & other exceptional items in intermediate quarters, please refer to KPN s 03 result publications 8 p

9 Developments in net result More than doubled YonY mn Q2 03 Q2 04 Operating revenues Operating expenses (excluding D&A) D&A Financial income and expenses Taxation Remainder Includes book gain on sale PTC in Q2 04 of 20 mn 2 Includes 9 mn change in restructuring provision 3 Q2 03 contains impairment on goodwill SNT of 38 mn 4 Income from participating interests ( +2 mn) and minority interest ( 9 mn) 9 p

10 Developments in operating revenues Decline mainly related to lower MTA tariffs mn 3, ,06 Q2 03 Net sales MTA effect Net sales MTA effect Book gain Remainder Q2 04 Mobile Mobile Fixed excl. Fixed PTC excl. MTA MTA Own work capitalized + other operating revenues Mobile mn, Fixed 5 mn; Operating revenues other 23 mn; MTA intercompany effect +38 mn; (remaining) intercompany revenues 2 mn 0 p

11 Margin development Improvement at Fixed, pressure at Mobile 45% 35% 4.3% 4.0% 39.8% 39.5% 39.5% KPN Group 37.7% 4.8% 4.2% 39.5% 40.3% 45% 35% Fixed 43.4% 4.7% 42.2% 39.8% 39.7% 43.2% 4.9% 4.2% 39.4% 38.7% 45% 35% Mobile 33.% 34.5% 32.% 33.7% 3.0% 25% 7.6% 7.% 20.% 8.8% 8.8% 25% 22.8% 20.2% 24.3% 22.2% 25.5% 25% 3.9% 3.% 30.5% 30.3% 28.4% 8.3% 5% 5% 5%.5% 9.2% 8.2% 8.8% 5% Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 5% Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 5% Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Operating EBITDA margin excl. exceptional items 2 (Net sales Operating expenses + Depreciation, amortization and impairments) / Net sales (Net sales Operating expenses) / Net sales Includes 03 mn reversal of impairment GSM license BASE 2 Operating revenues Operating expenses + Depreciation, amortization and impairments / Operating revenues shown for comparative purposes only

12 Fixed in Q2 mn Operating revenues mn,937, Operating result Fixed Networks Q2 03 Q Revenues Expenses Operating result Internet traffic Fixed Telephony + ISPs ADSL subscription Impact revenues of MTA reduction Voice traffic and 2 access Fixed Telephony + ISPs Remainder Fixed Networks 3 Business Solutions Impact MTA reduction on expenses Remaining impact expenses Operating result Q2 03 Q2 04 Business Solutions Other Fixed Networks Carrier Services Fixed Telephony Interdivision Fixed Networks = Fixed Networks Interdivision Fixed Of which 35 mn ADSL connection charge and 7 mn ISP charge 2 Excluding impact MTA reduction 3 Decrease Carrier Services (excl. impact MTA reduction) and lower inter company revenues 2 p

13 Mobile in Q2 Subscriber growth drives increase revenues and costs Operating revenues (+6%) Operating result,270, Q2 03 Q2 04 EPlus KPN Mobile (NL) BASE Other Q2 03 Including 26 mn decline due to MTA reduction 3 62 Q2 04 Impact MTA reduction on expenses 3 Operating result Development revenues excl. impact MTA Impact of MTA reduction on revenues Operating expenses Operating result mn mn 8 9 p

14 Continued strong cash flow Cash flow from operating activities mn ,88 928,4,537, , Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Cash flow from operating activities before change in working capital Cash flow from operating activities Cash flow from operating activities / Capex mn Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Capex Cash flow from operating activities minus Capex Operational cash flow before change in working capital increased 2% Increase of working capital mainly related to 94 mn tax refund in Q2 03 Further increase of Capex in Mobile for UMTS rollout 4 p

15 Financial profile bn.8. Debt Financial ratios Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Gross Debt Net Debt Operating EBITDA/Net interest Net Debt/Operating EBITDA Min. target financial framework Max. target financial framework Gross debt further reduced by planned redemptions Net debt increased by 0.3 bn as a result of lower cash position due to significant cash returns to shareholders Financial ratios well within boundaries of financial framework Based on a 2 months rolling calculation excluding extraordinary and exceptional items Though it is a nongaap measure operating EBITDA excluding extraordinary items and exceptional items is used by financial institutions and credit rating agencies as one of the key indicators of borrowing potential. It can be reconciled to GAAP by taking the Operating result and adding Depreciation, amortization & impairments before taking into account all extraordinary and exceptional items. 5 p

