Third Quarter Results 2007
30 October 2007
2
Safe harborCertain statements contained in this presentation constitute forward-looking statements. These statements may include, without limitation, statements concerning future results of operations, the impact of regulatory initiatives on our operations, our and our joint ventures' share of new and existing markets, general industry and macro-economic trends and our performance relative thereto, and statements preceded by, followed by or including the words “believes”, “expects”, “anticipates” or similar expressions. These forward-looking statements rely on a number of assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside our control that could cause actual results to differ materially from such statements. A number of these factors are described (not exhaustively) in our 2006 Annual Report and Form 20-F.
All figures in this presentation are unaudited and based on IFRS as endorsed by the EU. In preparing this presentation we have applied IFRS 8 “Operating Segments”. IFRS 8 has not been endorsed yet by the EU but has been recommended for endorsement by EFRAG and ARC. Formal endorsement by the EU is expected in the near future. This presentation contains a number of non-GAAP figures, such as EBITDA and free cash flow. These non-GAAP figures should not be viewed as a substitute for our GAAP figures. Our non-GAAP measures may not be comparable to non-GAAP measures used by other companies.
All market share information in this presentation is based on management estimates based on externally available information, unless indicated otherwise. Certain figures may be subject to rounding differences.
3
DisclaimerWe define EBITDA as operating profit before depreciation and impairments of PP&E and amortization and impairments of intangible assets. The measure is used by financial institutions and credit-rating agencies as one of the key indicators of borrowing potential. Many analysts use EBITDA as a component for their (cash flow) projections. Note that our definition of EBITDA deviates from the literal definition of earnings before interest, taxes, depreciation and amortization. Either definition of EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under IFRS or US GAAP.
We use EBITDA as a component of our guidance. In view of the possible volatility of impairments under IFRS, we believe that this is the most appropriate way of informing financial markets on certain aspects of future company financial development. We do not view EBITDA as a measure of performance. In all cases, a reconciliation of EBITDA and the nearest GAAP measure (operating result) is provided. In the net debt/EBITDA ratio, we define EBITDA as a 12 month rolling average excluding book gains and restructuring costs, both over € 20 mn.
We define Free cash flow as “Cash flow from operating activities” plus “Proceeds from real estate” minus “Capital expenditures”, being expenditures on PP&E and software.
We have prepared unaudited pro-forma financial information for KPN Mobile the Netherlands and Fixed (including Other and intercompany eliminations) based on the former organizational structure in place as at December 31, 2006 and on the Intercompany charges associated with that former structure. Although we believe the pro-forma financial information is based on reasonable assumptions, it is provided for illustrative purposes only and we cannot assure that this information would be identical to the actual results which might have been reported had our organization structure not changed.
4
Agenda
Ad Scheepbouwer, Chairman and CEOOperating review Mobile Int’l
Ad Scheepbouwer, Chairman and CEOConcluding remarks
Ad Scheepbouwer, Chairman and CEOOperating review The Netherlands
Marcel Smits, CFOFinancial review
Ad Scheepbouwer, Chairman and CEOChairman’s review
5
Highlights Q3
• Mobile International: foundations laid for further profitable growth– E-Plus Post Paid net adds accelerating, EBITDA margin well above 35%– New propositions and strengthened distribution through acquisitions by BASE
• The Netherlands: resilient performance, increasing share of new services– Improved line loss from successful customer retention and upscaling KPN VoIP– Record TV net adds following new strategy– Continued growth in Business, EBITDA up 14%, driven by IP-based new services– In former Fixed, deceleration of revenue and EBITDA decline
• All-IP strategy: well on track– Preparation for All-IP mass rollout at advanced stage, installation capacity committed– Sale of real estate top portfolio in H1 ’08 under consideration, value ~€ 300 mn– MoU’s signed with unbundlers for access to All-IP infrastructure
• Business profile strengthened by iBasis merger and Getronics acquisition
p
6
Financial highlights
• On track to meet full-year guidance following solid Q3 results– Revenues and other income flat (YTD -0.5%)– EBITDA up 1.8% (YTD 0.0%)– Capex of € 0.4 bn (YTD € 1.0 bn)– Free cash flow1 of € 0.6 bn (YTD € 1.8 bn)
• Shareholder returns increased to € 2.5 bn for 2007– Interim dividend of € 0.18 per share paid in August, € 0.3 bn in total– Initial € 1 bn share repurchase program completed, following acceleration in August– Additional € 0.5 bn share repurchase program started in September, 47% completed
to date
1 Defined as cash flow from operating activities plus proceeds from real estate minus Capital expenditures p
7
Strategic focus The NetherlandsSignificant progress on strategic priorities
• Preparations for All-IP at advanced stage
• FTE reduction / cost savings on track
• Platform for wholesale growth with iBasis merger
• Deploying next generation network and IT
• Achieving operational excellence
Wholesale & Operations
• Market leader in voice and IP connectivity
• Getronics acquisition closed
• Step-up in Fiber-to-the-Office initiatives
• Moving up the value chain towards managed ICT services
• Expanding position in voice and data services
Business
• Sustained growth of market shares
• Portfolio rationalization initiated
• Focus on three key brands: KPN, Hi and Telfort
• Leveraging market shares
• Bringing focus by simplificationConsumer
Recent key eventsStrategic focus
p
8
Strategic focus Mobile internationalSignificant progress on strategic priorities
• Continued profitable growth in the Netherlands
• MVNO in Spain ready for launch in near future
• Leveraging wholesale partnerships
• Expanding business model into Western European markets
Mobile Wholesale NL
• Step up in commercial efforts to reignite growth
• Strategic acquisitions to strengthen distribution
• Acquisition of Tele2 Belgium to enhance sales capabilities
• Regaining commercial initiative
• Strengthening distributionBASE
• Continued market outperformance
• Growth in new brands with high profitability
• Non-core activities outsourced
• Profitable growth through Fixed-Mobile Substitution
• Operational excellenceE-Plus
Recent key eventsStrategic focus
p
9
Agenda
Ad Scheepbouwer, Chairman and CEOOperating review Mobile Int’l
Ad Scheepbouwer, Chairman and CEOConcluding remarks
Ad Scheepbouwer, Chairman and CEOOperating review The Netherlands
Marcel Smits, CFOFinancial review
Ad Scheepbouwer, Chairman and CEOChairman’s review
10
1,220
0.19
355-182537
-142-1
680
2,357380160
3,0373,007
Q3 ’07
1,198
0.17
342-109451
-1252
574
2,463473151
3,0373,028
Q3 ’06
1.8%
11.8%
3.8%67.0%19.1%
13.6%-
18.5%
-4.3%-19.7%
6.0%
0.0%-0.7%
%
3,684
0.57
1,068-393
1,461
-4072
1,866
7,1071,235
583
8,9738,882
YTD ’07
3,685
0.57
1,157-347
1,504
-3597
1,856
7,1621,393
436
9,0188,919
YTD ’06
0.0%
0.0%
-7.7%13.3%-2.9%
13.4%-71.4%
0.5%
-0.8%-11.3%33.7%
-0.5%-0.4%
%
Earnings per share2
Profit/(Loss) after taxes
EBITDA3
TaxesProfit/(Loss) before taxes
Financial income/(expense)Share of profit of associates
Operating result
Operating expenses– of which Depreciation1
– of which Amortization1
Revenues and other income– of which Revenues
€ mn
1 Including impairments, if any2 Defined as Profit after taxes per ordinary share / ADS on a non-diluted basis (in €)3 Defined as Operating result plus depreciation, amortization & impairments
Group results Flat revenues and EBITDA year to date, in line with guidance
• Q3 results broadly in line with previous quarters (incl. € 30 mn book gain on real estate)• Higher tax charge in Q3 ’07 due to adjustments in tax returns for previous years• EPS up 12%, driven by continued share repurchases
p
11
Group cash flowContinued strong free cash flow and cash return to shareholders
1 Including impairments, if any2 Including other income, change in provisions, change in working capital and share based compensation3 Including Property, Plant & Equipment and software 4 Defined as cash flow from operating activities plus proceeds from real estate minus Capital expenditures
