Results Second Quarter 2004 9 August 2004 Safe harbor Certain - - PowerPoint PPT Presentation

Results Second Quarter 2004

9 August 2004

2

Safe harbor

Certain 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 KPN’s operations, KPN’s and its joint ventures’ share of new and existing markets, general industry and macro-economic trends and KPN’s 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 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 20-F for the year ended December 31, 2003. All figures shown throughout this presentation are unaudited. Certain figures may be subject to rounding differences.

3

Agenda

• Introduction

Ad Scheepbouwer

CEO

• Financial results

Maarten Henderson

CFO

• Business performance

Ad Scheepbouwer

CEO

Ad Scheepbouwer

CEO

5

Financial Highlights Q2 2004

• 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 +13%, Belgium +30%)

• Lower operating expenses (-5%)(€ 116 mn) which more than compensated lower
• perating revenues (-1%)(€ -27 mn)
• Increase in margins of both Fixed and international Mobile operations
• € 0.8 bn of cash returned to shareholders

– € 6061 mn dividend – € 2182 mn shares repurchased

• Additional € 1 bn of share buy backs announced
• Interim dividend of € 0.08 per share declared

1 Including dividend on shares purchased for option plans, dividend amounts to € 611 mn 2 Remainder of € 500 mn share repurchases, of which € 33 mn settled in July ’04

p

6

Industry leading cash return to shareholders

• 2003 dividend of € 606 mn1 in Q2
• Share repurchase program of € 500 mn completed
• Share repurchase program of € 1 bn announced
• Interim dividend 2004 of € 0.08 per share declared

15% of total market capitalization returned2

• Refinancing of peak debt ’05/’06 increases flexibility for future cash

returns

1 Including dividend on shares purchased for option plans, dividend amounts to € 611 mn 2 Expected cash return in 2004 divided by market capitalization as of June 30, 2004

p

Maarten Henderson

CFO

8

Operating revenues

Headlines P&L

Operating result Profit before taxes Profit after taxes

678 661 681 603 589

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

532 524 458 387 398

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

139 183 1,639 375 369

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

2,960 3,009 2,998 2,903 2,927

3,082 3,114 3,019 3,016 3,043

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

Operating revenues Net sales

€ mn € mn € mn € mn

1 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

1 2 2 2 2 1 1 1

p

9

Developments in net result

More than doubled Y-on-Y

Q2 ’03 Q2 ’04

Operating revenues

• 27

74 56

• 17

369 42 183 58

Operating expenses (excluding D&A) D&A Financial income and expenses Taxation Remainder

1 3

1 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 (€ -19 mn)

€ mn

2

p

4

10

Developments in operating revenues

Decline mainly related to lower MTA tariffs

3,043 103

Q2 ’03 Q2 ’04

20 3,016

MTA effect Mobile

• 26
• 50
• 71
• 3

1

Net sales Mobile

• excl. MTA

Remainder Book gain PTC MTA effect Fixed Net sales Fixed excl. MTA

1 Own work capitalized + other operating revenues Mobile € –1 mn, Fixed € –5 mn; Operating revenues other € –23 mn; MTA inter-company effect € +38 mn; (remaining) intercompany revenues € –12 mn

€ mn

p

11

20.1% 18.8% 18.8% 17.6% 17.1% 40.3% 39.5% 37.7% 39.5% 39.5% 41.8% 41.2% 41.3% 41.0% 39.8%

5% 15% 25% 35% 45%

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

Margin development

Improvement at Fixed, pressure at Mobile

Operating EBITDA margin excl. exceptional items2 (Net sales – Operating expenses + Depreciation, amortization and impairments) / Net sales (Net sales – Operating expenses) / Net sales

Fixed Mobile KPN Group

25.5% 24.3% 22.2% 20.2% 22.8% 43.2% 41.2% 38.7% 39.4% 41.9%

43.4% 42.2% 41.7% 39.8% 39.7%

5% 15% 25% 35% 45%

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

9.2% 11.5% 18.3% 8.2% 8.8% 30.5% 31.9% 31.1% 30.3% 28.4%

33.1% 34.5% 32.1% 33.7% 31.0%

5% 15% 25% 35% 45%

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

1

1 Includes € 103 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

719 686 912 816 501 509 555 527

• 468
• 508
• 242
• 259

Q2 ’03 Q2 ’04

Business Solutions Fixed Networks Fixed Telephony Other Fixed Networks Carrier Services Interdivision Fixed Interdivision Fixed Networks

1,937 1,811

=

Fixed Networks

Operating revenues

€ mn

Internet traffic Fixed Telephony + ISPs

452 -32 468 42

• 44
• 71
• 28

Q2 ’03 Q2 ’04

71

1 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

7 71

Operating result ADSL subscription1 Impact revenues

• f MTA reduction

Voice traffic and2 access Fixed Telephony + ISPs Remainder Fixed Networks3 Business Solutions Impact MTA reduction on expenses Remaining impact expenses Operating result