16 Successful debt refinancing bn Redemption profile & cash position Debt repayment Cash 3.5% subordinated convertible bond due % Eurobond due % Eurobond due 06 New issued debt Credit facility (.5) + securitization ( 0.2) 0 z Cash '04 '05 '06 '07 '08 '09 '0 ' '30 Successful debt refinancing contributes to optimising capital structure and increases financial flexibility due to lower peak debt 6 p

17 Ad Scheepbouwer CEO

18 Fixed Voice telephony Increased commercial effort focused on market shares Overall market volumes declining due to Increasing mobile only use Internet minutes moving to Broadband Growing importance of private networks Actions in consumer market Multichannel winback actions Successfully exploiting full potential of packages Aggressive campaign to manage price perception based on price comparison Similar approach in business market Achievements Slow down of decrease in most of the market shares Increased loyalty in consumer voice segment Slowing pace of decrease local voice Overall decrease market share local driven by broadband substitution. 8 p

19 Broadband Number of Dutch broadband connections 2,750 2,500 2,250 2,000,750,500,250,000 X,000 93, ,035, Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Growth of KPN ADSL customer base in Q2 with 44k to,057 mn customers, more than doubling YonY 46% of Broadband net adds in Q2 76% of the DSL users is a KPN ADSL customer KPN market share for Consumer Broadband increased from 35% to 42% YonY Further enrichment of ADSL portfolio including timebased Other ADSL 2 ADSL KPN Cable Of which currently approximately 80% consumers and 20% (small) businesses 2 Including bit stream 9 p

20 New voice: VoDSL / VoIP Pursuing growth in new markets with bundled offerings Stages of development KPN Offerings Corporate enterprises IPPBX replacing PBX, VoIP for on net traffic, Value Added Services LAN / WAN integration for data and voice IPVPN is used for on net traffic VoDSL launched as part of office DSL VoIP off net by YE 2004 Small & medium enterprises VoDSL launched as part of office DSL VoIP by YE 2004 VoDSL and VoIP over Broadband are emerging Consumer VoIP over broadband (DSL, Fibre) is emerging Bundled ADSL and VoIP proposition by YE p

21 Expanding the KPN portfolio with TV services A complete TV offering independent of infrastructure Broadcast TV DVBT: Digital quality and convenience Increased coverage Bundling with KPN ADSL later this year Access to cable: KPN TV package via cable Applied for TVcapacity at 0 cable co s Digital TV basic package Video on demand Local PVR Replay services Personal TV services KPN TV KPN ADSL Video on demand pilot Real time Olympic Games footage On demand TV 2 p

22 Triple play services packages Independent of infrastructure: any time, anywhere, any device Services Switched telephony VoIP VoDSL Mobile Internet Access Broadband Portal Entertainment imode Broadcast TV On demand TV Triple play Voice Internet TV Infrastructure PSTN/ISDN GSM/GPRS DSL Cable WiFi DVBT UMTS Fiber Digital Video Broadcasting 22 p

23 Mobile Growth driven by Germany and Belgium mn YonY customer growth Growing subscriber base EPlus KPN Mobile (NL) 0% 3% BASE KPN Mobile 3% 27% Growing subscriber market share in Germany and Belgium 40.7% 40.6% 40.2% 39.4% 39.3% % 4% 5% 6% >6% 2.6% 2.7% 2.7% 2.8% 2.9% Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Q2 03 Q3 03 Q4 03 Q 04 Q2 04 KPN Mobile (NL) BASE EPlus EPlus KPN Mobile (NL) BASE Company estimates 23 p

24 Mobile Top line growth combined with margin pressure mn Net sales growth 6% YonY Operating EBITDA margin EPlus KPN Mobile (NL) 4% 3% 44.8% 33.% 23.5% 46.9% 34.5% 25.% 43.3% 32.% 25.5% 43.3% 33.7% 29.8% 26% 39.5% 3.0% 25.7% 23.8% BASE 30% 8.3% 3.6% 8.2% Mobile 6% Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 KPN Mobile (NL) KPN Mobile division EPlus BASE Excluding exceptional items 24