>200%35124>100%2042Proceeds from real estate
-24.9%
5.0%-34.4%
-16.3%
-11.1%
-16.6%
18.5%-13.5%-12.0%>200%
-
%
2,156
9821,174
1,821
981
2,678
1,8661,818-348-80
-578
YTD ’07
2,496
9821,514
2,174
1,117
3,256
1,8561,829-251213
-391
YTD ’06
-13.6%1,3361,003Cash return to shareholders
0.0%-22.5%
3211,015
337666
Dividend paidShare repurchases
-16.2%748626Free cash flow4
-12.2%
-17.8%
0.5%-0.6%38.6%
--47.8%
%
574624
-108-164
680540-95-38
-125
Operating resultDepreciation & amortization1
Interest paid/receivedTax paid/receivedOther cash flow2
Capex3
Net cash flow operating activities
€ mn
425378
1,153962
Q3 ’06Q3 ’07
• Continued strong free cash flow of € 626 mn, € 1.8 bn YTD• Shareholder returns increased to € 2.5 bn completed, € 2.2 bn YTD
− € 0.6 bn final dividend ’06 and € 0.3 bn interim dividend ’07− € 1.2 bn share repurchases, 2006 including € 0.7 bn repurchase from Dutch State in September
p
12
Performance versus Guidance On track to meet guidance
1 Reported numbers excluding acquisitions of Tiscali, iBasis and Getronics2 Defined as Operating result plus depreciation, amortization & impairments3 Defined as cash flow from operating activities plus proceeds from real estate minus Capital expenditures
• On track to meet guidance following Q3 results– Excluding € 18 mn revenues and € 4 mn EBITDA from Tiscali acquisition
• Higher cash outflows anticipated for Q4– Higher Capex due to All-IP and seasonality– Interest payments– Cash taxes
• Reiterating free cash flow guidance of > € 2 bn for 2007-2009
€ 0.6 bn
€ 0.4 bn
1.5%
-0.6%
Q3 ’07
€ 0.6 bn
€ 0.3 bn
-0.5%
1.0%
Q2 ’07
€ 1.8 bn€ 0.6 bn> € 2 bnFree cash flow3
€ 1.0 bn
-0.1%
-0.7%
YTD ’07
-2.6%FlatRevenues and other income1
Capex
EBITDA1,2
Item
€ 0.3 bn€ 1.6 - € 1.8 bn
-1.4%Flat
Q1 ’07Outlook FY ’07 as given 6 Feb
p
13
2.11.91.81.91.9
• Net debt / EBITDA1 up to 2.1x – € 0.3 bn interim dividend – € 0.7 bn share repurchases– € 0.2 bn Getronics shares bought
• € 1.25 bn backstop facility signed in September
10.710.19.710.0
11.0
9.4 9.28.8
9.310.0
Debt€ bn
Q3 ’06
Gross Debt
Financing policy
Net Debt / EBITDA1 Financial framework rangeNet Debt
Group financial profileLeverage increased following shareholder returns, liquidity maintained
2.0x
1 Based on 12 months rolling EBITDA excluding book gains/losses and restructuring costs both over € 20 mn
Redemption profile
Q3 ’06 Q3 ’07
€ bn
Q4 ’06Q4 ’06 Q1 ’07Q1 ’07
2.5x
Q2 ’07 Q2 ’07
1.0
0.7
1.3 1.4
0.90.7
1.0
0.4
1.0
0.4
0.9
'08 '09 '10 '11 '30 '16'13 '14'12 '15 '17 '18 '19
Q3 ’07
p
14
Tax position GermanyNew fiscal legislation with lower tax rates as of 2008
New fiscal legislation
StatusNOLs
• € 18.8 bn net operating losses for corporate income tax (YE ’06)– No significant tax payments for the medium term
– 60% tax shield in case of profitable fiscal results
• Lowering of effective tax rate from ~40% to ~29% as of 1 Jan ’08– Corporate income tax rate from 26.4% to 15.8%
– Trade income tax rate from 18.4% to 15.8%
• Tax losses no longer transferable in case of change of control– € 6 bn losses from prior impairments not affected
– Further review of fiscal implications and alternatives
15
MTAVisibility on MTA regulation improving
The Netherlands
Belgium
Germany
• New MTA proposal under discussion, currently valid until 30 November– T-Mobile / Vodafone € 8.78 cents per minute– E-Plus / O2 € 9.94 cents per minute
• E-Plus arguing for more asymmetry in MTA tariffs
• BIPT proposal for less asymmetry under review
• Former glide path with more asymmetry remaining in place for now
• New MTA regulation, estimated impact of ~4% on service revenues in 20081
4.3712.7510.1315.81
Previous
3.6410.168.09
12.76Current
3.033.39Avg. asymmetry9.387.48
11.821 Jan ’08 1 July ’08Proposal 11 Aug ’06
8.21Mobistar6.56Proximus
10.41BASE
1.412.411.011.0
Previous
1.12.41.41.4Avg. asymmetry11.410.010.0
15 Aug ’07 1 July ’091 April ’091 July ’08€ cents per minute
8.110.410.4T-Mobile7.09.09.0Vodafone7.08.09.0KPN
1 Based on 2006 volumes and conservatively assuming no elasticity effects
16
Financial highlights the NetherlandsPerformance in line with previous quarters, headwind from MTA and roaming
• Solid performance wireless: 2.1% service revenue growth, despite MTA and roaming cuts
• Resilient performance Consumer wireline with improving line loss and TV growth
• Continued upward trend in the Business segment from migration to new services
• € 30 mn book gain in W&O on sale of real estate
• FTE reductions on track
39.5%
836-0.7%
489
1,627347
2,116-0.6%
6762.1%
Q3 ’07
39.6%
842
429
1,699413
2,128
662
Q3 ’06
1,4591,385Operating result
41.2%
2,594-2.6%
4,9181,209
6,303-1.0%1,9945.8%
YTD ’07
41.8%
2,663
4,9091,204
6,368
1,884
YTD ’06
Operating expenses– of which D&A
Revenues and other income% change– of which wireless Service revenues1
% change
EBITDA margin
EBITDA% change
€ mn
1 Revenues and other income minus equipment sales and other income p
17
€ mn EBITDA (margin)€ mn Revenues and other income
Wholesale & Operations
497 521 477 521 470
51.3% 52.4% 52.0% 54.8%50.8%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Financial review the Netherlands by segment
165 178 196 190 188
22.6%22.5%23.1%21.0%20.4%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
810 847 849 846 832
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
184 163 181 196 179
17.2% 15.4% 17.5% 19.0% 17.0%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
1,070 1,057 1,037 1,032 1,053
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Business
926951917994968
263252284289 261
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07Revenues and other income External revenues
Consumer
EBITDA margin reported EBITDA
1 EBITDA margin excluding € 55 mn book gain on sale of real estate: 52.0%2 EBITDA margin excluding € 30 mn book gain on sale of real estate: 49.1%
12
p
18
• E-Plus: Outperformance on key metrics, ahead of H2 ’07 guidance– Post Paid net adds accelerating, EBITDA margin well above 35%– Further acceleration of service revenue growth expected in Q4 ’07
• BASE: Continued headwind, actions taken to secure further profitable growth– New propositions launched and strengthened distribution through acquisitions
• Mobile Wholesale: Continued growth from wholesale partnerships in the Netherlands– Expanding business model to Spain, ready for launch in near future
Financial highlights Mobile InternationalContinued profitable growth despite challenging markets and regulation
37.2%
3767.7%
184
827192
1,0111.1%
9712.1%
Q3 ’07
34.9%
349138
862211
1,000
951
Q3 ’06
340499Operating result
37.9%
1,10714.8%
2,422608
2,9213.4%2,7984.6%
YTD ’07
34.1%
964
2,486624
2,826
2,675
YTD ’06
Operating expenses– of which D&A
Revenues and other income% change– of which wireless Service revenues1
% change
EBITDA margin
EBITDA% change
€ mn
1 Revenues and other income minus equipment sales and other income p
19
Financial review Mobile International by segment€ mn EBITDA (margin)€ mn Revenues and other income
248 220 253 293 289
32.6%29.5%
36.2% 39.8% 37.6%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
71 64 60 65 55
36.4%41.9%39.5%40.0%43.8%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
33 28 28 35 32
36.4%41.2%33.7%32.9%
41.3%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
BASE
Mobile Wholesale NL
E-Plus
1 EBITDA margin excluding € 23 mn restructuring costs: 35.7%
1
EBITDA margin reported EBITDA
769736698747760
714 692 660 700 735
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
159 157 149 151 147
151155152160162
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
80 85 83 85 8879
86 85 9084
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Revenues and other income Service revenues
p
20
Pro forma disclosure FixedContinued deceleration of revenue and EBITDA decline
41.7%
534-117
1,282-79
-5.8%
Q2 ’07
43.5%
570-101
1,311-99
-7.0%
Q1 ’07
41.7%
568-84
1,361-67
-4.7%
Q4 ’06
42.2%
550-60
1,304-33
-2.5%
Q3 ’07
45.6%EBITDA margin (excl. notable items3)
610-69
1,337-93
-6.5%
Q3 ’06
EBITDA (excl. notable items3)Y-on-Y decline
Revenues and other income (excl. notable items3)Y-on-Y declineY-on-Y %
Fixed (incl. Other and Intercompany)1,2
• Continued deceleration of revenue decline– Deceleration in Consumer net line loss, growth in VoIP, broadband and TV– Increasing revenues in Business segment despite migration to new services– Internal voice revenues in W&O continue to decline, resilient external revenues– Tiscali acquisition adding € 18 mn revenues and € 4 mn EBITDA
• EBITDA loss at € 60 mn, much lower than previous quarters– € 30 mn book gain on real estate in Q3 not included– H1 ’07 impacted by non-recurring items, e.g. € 45 mn additional VoIP costs
