barclays kpn amx bid balances risks

8/10/2019 Barclays KPN AMX Bid Balances Risks

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Equity Resear

Telecommunications | European Teleco

Servic

9 August 20

KPN

AMX bid balances risks

The AMX offer seems fair as it values Netherlands and Germany at current market

values. We do see upside scenarios from a potential higher bid, but this is offset by

the risk that not tendering leads to a KPN with E+ and a substantial reinvestment in

Germany. Consolidation in Germany is now by no means assured, leaving

DT/Vodafone at risk and Telefonica needing to contemplate alternatives.

AMX tenders for “…a majority”. AMX is tendering at €2.40 per share for all of the

c70% it doesn’t already own in KPN. The offer simply requires that it achieves a majority

position, raising the risk that KPN investors not tendering end up as a minority investors

in KPN that still owns E+ and must embark upon a reinvestment campaign.

E+ sale clarified before tender completes. KPN will call an EGM to vote on the

proposed E+ sale in late September (the EGM is yet to be called, but requires 42 days to

arrange). Investors get the opportunity to vote to approve the E+ sale before deciding

whether to tender. The AMX tender will start in September, but not complete until late

November. The AMX tender raises the stakes at the EGM for those that see the E+ sale

as key to value creation.

Implications for KPN - €2.40 floor/cap. The September EGM will clarify whether AMX

supports the sale of E+, till then the market will likely question value of KPN with and

without E+. The current offer for E+ values it at c7x EBITDA (using current value of O2

Germany) and 8x including synergies proposed under the deal. Flexing KPNs

Dutch/Belgian assets at 5.0x-5.5x and the German EV implies a range of KPN of €2.3-

2.9 per share.

Implications for Telefonica and sector – near term negative. The EGM vote is key, with

Telefonica facing the possibility of raising its offer for E+ to secure support and

DT/Vodafone facing a better capitalized KPN, accelerating investment and price

pressure in Germany.

KPN.AS: Financial and Valuation Metrics EUR

FY Dec 2011 2012 2013 2014 2015

EPS 1.05A 0.53A 0.17E 0.10E 0.12E

Previous EPS 1.05A 0.53A 0.17E 0.10E 0.12E

Consensus EPS 0.76A 0.50A 0.19E 0.16E 0.16E

P/E 1.9 3.7 11.6 20.0 17.2

Source: Barclays Research.

Consensus numbers are from Thomson Reuters

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies coveredin its research reports. As a result, investors should be aware that the firm may have a conflict of interestthat could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

This research report has been prepared in whole or in part by equity research analysts based outside theUS who are not registered/qualified as research analysts with FINRA.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 16.

Stock Rating EQUAL WEIGH

Unchang

Industry View NEGATIVUnchang

Price Target EUR 1.8

Unchang

Price (08-Aug-2013) EUR 2.

Potential Upside/Downside -10

Tickers KPN NA / KPN.A

Market Cap (EUR mn) 85

Shares Outstanding (mn) 4270.

Free Float (%) 69.

52 Wk Avg Daily Volume (mn) 25Dividend Yield (%) N

Return on Equity TTM (%) 19.

Current BVPS (EUR) 1.

Source: FactSet Fundamentals

Price Performance Exchange-A

52 Week range EUR 4.22-1

Link to Barclays Live for interactive charting

European Telecom Services

Jonathan Dann

+44 (0)20 3134 3525

[email protected]

Barclays, London

Roman Arbuzov

+44 (0)20 7773 1320

[email protected], London

Maurice Patrick

+44 (0)20 3134 3622

[email protected]

Barclays, London

San Dhillon

+44 (0)20 3134 3484

[email protected]

Barclays, London

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Barclays | KPN

9 August 2013

2

European Telecom Services Industry View: NEGATIVE

KPN (KPN.AS) Stock Rating: EQUAL WEIGHT

Income statement (€mn) 2012A 2013E 2014E 2015E CAGR Price (08-Aug-2013) EUR 2.00

Price Target EUR 1.80

Why Equal Weight? KPN's investment profile hasradically changed post 4Q12 results and guidance.

KPN announced it will invest aggressively to fixoperations. Biggest push will be in Germany, wherethe company now relies solely on its own resources.In our view, KPN needs first to show reverse ofprofitability trends before it becomes moreinteresting.

Upside case EUR 2.30

In the upside case, free cash flow recovers to ca€1bnand KPN is valued at sector multiple of 10x.