25 Operating review EPlus Strong results Q2 Strong growth in customer base with high postpaid share Improving customer mix Double digit net sales growth Stable ARPU Margin ahead of 2225% target Competitive network coverage 8,76 mn (+3% YonY) 7% of new customers in Q2 postpaid Postpaid 48% of total customer base (+2 percentage points YonY) +2.7% YonY % (23.5% Q2 03) 2,890 2G base stations (+26% YonY) Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) operating revenues 25

26 Operating review EPlus High quality network for voice and data Competitive GSM network Network quality improved to competitive level GSM network quality compared to competition Q2 Q3 Q4 Q Q2 Q2 Q3 Q4 Q Q2 Innovative, costeffective UMTS network roll out EPlus Best inmarket operator UMTS high sites: increased coverage with fewer sites UHS = equivalent to 8 conventional sites Approx. 200 sites secured (of approx. 275 available) Reduces capex More sites acquired from MobilCom will be used than originally anticipated Independent measurements (call success rate over all drivetest) 26

27 Operating review EPlus Commercial achievements Simple and attractive tariffs Innovative 3 cents and Time & More 2 tariffs Approx. 50% of new customers choose one of these tariffs High usage profile Increasing appeal as business brand 8% business customer growth in one year.3 mn business customers (5% total base) For calls to the fixed network 2 Up to,000 minutes per month during weekends 27

28 Operating review KPN Mobile Netherlands Continued competitive market Growing customer base Pressure on market share Net sales decline related to lower MTA tariffs Pressure on margin ARPU decrease 5,406 mn (+0% YonY) 39.3% (40.7% Q2 03) 3.8% YonY 39.5% (44.8% Q2 03) 35 ( 39 Q2 03) Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) / operating revenues 28

29 Operating review KPN Mobile Netherlands Newly focused commercial strategy Proposition Stronger brand differentiation New propositions, attractive prices: Extra Benefits Attractive Price Business market Mass market on net : unlimited calls within business closed user group for 5 (July 22) Mobiel Privé: private subscription at high volume business rates (Aug.) Prepaid validity call credit extended to unlimited (June 5) Mobiel+ package: cheap rates to all 8 mn fixed numbers and KPN Mobile network (July 22) Prepaid sms 9 cts, validity call credit 2 months (June 5) Postpaid lower voice and sms tariffs (sms as of 6 cts) (July ) Sales and distribution: improve position in external retail New distribution agreements and partnerships closed 29 p

30 Operating review BASE Strong results Q2 Strong growth in customer base,437 mn (+27% YonY) Increased market share >6% (4% Q2 03) Net sales growth +30.0% YonY with improving margin 23.8% (8.3% Q2 03) Increasing ARPU 24 (+9% YonY) Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) / operating revenues 30

31 Operating review BASE Maintaining momentum Commercial achievements BASE proposition Simple, easy to understand tariffs Successful targeting of specific market segments E.g. youth & ethnic tailored propositions Network development Network coverage on competitive level 99% outdoor, 95% indoor Other Organizational restructuring ongoing E.g. rationalization and outsourcing 3

32 Mobile data services Developing data beyond messaging UMTS started in Germany and The Netherlands WiFi usage integrated in UMTS offering Current network coverage 30% (50 cities) in The Netherlands and 60 cities in Germany; approx. 40% at YE 2004 Enabler for increased efficiency for business More convenience and entertainment to consumers X,000 Continued growth in imode,452, Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Consumer market August 6 in Germany, September in The Netherlands 32 p

33 Mobile Ambitions EPlus: Maintain margin around 25% in 2004 Continued strong growth KPN Mobile (NL): Newly focused commercial strategy to retake and hold Improve market share and margin in the medium term BASE: Continued strong growth Cash flow positive 2004 Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) / operating revenues 33 p