1 Sum of Revenues ‘Fixed’, ‘Mobile Other’, ‘Other’ and ‘Intercompany’ in old reporting structure2 See Annex for detailed reconciliation3 Book gains from sale of real estate in 2007 and disposal of Xantic in 2006 p
21
Pro forma disclosure KPN Mobile the NetherlandsContinued Post Paid subscriber growth, headwind from MTA and roaming
3.7 3.9 4.0 4.1 4.2
4.8 4.84.8 4.8 5.0
Service revenues up 1.6%
752 735 731 755 764
47.5% 47.2% 47.2% 47.0% 47.1%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07Q4 ’06 Q3 ’06
Post Paid share up 2%-point
Q1 ’07 Q2 ’07
€ mn
Q3 ’07
1 Management estimates, amongst others based on revenues as per industry filings
Post PaidPre PaidPost Paid share
SAC / SRC down 9.0%
188 180159 165 171
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
€
Service revenues Service revenue market share1
EBITDA up 10%€ mn
294269 302 328 296
34.6%38.4% 39.8% 41.8%
37.8%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
EBITDA margin reported EBITDA
46%44% 45% 45% 46%
mn
8.5 8.7 8.8 8.9 9.2
p
22
Agenda
Business
Ad Scheepbouwer, Chairman and CEOOperating review Mobile Int’l
Wholesale & Operations
Ad Scheepbouwer, Chairman and CEOConcluding remarks
Consumer
Ad Scheepbouwer, Chairman and CEOOperating review The Netherlands
Marcel Smits, CFOFinancial review
Ad Scheepbouwer, Chairman and CEOChairman’s review
23
• Quality of base continuously improving– Continued migration to Post Paid, 41% of base– Declining churn from successful CLM
• Service revenues up 2.3% despite negative impact from MTA and roaming
– Impact MTA reduction -/- 1.4% – Offset by continued minutes growth, in part from
Fixed-Mobile substitution– Further uptake of data services
• Rising momentum in non-SMS data services, both in active subscribers and usage
– Increasing demand for Hi data bundles– ‘Surf & Mail Unlimited’ introduced by Telfort– Average usage per subscriber doubled
• Sustained profitability growth with SAC/SRC down 15%
169 161 129 131 144
435 412 416 432 445
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Consumer wireless servicesContinued Post Paid subscriber growth, service revenues up 2.3% despite MTA cut
Post Paid share up 3%-point
€ mn Service revenues up 2.3%
Service revenues SAC/SRC
2.2 2.3 2.4 2.4 2.5
3.6 3.53.7 3.5 3.6
Q4 ’06 Q3 ’06 Q1 ’07 Q2 ’07 Q3 ’07
Post PaidPre PaidPost Paid share
41%38% 39% 40% 41%
mn
5.9 5.9 5.9 5.9 6.1
Non-voice as % of ARPU
20%17% 16% 18% 18%
p
24
• Market share retail broadband 44.3% – Broadband penetration increase to 75%– 500k new KPN connections since Q3 ’06 – Limited contribution from VoIP growth
• Successful Telfort brand expanded as Fixed-Mobile challenger to drive further growth
– Low-cost / no-frills multiplay offerings– Portfolio with Mobile, VoIP and Broadband– Rebranding of Tiscali and Speedlinq to Telfort
• Market leadership consolidated with 39% share– 53k KPN VoIP net adds in Q3– Market growth slowing down to ~10k per week– 38% of broadband market converted to VoIP
• KPN gradually scaling up VoIP order intake – Ambition for up to 8-9k gross adds per week– National advertising resumed in September
• Additional VoIP costs less than € 10 mn in Q3
44.3%40.3% 40.9% 41.0% 44.6%Broadband connections1
Consumer VoIP and broadbandGradually scaling up VoIP and driving broadband growth further
mn
2.02 2.14 2.23 2.43 2.52
1.86 1.97 2.03 2.09 2.160.86 0.89 0.90 0.75 0.71
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
4.7
Other ADSL2KPN Cable
1 Based on management estimates, approximately 80% consumers and 20% businesses 2 Excluding Bitstream
5. 0 5.2 5.3
Market share
0.27 0.52 0.65 0.73 0.790.60
0.700.85 0.91 0.980.25 0.25 0.26
1.0
1.41.8 1.9 2.0
0.21
0.16
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
VoIP connectionsmn
25%36% 37% 39%38%
5.4
p
25
Line lossNet line loss at 100k due to successful retention offers and VoIP
• Retention offers successful in driving down PSTN/ISDN line loss
– Discount on flat fee bundles in traditional voice– Broadband combined with traditional voice– Special winback offers– Market share in traditional voice up 6% to 72%
• Outflow to WLR decelerating– 103k in Q3 vs. 133k in Q2; total 283k– Limited financial impact from WLR migration
• As a result, net line loss decelerates to 100k– Continued reduction in net line loss– Lowest since Q3 ’05
• Net line loss in Q4 expected to be on par with Q2 and Q3
– Increased traction of retention offers– Gradual upscaling of KPN VoIP
-267
-357 -353 -291
-247
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
x 1,000 PSTN / ISDN trends
VoIP migration Loss to competition
x 1,000 Net line loss1
-140 -130-165
-110 -100
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
1 PSTN/ISDN line loss + growth VoIP Consumer + growth ADSL only + growth WLR; management estimates
WLR
43%
69%
38%
13%
46%
29%
42%
21%
p
26
TVFurther acceleration in TV growth, driven by new strategy
• New TV offerings highly successful– Record net adds of 77k to 414k in Q3– ~60% share of gross adds in digital TV market– 4%-point market share increase to 17%
• Improved business model and pricing schemes to create foothold in TV market
– DVB-T starting at € 6.95, 50% discount to cable– Rental model for set-top box– IPTV starting at € 9.95, with several add-ons
• Increasing demand for value-added services– Over 10% of Digitenne customers subscribing to
live football package (€ 6 / month)– Video-on-Demand portfolio for IPTV expanded
• Launch of ‘MobielTV’ as value-added service– 11 TV channels on mobile phone based on 3G– Consumer pilot for DVB-H
245 265 296 337414
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
TV subscribers up 69%
Digital TV market Total TV market
17%14%13%13%13%
3% 4% 4% 5% 6%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Market share up 4%-points
+8%+12%
+14%
+23%
p
x 1,000
27
Agenda
Business
Ad Scheepbouwer, Chairman and CEOOperating review Mobile Int’l
Wholesale & Operations
Ad Scheepbouwer, Chairman and CEOConcluding remarks
Consumer
Ad Scheepbouwer, Chairman and CEOOperating review The Netherlands
Marcel Smits, CFOFinancial review
Ad Scheepbouwer, Chairman and CEOChairman’s review
28
Business marketContinued migration from traditional to new services
• Continued migration from traditional to IP services especially managed services
• Phase out traditional services, e.g. SDH1
• Continued growth in housing and hosting services
Wireline services• Service revenues up 1.8%
– MTA impact -/-1.3%– Usage growth, partly FMS
• 14% subscriber growth– Data cards and Blackberry’s – M2M represents ~15% of base
Wireless services
1413131111
35 6
4
7
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
IP data services
Business DSL M-VPN E-VPN
7162544578
Wireless services
1.1 1.2 1.2 1.3 1.3
231235235232227
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Service revenues (€ mn)Customers (mn)
Traditional services
1.71.81.81.81.8
38 35 3436 34
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
PSTN/ISDN (mn) Leased lines (x 1,000)
• Step up in FttO, driven by demand for higher bandwidths
• 42k companies connected with FttO at Q3 ’07
• 61k or nearly 10% of companies connected by YE ’07
Fiber-to-the-Office (FttO)
p 1 Synchronous Digital Hierarchy, legacy platform for data communication
29
Business contract wins in Q3Strengthening position, predominantly in (managed) data services
5 years• Storage and back-up servicesAccounting
3 years• Managed IP telephony solution for all branches
• Replacement of backbone hardwareFinancial services
5 years• WAN networks and international datacenter backboneFinancial services
Not disclosed• Framework agreement for wireline data services
• Leased lines, Ethernet, DSL and internet accessDutch Government
5 years• Hosting services for 500 servers
• Servers transferred from client to KPNTransportation
5 years• ICT outsourcing in partnership with Getronics
• Housing, hosting and storage servicesTransportation
Not disclosed• WAN solution based on new International Ethernet VPNAsset management
ScopeServicesSector
30
Online applications
KPN ICT ServicesStrong growth in online applications for SME and SoHo
Internet security
Exchange
Document sharing
Accounting
Back-uponline
PC online
• KPN ICT strategy launched two years ago– One-stop-shop for telecom and ICT services– Online applications for SME / SoHo since 2007
• KPN as reliable partner for SME and SoHo– Upselling voice and data connections to
workspace management through dedicated sales force
– Standardized ICT applications ordered online – Unique positioning vs major ICT companies
• Strong customer growth following national advertising in May and September
• Portfolio expanded to nine workspace management services, e.g.