Revenues Expenses

• 27
• 44

p

Operating result

€ mn

13

604 676 592 574 82 105

Q2 ’03 Q2 ’04

Mobile in Q2

Subscriber growth drives increase revenues and costs

1,270 1,346

KPN Mobile (NL) E-Plus BASE Other

Operating revenues (+6%)

1 Including €26 mn decline due to MTA reduction

161

• 26

Q2 ’03

102

• 88

162

Q2 ’04

Operating result

Impact MTA reduction on expenses Operating expenses Operating result Development revenues excl. impact MTA Impact of MTA reduction

• n revenues

Operating result

13

1

• 8
• 9

€ mn € mn

p

14

Continued strong cash flow

1,077 1,072 928 889 1,537

1,141 870 960 1,188 978

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

Cash flow from operating activities

€ mn € mn Cash flow from operating activities before change in working capital Cash flow from operating activities

• Operational cash flow before change in working capital increased 21%
• Increase of working capital mainly related to € 194 mn tax refund in Q2 ’03
• Further increase of Capex in Mobile for UMTS roll-out

Cash flow from operating activities -/- Capex

267 389 314 607 349

534 481 646 711 839

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

Capex Cash flow from operating activities minus Capex

p

15

9.2 10.1 10.2 11.1 11.8 10.2 9.4 8.3 7.9 8.2

6.0 2.0 6.9 6.5 5.8 5.0 4.7 2.1 1.9 1.7 1.6 1.7

Financial profile

Debt

€ bn

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

Gross Debt Net Debt

Financial ratios

1 Based on a 12 months rolling calculation excluding ‘extraordinary’ and ‘exceptional’ items

Though it is a non-GAAP 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.

• 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

Operating EBITDA/Net interest1 Net Debt/Operating EBITDA1

• Min. target financial framework
• Max. target financial framework

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

p

16

Redemption profile & cash position

€ bn

Debt repayment Cash 3.5% subordinated convertible bond due ’05 6.5% Eurobond due ’06 7.25% Eurobond due ’06

Successful debt refinancing

• Successful debt refinancing contributes to optimising capital structure and

increases financial flexibility due to lower peak debt

0.9 1.8 0.9 1.6 2.0 1.0 0.8 0.2 0.7 1.4

1 2 3 Cash '04 '05 '06 '07 '08 '09 '10 '11 '30

New issued debt Credit facility (€1.5) + securitization (€0.2)

1.0

1.7 z

p

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

• Multi-channel win-back 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’1

1 Overall decrease market share ‘local’ driven by broadband substitution.

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19

845 890 965 1,035 1,134

513 609 746 913 1,057

250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

1 Of which currently approximately 80% consumers and 20% (small) businesses 2 Including bit stream

Broadband

X 1,000

Number of Dutch broadband connections1

Other ADSL2

• Growth of KPN ADSL customer base

in Q2 with 144k to 1,057 mn customers, more than doubling Y-on-Y

• 46% of Broadband net adds in Q2
• 76% of the DSL users is a KPN ADSL

customer

• KPN market share for Consumer

Broadband1 increased from 35% to 42% Y-on-Y

• Further enrichment of ADSL

portfolio including time-based

ADSL KPN Cable

p

20

New voice: VoDSL / VoIP

Pursuing growth in new markets with bundled offerings

• Bundled ADSL and VoIP proposition

by YE 2004

• VoDSL launched as part of office DSL
• VoIP by YE 2004
• IP-VPN is used for ‘on net’-traffic
• VoDSL launched as part of office DSL
• VoIP ‘off net’ by YE 2004

Consumer

VoIP over broadband (DSL, Fibre) is emerging

Small & medium enterprises

VoDSL and VoIP over Broadband are emerging

Corporate enterprises

IP-PBX replacing PBX, VoIP for ‘on net’- traffic, Value Added Services LAN / WAN integration for data and voice

KPN Offerings Stages of development

p

21

Expanding the KPN portfolio with TV services

A complete TV offering independent of infrastructure

KPN TV

DVB-T: Digital quality and convenience

• Increased coverage
• Bundling with KPN ADSL later this year

Access to cable: KPN TV package via cable

• Applied for TV-capacity at 10 cable co’s

KPN ADSL

• ‘Video on demand’ pilot
• Real time Olympic Games footage

Broadcast TV

On demand TV

Video on demand Replay services Local PVR Personal TV services Digital TV basic package

p

22

Services Infrastructure

Triple play services packages

Independent of infrastructure: any time, anywhere, any device

• Switched telephony
• VoIP
• VoDSL
• Mobile
• Internet Access
• Broadband Portal
• Entertainment
• i-mode
• Broadcast TV
• On demand TV

PSTN/ISDN GSM/GPRS DSL Cable Wi-Fi DVB-T

1

UMTS Fiber Voice Internet TV

Triple play

1 Digital Video Broadcasting

p

23

Growing subscriber market share in Germany and Belgium1

Mobile

Growth driven by Germany and Belgium

Y-on-Y customer growth

7.716 7.964 8.206 8.448 8.716 4.919 5.038 5.205 5.269 5.406 1.131 1.162 1.253 1.369 1.437