34 Q & A

35 Annex For more information please contact KPN Investor Relations Tel: Fax: mail to:

36 Reported results mn Q2 03 Q2 04 % YTD 03 YTD 04 % Operating revenues of which Net sales 3,043 2,960 3,06 2,927 % % 6,7 5,863 6,035 5,830 0% % Operating expenses of which Depreciation 2 of which Amortization 2 2, , % 6% 34% 4,887, ,696, % 5% 28% Operating result %,824,339 27% Financial income/(expense) % % Profit/(Loss) before taxes %,390,056 24% Income participating interests Minority Interests Taxes n.a. n.a. 26% n.a. n.a. 33% Profit/(Loss) after taxes % % Earnings per share % % Also see sheet Exceptional items 2 Including impairments 3 Profit after taxes per ordinary share/ads on a fully diluted basis (in ) 36

37 Exceptional items mn Q2 03 Q2 04 YDT 03 YTD 04 Special items with impact on Operating result Fixed Impairment on intangible fixed assets Addition to restructuring provision Reversal impairment Connectivity Impairment of goodwill re SNT (Fixed) Mobile Gain resulting from termination agreement MobilCom Book gain on sale of UMC Other activities Book gain on sale of Directory Services Book gain on sale of Eutelsat Additional impairment Xantic Book gain on sale of PTC Release of restructuring provision Impairment on intangible fixed assets (Other) Special items with impact on Profit or loss after taxes Tax effect on exceptional items Reversal impairment on loan to participating interest Reversal impairment PTC loan Minority s share in impairment of goodwill re SNT (and related tax effect) Analysis is based on figures including exceptional items rather than those excluding such items. In order to facilitate the analysis of trends, we will disclose items with significant impact that in our opinion are important to interpret these trends. In the past, we have defined the following events as an exceptional item: (Reversal) impairment charges and other substantial writedowns on the value of our assets, including goodwill an other intangible fixed assets Restructuring charges Gains or losses on the disposal of group companies, associates and other assets and/or activities 37

38 Changes in reporting To more strictly align external reporting with tightened international requirements on financial reporting, we will focus on Analysis of reported results, no correction for exceptional items Analysis based on Result after taxes and Operating result (formerly EBIT) instead of EBITDA Analysis based on Operating margin instead of EBITDA margin 38

39 Reconciliation nongaap measures Changes in reporting Q2 03 as reported Q2 03 as reconciled Excluding exceptional items, mn Q2 03 Exceptional items Including exceptional items, mn Q2 03 Revenues Opex Operating EBITDA Depreciation Amortization 3,043,796, Operating revenues Operating expenses of which Depreciation Amortization 3,043 2, EBIT Financial income/expense Profit/(Loss) before taxes Operating result Financial income/(expense) Profit/(Loss) before taxes Income participating Interests Minority interests Taxes Profit/(Loss) after taxes Income participating Interests Minority Interests Taxes Profit/(Loss) after taxes Capex Free cash flow Net cash flow from operating activities 978 Including impairments 39

40 Operating expenses mn Q2 03 Q2 04 % Salaries and social security contributions Cost of materials Work contracted out and other expenses Other Depreciation Amortization Total , ,338 7% 2% % 32% 6% 34% 5% bn 82.9% 82.4% 8.2% 8.2% 79.9% 85% ,454 2,479 2,433 2,358 2,338,790,89,867,756,748 75% Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 65% D & A Operating Expenses excluding D&A % of Net sales Including impairments 40

41 Personnel Continuing decline 3,635 33,78 30,639 30,568 30,598 29,543 3, ,64 3,09,207 0, , Deconsolidation effect of 700 FTE 9,67 8,966 8,649 8,534 8,40 Remainder via social plan and natural attrition Q2 03 Q3 03 Q4 03 Q 04 Collective labor agreement personnel Temporary personnel Consolidation & International Q2 04 Collective labor agreement personnel, including deconsolidation effects of 700 FTE 2 Of which approx. 2,000 FTE relates to deconsolidation effects at SNT 3 QonQ increase mainly related to SNT Germany, due to acquisition info portal 4 QonQ decrease mainly relates to SNT (natural attrition), Euroweb (deconsolidation) and BASE 4

42 Analysis operating expenses Salaries & Cost of materials mn Salaries YonY decrease 4.8% 3.4% 4.4% 4.0% 3.9% Lower number of personnel due to ongoing rationalization Deconsolidation effects (SNT) Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Salaries and social security contributions % of Net sales mn 8.0% Cost of materials 8.9% 7.7% 7.5% 9.% YonY & QonQ increase Higher number of mobile handsets sold Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Materials % of Net sales 42

