KPN Reports 4Q07

Revenues and other income and EBITDA flat per guidance definition; net profit up 67%

February 5, 2008

5 Min Read

THE HAGUE, The Netherlands -- Full-year guidance for 2007 met

  • Revenues and other income and EBITDA flat per guidance definition

  • Capex of EUR 1.7bn and free cash flow of EUR 2.3bn

  • Net profit up 67%, EPS up 80% to EUR 1.42 due to EUR 1.2bn tax gain at E-Plus

Strategy update 2008-2010 announced today: ‘Back to Growth’

  • Revenue and EBITDA inflection in the Netherlands

  • Continued growth at Mobile International

  • Further FTE and cost reductions beyond ‘Attack-Defend-Exploit’ strategy

  • Acceleration of shareholder remuneration

Solid performance in the Netherlands

  • Consumer net line loss declining, TV customer base nearly doubled

  • Strong EBITDA growth in wireless services, as a result of successful Telfort integration

  • Continued growth in the Business market, migration to new services accelerating

  • FttC / FttH rollout taken to the implementation stage

Continued profitable growth at Mobile International

  • E-Plus outperforming competitors, exceeding growth and margin objectives

  • Strategic initiatives creating growth platform in Belgium

Strategic M&A and business development with a focus on value creation

  • Market leader in workspace management through the acquisition of Getronics

  • Created a leading position in international wholesale through iBasis

  • MVNO launched in Spain with proven Simyo brand and wholesale partners

Committed to continuing industry leading shareholder returns

  • Shareholder returns of EUR 2.5bn in 2007, DPS for FY 2007 up 8% to EUR 0.54

  • EUR 2bn shareholder returns for 2008, of which EUR 1bn of share repurchases

  • Targeting 2010 dividend per share of EUR 0.80, updated medium-term dividend policy

Ad Scheepbouwer, CEO of KPN, said:

“I am delighted to report that KPN has again delivered a solid performance in 2007, in line with our guidance. Today, we are announcing our strategy update, following an extensive review, which will be for the period 2008 to 2010. Markets are changing and we continue to adapt too and feel confident in putting growth back at the top of our agenda, by building scale in recently introduced new services. We have also taken a further look at our cost base and decided that more needs to be done in cost and FTE reductions. The ‘Back to Growth’ strategy will result in the continued strong free cash flow generation and industry-leading shareholder returns that our shareholders have come to expect.”

KPN announces today the next phase in the evolution of its strategic agenda: ‘Back toGrowth’, setting objectives for the next three years to 2010. As with the launch of‘Attack-Defend-Exploit’ in 2005, the ‘Back to Growth’ strategy follows an extensivestrategic review and has been devised to address the challenges of today’s telecomsmarkets. KPN has set new strategic priorities in order to return to growth in the comingyears. With this ‘Back to Growth’ strategy, KPN will remain a top performer amongEuropean telecom operators and will continue to be a front-runner in the sector inidentifying the market challenges and setting strategic benchmarks accordingly.

Over the past five years, KPN has made significant strategic progress. Between 2002and 2004, KPN achieved a successful turnaround of the business with strong focus oncash flow. In 2005, KPN entered its next phase with the announcement of its ‘Attack-Defend-Exploit’ strategy for the Netherlands and the challenger strategy at E-Plus. Sincethen, market shares have grown in nearly all segments and cost reductions are well ontrack. In addition, KPN made strategic acquisitions with significant value-creationopportunities, most notably Telfort, Getronics and iBasis.KPN has a track record of solid free cash flow generation and industry-leadingshareholder returns. Since 2001, net debt has decreased by EUR 13bn, equity value hasincreased tenfold and nearly EUR 10bn has been returned to shareholders as dividendsand share repurchases.

Growth will be the result of the Netherlands reaching inflection, continued growth atMobile International and additional growth from recent acquisitions, as will beachieved with Getronics and iBasis. Growth is set to be achieved in the face ofregulatory tariff reductions and the impact of shrinking traditional wireline services inthe Netherlands. Key components of the strategy are the ramping up of new serviceslaunched in recent years and cost reductions. A new incentive scheme for seniormanagement has been implemented reflecting the objectives.

In the period to 2010 the Netherlands business will undergo a radical transformation.The All-IP network announced in March 2005 will move into its final phase with theimplementation of a new access network. In addition, KPN will pursue a radicalsimplification of its business, both at the front-end in retail segments and at the backendin network operations. The significant cost reductions that will be generated bythis simplification will be used firstly for re-investment in revenue growth, leading toan acceleration of recent growth initiatives, such as broadband and TV in Consumerand IP-based services in Business. Secondly, cost reductions will lead to marginsimproving. EBITDA inflection is expected to be reached after 2008 followed by revenueinflection the latest in 2010.

In order to sustain its competitive position during the period 2008-2010, KPN intends toreduce the number of FTEs by 4,500 (excluding Getronics), or an additional 2,000 FTEscompared to the 8,000 FTE reduction target that was announced in March 2005 withthe ‘Attack-Defend-Exploit’ strategy. The reduction will result in about EUR 110m ofadditional annual cost savings by 2010. In addition, KPN intends to reduce the numberof external staff by 1,300 FTEs in the period 2008 to 2010, resulting in about EUR 130madditional annual cost savings. The remaining external staff base will act as a flexiblesource of labour during the transition phase.

The strategic objective for Mobile International is to continue the profitable growthpath that was initiated through its successful challenger strategy. KPN will continue topursue additional value-creating opportunities in wireless services throughout Europe,such as the recent entry into the Spanish market.

KPN Telecom NV (NYSE: KPN)

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