40.6% 40.2% 39.4% 39.3% 40.7% 14% >16% 16% 15% 14% 12.8% 12.7% 12.7% 12.6% 12.9%

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

1 Company estimates

KPN Mobile (NL) BASE E-Plus

mn 15.086 14.664 13.766 14.164 15.559

Growing subscriber base

10% 13% 27% 13% KPN Mobile BASE KPN Mobile (NL) E-Plus

p

Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 E-Plus KPN Mobile (NL) BASE

24

13% 6% 30%

• 4%

€ mn

Mobile

Top line growth combined with margin pressure

39.5% 43.3% 43.3% 46.9% 44.8% 23.8% 29.8% 8.2% 13.6% 18.3%

31.0% 33.7% 32.1% 34.5% 33.1%

26% 25.5% 25.1% 23.5% 25.7%

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

Net sales growth 6% Y-on-Y Operating EBITDA margin

E-Plus KPN Mobile (NL) BASE Mobile

KPN Mobile (NL) E-Plus BASE KPN Mobile division

1 Excluding exceptional items 1

25

Operating review E-Plus

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 22-25% target1
• Competitive network coverage

8,716 mn (+13% Y-on-Y) 71% of new customers in Q2 postpaid Postpaid 48% of total customer base (+2 percentage points Y-on-Y) +12.7% Y-on-Y € 24 25.7% (23.5% Q2 ’03) 12,890 2G base stations (+26% Y-on-Y)

1 Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) operating

revenues

26

• Network quality improved to competitive level
• UMTS high sites: increased coverage with fewer sites

– 1UHS = equivalent to 8 conventional sites – Approx. 200 sites secured (of approx. 275 available) – Reduces capex

• More sites acquired from MobilCom will be used than
• riginally anticipated

Operating review E-Plus

High quality network for voice and data

Competitive GSM network Innovative, cost- effective UMTS network roll out

1 Independent measurements (call success rate over all- drivetest)

E-Plus

83.8 86.5 88.7 93.8

GSM network quality compared to competition 1

Q2 Q3 Q4 Q1 Q2 92.1

‘Best in-market’ operator

Q2 Q3 Q4 Q1 Q2

27

Operating review E-Plus

Commercial achievements

Simple and attractive tariffs Innovative 3 cents

1

and Time & More

2 tariffs

• Approx. 50% of new customers choose one of these tariffs
• High usage profile

Increasing appeal as business brand

• 18% business customer growth in one year
• 1.3 mn business customers (15% total base)

1 For calls to the fixed network 2 Up to 1,000 minutes per month during weekends

28

Operating review KPN Mobile Netherlands

Continued competitive market

1 Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) / operating

revenues

• Growing customer base
• Pressure on market share
• Net sales decline

related to lower MTA tariffs

• Pressure on margin
• ARPU decrease

5,406 mn (+10% Y-on-Y) 39.3% (40.7% Q2 ’03)

• 3.8% Y-on-Y

39.5% (44.8% Q2 ’03) € 35 (€ 39 Q2 ’03)

29

Operating review KPN Mobile Netherlands

Newly focused commercial strategy

• ‘on net’: unlimited

calls within business closed user group for € 5 (July 22)

• Mobiel Privé: private

subscription at high volume business rates (Aug.)

• Prepaid sms  9 cts, validity

call credit  12 months (June 15)

• Postpaid lower voice and

sms tariffs (sms as of 6 cts) (July 1)

Proposition

• Stronger brand differentiation
• New propositions, attractive prices:

Sales and distribution: improve position in external retail

• New distribution agreements and partnerships closed

Extra Benefits Attractive Price

• Prepaid validity call credit

extended to unlimited (June 15)

• Mobiel+ package: cheap

rates to all 18 mn fixed numbers and KPN Mobile network (July 22) Business market Mass market

p

30

Operating review BASE

Strong results Q2

• Strong growth in customer base

1,437 mn (+27% Y-on-Y)

• Increased market share

>16% (14% Q2 ’03)

• Net sales growth

+30.0% Y-on-Y with improving margin1 23.8% (18.3% Q2 ’03)

• Increasing ARPU

€ 24 (+9% Y-on-Y)

1 Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) / operating

revenues

31

Operating review BASE

Maintaining momentum Commercial achievements

• BASE proposition
• Successful targeting of specific

market segments Network development

• Network coverage on competitive

level Other

• Organizational restructuring ongoing

Simple, easy to understand tariffs E.g. youth & ethnic tailored propositions 99% outdoor, 95% indoor E.g. rationalization and outsourcing

32

Mobile data services

Developing data beyond messaging

• UMTS started in Germany and The Netherlands1
• Wi-Fi usage integrated in UMTS offering
• Current network coverage 30% (50 cities) in The Netherlands and

160 cities in Germany; approx. 40% at YE 2004

• Enabler for increased efficiency for business
• More convenience and entertainment to consumers

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

Continued growth in i-mode

X 1,000

1,190 868 541 353 1,452

1 Consumer market August 16 in Germany, September in The Netherlands

p

33

Mobile

Ambitions

E-Plus:

• Maintain margin1 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

p

1 Operating EBITDA margin: (operating revenues minus operating expenses plus depreciation, amortization & impairments) / operating revenues

Q & A

Annex

For more information please contact KPN Investor Relations Tel: +31 70 44 60986 Fax: +31 70 44 60593 mail to: ir@kpn.com www.kpn.com

36

Reported results1

0.38 953 22

• 459

1,390

• 434

1,824 4,887 1,095 214 6,711 5,863 YTD ’03 0.30 744 4

• 8
• 308

1,056

• 283

1,339 4,696 1,038 154 6,035 5,830 YTD ’04

• 21%
• 22%

n.a. n.a.

