Koninklijke KPN N.V. (

KPN

)

Q1 2011 Earnings Call

April 28, 2011 4:00 PM ET

Executives

Hans Sheridan – Acting Head of IR

Eelco Blok – CEO

Carla Smits-Nusteling – CFO

Analysts

Paul Sidney – Credit Suisse

Ann – Joseph Demofete

Matthew Bloxham – Deutsche Bank

Lowder Yumsun – UBS

Hugh McCaffrey – Goldman Sachs

Mondin Singh

Steve Malcolm – Evolution Securities

Jab Thorne – RBS

John Keefe – Edgar Bernstein

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Maurice Patrick – Barclays

Luigi Minerva – HSBC

Guy Petty – Macquarie

Dmitri Canneloni [ph] – Citi

Frederic van Daele – Kempen

James Britton – Numera

Presentation

Operator

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Good morning ladies and gentlemen, and welcome to the KPN conference call. (Operator Instructions). I would like to hand over the conference now to Mr. Hans Sheridan, acting Head of Investor Relations. Go ahead please, sir.

Hans Sheridan

Good morning everyone. Seated beside me are Eelco Blok, CEO, and Carla Smits-Nusteling, CFO. We’ll take you through the Q1 results presentation which we published this morning. The presentation, as usual, will be followed by Q&A. let me briefly point out that the Safe Harbor applies to this presentation and that any forward looking statements made in this presentation won’t differ from those already made in the press release. Now I would like to hand over to Eelco Blok.

Eelco Blok

Good morning and welcome to the conference call in which we will present our Q1 2011 results earlier than expected and announce a revised EBITDA outlook. The results will be presented by myself and our CFO, Carla Smits-Nusteling. I will start with the revised outlook and the highlights before Carla takes you through the group financial review. After that I will provide you with an operating review for the Netherlands and international. Before handing it over to you for Q&A I will make a couple of concluding remarks.

Let me start with a summary. Q1 has seen lower than expected revenues in the Netherlands mainly in consumer and business segments. I have decided to accelerate a new strategy to strengthen the Dutch businesses. I’m very pleased to see that Germany and Belgium are firmly on track and we will keep investing in portfolio growth both in Germany and Belgium. The trends in the Dutch businesses and the investments related to the acceleration of our new strategy plans lead to the early publication of our Q1 results and a downward adjustment of 2011 EBITDA outlook. We confirmed the free cash flow outlook proposal of more than €0.85 per share and the continuation of our €1 billion share repurchase program for 2011. I will further explain the trends leading to lower revenues in the Netherlands.

In consumer mobile we have been surprised by the acceleration in usage of free alternatives for SMS and voice. Customer behavior is rapidly changing as a result of smart phones and new applications leading to substitution of SMS and voice by data. This trend is especially recognizable amongst young people and results in strong growth of data usage and substantially less SMS and voice messages. Our bundles are currently not positioned to fully compensate the loss in SMS and voice usage by monetizing data. This trend has a negative impact on SMS and voice revenues.

In our business segment we see increasing price pressure as a result of the competitive market. Customer rationalization is ongoing and we see accelerated migration from high margin traditional services to new services. The key actions focus mainly on consumer. We are making portfolio adjustments in Dutch Telco Wireless on the wide scale. We implement commercial actions on the short term and introduction of new bundles are planned. In the longer term we will move to a data-centric portfolio. I will share more details with you later in this presentation.

Now I will explain the acceleration of the new strategy implementation. Following the accelerated trends in the Dutch businesses I have decided to accelerate the new strategy for the Netherlands and the planning investments to strengthen our businesses. We will invest in holding our marketing positions in consumer mobile and business wire line improving our broadband and TV market share, expanding distribution capability and upgrading our fiber network. Furthermore we will adjust our cost base by an (inaudible) reduction program in the 2011-2015 period for the larger part by outsourcing and off shoring projects. The program comprises 4,000-5,000 (inaudible) which accounts for 20% to 25% of the workforce in the Netherlands. We are confident that all of this will strengthen our market positions in our Dutch businesses. 2011free cash flow is supported by a case contribution resulting from tax facilities which allows KPN to accelerate the investments to strengthen its businesses.

I will now inform you on the outlook for 2011. Two factors require us to lower our EBITDA outlook around 50%. Because of the lower than expected revenues in the Netherlands and the other 50% is driven by the accelerated implementation of the new strategy to strengthen the Dutch businesses. Our revised EBITDA outlook stands at more than 5.3 billion, excluding the 2011 part of the multi-year reorganization costs. CAPEX outlook stays at less than 2 billion including the 100 million additional CAPEX in the Netherlands as we maintain our free cash flow outlook of growing free cash flow defined as growth compared to the 2010 free cash flow of 2.4 billion. Furthermore we remain committed to a dividend share of at least €0.85 and will continue our 1 billion share repurchase program. Let me now hand over to Carla.

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