Downside case EUR 1.30

In our downside case, KPN trades on 8x 2013E freecash flow of ca€700m.

Upside/Downside scenarios

POINT® Quantitative Equity Scores

Source: POINT. The scores are valid as of the date of thisreport and are independent of the fundamental analysts'views. To view the latest scores, click here.

Revenue 12,409 11,632 11,438 11,528 -2.4%

EBITDA 4,638 3,993 3,831 3,937 -5.3%

EBIT 1,930 1,317 1,215 1,256 -13.3%

Finance costs - net -879 -682 -655 -612 N/APre-tax income 1,038 623 548 632 -15.2%

Tax rate (%) 26 20 20 20 -8.7%

Net income 763 490 428 496 -13.4%

EPS (adj) (€) 0.53 0.17 0.10 0.12 -39.9%

Diluted shares (mn) 1,429 2,850 4,270 4,270 44.0%

DPS (€) 0.12 0.00 0.00 0.05 -25.3%

Margin and return data Average

EBITDA margin (%) 37.4 34.3 33.5 34.2 34.8

EBIT margin (%) 15.6 11.3 10.6 10.9 12.1

Pre-tax margin (%) 8.4 5.4 4.8 5.5 6.0

Net margin (%) 6.1 4.2 3.7 4.3 4.6

Operating CF margin (%) 19.6 14.2 12.7 14.2 15.1

ROIC (%) 6.4 4.8 4.4 4.4 5.0RONTA (%) 18.9 13.3 11.4 11.0 13.7

ROA (%) 6.4 4.7 4.2 4.2 4.8

ROE (%) 35.8 16.2 8.7 9.5 17.5

Balance sheet and cash flow (€mn) CAGR

Tangible fixed assets 7,895 8,491 9,159 9,170 5.1%

Intangible fixed assets 8,458 9,223 8,719 8,332 -0.5%

Cash and equivalents 1,286 564 1,027 1,696 9.7%

Total assets 22,301 23,003 23,675 24,014 2.5%

Short and long-term debt 13,896 11,398 11,481 10,812 -8.0%

Other long-term liabilities 2,735 2,653 2,570 2,510 -2.8%

Total liabil it ies 20,967 17,190 17,501 17,517 -5.8%

Net debt/(funds) 12,030 8,970 9,954 9,285 -8.3%

Shareholders' equity 1,334 4,724 5,083 5,405 59.4%Cash flow from operations 3,007 3,020 3,071 3,149 1.5%

Capex and acquisitions -2,209 -2,346 -2,381 -2,306 N/A

Free cash flow 798 674 691 843 1.8%

NOPAT 1,422 1,054 972 1,005 -10.9%

Valuation and leverage metrics Average

P/E (adj) (x) 3.7 11.6 20.0 17.2 13.1

EV/EBITDA (x) 4.3 5.0 5.2 5.1 4.9

Equity FCF yield (%) 27.9 7.9 8.1 9.9 13.4

EV/sales (x) 1.6 1.7 1.8 1.7 1.7

P/BV (x) 2.1 1.8 1.7 1.6 1.8

Dividend yield (%) 6.0 0.0 0.0 2.5 2.1

Total debt/capital (%) 62.3 52.0 50.8 47.2 53.1

Net debt/EBITDA (x) 2.6 2.2 2.6 2.4 2.4

Selected operating metrics

Dutch service revenue growth (%) -3.8 -4.0 -0.1 -2.2

Eplus service revenue growth (%) 1.9 -2.0 2.7 6.5

Base service revenue growth (%) 8.0 -6.3 -4.9 0.8

Source: Company data, Barclays ResearchNote: FY End Dec

Value

Quality

Sentiment

Low High

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Barclays | KPN

9 August 2013

3

AMX bid balances risk

AMX announced today its intention to make a voluntary tender offer in cash for KPN at

€2.40 per share. The offer suggests AMX wants to achieve a “majority stake….” and with

the E+ sale still pending investor approval there are a number of unanswered questions:

• will AMX approve the E+ sale at EGM in September

•

Does the €2.40 per share tender offer appropriate value for KPN

• Valuation of KPN if it retains E+, or continues with the sale to Telefonica.

In our previous note (Finding the Sweet Spot: E+ and O2) we assessed the value per

share of KPN under a range of scenarios including E+ and the Dutch/Belgian asset at various

multiples and also looking at the value created from the combination with Telefonica

Germany. Below we assess these two scenarios.