– Back-up online– Accounting online– Document sharing
KPN ICT services
31
Global ICT service provider with focus on workspace managementGetronicsWorkspace management
• Global ICT service provider– Top 5 player in workspace management worldwide
among HP, IBM and EDS– Global footprint with direct presence in 20
countries and over 90 local service partners – Strong customer base with major (inter)national
accounts– Presence in all industry sectors
• Focus on workspace management– Services to improve employee productivity, e.g.
e-mail, telephony, helpdesks and storage– Generating over 50% of total revenues– Market leader in the Netherlands
• Workspace management complemented by other services
– Application management– Consultancy and transformation services
Supportservices
Storage& back-up
CommunicationsInfrastructure
Security
CollaborativeTechnology
Telephony
Business applications
p
32
• Telecom operators and IT service providers increasingly converging through IP
– Customers requiring all Telco and IT services from a single end-to-end vendor
– KPN and Getronics already partnering for large outsourcing contracts
• Getronics acquisition allows KPN to make major step in moving up the value chain
– Instantly market leader in the Benelux– In line with stated Business market strategy– Complementary assets in Telecom and IT
• Combination KPN-Getronics creating platform for further growth
– Cross- and upselling IT services to KPN SME and SoHo customers
– Integrated end-to-end solutions for large and medium enterprises
Moving up the value chain into (managed) ICT services
Telecomoperator
IT service providers
Convergence between Telecom and IT
Focus Getronics
Voice
Data
Security
Call centers
Data centers
Desktop services
Business applications
Business processes
Connectivity
IT services
Network related IT services
p
33
Integration focused on operational improvements and evaluation of core assets
• Acquisition announced on 30 July, officially settled on 22 October
• Net consideration of € 1.3 bn– € 766 mn for all ordinary shares– € 161 mn for preference shares– € 263 mn for convertible bonds
• New Board of Management1 and simplified organizational structure
– Erik van der Meijden (CEO)– Steven van Schilfgaarde (CFO)– Gary Cawthorne (Americas)– Tara Brady (UK)– Jos Schoemaker (Global Service Operations)
• Intention to delist Getronics as soon as legally possible, expected before year end
Deal closed within 3 months• Focus on operational improvements
– Achieve short-term cost savings– Acceleration of profit improvement initiatives– Alignment between strategy and portfolio
• Rationalization process ongoing – Deals signed for Iberia and Hong Kong / China
disposal, presence maintained with partnerships– Further evaluation non-core assets post closing
• As of H2 ’08 integration of KPN ICT Services and Corporate Solutions into Getronics
– Build and grow leading position in ICT services market in the Benelux
– Managed as ICT company rather than Telco
• Significant benefits expected– Cross- and upselling opportunities– Annual synergies of at least € 50 mn as of 2009– Tax asset on opening balance, >€ 100 mn NPV
Integration program
1 Board positions other than CEO and CFO still subject to shareholder approval
34
• 5.5% organic service revenue growth3 in H1 ’07
– Strong momentum with (inter)national clients due to favorable economic conditions
– Organic service revenue growth 3.9% in Benelux, 3.5% in the Netherlands
• Continued margin pressure in H1 ’07– 2.3% group EBITAE margin, 4.4% in
Benelux– Getronics guidance for group EBITAE
lowered to 3.0-3.5% for FY ’07
• Getronics fully consolidated into KPN P&L as of 23 October 2007
• Separate disclosure for Getronics to allow for comparability with peers
Service revenue growth from higher ICT demand, continued margin pressure
Group financials1
0.4%1,1301,135- Service revenues
-28%
-2.1%
%
3.1%
40
1,308
H1 ’06 1,280Revenues
EBITAE margin
EBITAE2
€ mn
2.3%
29
H1 ’07
0.8%589594- Service revenues
-32%
-1.2%
%
6.4%
41
645
H1 ’06 637Revenues
EBITAE margin
EBITAE2
€ mn
4.4%
28
H1 ’07 Benelux financials1
1 Financials as disclosed by Getronics, not consolidated with KPN accounts2 EBITAE defined as operating result from continuing operations before amortisation of acquired intangible assets, acquisition integration expenses,
impairment of goodwill and gain/loss on sale of group companies and associates3 Net of divestments, acquisitions and forex impact
p
35
Agenda
Business
Ad Scheepbouwer, Chairman and CEOOperating review Mobile Int’l
Wholesale & Operations
Ad Scheepbouwer, Chairman and CEOConcluding remarks
Consumer
Ad Scheepbouwer, Chairman and CEOOperating review The Netherlands
Marcel Smits, CFOFinancial review
Ad Scheepbouwer, Chairman and CEOChairman’s review
36
Wholesale & OperationsContinued focus on costs and network efficiency, FTE reductions on track
• Lower internal revenues due to decline in access lines and traditional voice traffic
• Good progress in network rollout– DVB-T coverage 67% by end Q3– DVB-H rollout started in 2007, available in 2008
• Increased network efficiency– Telfort core network integration process initiated– Portfolio rationalization initiated
• All-IP on track– MoU’s for MDF Access alternatives with unbundlers
(Tele2/Versatel, BBned and Orange)– Selective participation in FttH and FttO initiatives– Restructuring and FTE reductions on track
• € 30 mn book gain on sale of real estate
289 284 252 261 263
4.8 4.94.54.4 4.6
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
670 708 664 635 632
5.1 5.3 5.1 4.5 4.2
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Internal revenues
External revenues
€ mnbn minutes
€ mnbn minutes
Originating / terminating minutesInternal revenues
International / transit minutesExternal revenues
p
37
All-IP Preparations for mass rollout at advanced stage, installation capacity committed
Status VDSL rollout
Fiber initiatives
Sale of real estate
• € 42 mn proceeds from sale of real estate in Q3
• Sale of top portfolio real estate in H1 ’08 under consideration
– Value top portfolio estimated at € 300 mn
– Part of total real estate portfolio with value of ~€ 1 bn
• Step up in Fiber-to-the-Office initiatives– 42k companies connected with FttO by end of Q3
– 61k connections by YE ’07, or nearly 10% of Dutch companies
• KPN partnering with building corporations and municipalities– Participating in FttH initiatives in Enschede and Almere
• Preparations for VDSL mass rollout at advanced stage– Building capacity committed by 2008
– Launch pad for mass VDSL rollout in 2008
• Simplification in progress for network platforms, IT, customer propositions and delivery processes
• Preparations for All-IP at advanced stage
• Committed to mass rollout in 2008
• Sale of top portfolio under consideration
38
• Focused international wholesale carrier– Unique IP-based platform, more flexibility at
lower cost– Limited own infrastructure, mainly active in
(re)routing traffic
• Portfolio expanding, over 600 clients– Traditional telcos, e.g. BT, C&W, Verizon– New entrants, e.g. Yahoo!, Skype
iBasis
Top three international wholesale carrier with unique IP-based infrastructure
• International wholesale carriers connect foreign Telco A with foreign Telco B
• Market previously dominated by incumbents, facing challenging markets
– Declining traffic volumes from home markets– Strong growth in VoIP and Mobile
• Consolidation driven by need for scale
International carrier market
IP infrastructure
Foreign Telco A
27
19 1720
12 11 9 9 9 9
Veriz
on
AT&
T
VSN
L /
Tele
glob
e
KPN
/iB
asis IDT TI FT DT
Sprin
t
C&
W
2006 CombinedTraffic
Wholesale traffic volumes worldwide1bn min
1 Source: Telegeography 2007, calendar year 2005 traffic data; (iBasis/KPN 2006 run rate added by iBasis)