• 33%
• 24%
• 35%
• 27%
• 4%
• 5%
• 28%
• 10%
• 1%

% 102% 369 183 Profit/(Loss) after taxes 114% 0.15 0.07 Earnings per share3 Income participating interests Minority Interests Taxes Profit/(Loss) before taxes Financial income/(expense) Operating result Operating expenses

• of which Depreciation2
• of which Amortization2

Operating revenues

• of which Net sales

€ mn

n.a. n.a.

• 26%

37%

• 28%

15%

• 5%
• 6%
• 34%
• 1%
• 1%

% 3

• 3
• 163

1 16

• 221

532 387

• 146
• 202

678 589 2,338 513 77 2,454 547 117 3,016 2,927 3,043 2,960 Q2 ’04 Q2 ’03

1 Also see sheet ‘Exceptional items’ 2 Including impairments 3 Profit after taxes per ordinary share/ADS on a fully diluted basis (in €)

37

Exceptional items1

• 1

7

• 36
• 2

20 11

• 15

2

• YTD ’04

9

• 14

435

• 15

222 15 6

• 38

YDT ’03

• 5
• 9
• 14

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) Special items with impact on Profit or loss after taxes

• 20

15

• 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 Operating result

• 6
• 38

Fixed Impairment on intangible fixed assets Addition to restructuring provision Reversal impairment Connectivity Impairment of goodwill re SNT (Fixed)

• Q2 ’04
• Mobile

Gain resulting from termination agreement MobilCom Book gain on sale of UMC Q2 ’03 € mn

1 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 write-downs 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

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

39

Reconciliation non-GAAP measures

Changes in reporting

419 Profit/(Loss) before taxes

• 202

Financial income/expense

192 Profit/(Loss) after taxes

1 2

• 230

Income participating Interests Minority interests Taxes

621 EBIT

547 79 Depreciation1 Amortization1 1,247 Operating EBITDA 1,796 Opex

3,043 Revenues

Q2 ’03

Excluding exceptional items,

€ mn

387 Profit/(Loss) before taxes

• 202

Financial income/(expense)

183 Profit/(Loss) after taxes

1 16

• 221

Income participating Interests Minority Interests Taxes

589 Operating result

547 117

• f which
• Depreciation1
• Amortization1

2,454 Operating expenses

3,043 Operating revenues

Q2 ’03

Including exceptional items,

€ mn

Q2 ’03 as reported Q2 ’03 as reconciled

+

711 Free cash flow 978 Net cash flow from

• perating activities

Capex 267

• 32
• 9

14 9

• 32

38

• 6
• 6

Exceptional items

1 Including impairments

40

Operating expenses

• 32%

108 158 Other

• 6%

513 547 Depreciation1

• 34%

77 117 Amortization1

• 5%

1% 12%

• 7%

%

2,338 2,454 Total 967 958 Work contracted out and other expenses 266 237 Cost of materials 407 437 Salaries and social security contributions

Q2 ’04 Q2 ’03 € mn

664 660 566 602 590 1,790 1,819 1,867 1,756 1,748 2500 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 75%

D & A Operating Expenses excluding D&A % of Net sales

65%

82.9% 82.4% 81.2% 81.2% 79.9%

2.5 0.0

1 Including impairments

85%

2,358 2,338 2,454 2,479 2,433

€ bn

41

13,062 10,641 11,019 11,207 10,320 18,410 18,534 18,649 18,966 19,167 813 857 900 1,032 949

Personnel

Continuing decline

Deconsolidation effect of 700 FTE Remainder via social plan and natural attrition

Temporary personnel Consolidation & International Collective labor agreement personnel

29,543 33,178 30,639

3

1 Collective labor agreement personnel, including deconsolidation effects of 700 FTE 2 Of which approx. 2,000 FTE relates to deconsolidation effects at SNT 3 Q-on-Q increase mainly related to SNT Germany, due to acquisition info portal 4 Q-on-Q decrease mainly relates to SNT (natural attrition), Euroweb (deconsolidation) and BASE

30,568 30,598

2

Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04

4

42

437 404 433 407 407 237 232 267 218 266

Y-on-Y decrease

• Lower number of personnel due to ongoing

rationalization

• Deconsolidation effects (SNT)