Deriving KPN from Dutch/Belgian assets and proceeds from sale of E+ to

Telefonica Germany

As the table below highlights, the €2.40 per share offer would imply that the KPN share of

newco in Germany traded on 5.5x and its Dutch/Belgian assets at 5.0x.

FIGURE 1

KPN: flexing EV/EBITDA of Benelux and EV/EBITDA of the combined German entity to derive KPN share price

EV/EBITDA NL/Benelux

E V / E B I T D A

O 2 D E +

4.00 4.25 4.50 4.75 5.00 5.25 5.50

5.00 1.67 1.84 2.01 2.18 2.35 2.52 2.69

5.50 1.72 1.89 2.06 2.23 2.40 2.56 2.73

6.00 1.76 1.93 2.10 2.27 2.44 2.61 2.78

6.50 1.81 1.98 2.15 2.32 2.49 2.66 2.83

7.00 1.86 2.03 2.20 2.37 2.54 2.71 2.87

7.50 1.90 2.07 2.24 2.41 2.58 2.75 2.92

8.00 1.95 2.12 2.29 2.46 2.63 2.80 2.97

Source: Barclays Research estimates

Deriving KPN price from Dutch/Belgian assets and an Enterprise Value to E+

The AMX offer implies 5.0x Dutch/Belgian assets and €7bn for E+. The latter is effectively

the market value of the proposed €5bn in cash for E+ (from Telefonica) and 17.6% share of

new co.

FIGURE 2

KPN: flexing EV/EBITDA of Benelux and E+ enterprise value to derive KPN share price

E V E +

EV/EBITDA NL/Benelux

4.00 4.25 4.50 4.75 5.00 5.25 5.50

6,500 1.58 1.75 1.92 2.09 2.26 2.42 2.59

6,750 1.64 1.81 1.98 2.14 2.31 2.48 2.65

7,000 1.69 1.86 2.03 2.20 2.37 2.54 2.71

7,250 1.75 1.92 2.09 2.26 2.43 2.60 2.77

7,500 1.81 1.98 2.15 2.32 2.49 2.66 2.83

7,750 1.87 2.04 2.21 2.38 2.55 2.72 2.89

8,000 1.93 2.10 2.27 2.44 2.61 2.78 2.95

Source: Barclays Research estimates

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Barclays | KPN

9 August 2013

4

As a KPN shareholder today – we believe that current market price of

c.€2.40 offers an attractive exit point with risks offset by upside potential

• Firstly, the AMX offer would be conditional upon AMX achieving >50% i.e. AMX will only

acquire if >20% of shareholders tender and AMX gets >50%. In this case AMX will

control the company and will therefore exert significant influence over the share price

(dividend policy would be an effective instrument).

• Secondly, if E+/Telefonica Germany deal fails (AMX veto) the KPN share price will likely

be under pressure. The EPlus sale announcement caused KPN’s share price to rally from

€1.60 to c.€2.0 pre today’s bid. If the share price falls back to €1.60 - this could

potentially lead to a lower bid. Here we note the uncertainty over AMX future intentions

for the EPlus/Telefonica Germany merger as the largest shareholder with a 29.8% stake.

According to KPN’s presentation (June 2012), on average only 44% of the shareholders

turn up to its AGMs (average since 2003). The German merger would require a majority

approval of those shareholders present at the EGM. This implies that AMX already

controls c.67% of the effective (i.e. active) voting rights. The EGM would thus need in

excess of 60+% of investors to attend and all vote in favour.

Sources of Upside come from 1) AMX increasing its offer 2) Telefonica

increasing its offer for E+.

• The announcement today clearly shows AXM’s interest in eventually acquiring KPN. We

therefore see potential for AMX to increase its bid if it fails to secure 50% voting rights.

Given the risks above, we would expect people to tender once the offer is “live”.

• From Telefonica’s perspective, we believe that increasing the E+ offer before the results

of the EGM are known would be premature. The terms of the deal are attractive in our

view, therefore Telefonica should believe there is a reasonable chance it could

renegotiate the deal on similar terms with AMX, once it is in control of KPN.

AMX purchases in the last 12 months

•

As obligated by article 5 of the Dutch takeover directive, the price of the mandatory

offer must be a reasonable price, defined as the highest price for which the offerer

bought such shares in the last year and if it bought no shares the average list price over

the last year.