Foreign Telco D
Foreign Telco B
Foreign Telco C
p
39
iBasis and KGCS1 merger creating platform for further growth
• Merger rationale– Access to state-of-the-art VoIP platform– Increased scale in international wholesale– Complementary footprints – Combined strengths in VoIP and Mobile, the
fastest growing segments
• Transaction closed on 1 October– One-off cash payment by KPN of $ 55 mn– Integration of KGCS assets into iBasis, including
$ 21 mn cash– KPN owns 51% of iBasis shares with a market
value of ~$ 0.3 bn
• Two KPN executives on iBasis Board
Transaction closed• Build premier international voice carrier
– Increased scale from KGCS traffic and lower costs
– Further develop new IP wholesale portfolio for both Fixed and Mobile
• Become lowest cost provider by leveraging scale and IP capability
– $ 20 mn synergies in medium term– 35% of current EBITDA
• Strong financial position to drive further growth
Next steps
1 KPN Global Carrier Services
40
• New iBasis showing profitable growth– Revenues up 33% Y-on-Y, driven by increased
scale, minutes up 28% Y-on-Y
– EBITDA up 46% Y-on-Y, driven by increased scale
• Guidance for iBasis on stand-alone basis– Revenues of $ 600-650 mn for 2007
– Increase of 15-25% compared to 2006
• Expected impact on P&L KPN in Q4 ’07– 100% consolidation, 49% minority interest
– Additional revenue contribution of ~$ 140 mn
– Small EBITDA contribution
• Separate disclosure for iBasis to allow for comparability with peers
Sustained growth in international wholesale
4.9 7.811.1
6.97.9
9.011.8
15.7
20.1
2004 2005 2006iBasis KGCS
Rapidly growing traffic volumesbn min
5.7%
45
8.9%
70
786
KGCS
4.4%2.3%Adjusted EBITDA margin
5712Adjusted EBITDA3
10.3%
133
1,297
New iBasis
511Revenues
Gross margin
Gross profit
Financials 2006 ($ mn)1,2
12.4%
63
iBasis
+33%+28%
1 Exchange rate on 29 December 2006: € 1 = $ 1.322 Financials as disclosed by iBasis, not consolidated with KPN accounts3 Adjusted EBITDA used as non-GAAP measurement to provide further information about operating trends p
41
Acquisition track recordSignificant value created through in-market consolidation
Telfort
AcquiredOctober 2005
• Market leader in broadband at ~45%– Organic market share growth 4%– Acquisitions market share growth 9%– Cross- and upselling opportunities
• Value creation of ~€ 150 mn from additional EBITDA
• Acquisition of various broadband ISPs since 2005
– Tiscali, Demon, Speedlinq, HCCnet, Cistron, Freeler
– ~500k subscribers, ~9% market share
• Total consideration ~€ 350 mn
• Telfort acquired for € 980 mn net of tax assets
– Acquisition of 2.4 mn subscribers– Market share up 9% to 46%
• Margin diluted to 34% due to Telfort– 19% EBITDA margin Telfort– 38% EBITDA margin KPN Mobile NL
Position before turnaround Successful turnaround
• Telfort successfully integrated into KPN– Telfort brand and wholesale activities– Network integration on track– Continued SAC/SRC reductions
• EBITDA margin of combined operations up 6%-points to ~40% in 2007
• Value creation of over € 1 bn1
Broadband ISPs
Acquired2005-2007
1 Assuming 8.0x EV/EBITDA multiple and net consideration of € 980 mn
42
Agenda
Ad Scheepbouwer, Chairman and CEOOperating review The Netherlands
Ad Scheepbouwer, Chairman and CEOConcluding remarks
Ad Scheepbouwer, Chairman and CEOOperating review Mobile Int’l
Marcel Smits, CFOFinancial review
Ad Scheepbouwer, Chairman and CEOChairman’s review
43
467367 459
252372
5522
6788
111
289220248 253 293
37.6%39.8%36.2%29.5%32.6%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Operating review E-PlusOutperformance on all key metrics, ahead of H2 guidance
13.2% 13.4%13.7%
14.0%13.5%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
714 692 660 700 735
760 747 698 736 769
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
€ mn Continued strong EBITDA (margin)Service revenues up 2.9%
1 Management estimates, based on service revenues2 Excluding € 23 mn restructuring costs: 35.7%
13.613.112.712.214.1
Customer growth accelerating
Revenues and other incomeService revenues
Q3 ’06 Q4 ’06 Q1 ’07 Q2 ’07
€ mn
Service revenue market share1
2
Q3 ’07
Service revenue share up 0.8%
Post Paid net adds (k)Pre Paid net adds (k)Customers (mn)
EBITDA margin reported EBITDA
p
44
E-PlusPost Paid net adds accelerating, platform for continued service revenue growth
Propositions
Mobile data
Operational excellence
• Continued SAC/SRC reductions, SAC down 16% to € 74– Increasing proportion of SIM-only propositions, including E-Plus classic
• E-Plus among best German operators in survey on network quality
• Extension of network operations/management outsourcing until 2012
• Mobile data continues to grow in addition to Fixed-Mobile substitution
• Rapid increase in data usage following launch of flat fees in November ’05– Predominantly used for internet connectivity, no ‘walled garden’
• UMTS investments in selected regions with proven data demand– No impact on overall Capex
• Value for money fastest growing segment, >10% of Mobile market– Competitors launching new brands, e.g. Congstar (T-Mobile) and FONIC (O2)
– Continued growth E-Plus’ new brands to 6.7 mn subscribers, 48% of total base
• Post Paid net adds accelerating, platform for service revenue growth– BASE portfolio with increasing customer pull, launch of BASE Zero
45
6471 60 65 55
36.4%
41.9%39.5%40.0%
43.8%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Revenue share up 1%-pointNet adds driven by wholesale partnerships
Operating review BASESolid performance despite challenging market conditions
~16%~16%~16%>15%~15%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Service revenues impacted by MTA cuts
159 157 149 151 147
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
94122112 137100
3417
623
2.72.62.52.42.2
Q3 ’06 Q4 ’06 Q1 ’07
Revenues and other income
Revenue market share1
Service revenues
162
EBITDA (margin)
Q2 ’07
160€ mn
€ mn
Q3 ’07
152
1 Management estimates, based on revenues
Post Paid net adds (k)Pre Paid net adds (k)Customers (mn)
EBITDA margin reported EBITDA
155 151
p
46
BASESolid performance in challenging market, regaining the initiative
• Solid underlying performance– Market share up 1%-point– Underlying service revenue growth
~2%, excluding regulatory tariff cuts
• Significant headwind in Q3– MTA and roaming tariff cuts, impact on
service revenue growth of -/- 10%– Additional marketing costs for new
commercial launches– Competition copying offers
• Regaining commercial initiative in a more competitive market
Q3 performance
• Step-up in commercial efforts– Launch BASE Platinum/Gold– JIM Mobile targeting youth market– Expanding wholesale partnerships
• Strategic acquisitions to strengthen distribution in Wallonia and SME/SoHo
– Allo Telecom retail shops– Tele2 Belgium
• BIPT decision on lower MTA tariff asymmetry suspended
Latest developments
Regaining the initiative
47
2833 28 35 32
41.3%
32.9% 33.7%
41.2%36.4%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
36111
32
90 8245
39 18
15
33
Operating review Mobile Wholesale NLContinued profitable growth from wholesale partnerships
79 86 84 85 90
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
80
Revenues and other income
Q1 ’07 Q4 ’06 Q3 ’06
EBITDA margin reported EBITDAService revenues
Q2 ’07
85
Q3 ’07
83
Momentum Post Paid net adds mn
Post Paid net addsPre Paid net adds
1.8
1.4 1.5 1.6 1.7
Subscribers up 26%X 1,000
Service revenues up 14% EBITDA (margin)€ mn € mn
Q3 ’06 Q4 ’06 Q1 ’07 Q2 ’07 Q3 ’07
85 88
48
Agenda
Ad Scheepbouwer, Chairman and CEOOperating review The Netherlands
Ad Scheepbouwer, Chairman and CEOConcluding remarks
Ad Scheepbouwer, Chairman and CEOOperating review Mobile Int’l
Marcel Smits, CFOFinancial review