Analysis operating expenses

Salaries & Cost of materials

Cost of materials Y-on-Y & Q-on-Q increase

• Higher number of mobile handsets sold

Salaries and social security contributions

Salaries

€ mn

Materials

€ mn

8.0% 7.7% 8.9% 7.5% 9.1%

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

14.8% 13.4% 14.4% 14.0% 13.9%

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

% of Net sales % of Net sales

43

958 1,062 1,061 983 967

158 121 106 148 108

32.4% 35.3% 35.4% 33.9% 33.0%

Analysis operating expenses

Work contracted out & other

Y-on-Y increase

• Higher bonuses and commission fees (Mobile)
• In part offset by lower volumes at Fixed and

lower MTA tariffs Q-on-Q decline

• Lower volumes at Fixed
• In part offset by higher bonusses and

commission fees (Mobile) Y-on-Y decline

• Release restructuring provision
• Partial termination of activities at Xantic
• Deconsolidation effects (SNT)

Q-on-Q decline

• Release restructuring provision

% of Net sales Work contracted out and other expenses % of Net sales Other operating expenses

Other Work contracted out

4.0% 3.5% 5.1% 3.7% 5.3% € mn € mn

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

44

547 582 548 525 513

117 78 18 77 77

18.5% 19.3% 18.3% 18.1% 17.5%

Analysis operating expenses

Depreciation & Amortization

Y-on-Y decline

• Lower Capex levels during ’02 and ’03

Q-on-Q decline

• Lower depreciation E-Plus

Depreciation Amortization

Amortization Depreciation 4.0% 2.6% 0.6% 2.7% 2.6% Y-on-Y decline

• Related to lower impairment changes:

Impairment on goodwill SNT of € 38 mn in Q2 ’031

1 Disclosed as exceptional in 2003

€ mn

% of Net sales

€ mn

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

% of Net sales

45

Developments in operating result

Q2 ’03 Q2 ’04

Net sales Mobile

• excl. MTA

103 13

• 121
• 6

678

• 93

589 93

Operating expenses Mobile excl. D&A and MTA impact Remainder revenue Fixed and Mobile MTA impact Mobile revenue D&A Fixed and Mobile Operating result Other

1 Including impairment on goodwill SNT of € 38 mn in Q2 ’03 2 Including € 20 mn bookgains (PTC)

€ mn

• 26

72

Net sales Fixed Operating expenses Fixed excl. D&A

54

MTA impact on

• perating expenses

Mobile

46

Taxes

Q2

• 308

10

• 93

28

• 253

P&L charge

YTD ’04

• 11
• 11

Payments (–) Receipts (+)

• 163

4

• 40

12

• 139

P&L charge

Q2 ’04

• 94
• 94

Payments (–) Receipts (+)

Reported, € mn

German Mobile activities Dutch Mobile activities Belgian Mobile activities Total Fixed division & Other activities Fiscal unities

1 Cash inflow relates to refund of preliminary tax assessment 2002 2 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 re-financing KPN Mobile)

47

Net result affiliates & Minority interests

1

• 3

1

• 3

Infonet 2 UMC YTD ’03 Q2 ’04 Q2 ’03 YTD ’04

€ mn

• 8
• 3
• 1
• 4

4 3 22 16 9

• 3

1

• 1

Xantic (35% Telstra owned)

• 2

1 KPN Mobile (2.16% NTT DoCoMo owned) Income from participating interests 3 1 Total Minority interests

• 1

16 Other 2 4 Other

• 3

16 Total

48

2004 2005 2006 2007 2008 2009 2010

Target4 Minimum reserve 112.3%1 100.0%3 Coverage ratio

• No significant change in coverage ratio and desired level
• As a result the total shortfall remained stable at € 3501 mn (was € 3472 mn)
• This results in a potential € 701 mn charge for 2004

Pension charges

Total shortfall of € 3501 mn

1 Based on situation June 30, ’04 2 Based on situation March 31, ’04 3 Any coverage below 100% has to be funded within 12 months 4 Based on the long term interest rate and the strategic mix of the pension funds as per June ’04

49

VAT claim

European perspective

• VAT claims lodged in Austria & UK
• Local Courts will ask European Court of Justice opinion on treatment
• f 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 2004

50

Execution of financial frame work

Principals Status Financial policy

• Maintain flexibility to grow and invest in
• ur business
• Target financial ratios

– Net debt / EBITDA: maximum 2x

1

– EBITDA / Net interest: minimum 6x

1

• 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

Financial policy

• Refinancing aimed at improving debt maturity

profile, finalized on July 21st

• Financial ratios

– Net debt / EBITDA: 1.7x – EBITDA / Net interest: 6.9x

• Credit ratings stable at A- (S&P) and Baa1

(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

• 2004. Second share repurchase program of

€ 1 bn announced

1 Based on a 12 months rolling calculation excluding ‘extraordinary’ and ‘exceptional’ items

Though it is a non-GAAP 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 € 611 mn

51

Total cash flow

• 1,011
• 3,172
• 1,492
• 1,696

16 403

• 465

845 23 1,758 YTD ’03

• 836
• 2,042
• 606
• 467
• 29
• 921
• 22

3

• 624
• 703

92

• 13

1,830 YTD ’04 Q2 ’04 Q2 ’03

€ mn

• 606
• 218
• 29
• 905

1

• 1,465
• 1,643

4 Dividend Share repurchase Shares purchased for option plan Redemptions Early redemptions Other

• 372
• 7

Net cash flow from investing activities

• 389

19

• 2
• 267

242 18 Capex Sale of non-core assets Other (including real estate) 870 978 Net cash flow provided by operating activities