43 Analysis operating expenses Work contracted out & other mn 32.4% Work contracted out 35.3% 35.4% 33.9% 33.0% YonY increase Higher bonuses and commission fees (Mobile) In part offset by lower volumes at Fixed and lower MTA tariffs 958,062, Q2 03 Q3 03 Q4 03 Q 04 Q2 04 QonQ decline Lower volumes at Fixed In part offset by higher bonusses and commission fees (Mobile) Work contracted out and other expenses % of Net sales mn Other YonY decline 5.3% 4.0% 3.5% 5.% 3.7% Release restructuring provision Partial termination of activities at Xantic Deconsolidation effects (SNT) QonQ decline Release restructuring provision Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Other operating expenses % of Net sales 43

44 Analysis operating expenses Depreciation & Amortization mn Depreciation YonY decline 8.5% 9.3% 8.3% 8.% 7.5% Lower Capex levels during 02 and 03 QonQ decline Lower depreciation EPlus Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Depreciation % of Net sales mn Amortization YonY decline 4.0% 2.6% 0.6% 2.7% 2.6% Related to lower impairment changes: Impairment on goodwill SNT of 38 mn in Q Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Amortization % of Net sales Disclosed as exceptional in

45 Developments in operating result mn Q2 03 Q Net sales Mobile excl. MTA MTA impact Mobile revenue Operating expenses Mobile excl. D&A and MTA impact MTA impact on operating expenses Mobile Net sales Fixed Operating expenses Fixed excl. D&A Remainder revenue Fixed and Mobile D&A Fixed and Mobile Operating result Other Including impairment on goodwill SNT of 38 mn in Q Including 20 mn bookgains (PTC)

46 Taxes Q2 Reported, mn Fiscal unities Fixed division & Other activities German Mobile activities Dutch Mobile activities Belgian Mobile activities P&L charge Q Payments ( ) Receipts (+) 94 P&L charge YTD Payments ( ) Receipts (+) Total Cash inflow relates to refund of preliminary tax assessment Losses of German mobile activities can temporarily be deducted from the Dutch mobile profits, which results in a postponed payment for Dutch mobile activities (excluding the effects from refinancing KPN Mobile) 46

47 Net result affiliates & Minority interests mn Q2 03 Q2 04 YTD 03 YTD 04 Income from participating interests UMC Infonet 3 3 Other Total Minority interests KPN Mobile (2.6% NTT DoCoMo owned) Xantic (35% Telstra owned) 0 9 Other Total

48 Pension charges Total shortfall of 350 mn Coverage ratio Target 4 2.3% Minimum reserve 00.0% No significant change in coverage ratio and desired level As a result the total shortfall remained stable at 350 mn (was mn) This results in a potential 70 mn charge for 2004 Based on situation June 30, 04 2 Based on situation March 3, 04 3 Any coverage below 00% has to be funded within 2 months 4 Based on the long term interest rate and the strategic mix of the pension funds as per June 04 48

49 VAT claim European perspective VAT claims lodged in Austria & UK Local Courts will ask European Court of Justice opinion on treatment of license issuance with respect to VAT KPN s position Claim has been lodged in The Netherlands Clarity on position in Germany and Belgium to follow later in

50 Execution of financial frame work Principals Financial policy Maintain flexibility to grow and invest in our business Target financial ratios Net debt / EBITDA: maximum 2x EBITDA / Net interest: minimum 6x Comfortable with current credit ratings Shareholder return policy Dividend policy as of 2004 At least 0.20 per share per annum Reinstate interim dividend as of August 2004 Unutilised surplus cash returned to shareholders either via additional special dividends or share buybacks Status Financial policy Refinancing aimed at improving debt maturity profile, finalized on July 2 st Financial ratios Net debt / EBITDA:.7x EBITDA / Net interest: 6.9x Credit ratings stable at A (S&P) and Baa (Moody s) Shareholder return policy Dividend Dividend 2003 paid out in total 606 mn 2 including special dividend Proposed interim dividend as of August 2004: 0.08 per share Initial share repurchase program of 500 mn finalized; shares will be cancelled before YE Second share repurchase program of bn announced Based on a 2 months rolling calculation excluding extraordinary and exceptional items Though it is a nongaap measure operating EBITDA excluding extraordinary items and exceptional items is used by financial institutions and credit rating agencies as one of the key indicators of borrowing potential. It can be reconciled to GAAP by taking the Operating result and adding Depreciation, amortization & impairments before taking into account all extraordinary and exceptional items. 2 Including dividend on shares purchased for option plans, dividend amounts to 6 mn 50