Ad Scheepbouwer, Chairman and CEOChairman’s review
49
Concluding remarks
• On track to meet full-year guidance following Q3 results
• Foundations laid for further profitable growth in Mobile International
• Further market share gains in new services in the Netherlands
• In former Fixed, deceleration of revenue and EBITDA decline
• Preparations for All-IP mass rollout at advanced stage
• Business profile strengthened by iBasis and Getronics transactions
• Shareholder returns for 2007 increased to € 2.5 bn, on par with previous years
p
Q & A
AnnexFor further information please contactKPN Investor Relations
Tel: +31 70 44 61583Fax: +31 70 44 [email protected]
www.kpn.com/ir
52
Analysis of resultsKey items worth mentioning in results interpretation
-18-18NLTelfort network integration costs
207W&OEnergy tax reimbursement
11NLRelease NMa claims
-54-32-22W&ODepreciation effect Telfort network integration
-116W&OAmortization effect Telfort network integration
-47-26-35-12GroupRestructuring charges
-14-34-4-11NLIntegration / migration costs
-195-113-72-47GroupRevenue effect MTA tariff reduction
-69-60-30-27GroupEBITDA effect MTA tariff reduction
764OtherBook gain on sale of subsidiaries
2386930W&OBook gain on sale of real estate
Q3 ’06
-24
-55
YTD ’07
-12NLAll-IP implementation costs
YTD ’06
NL -10Additional costs to solve VoIP issues
Q3 ’07 € mn
53
Guidance reconciliation
1,198
1,1982006
1.5%1,216
-41,220
2007Q3
3,6853,680Comparison with guidance
20062007€ mn
-4Consolidation impact Tiscali acquisition
-0.1%
3,684 3,685
YTD
Reported
EBITDA1
3,037
3,0372006
-0.6%3,019
-183,037
2007Q3
9,0188,953Comparison with guidance
20062007€ mn
-20Consolidation impact Tiscali acquisition
-0.7%
8,973 9,018
YTD
Reported
Revenues and other income
1 Defined as Operating result plus depreciation, amortization & impairments
54
Impact MTA reduction1
1 Additional decline compared to 20062 Defined as Operating result plus depreciation, amortization and impairments
-113
2
-12
-6-3-3
-103
-73-29
-1
Revenues
YTD ’07
-60
-5
-4-1
-55
-36-18
-1
EBITDA2
-27
-5
-4-1
-22
-13-8-1
EBITDA2
-47
2
-12
-6-3-3
-37
-24-12
-1
Revenues
Q3 ’07€ mn
Intercompany
ConsumerBusinessWholesale & Operations
Mobile International
E-PlusBASEMobile Wholesale NL
KPN Group
The Netherlands
MTA tariff reductions• E-Plus: lowered from 12.4 to 9.9 cents as of 23 November 2006• BASE: lowered from 19.6 to 15.8 cents as of 1 Nov ’06, further lowered to 12.8 cents as of 1 May ’07• The Netherlands: lowered from 11.0 to 10.0 cents as from 15 August 2007
55
Restructuring charges
-12
-8
-4
-1-3
-
Q3 ’07
-13Other
-26
-13
-1-3-9
-
YTD ’07 € mn
ConsumerBusinessWholesale & Operations
Mobile International
E-Plus BASEMobile Wholesale NL
KPN Group
The Netherlands
56
Operating expenses
15.4%-26-30Own work capitalized-3.6%168162Other operating expenses
-19.7%473380Depreciation1
6.0%151160Amortization1
-4.3%
-1.5%10.2%-4.6%
%
2,4632,357Total
1,1431,126Work contracted out and other expenses206227Cost of materials348332Salaries and social security contributions
Q3 ’06 Q3 ’07 € mn
Operating expenses as % of revenuesOperating expenses excluding D&AD&A
81.3%
88.4%
81.8%79.9% 78.4%
€ mn
1 Including impairments, if any
1,839 1,887 1,735
540624 785 626652
1,8171,737
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
2,4632,672
2,387 2,363 2,357
57
348 355 364 349 332
Analysis operating expensesSalaries & Cost of materials
Cost of materialsSalaries and social security contributions
Salaries
Cost of materials
11.5% 11.7% 12.5% 11.8% 11.0%
206 266 207 200 227
€ mn
€ mn
% of Revenues
Q3’06 Q1 ’07Q4 ’06 Q2 ’07
Q3 ’06 Q1 ’07Q4 ’06 Q2 ’07
7.5%6.8% 6.8%7.1%8.8%
% of Revenues
Q3 ’07
Q3 ’07
Y-on-Y decrease• Continued headcount reduction, partly offset by
acquisitions
Q-on-Q decrease• € 15 mn release of salary related provision
Y-on-Y increase• € 7 mn energy tax reimbursement in Q3 ’06
Q-on-Q increase• Shift from handset sales in external distribution
towards own channels
58
37.4%35.9% 36.2%35.7%37.7%
Analysis operating expensesWork contracted out & other
1,143 1,078 1,047 1,069 1,126
214161 148 162168
% of RevenuesWork contracted out and other expenses
% of RevenuesOther operating expenses
Other
Work contracted out
7.1%5.5% 5.0% 5.4%5.5%
€ mn
€ mn
Q3 ’06 Q1 ’07Q4 ’06 Q2 ’07 Q3 ’07
Q3 ’06 Q1 ’07Q4 ’06 Q2 ’07 Q3 ’07
Y-on-Y decrease• Lower MTA tariffs, partly offset by increased MoU• Lower wholesale roaming costs• Lower traffic volumes Fixed, offset by Mobile
Q-on-Q increase• Higher roaming costs due to holiday season
Y-on-Y decrease• Lower restructuring costs, partly offset by
additional VoIP costs
Q-on-Q increase• Lower marketing costs in Q2 ’07• € 3 mn OPTA fine in Q3 ’07
59
5.0%
11.4%
5.3%7.1%7.3%
151 346 213 210 160
Analysis operating expensesDepreciation & Amortization
473 439 439 416 380
15.6%14.5% 15.0%
14.1%12.6%
Depreciation
Amortization
Amortization1
Depreciation1
% of Revenues
€ mn
€ mn
1 Including impairments, if any
% of Revenues
Q3 ’06 Q1 ’07Q4 ’06 Q2 ’07 Q3 ’07
Q3 ’06 Q1 ’07Q4 ’06 Q2 ’07 Q3 ’07
Y-on-Y decrease• Fixed depreciation trending down due to lower
Capex
Q-on-Q decrease• Additional depreciation from Telfort network
integration in Q2 ’07 (€ 13 mn)
Q-on-Q decrease• Accelerated amortization on Telfort license
following radio network integration in Q2 ’07(€ 59 mn)
60
PersonnelContinuing decline, predominantly in the Netherlands
• Personnel reduction Y-on-Y of 1,031 FTE
– 1,063 FTE reduction in the Netherlands
– Excluding acquisitions reduction of 1,543 FTE in the Netherlands
• FTEs flat compared to Q2– Increase of 466 FTE in personnel
abroad at SNT International and Allo Telecom acquisition
– Underlying reduction in the Netherlands of 464 FTE
6,787 6,992 6,235 6,819
19,134 18,984 18,564 18,528 18,071
6,353
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
Personnel abroad1Personnel domestic
-1,063
-1,031
25,921 25,976 24,799
1 Including ~3,000 FTE in call center activities abroad, reported under Consumer the Netherlands
24,881 24,890
61
Tax
-1-38-110-167Dutch activities
-109
-1
Q3 ’06
-182
-6-9
Q3 ’07
P&L
-38
--
Q3 ’07
Cash flow
-1
--
Q3 ’06
German Mobile activitiesBelgian Mobile activitiesTotal
Fiscal units (€ mn)
• € 38 mn Dutch corporate tax paid as NOLs at KPN Mobile are exhausted
• Higher P&L tax in the Netherlands due to additional tax charges for previous years– Partly offset by lower Dutch corporate tax rate as of 1 January 2007
• German and Belgian operations have recorded profitable results for tax purposes
62
Net cash flow from operating activities
351242042Proceeds from real estate
748
-4251,153
90
-132
-2180
1,063
574624
-108-1-92
-19
Q3 ’06
626
-378962
-30
33228
-93
992
680540-95-38-31
2-66
Q3 ’07
1,821
-9812,678
-296
-5-3
-98-190
2,974
1,8661,818-348-80-91
7-198
YTD ’07
2,174
-1,1173,256
-177
10-6
-20019
3,433
1,8561,829-251213-99
7-122
YTD ’06
Net cash flow from operating activities
Free cash flow 2
Capex1
Net cash flow from operating activities before changes in working capital
Change in working capital
InventoryTrade receivablesOther current assetsCurrent liabilities
Operating ResultDepreciation, amortization and impairmentsInterest paidIncome tax paidOther incomeShare based compensationChange in provisions
€ mn
1 Including Property, Plant & Equipment and software2 Defined as Net cash flow from operating activities plus proceeds from real estate minus Capex
63
Total cash flow
-292
-986
-321-1,015
3428
-459
-425-5220
3-5
1,153
Q3 ’06
40
-303
-337-666698
2
-619
-378-300
4216
1
962
Q3 ’07
-111
-1,423
-982-1,174
70825
-1,366
-981-533124
31-7
2,678
YTD ’07
68
-1,827
-982-1,514
6645
-1,361
-1,117-360
3572
9
3,256
YTD ’06€ mn
Dividends paidShare repurchasesDebt financingOther
Net cash flow from investing activities
Capex1
AcquisitionsDisposals real estateDisposals otherOther