• AMX last acquired KPN shares in 4Q12, when it increased its stake from 27.7% to

29.7%; this would set the price for any future acquisition. The average price during

4Q12 was €2.9 per share in range of €2.18-3.75. AMX will have to disclose the price at

which it bought, likely below the €2.40 offered or face its offer being increased.

E+ EGM and tender offer to take place in September.

KPN will call an EGM to vote on the proposed E+ sale in late September (the EGM is yet to be

called, but requires 42 days to arrange). AMX has indicated that it intends to launch an offerin September but the offer will take c.8 weeks to complete. Investors will therefore get a

chance to see the EGM outcome before making the tendering decision. We note that to

formerly launch a tender offer in Holland requires 1) a tender memorandum 2) approval by

the financial regulator, which usually takes two weeks. Therefore AMX could in theory

launch the tender offer in early September. Doing so, we believe is desirable from AMX’s

perspective. With the tender before EGM, AMX would be able to get a gauge of initial

shareholder interest. Provided AMX could get to >50% (perhaps tender will be

complemented with open market buying), AXM could also get the upside from the

Telefonica deal.



Barclays | KPN

9 August 2013

5

Does AMX want to sell E+?

We believe that the E+ offer from Telefonica was attractive and the merger should be seen

as favourable. However, AMX’s broader European ambitions may require a German

presence. Such an announcement would likely weigh on KPN’s share price and help further

AMX’s goals of taking control of KPN.

Is KPN worth more than €2.40 per share?

The current offer for E+ values it at c7x EBITDA (using current value of O2 Germany) and 8x

including synergies proposed under the deal. Flexing KPNs Dutch/Belgian assets at 5.0x-

5.5x and the German EV €7-8bn implies a value per share range for KPN Group of €2.4-€3.0

per share. This is offset by AMX’s strong hold over the E+/Telefonica Germany merger

decision.

Foundation

KPN has a foundation “the de stitching Preference Shares" that are able to issue B shares to

dilute any hostile acquirer. The Foundation is set up to protect the “continuity and

identity…” of KPN and gives management 12-18 months to propose alternative solutions.

With AMX already owning a 29% share and the offer materially above the levels seen in therecent past we see the Foundation being used as unlikely.

What’s the impact on AMX leverage profile?

Below we look at the impact on AMX’s leverage of acquiring additional shares in KPN. AMX

remains committed to its credit ratings (typically Net debt / EBITDA below 1.5x) so an offer

for KPN would increase leverage above these thresholds.

FIGURE 3

AMX: flexing incremental ownership percentage in KPN and share pice paid to derive AMX leverage (Net debt:EBITDA)

incremental ownership of KPN

K P N

s h a r e p r i c e

K P N

10 20 30 40 50 60 70

2.0 1.66 1.70 1.75 1.79 1.84 1.88 1.93

2.1 1.66 1.71 1.76 1.80 1.85 1.90 1.94

2.2 1.66 1.71 1.76 1.81 1.86 1.91 1.96

2.3 1.67 1.72 1.77 1.82 1.87 1.92 1.97

2.4 1.67 1.72 1.78 1.83 1.88 1.94 1.99

2.5 1.67 1.73 1.78 1.84 1.89 1.95 2.01

2.6 1.67 1.73 1.79 1.85 1.90 1.96 2.02

Source: Barclays Research, Bloomberg consensus.



Barclays | KPN

9 August 2013

7

FIGURE 6

Telefonica Germany and EPlus – Revenue, EBITDA and Capex forecasts and Synergy assumptions

€m 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenue

O2DE 5010 5020 4991 5070 5146 5234 5330 5426

Eplus 3146 3201 3375 3544 3697 3837 3967 4108

Synergies 0 -164 -84 0 44 45 93 191

New Revenues 8156 8057 8282 8615 8887 9117 9390 9724

Synergies as % of total - (2,0) (1,0) - 0,5 0,5 1,0 2,0

EBITDA

O2DE 1304 1271 1289 1332 1414 1470 1488 1548

Eplus 953 936 1080 1205 1294 1343 1388 1438

Synergies 0 -221 -237 -25 271 422 431 448

New EBITDA 2257 1987 2132 2512 2979 3235 3308 3434

Margin (%) 27.7 24,7 25,7 29,2 33,5 35,5 35,2 35,3

Synergies as % of - (10,0) (10,0) (1,0) 10,0 15,0 15,0 15,0

Synergies as % of Gross Opex 0.0 3,7 4,0 0,4 -4,4 -6,7 -6,7 -6,8

Capex

O2DE 661 638 591 584 595 608 621 635

Eplus 591 554 540 549 555 595 615 637

Synergies 0 60 57 -23 -57 -120 -185 -191

New Capex 1252 1252 1188 1111 1092 1082 1051 1081

Synergies as % of - 5.0 5.0 (2.0) (5.0) (10.0) (15.0) (15.0)