51 Total cash flow mn Q2 03 Q2 04 YTD 03 YTD 04 Net cash flow provided by operating activities ,758,830 Capex Sale of noncore assets Other (including real estate) Net cash flow from investing activities Dividend Share repurchase Shares purchased for option plan Redemptions Early redemptions Other,465, ,492, Net cash flow used in financing activities 3,04,757 3,72 2,042 Changes in cash and cash equivalents 2,33,259,0 836 Including dividend on shares purchased for option plans, dividend amounts to 6 mn 2 Remainder of 500 mn share repurchases, of which 33 mn settled in July 04 5

52 Net cash flow from operating activities mn Q2 03 Q2 04 YTD 03 YTD 04 Profit or loss after taxes Minority interests Depreciation, amortization and impairments Income from participating interests Results from sale of assets minus received dividend Change in provisions and deferred taxes , , Net cash flow from operating activities before changes in working capital 889,077,955 2,49 Inventory Receivables Other current assets Current liabilities Change in working capital Net cash flow from operating activities ,758,830 Capex Net cash flow from operating activities minus Capex 7 48,293,27 Including effect termination MobilCom agreement 52

53 Capex Including exceptional items mn Fixed % revenues Fixed Networks % revenues Business Solutions % revenues Mobile % revenues EPlus % revenues KPN Mobile (NL) % revenues BASE % revenues Other Q % 7 7% 32 6% 7 9% 64 % 36 6% 7 2% Q % 06 7% 26 5% 244 8% 75 26% 57 0% 2 % 3 % % 9% 9% 09% 73% 58% 29% >200% YTD % 79 5% 48 4% 223 8% 25 9% 5 4% 47 30% 5 YTD % 206 7% 57 5% 46 6% % 96 8% 22 % 24 % 6% 5% 9% 87% 38% 88% 53% 60% Total % revenues 267 9% 389 3% 46% 465 7% 703 2% 5% 53

54 Balance sheet Assets bn Liabilities and equity bn Goodwill Licenses Other Fixed assets Current assets Cash Group equity Provisions Long term liabilities Short term liabilities Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 54

55 Debt summary bn Q2 03 Q 04 Q2 04 Subordinated convertible bonds.5.. 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 Subject to rounding differences Excluding debt refinancing finalized on July 2,

56 Bond portfolio Overview changes during life of bonds mn Principal in GBP / USD Principal in 2002 in Early redemptions 2003 in Early redemptions 2004 in Redemptions risk YTD in Rehedge currency Q2 04 in GBP / USD Outstanding principal Q2 04 in Outstanding principal Sub. convertible bond Eurobond Eurobond Eurobond Eurobond Eurobond GBP Global bond USD Global bond USD Global bond USD Global bond EUR ,750,000, ,500,250 2, ,002,32, ,750,000,27 435,500, , Total bonds outstanding 2,29,2, ,774 Excluding debt refinancing finalized on July 2,

57 Debt portfolio Gross debt at Q2 04: 9.2 bn 3% Syndicated loan 2% Convertible bond 2% Other consolidated Other debt % 2% Eurobonds 4% 35% 62% EUR USD GBP 2 2 3% Global bonds 42% 69% Fixed Floating (incl swapped) Including money market, other short term funding 2 Foreign currency amounts hedged into Euro Excluding debt refinancing finalized on July 2,

58 Fixed revenue development Underlying YearonYear Growth (excluding mobile termination impact): 2,9% mn 2,9%, , ,8 Impact revenues of MTA reduction Internet minutes Fixed Telephony Internet ADSL Voice traffic originating subscription minutes ISP s Fixed Telephony + ISPs 2 Business Solutions Remaining Fixed Networks 3 Q2 03 and access Q2 04 Of which 7 mn ISP and 35 mn ADSL connection charge 2 Excluding impact MTA reduction 3 Carrier Services (excl. impact MTA reduction) and lower inter company revenues 58