• 1,259
• 2,133

Changes in cash and cash equivalents

• 1,757
• 3,104

Net cash flow used in financing activities

1 Including dividend on shares purchased for option plans, dividend amounts to € 611 mn 2 Remainder of € 500 mn share repurchases, of which € 33 mn settled in July ’04 1 2

52

Net cash flow from operating activities

1,127 703 1,830

• 319
• 47

12 9

• 293

2,149 744 8 1,192

• 4
• 56

265 YTD ’04 1,293 465 1,758

• 197
• 47

7

• 381
• 1191

1,955 953

• 22

1,309

• 461

176 YTD ’03 870 978 Net cash flow from operating activities 481 711 Net cash flow from operating activities minus Capex 389 267 Capex 89

• 15
• 13

78 39 889 183

• 16

664

• 1
• 11

70 Q2 ’03

• 207
• 20

12 22

• 221

1,077 369 3 590

• 3
• 20

138 Q2 ’04 Net cash flow from operating activities before changes in working capital Change in working capital Inventory Receivables Other current assets Current liabilities 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

€ mn

1 Including effect termination MobilCom agreement 1

53

465 7% 15 125 9% 51 4% 47 30% 223 8% 179 5% 48 4% 227 6% YTD ’03 703 12% 24 298 23% 96 8% 22 11% 416 16% 206 7% 57 5% 263 7% YTD ’04 51% 60% 138% 88%

• 53%

87% 15% 19% 16% % 46% >200% 173% 58%

• 29%

109%

• 9%
• 19%
• 11%

% 244 18% 117 9% Mobile % revenues 132 7% 149 8% Fixed % revenues 389 13% 267 9% Total % revenues 13 1 Other 175 26% 57 10% 12 11% 64 11% 36 6% 17 21% E-Plus % revenues KPN Mobile (NL) % revenues BASE % revenues 106 7% 26 5% 117 7% 32 6% Fixed Networks % revenues Business Solutions % revenues Q2 ’04 Q2 ’03 Including exceptional items

€ mn

Capex

54

Balance sheet

2.6 2.5 2.3 2.3 2.4 10.2 10.0 11.4 11.1 10.8 4.4 4.4 4.5 4.4 4.4 4.3 4.2 4.1 4.1 4.0 1.6 1.0 2.3 1.8 1.7 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

Liabilities and equity

€ bn

4.9 5.0 4.2 4.1 3.3 10.6 9.9 9.2 9.2 8.9 3.4 5.7 5.8 7.4 7.5 7.0 3.4 3.3 2.1 1.9

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Goodwill Licenses Other Fixed assets Current assets Cash Group equity Provisions Long term liabilities Short term liabilities

Assets

€ bn

23.1 22.6 22.8 24.1 23.1 22.6 22.8 24.1 24.2 24.2

55

Debt summary

8.2 1.0 9.2

0.3

1.1 0.0 3.8 3.9 0.3

0.1 0.1

Q2 ’04

10.2 1.6 11.8

1.3

1.5 0.1 5.3 4.2 0.4

0.1 0.2

Q2 ’03

7.9 Total net debt 2.3 Cash and cash equivalents 10.1

0.9

Total debt

• f which short-term

1.1 0.0 4.6 3.9 0.3

0.1 0.1

Subordinated convertible bonds Subordinated loans Eurobonds Global bonds Other loans at Royal KPN Consolidated debt

E-Plus Other

Q1 ’04

€ bn

Excluding debt refinancing finalized on July 21, 2004

1 1 Subject to rounding differences

56

Bond portfolio

Overview changes during life of bonds

• 1,105
• 373
• 155
• 431
• 146

Early redemptions 2003 in €

8,774

• 263
• 875
• 1,112

12,129 Total bonds outstanding

• 175

285 1,750 1,000

• Outstanding principal

Q2 ‘04 in GBP / USD

• 175

750 1,750 1,000

• Principal in GBP / USD
• 22
• 241
• Rehedge currency

risk ’03 + ’04 YTD in €

• 875
• Redemptions

2004 in €

1,500 590 1,500 1,250 2,000 280 875 2,002 1,132 1,000

Principal in €

• 375
• 542
• 195

Early redemptions 2002 in €

1,127 435 1,500

• 1,569

258 333 2,002 891 659

• Sub. convertible bond 2000 - 2005

Eurobond 1996 - 2006 Eurobond 1998 - 2008 Eurobond 1999 - 2004 Eurobond 2001 - 2006 Eurobond 2001 - 2008 GBP Global bond 2000 - 2005 USD Global bond 2000 - 2010 USD Global bond 2000 - 2030 USD Global bond 2000 - 2005 EUR

Outstanding principal Q2 ‘04 in €

mn

Excluding debt refinancing finalized on July 21, 2004

57

69% 31% Fixed Floating (incl swapped)