Net cash flow from operating activities
Changes in cash and cash equivalents
Net cash flow used in financing activities
1 Including Property, Plant & Equipment and software
64
-11.1%
-87.5%
0.0%
96.0%
-11.0%
5.2%
-37.1%
12.5%
-100%
-28.3%%
42514.0%
8
363.4%
253.1%
16317.0%
23311.0%
15119.9%
3219.8%
11.3%
18418.4%
Q3 ’06
37812.6%
1
363.4%
495.9%
14516.2%
24511.8%
9512.4%
3623.8%
00.0%
13213.1%
Q3 ’07-20.1%463
16.4%370
12.7%Mobile International% Revenues Mobile International
-22.1%
-13.8%
0.0%
36717.1%
9420.3%
20.9%
28613.0%
8117.7%
20.8%
E-Plus% Revenues E-PlusBASE% Revenues BASEMobile Wholesale NL% Revenues Mobile Wholesale NL
98111.0%
1
1213.9%
1044.1%
37113.7%
6109.8%
YTD ’07
1,11712.5%
15
1213.8%
652.6%
42014.4%
63910.1%
YTD ’06
-12.2%
-93.3%
0.0%
60.0%
-11.7%
-4.5%
%
The Netherlands% Revenues the Netherlands
Total% Revenues
Other
Consumer% Revenues ConsumerBusiness% Revenues BusinessWholesale & Operations% Revenues Wholesale & Operations
€ mn
Capex1
1 Including Property, Plant & Equipment and software
65
Balance sheet
1 Including other intangibles2 Including Property, Plant & Equipment and software3 Both cash and gross debt include approximately € 0.4 bn of non-netted cash balances per Q3 ’07 4 Including minority interest
2.32.3 2.4 2.4 2.4
9.59.4 9.2 9.0
4.34.2 4.0 4.0 3.9
4.74.6 4.6 4.7 4.7
1.6 0.70.70.90.8
9.0
Goodwill
Licenses
Other non-current assets
Current assets
Cash
Group equity
Provisions
Non-current liabilities
Current liabilities
Assets€ bn
2
4
1
22.4
30 Sep2006
Equity and liabilities€ bn
5.3 3.9 3.6 3.8
11.711.6 11.6 11.6
1.61.6 1.5 1.5
3.84.2 4.4 3.9
4.5
11.5
1.4
3.3
22.4
3
3
31 Dec2006
21.3 21.3
31 Mar2007
21.1 21.1
30 Jun2007
30 Sep2006
31 Dec2006
31 Mar2007
30 Jun2007
20.8 20.8
30 Sep2007
30 Sep2007
20.7 20.7
66
12.3425.4313.5Q2 ’07
11.4611.9136.8Q1 ’07
12.067.287.3July
11.5711.86
11.41
Avg. share price (€)
57.8669.9Q3 ’07 10.1120.2September
40.5462.4August
mn sharesValue (€ mn)Date1
Share repurchase progress
• Share repurchases increased to € 1.5 bn for 2007– Initial € 1.0 bn share repurchase program completed following acceleration in August– Additional € 0.5 bn share repurchase started on 1 September, running until 31 December, 237 mn shares
repurchased at € 12.18, 47% executed to date
• Current number of outstanding shares 1,885,783,672– 42,767,654 shares cancelled on 5 October– Remaining 42,301,459 shares from € 1.0 bn share repurchase program to be cancelled before year end
• 608 million shares cancelled since October 2004, or 24.4% of total number of outstanding shares
11.85
12.54
104.41,237.3Total
9.3117.1October
1 Figures based on transaction date of share repurchases
67
Debt summary
9.34
0.72
0.71
10.06
9.307.321.98
0.520.440.08
0.24
Q2 ’07
10.9610.66Total debt
9.40
1.56
1.87
8.196.022.17
1.911.860.05
0.86
Q3 ’06
9.99Total net debt
0.67Cash and cash equivalents1
1.08– of which short-term
9.217.291.92
1.141.060.08
0.31
BondsEurobondsGlobal bonds
Other debtOther loans at Royal KPN1
Consolidated debt
Fair value financial instruments
Q3 ’07 € bn
1 Both cash and gross debt include approximately € 0.4 bn of non-netted cash balances per Q3 ’07
68
28%
72%
Fixed Floating (incl. swapped)
20%
10%
70%
EUR USD GBP
Financial instruments
3%Other11%
Eurobonds68%
Global bonds18%
Debt portfolioBreakdown of € 10.7 bn gross debt1
22
1 Book value of interest bearing financial liabilities plus the fair value of financial instruments related to these financial liabilities2 Foreign currency amounts hedged into Euro
69
-1%532525Gross profit
-77%9923Operating result
7%
-18%
7%
4%
%
2,1212,280Service revenues
22,95724,656FTE’s (average)
5.7%
143
2,525
2005
2,627Revenues
EBITAE margin
EBITAE2
Group (€ mn)
4.5%
117
2006
15%
52%33%
Getronics financial profile1
Application Integration /
Management
By business area
Workspace management
Consulting and Transformation
services
15%
27%
48%
10%
By geography
Netherlands
Rest of Europe
North America
Other
1 Based on Getronics Annual Report 20062 EBITAE defined as operating result from continuing operations before amortisation of acquired intangible assets, acquisition integration expenses,
impairment of goodwill and gain/loss on sale of group companies and associates
Revenue breakdown
4%282292Gross profit
37%5778Operating result
13%
9%
16%
10%
%
9491,098Service revenues
9,15410,321FTE’s (average)
9.5%
103
1,079
2005
1,184Revenues
EBITAE margin
EBITAE2
The Netherlands (€ mn)
9.5%
112
2006
Key financials
70
0
100
200
300
400
500
'01 '02 '03 '04 '05 '06 '07 '08 '09
1 Based on Telegeography 2006 and 2007
International carrier market
4.2%
28
9.6%
65
674
New iBasis
6.2%1.7%Adjusted EBITDA margin
235Adjusted EBITDA
8.6%
32
373
KGCS
301Revenues
Gross margin
Gross profit
2007 H1 ($ mn)
11.0%
33
iBasis
0 5 10 15 20 25 30
Verizon
AT&T
Teleglobe
New iBasis
IDT
TI
FT
Sprint
DT
BT
C&W
TEF
TLSN
Traffic volume outgoing minutes1
20042005
bnKey financials new iBasis
Total market volume1bn
4.0%
Y-on-Y growth
10.4%
4.1%
33.1%
10.9%
6.3%
5.9%
6.3%
11.4%
12.9%
37.1%
4.3%
5.4%
71
Unbundling tariffsSLU and colocation set by OPTA, backhaul and WBA based on deal pricing
Unbundling in current network
Unbundling in All-IP network
€ 8.00 / lineFully unbundled (LLU)
€ 7.50 shared€ 15.18 non-shared
Wholesale ADSL
Deal pricingMDF backhaul
€ 473 / footprint / yearMDF colocation
€ 0.37 / lineLine sharing (LLU)
Monthly tariffsCategory
€ 8.05 / lineFully unbundled (SLU)
Deal pricingWholesale Broadband Access (WBA)
Deal pricingSDF backhaul
€ 50-100 / cabinet One-off € 3,000-6,000
SDF colocation
€ 6.17 / lineLine sharing (SLU)
Monthly tariffsCategory
SDF MDFcolocation
NodeKPN / Telco
LLU(regulated)
MDF colocation(regulated)
MDF backhaul(fiber, not regulated)
Wholesale ADSL (not regulated)
SDFcolocation
NodeKPN / Telco
SLU(regulated)
SDF colocation(regulated)
SDF backhaul(fiber, not regulated)
Wholesale Broadband Access (WBA)(not regulated)
~28,000 street cabinets
1,350 local exchanges
~28,000 street cabinets
~138 Metro Core locations
72
E-PlusContinued growth in new propositions, driving service revenue growth
3,586
4,345
5,149
5,880
6,706
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
New propositions as % of E-Plus subscriber base
Subscribers new propositionsX 1,000 Service revenue growth
2.4%
2.4% 2.4%
4.2%4.0%
3.9%
3.7% 3.4%
0.9%
8.4%
2.5%
10.0%
2.9%
10.9%
Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07
29.4% 34.3% 39.2% 43.4%
Reported
Impact from football World Cup 2006
VAT impact MTA impact
9.5%
14.7%14.0%
15.1%
47.5%
8.7%
73
BASEStrengthening distribution to create platform for further profitable growth
Allo Telecom
Tele2 Belgium
• Acquisition of voice, internet and data provider
• Cross- and upselling in broadband and mobile – Bundled offers through BASE network– Strong distribution in non-retail channels– Subscriber base consisting of Consumer, SME and SoHo
• Consideration € 95 mn on debt and cash free basis– € 162.4 mn revenue in 2006 with 180 FTE– 131k DSL and 190k CPS customers
• Remains separate entity, independent of BASE
• Strengthening retail presence with acquisition of 51 shops
– Strong presence in Wallonia– Active in SME and SoHo segments– Distribution doubled to over 100 points of sale
• Remains separate entity, independent of BASE
• Well known Allo Telecom brand to be retained
• Strengthened distribution, especially in Wallonia
• Foothold in SME and SoHo segment
• Platform for further profitable growth
74
Pro forma disclosure KPN Mobile the Netherlands Financials and KPIs
8,4838,8669,158Customers (x 1,000)
75230
75529
76428
Service revenues (€ mn)ARPU (€)
47.5%47.0%47.1%Market share service revenue1
171
3,318123
Q3 ’07
165
3,550134
Q2 ’07
3,215128
Total traffic (originating, terminating in mn min.)MoU (originating, terminating min.)