59 Fixed Voice telephony Development market shares Market shares ± 90% > 80% > 65% > 50% > 85% ± 75% > 60% ± 45% Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 Access lines Local traffic National traffic International traffic Traffic in minutes; access in number of lines 59

60 KPIs Fixed Fixed Networks Q2 03 Q 04 Q2 04 YTD 04 Market shares Local National International Fixed to Mobile ± 80% ± 65% > 50% ± 65% ± 75% > 60% > 45% > 60% ±75% >60% ±45% >60% ±75% >60% ±45% >60% Channels (x,000) Lines (x,000) PSTN ISDN 2/5/20/30 9,979 7,774 6,28,556 9,806 7,628 6,080,548 9,746 7,569 6,032,537 9,746 7,569 6,032,537 Call rate Call duration Minutes (in bn) BU Fixed Telephony Local/National Internet International Fixed to Mobile BU Carrier Services Total Division Fixed Number of calls per channel per day 2 Average duration per call in seconds 60

61 KPIs Fixed Internet and ADSL () Q2 03 Q 04 Q2 04 Market shares Consumer broadband 35% 4% 42% DSL 8% 77% 76% ISP customers (X,000) Planet Internet Het Net XS4ALL Total,489,552,570 Broadband subscriptions ISP s (X,000) Planet Internet Het Net XS4ALL Direct ADSL Total

62 KPIs Fixed Internet and ADSL (2) X,000 Q2 03 Q 04 Q2 04 Local exchanges Number DSL enabled ADSL coverage NL %,354 99%,36 99% # MDF access lines 636,235,422 of which # line sharing 605,80,387 ADSL Installed % Go (46/60 kbit/s) % Lite (,20/352 kbit/s) % Basic (2,240/46 kbit/s) % Extra (4,480/704 kbit/s) 53 46% 47% 6% 93 % 54% 3% 4%,057 8% 52% 27% 4% % of central offices that is ADSL enabled 62

63 KPIs Fixed Business Solutions Q2 03 Q 04 Q2 04 Leased lines (x,000) Analogue Digital 82 63% 37% 64 70% 30% 62 7% 29% VAS Frame Relay (# ports) MVPNrouters 2 IPVPN connections VPN s (# customers) 0,28 6,206 9, ,572 8,78 20, ,736 8,648 23,746,4 As from Q 2003, only leased lines with external revenues are stated. Figures 2002 are restated accordingly 2 Restated as from Q

64 Mobile EPlus Growth continues with improved customer mix mn Customers % 47% 47% 47% 48% ARPU Q2 03 Q3 03 Q4 03 Q 04 Q2 04 % post paid Operating result development Q2 '03 Q3 '03 Q4 '03 Q '04 Q2 '04 blended postpaid prepaid Margin 8.8% 20.3% 20.4% 2.7% 2.7% 3.4% 0.0% 9.0% 0.6% 6.6% Q2 03 Operating revenues Operating expenses Q2 04 Q2 03 Q3 03 Q4 03 Q 04 Q2 04 (Net sales Operating expenses + D,A&I)/Net sales (Net sales Operating expenses)/net sales 64

65 KPIs Mobile EPlus Q2 03 Q 04 Q2 04 YTD 04 Market share base 2.6% 2.8% 2.9% 2.9% Customers (x,000) Postpaid Of which imode Prepaid Of which imode 7,76 3, ,38 0 8,448 3, , ,76 4, , ,76 4, , ARPU ( ) Postpaid Prepaid Nonvoice as % of ARPU 5% 6% 6% 6% SAC ( ) Postpaid Prepaid SRC ( ) MoU (minutes) Postpaid Prepaid Management estimates (therefore only rounded figures available) 65