35% 3% 62% EUR USD GBP

Debt portfolio

Gross debt at Q2 ’04: € 9.2 bn

1

2 2

Other consolidated debt 2% Other 1% Syndicated loan 2% Convertible bond 12% Global bonds 42% Eurobonds 41%

1 Including money market, other short term funding 2 Foreign currency amounts hedged into Euro

Excluding debt refinancing finalized on July 21, 2004

58

Fixed revenue development

Underlying Year-on-Year Growth (excluding mobile termination impact): - 2,9%

1 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

Internet minutes Fixed Telephony Internet

• riginating

minutes ISP’s ADSL subscription1 Remaining Fixed Networks3 Business Solutions

1,937

• 23

1,811 42

• 44
• 71
• 9
• 28

7

Q2 ’03 Q2 ’04

Voice traffic and access Fixed Telephony + ISPs 2 Impact revenues

• f MTA

reduction

• 27
• 44

1,866

• 2,9%

€ mn

59

Fixed - Voice telephony

Development market shares

1 Traffic in minutes; access in number of lines

Market shares

1

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

> 85% ± 75% > 60% ± 45% ± 90% > 80% > 65% > 50%

Access lines Local traffic International traffic National traffic

60

KPIs Fixed

Fixed Networks

37.92 21.86 16.58 9.88 4.95 0.52 1.23 2.54 252 9,746 7,569 6,032 1,537 ±75% >60% ±45% >60% YTD ’04 17.92 10.56 7.61 4.65 2.09 0.25 0.62 2.44 238 9,746 7,569 6,032 1,537 ±75% >60% ±45% >60% Q2 ’04 20.00 11.30 8.97 5.23 2.86 0.27 0.61 2.65 265 9,806 7,628 6,080 1,548 ± 75% > 60% > 45% > 60% Q1 ’04 Minutes (in bn) 20.50 Total Division Fixed 10.85 BU Carrier Services 9.95 5.47 3.54 0.29 0.65 BU Fixed Telephony Local/National Internet International Fixed to Mobile 2.90 264 Call rate1 Call duration2 9,979 7,774 6,218 1,556 Channels (x 1,000) Lines (x1,000) PSTN ISDN 2/15/20/30 ± 80% ± 65% > 50% ± 65% Market shares Local National International Fixed to Mobile Q2 ’03

1 Number of calls per channel per day 2 Average duration per call in seconds

61

KPIs Fixed

Internet and ADSL (1)

42% 76% 41% 77% 35% 81% Market shares Consumer broadband DSL 568 311 106 136 15 1,552 736 596 220 Q1 ’04 663 341 138 147 37 1,570 738 601 231 Q2 ’04 355 229 34 92 1,489 740 583 166 Q2 ’03 Total Broadband subscriptions ISP’s (X 1,000) Planet Internet Het Net XS4ALL Direct ADSL Total ISP customers (X 1,000) Planet Internet Het Net XS4ALL

62

KPIs Fixed

Internet and ADSL (2)

913 11% 54% 31% 4% 1,235 1,180 1,354 99% Q1 ’04 1,057 18% 52% 27% 4% 513

• 46%

47% 6% ADSL Installed % Go (416/160 kbit/s) % Lite (1,120/352 kbit/s) % Basic (2,240/416 kbit/s) % Extra (4,480/704 kbit/s) 1,422 1,387 636 605 # MDF access lines

• f which # line sharing

1,361 99% Q2 ’04 648 87% Q2 ’03 Local exchanges Number DSL enabled ADSL coverage NL1

X 1,000

1 % of central offices that is ADSL enabled

63

KPIs Fixed

Business Solutions

6,736 8,648 23,746 1,141 62 71% 29% Q2 ’04 7,572 8,178 20,041 975 64 70% 30% Q1 ’04 10,281 6,206 9,122 302 VAS Frame Relay (# ports) MVPN-routers2 IP-VPN connections VPN’s (# customers) 82 63% 37% Leased lines (x 1,000)1 Analogue Digital Q2 ’03

1 As from Q1 2003, only leased lines with external revenues are stated. Figures 2002 are restated accordingly 2 Restated as from Q1 2003

64

Mobile - E-Plus

Growth continues with improved customer mix

% post paid

24 25 24 23 24 42 43 42 40 41 9 9 9 8 8

Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04

blended post-paid pre-paid

ARPU

46% 47% 47% 47% 48%

Margin

• 13.4% -10.0%
• 9.0%
• 10.6%
• 6.6%

18.8% 20.3% 20.4% 21.7% 21.7%

Customers

(Net sales – Operating expenses + D,A&I)/Net sales (Net sales – Operating expenses)/Net sales

• 41

72

• 38
• 7

Q2 ’03 Operating revenues Operating expenses Q2 ’04

Operating result development 7.7 8.0 8.2 8.4 8.7

mn

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

65

KPIs Mobile

E-Plus

76

135 23

170 174

258 73

16% 24

41 8

8,716

4,185 582 4,531 273

12.9% Q2 ’04 75

133 23

172 156

237 69

16% 24

41 8

8,716

4,185 582 4,531 273

12.9% YTD ’04 74

131 23

175 137

213 65

16% 23

40 8

8,448

3,995 470 4,453 181

12.8% Q1 ’04 79

138 27

167 142

249 50

15% 24

42 9

7,716

3,578 191 4,138

12.6% Q2 ’03 Non-voice as % of ARPU SRC (€) MoU (minutes)

