Third Quarter Results 2006 31 October 2006
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 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 2005 Annual Report and Form 20-F. All figures in this presentation are unaudited and based on IFRS as endorsed by the EU. 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. 2
Disclaimer We 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 the 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. We define Free cash flow as 'Cash flow from operating activities' minus 'Capital expenditures', being expenditures on PP&E and software. 3
Agenda Chairman’s review Ad Scheepbouwer, Chairman and CEO Financial review Marcel Smits, CFO Operating review Ad Scheepbouwer, Chairman and CEO Concluding remarks Ad Scheepbouwer, Chairman and CEO 4
Highlights • Mobile outperforming the market – E-Plus and BASE continuing to deliver profitable growth – KPN Mobile the Netherlands gaining market share • Future proofing Fixed division on track – Battle for market share in the Consumer segment leading to increased investment in customer base and line loss to competition – KPN now firmly established as market leader in VoIP additions, turnaround in net line loss trend – National roll-out DVB-T and continued growth in customer base • All-IP program on track, directional support from regulator 5 p
Financial highlights Q3 • Continued strong financial performance – Revenues and other income up 3.7% (YTD 2.8%, or 2.1% per guidance definition 1 ) – EBITDA up 4.4% (YTD 8.2%, or 6.7% per guidance definition 1 ) – Strong free cash flow of € 728 mn (YTD € 2,139 mn) – EPS up 20.0% to € 0.18 • YTD shareholder returns € 2.6 bn, exceeding February announcement – € 1.6 bn share repurchases including € 0.8 bn buyback from Dutch State – € 0.3 bn interim dividend 2006 or € 0.16 per share – € 0.7 bn final dividend 2005 or € 0.32 per share 1 Excluding restructuring charges and book gains/losses over € 20 mn, brand unification costs and Telfort integration 6 p
Agenda Chairman’s review Ad Scheepbouwer, Chairman and CEO Financial review Marcel Smits, CFO Operating review Ad Scheepbouwer, Chairman and CEO Concluding remarks Ad Scheepbouwer, Chairman and CEO 7
Group results Q3 • Revenues up 3.5% Q3 ’06 Q3 ’05 % € mn – Organic growth in Mobile, on top of Revenues and other income 3,037 2,930 3.7% Telfort consolidation –of which Revenues 3,028 2,926 3.5% – Contraction Fixed revenues due to line loss and price pressure Operating expenses 2,463 2,349 4.9% –of which Depreciation 1 473 459 3.1% –of which Amortization 1 • Costs up 4.9% 151 107 41.1% – Investments in Fixed customer Operating result 574 581 -1.2% base Financial income/(expense) -115 -122 -5.7% – € 42 mn restructuring / integration Share of profit of associates 2 - 2 costs in Mobile – Increase in D&A due to Telfort Profit/(Loss) before taxes 461 461 - consolidation and anticipated Taxes -112 -127 -11.8% network integration Profit/(Loss) after taxes 349 334 4.5% – Partly offset by lower SAC at E-Plus and headcount reduction Profit minority shareholders 3 -40.0% 5 Profit equity holders of the parent 346 329 5.2% • Reported EBITDA up 4.4% as a result of strong margin in Mobile Earnings per share 2 0.18 20.0% 0.15 • EPS up 20%, with support from EBITDA 3 1,198 4.4% 1,147 share repurchases 1 Including impairments, if any 2 Defined as Profit after taxes per ordinary share / ADS on a non-diluted basis (in €) 3 Defined as Operating result plus depreciation, amortization & impairments 8 p
Group results YTD • Revenues up 2.1% YTD ’06 YTD ’05 % € mn – Telfort consolidation Revenues and other income 9,018 8,770 2.8% – Organic growth at all three Mobile –of which Revenues 8,919 8,737 2.1% operators – Contraction Fixed revenues Operating expenses 7,162 7,117 0.6% –of which Depreciation 1 1,393 1,399 -0.4% –of which Amortization 1 436 353 23.5% • Costs nearly stable – Investments in Fixed customer Operating result 1,856 1,653 12.3% base Financial income/(expense) -307 -387 -20.7% – Higher access cost due to change Share of profit of associates 7 -22.2% 9 in traffic mix Profit/(Loss) before taxes 1,556 1,275 22.0% – Offset by lower SAC at E-Plus and headcount reduction Taxes -362 -429 -15.6% Profit/(Loss) after taxes 1,194 846 41.1% • Reported EBITDA up 8.2% as a result of strong margin in Mobile Profit minority shareholders 1 -92.3% 13 Profit equity holders of the parent 1,193 833 43.2% • EPS supported by share Earnings per share 2 repurchases 0.59 59.5% 0.37 EBITDA 3 3,685 3,405 8.2% 1 Including impairments, if any 2 Defined as Profit after taxes per ordinary share / ADS on a non-diluted basis (in €) 3 Defined as Operating result plus depreciation, amortization & impairments 9 p
Group cash flow Q3 • Free cash flow of € 728 mn Q3 ’06 Q3 ’05 % € mn Operating result 574 581 -1.2% • Capex up 15.2% Depreciation and amortization 1 624 566 10.2% – Continued investment in indoor Interest paid/received -108 -95 13.7% coverage by E-Plus (E-GSM) Tax paid/received -1 2 - Other income -9 -4 >100% • YTD free cash flow of € 2.1 bn, up Change in provisions 2 -19 -23 -17.4% € 0.2 bn on prior year Change in working capital 92 116 -20.7% – € 219 mn one-off tax cash in-flow in Q1 Net cash flow from operating 1,153 1,143 0.9% activities • € 1.3 bn shareholder returns – € 1.0 bn share repurchases Capex 3 425 369 15.2% including € 0.7 bn buyback from Dutch State 5 Free cash flow 4 728 774 -5.9% – € 0.3 bn interim dividend 2006 or € 0.16 per share Dividend paid 321 281 14.2% Share repurchases 1,015 261 > 200% • YTD shareholder return € 2.5 bn Cash return to shareholders 1,336 542 > 100% in cash 5 1 Including impairments, if any 2 Excluding changes in deferred taxes 3 Including Property, Plant & Equipment and software 4 Defined as Net cash flow from operating activities minus Capex 5 Excluding dividend tax of € 101 mn to be paid in Q4 ’06 10 p
Group financial profile Debt Financing policy € bn 2.5x 11.0 10.9 10.8 10.4 10.0 2.0x 1.9 1.9 1.8 9.4 1.7 1.7 8.9 8.8 8.2 7.9 Q3 ’05 Q4 ’05 Q1 ’06 Q2 ’06 Q3 ’06 Q3 ’05 Q4 ’05 Q1 ’06 Q2 ’06 Q3 ’06 Net Debt / EBITDA 1 Gross Debt Net Debt Financial framework range Redemption profile € bn • Gross debt up to € 11.0 bn following temporary draw down 2.0 2 1.9 on credit facility 1.8 2 1.6 1.4 • Net debt / EBITDA 1 up to 1.9x 1.0 0.9 partly due to € 1.3 bn 0.9 0.7 shareholder returns in Q3 0.4 • Liability management transaction z planned for bonds maturing in Cash '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '30 2008 to lengthen maturity profile Cash Debt maturity 1 Based on 12 month rolling calculation excluding restructuring charges and book gains/losses over € 20 mn, brand unification costs and Telfort integration 2 Both cash and gross debt include approximately € 1.2 bn of non-netted cash balances per Q3 ’06 11
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