188
Q3 ’06 KPN Mobile the Netherlands
SAC / SRC (€)
1.8%7.8%
10.0%-4.9%
1,198319269610
1,220344296580
EBITDAE-Plus & BASEKPN Mobile the NetherlandsFixed (incl. Other)
0.0%-0.2%0.6%
-0.2%
%
3,037922778
1,337
Q3 ’06
3,037920783
1,334
Q3 ’07
Revenues and other income E-Plus & BASEKPN Mobile the NetherlandsFixed (incl. Other and Intercompany eliminations)
€ mn
1 Management estimates, amongst others based on industry filings
75
Pro forma disclosure Fixed (incl. Other)Reconciliation for noteworthy items
-6.8%
5,469
-92
5,561
FY ’06
-2.5%
1,304
-30
1,334
Q3 ’07
-5.8%
1,282
-55
1,337
Q2 ’07
-7.9%-7.9%-6.5%-4.7%-7.0%Y-on-Y %
1,311
-4
1,315
Q1 ’07
-831-3-6XanticBook gain real estate
1,4931,3641,3371,367Reported
1,410
Q1 ’06Q2 ’06Q3 ’06Q4 ’06
1,3611,3371,361Excluding notable items
Revenue & other income € mn
-266
2,500
-76
2,576
FY ’06
-60
550
-30
580
Q3 ’07
-117
534
-55
589
Q2 ’07
-49-64-69-84-101Y-on-Y decline
570
-4
574
Q1 ’07
-672-3-6XanticBook gain real estate
738654610574Reported
671
Q1 ’06Q2 ’06Q3 ’06Q4 ’06
651610568Excluding notable items
EBITDA € mn
1 Book gain on sale of Xantic of € 65 mn, revenues Xantic of € 18 mn2 Book gain on sale of Xantic of € 65 mn, EBITDA Xantic of € 2 mn
45.7%
46.3%
FY ’06
42.2%
43.5%
Q3 ’07
41.7%
44.1%
Q2 ’07
43.5%
43.7%
Q1 ’07
49.4%47.9%45.6%42.0%Reported
47.6%
Q1 ’06Q2 ’06Q3 ’06Q4 ’06
47.8%45.6%41.7%Excluding notable items
EBITDA margin
76
Dutch Consumer voice market1
6.63
1.17
0.11
1.89
0.730.910.25
3.46
3.280.18
Q2 ’07
6.62
1.17
0.11
2.03
0.790.980.26
3.31
3.040.28
Q3 ’07
6.62
1.15
0.15
1.03
0.270.600.16
4.29
4.29-
Q3 ’06
Cable voice analogue
Mobile-only
mn
KPN VoIPCable VoIPAlt DSL VoIP
Total traditional voice
KPN PSTN / ISDNWholesale Line Rental (WLR)
Total households
Total VoIP
1 Management estimates
77
1 VoIP lines in % broadband connections, excluding peer-to-peer applications2 Share in total consumer voice (including VoIP)3 Share in traditional voice (excluding VoIP)4 PSTN / ISDN line loss -/- growth VoIP Consumer -/- growth ADSL only -/- growth WLR; management estimates
KPIs Consumer Voice
1.79
-110
4,0172,961
323733
>55%38%
~70%
36%
Q2 ’07 22%38%VoIP penetration1
-140-100Net line loss4 (x 1,000)
1.65
3,8232,733
304786
~60%39%
>70%
Q3 ’07
2.17
4,5553,872
413270
~60%25%
>65%
Q3 ’06
Traditional originating minutes (bn)
Voice connections (x 1,000)– PSTN– ISDN– VoIP packages (Voice / Broadband)
Market share– Voice2
– VoIP– Traditional voice3
Wireline
6,072445
25107144
Q3 ’07 5,944
43525
103169
Q3 ’065,891
43224
114131
– Customers (x 1,000)– Service revenues (€ mn)– ARPU (€)– MoU (originating, terminating min)– SAC / SRC (€)
Q2 ’07 Wireless
78
KPIs ConsumerInternet & TV
2,382629585522294352
2,518
44.3%46.8%
75%
Q3 ’07 66%73%Broadband penetration
1,911534589401262125
2,344607592514294337
Broadband ISP customers (x 1,000)– Het Net– Planet Internet– Direct ADSL– XS4ALL– Other2
2,0232,427ADSL connections
44.6%46.0%
Q2 ’07
40.3%42.7%
Broadband market shareKPN (ISP) retail1Broadband connections1
Q3 ’06 Internet
1 Including DSL and Cable, based on company estimate2 Including acquired customers which will be migrated to one of KPN’s multi-brands over time
414
Q3 ’07 245
Q3 ’06337– Subscribers (x 1,000)
Q2 ’07 TV
79
KPIs Business
32.510.9
5.60.90
33.113.1
7.61.45
32.014.0
8.61.54
Managed network services (x 1,000)– IP-VPN connections– M-VPN routers– Housing services (# m²)– Hosting services (# servers)
38.23.3
45.3
34.15.9
71.2
33.96.6
77.7
Network services (x 1,000)– Leased lines– E-VPN connections– Business DSL
1.66
1,710825874
11
~55%
Q3 ’07
1.911.80Traditional originating minutes (bn)
1,757852895
10
>55%
Q2 ’07
1,840915925
-
>55%
Q3 ’06
Access lines (x 1,000)– PSTN– ISDN– VoIP
Market share voice
Wireline
1,276231
61242359
Q3 ’07 1,121
22769
277324
Q3 ’06 1,245
23564
277351
– Customers (x 1,000)– Service revenues (€ mn)– ARPU (€)– MoU (originating, terminating min)– SAC/SRC (€)
Q2 ’07 Wireless
80
KPIs Wholesale & Operations
99%57%
0.90.30.6
3,3891,932
9.212.721.562.402.53
Q3 ’07
99%57%
0.90.30.6
3,3271,959
9.442.941.722.452.33
Q2 ’07 9.693.032.232.072.36
Minutes (bn)– Terminating services– Originating– Transit services– International wholesale services
0.90.50.4
Unbundling3 (mn)– Shared unbundled lines– Fully unbundled lines
99%57%
DSL coverage– ADSL– ADSL 2+
2,9732,258
Local loop (x 1,000)MDF access lines1
– of which line sharing1,2
Q3 ’06
1 Including Bitstream2 Includes KPN ADSL connections, line sharing other telcos and KPN Bitstream3 External lines based on management estimates
81
KPIs E-Plus
74158
15
136254
46
19%
1832
7
735
14,1126,1707,9426,706
14.0%15.1%
Q3 ’07
714700Service revenues (€ mn)
2033
7
1731
6
ARPU (€)– Post Paid– Pre Paid
17%19%Non-voice as % of ARPU
76161
13
133246
43
13,5656,0827,4835,880
13.7%15.1%
Q2 ’07
114200
34
MoU (originating, terminating min)– Post Paid– Pre Paid
88159
14
12,2155,9386,2773,586
13.2%14.8%
Q3 ’06
SAC/SRC (€)– Post Paid– Pre Paid
Customers (x 1,000)– Post Paid– Pre Paid– of which new brands
Market share1
Service revenueBase
1 Management estimates
82
KPIs BASE
1 Management estimates
163713
134370
80
17%
185211
147
2,722494
2,228
~16%~23%
Q3 ’07
159151Service revenues (€ mn)
256415
205212
ARPU (€)– Post Paid– Pre Paid
14%16%Non-voice as % of ARPU
224918
147419
83
2,581490
2,091
~16%>22%
Q2 ’07
129356
71
MoU (originating, terminating min)– Post Paid– Pre Paid
174513
2,219444
1,775
~15%~21%
Q3 ’06
SAC/SRC (€)– Post Paid– Pre Paid
Customers (x 1,000)– Post Paid– Pre Paid
Market share1
RevenueBase
83
KPIs Mobile wholesale NL
90
1,791449
1,342
Q3 ’07
7985Service revenues (€ mn)
1,710413
1,297
Q2 ’07
1,419347
1,072
Q3 ’06
Customers (x 1,000)– Post Paid– Pre Paid