Post-paid Pre-paid

SAC (€)

Post-paid Pre-paid

ARPU (€)

Post-paid Pre-paid

Customers (x 1,000)

Post-paid Of which i-mode Pre-paid Of which i-mode

Market share base1

1 Management estimates (therefore only rounded figures available)

66

39%

KPN Mobile (NL)

Growing customer base

39 40 36 33 35 73 76 73 71 73 16 16 13 11 12

blended post-paid pre-paid

4.9

% post paid

39%

5.4

ARPU

38%

5.0 5.2

37%

Operating result development

5.3

37%

Margin

35.9% 38.6% 32.9% 32.5% 44.1% 46.4% 41.4% 40.6% 38.4% 31.1%

Customers

mn (Net sales – Operating expenses + D,A&I)/Net sales (Net sales – Operating expenses)/Net sales

217 186

• 26

13

• 26

8

Q2 ’03 Operating revenues

• excl. MTA

MTA impact

• n revenues

Operating expenses

• excl. MTA

MTA impact

• n

Operating expenses Q2 ’04

1 Including MTA effect (- € 26 mn revenues and - € 13 mn operating result)

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

67

KPIs Mobile

KPN Mobile (NL)

127

277 39

318 117

365 57

11% 35

73 12

5,406

1,977 247 3,429

320

39.3% Q2 ’04 126

275 38

253 127

358 68

11% 34

72 11

5,406

1,977 247 3,429 320

39.3% YTD ’04 125

272 37

221 140

322 88

11% 33

71 11

5,269

1,959 249 3,310 260

39.4% Q1 ’04 Q2 ’03 8% Non-voice as % of ARPU 279 SRC (€) 136

269 50

MoU (minutes)

Post-paid Pre-paid

125

356 7

SAC (€)

Post-paid Pre-paid1

39

73 16

ARPU (€)

Post-paid Pre-paid

4,919

1,930 148 2,989

Customers (x 1,000)

Post-paid Of which i-mode Pre-paid Of which i-mode

40.7% Market share base1

1 Management estimates (therefore only rounded figures available)

68

Operating result development

61 59 62 61 66 24 25 25 22 22 13 15 14 11 11

blended post-paid pre-paid

BASE

Growth combined with increasing ARPU

1.1

23%

% post paid

23%

1.2

ARPU

22%

1.3 1.4

21% 20%

1.4

Margin

Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

• 20.0%
• 34.2%

16.3% 7.9%

• 8.7%

71.7%

• 8.0%

23.1% 3.3% 27.0%

Customers

mn (Net sales – Operating expenses + D,A&I)/Net sales (Net sales – Operating expenses)/Net sales

23

• 8
• 17
• 14

Q2 ’03 Operating revenues Operating expenses Q2 ’04 Q2 ’03 Q3 ’03 Q4 ’03 Q1 ’04 Q2 ’04

1 Includes € 103 mn reversal of impairment GSM license BASE

1

69

KPIs Mobile

BASE

108

213 81

n.a. 23

89 13

15% 24

66 13

1,437

290 27 1,147 3

>16% Q2 ’04 105

211 76

n.a. 16

69 7

15% 24

65 14

1,437

290 27 1,147 3

>16% YTD ’04 101

209 71

n.a. 11

78 3

16% 25

61 15

1,369

288 28 1,081 2

16% Q1 ’04 15% Non-voice as % of ARPU n.a. SRC (€) 86

234 42

MoU (minutes)

Post-paid Pre-paid

10

• 14

15

SAC (€)

Post-paid Pre-paid

22

61 11

ARPU (€)

Post-paid¹ Pre-paid¹

1,131

255 14 876

Customers (x 1,000)

Post-paid Of which i-mode Pre-paid Of which i-mode

14,1% Market share base1 Q2 ’03

1 Management estimates (therefore only rounded figures available)

70

Other in Q2

Operating revenues (–2%)

Significant increase in operating result

• € 20 mn book gain on PTC
• Release from € 15 mn restructuring provision
• Declined operating revenues and costs due to deconsolidation logistics and repair
• Improved operating result from restructuring international participations a.o. Xantic

127 124

Q2 ’03 Q2 ’04

Operating Result (+72)

• 24

48

Q2 ’03 Q2 ’04

€ mn € mn

71

EU New Regulatory Framework (NRF)

• Timing

– New law has come into force in The Netherlands on May 19, 2004 and in Germany

• n 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
• f 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 18 relevant markets. Decisions are

expected before Summer 2005

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 NRF1 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 services2 – A range of 3 to 15% decreases in tariffs for unbundled local loop services, collocation services and interconnecting leased lines, mainly as a result of volume developments (growth in broadband)

1 New Regulatory Framework 2 0% change compared to tariffs of July 2003