Incr/(decr) % 0.0 5.0 5.0 -2.0 -5.0 -10.0 -15.0 -15.0

Capex/sales (%) 15.3 15.5 14.3 12.9 12.3 11.9 11.2 11.1

Source: Companies and Barclays Research estimates

These assumptions drive our FCF assessment, which at least in the early years drives FCF

forecasts that are near those proposed by the companies. Our longer dated forecasts are

more conservative at this stage.

Importantly, whether EPlus retains its operating losses or loses some as part of the

acquisition is significant. In our analysis we assume in the early years EPlus’ earnings are

sheltered by first, existing “accelerated depreciation for tax purposes”, paying a marginal

cash tax rate of 10-20% and second, from 2018 pays a marginal tax rate of 20-25%. This

implies some measure of tax shield from O2’s existing losses.

We calculate the deal is essentially accretive of FCF from 2015.

FIGURE 7

Telefonica Germany and EPlus – Free Cashflow forecasts

€m 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

OFCF 1005 735 944 1401 1887 2152 2257 2353

O2DE tax - - - -31 -47 -57 -62 -71

O2DE interest -43 -52 -61 -61 -61 -60 -59 -58

Eplus/synergies tax - -20 -49 -131 -214 -258 -278 -288

New FCF 962 662 834 1179 1566 1777 1858 1937

Old FCF 665 521 567 617 676 708 709 696

Incr/(decr) % 44.6 27.1 47.1 91.0 131.6 151.0 162.3 178.1

Source: Companies and Barclays Research estimates



Barclays | KPN

9 August 2013

8

However, the issue will be FCF/share, and hence Dividends in 2015. While FCF is neutral in

2015, synergies do not kick in materially to the overall FCF until 2016 and onwards. Hence

with increased share count, FCF/share falls in 2015.

Below we calculate the shares issued by TEF DE as part of the rights issue and also to KPN in

return for its stake in newco.

FIGURE 8

Calculation of NewCo shares in issue, Market Capitalisation and Enterprise Value

What is O2DE+ worth

Share price, € 5.20

Old shares, m 1,117

Size of increase, % 25.0

New shares, m 1,396

Market capitalisation, €m 7,259

Net debt, 2014E 708

Cost/shares issued 3,700

Other/spectrum 500

Enterprise value 12,167 Source: Barclays Research

NewCo – FCF per share dips in 2015

While we forecast FCF accretion in 2015 onwards, i.e. the first year of the deal as per

management, the shares in issue will have doubled to c2.3bn, from the current 1.1bn today.

This will mean FCF per share falls dramatically in 2015, before recovering in 2016, as the

table below shows.

FIGURE 9

NewCo Forecast FCF per Share

€ 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

FCF per share - old 0.60 0.47 0.51 0.55 0.61 0.63 0.63 0.62

FCF per share - new 0.38 0.26 0.33 0.46 0.62 0.70 0.73 0.76

Incr/(decr) % -36.4 -44.1 -35.3 -16.0 1.8 10.4 15.3 22.3

Source: Barclays Research

Management at TEF DE will need to go beyond their current commitments on dividends

“progressive absolute payout” and commit to a “flat DPS in 2015” to avoid market concerns

that the DPS will fall in 2015, before recovering in 2016. With low leverage, the additional

€0,7bn is manageable.

Must commit to “flat DPS” for

2015



Barclays | KPN

9 August 2013

9

Flexing valuation Old TEF DE and NewCo

Below we flex the current Enterprise valuations of TEF DE and NewCo using the terms of the

deal and the current TEF DE share price. As can be seen below, the deal is accretive on most

valuation metrics from 2015 onwards, however as mentioned above the FCF per share dips

in 2015, implying TEF DE will need to commit to a “flat DPS” to calm minority fears.