66 KPN Mobile (NL) Growing customer base mn 4.9 Customers ARPU % 39% 38% 37% 37% Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Q2 03 Q3 03 Q4 03 Q 04 Q2 04 % post paid blended postpaid prepaid Operating result development Margin 44.% 46.4% 4.4% 40.6% 38.4% 35.9% 38.6% 32.9% 32.5% 3.% Q2 03 Operating revenues excl. MTA MTA impact on revenues Operating expenses excl. MTA MTA impact on Operating expenses Q2 04 Q2 03 Q3 03 Q4 03 Q 04 Q2 04 (Net sales Operating expenses + D,A&I)/Net sales (Net sales Operating expenses)/net sales Including MTA effect ( 26 mn revenues and 3 mn operating result) 66

67 KPIs Mobile KPN Mobile (NL) Q2 03 Q 04 Q2 04 YTD 04 Market share base 40.7% 39.4% 39.3% 39.3% Customers (x,000) Postpaid Of which imode Prepaid Of which imode 4,99, , ,269, , ,406, , ,406, , ARPU ( ) Postpaid Prepaid Nonvoice as % of ARPU 8% % % % SAC ( ) Postpaid Prepaid SRC ( ) MoU (minutes) Postpaid Prepaid Management estimates (therefore only rounded figures available) 67

68 BASE Growth combined with increasing ARPU mn..2 Customers ARPU % 23% 22% 2% 20% Q2 03 Q3 03 Q4 03 Q 04 Q2 04 Q2 03 Q3 03 Q4 03 Q 04 Q2 04 % post paid blended postpaid prepaid Operating result development % 7.9% Margin 7.7% 27.0% 23.% 20.0% 34.2% 3.3% 8.0% 8.7% Q2 03 Operating revenues Operating expenses Q2 04 Q2 03 Q3 03 Q4 03 Q 04 Q2 04 (Net sales Operating expenses + D,A&I)/Net sales (Net sales Operating expenses)/net sales Includes 03 mn reversal of impairment GSM license BASE 68

69 KPIs Mobile BASE Q2 03 Market share base 4,% Q 04 6% Q2 04 >6% YTD 04 >6% Customers (x,000),3,369,437,437 Postpaid Of which imode Prepaid Of which imode 876 0,08 2,47 3,47 3 ARPU ( ) Postpaid ¹ Prepaid ¹ Nonvoice as % of ARPU 5% 6% 5% 5% SAC ( ) Postpaid Prepaid SRC ( ) n.a. n.a. n.a. n.a. MoU (minutes) Postpaid Prepaid Management estimates (therefore only rounded figures available) 69

70 Other in Q2 mn Operating revenues ( 2%) mn Operating Result (+72) Q2 03 Q2 04 Q2 03 Q2 04 Significant increase in operating result 20 mn book gain on PTC Release from 5 mn restructuring provision Declined operating revenues and costs due to deconsolidation logistics and repair Improved operating result from restructuring international participations a.o. Xantic 70

71 EU New Regulatory Framework (NRF) Timing New law has come into force in The Netherlands on May 9, 2004 and in Germany on June 26, 2004 Implementation in Belgium delayed Market definitions and dominancy tests will be based on general competition law instead of current sector specific criteria Dutch NRA OPTA must substantiate its decisions by means of an assessment of the foreseeable relevant consequences, which provides KPN with a certain sense of comfort Dutch Minister of Economic Affairs is requested by Parliament to propose a policy framework on telecommunication with subsequent general guidelines for OPTA Market definition of Broadband, Wholesale line rental (both March 05) and Mobile call termination (probably December 05) will be important issues in the application of the NRF OPTA has started analyses of the 8 relevant markets. Decisions are expected before Summer

72 Regulation Fixed Interconnection and other wholesale tariffs On June 30, 2004 OPTA implemented its earlier plan to have: A transitional price regime as of July 04 until under the NRF new tariff controls will be implemented Approval of a specific KPN tariff proposal for the transitional period, which will: Produce acceptable cost oriented tariffs for the period July 03 July 05 Allow KPN and OPTA to resolve their current legal disputes regarding the current interconnection tariffs (OPTA s decision of July 24, 2003) Leading to: No change in interconnection tariffs for origination and termination services 2 A range of 3 to 5% decreases in tariffs for unbundled local loop services, collocation services and interconnecting leased lines, mainly as a result of volume developments (growth in broadband) New Regulatory Framework 2 0% change compared to tariffs of July