FIGURE 10

Valuation Metrics – TEF DE vs NewCo, using announced deal and current prices

2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

EV/EBITDA old 5.8 5.9 5.8 5.6 5.3 5.1 5.1 4.9

EV/EBITDA new 4.6 5.2 4.9 4.2 3.5 3.2 3.2 3.0

EV/OFCF old 11.7 11.9 10.8 10.0 9.2 8.7 8.7 8.2

EV/OFCF new 10.4 14.2 11.0 7.4 5.5 4.8 4.6 4.4

EFCF yield old 11.5 9.0 9.8 10.6 11.6 12.2 12.2 12.0

EFCF yield new 10.4 7.2 9.1 12.8 17.0 19.3 20.2 21.0

Dividend yield (assume 90% payout) old 9,7 7,6 8,3 9,0 9,9 10,4 10,4 10,2

Dividend yield (assume 90% payout) new 8,2 5,0 5,4 8,9 12,5 13,5 14,4 15,0

Source: Barclays Research



Barclays | KPN

9 August 2013

Barclays Research estimates

FIGURE 12

Forecast P&L

€mn 2012 2013E 2014E 2015E 2016E 2017E

Operating revenues 12,409 11,632 11,438 11,528 11,656 11,811Other income 299 67 67 67 67 67

Total revenues and other income 12,708 11,699 11,505 11,595 11,723 11,878

EBITDA (reported) 4,638 3,993 3,831 3,937 4,029 4,095

EBITDA margin (%) 146 34.1 33.3 34.0 34.4 34.5

Depreciation (1,518) (1,740) (1,712) (1,795) (1,850) (1,899)

Amortisation (1,190) (936) (904) (887) (870) (853)

Depreciation and amortisation (2,708) (2,676) (2,616) (2,681) (2,720) (2,753)

Operating income (EBIT) 1,930 1,317 1,215 1,256 1,309 1,342

Margin (%) 15.6 11.3 10.6 10.9 11.2 11.4

Financial income and expenses (879) (682) (655) (613) (555) (551)

Income from associates & jv's (13) (12) (12) (12) (12) (12)

Profit before tax 1,038 623 548 631 742 780

Taxation (273) (125) (110) (126) (186) (196)

Effective rate % -26.3 -20.0 -20.0 -20.0 -25.1 -25.1Income from participating interests 0 0 0 0 0 0

Minority interests (2) (8) (10) (10) (10) (10)

Profit/(loss) after taxes (net result) 763 490 428 495 546 574

Dividend (171) 0 0 (214) (427) (448)

Per share data

Number of shares at the end of the period (m) 1,429 4,270 4,270 4,270 4,270 4,270

Weighted average number of shares during theperiod (m) 1,429 2,850 4,270 4,270 4,270 4,270

EPS (reported) (€) 0.53 0.17 0.100 0.12 0.13 0.13

DPS (€) 0.12 0.00 0.00 0.05 0.10 0.11

Payout ratio (%) 22.5 0.0 0.0 43.1 78.2 78.1

Dividend/FCF (%) 10.4 0.0 0.0 27.6 47.8 38.8

Source: Company data, Barclays Research



Barclays | KPN

9 August 2013

FIGURE 13

Forecast Cash Flow Statement

€mn 2012 2013E 2014E 2015E 2016E 2017E

Operating Profit 1,930 1,317 1,215 1,256 1,309 1,342Depreciation & amortisation 2,708 2,676 2,616 2,681 2,720 2,753

Interest paid (received) (661) (653) (576) (613) (555) (551)

Income tax (paid) received (486) (313) (114) (107) (141) (140)

Book gains 37 0 0 0 0 0

Change in provisions/pension top-up/redundancy (114) (50) (50) (50) (50) (50)

Net cashflow from op activities b4 WC 3,414 2,976 3,091 3,168 3,283 3,354

Inventory change (increase)/decrease 19 5 5 5 5 5

Trade receivables (increase)/decrease 5 (40) (50) (50) (50) (50)

Other current assets (increase)/decrease 22 (46) 0

Current liabilities increase/(decrease) (453) 125 25 25 25 25

Net cashflow from operating activities 3,007 3,020 3,071 3,148 3,263 3,334

(70) (70) (70)

Capex (2,209) (3,696) (2,381) (2,306) (2,302) (2,111)

Disposal of PPE 518 23 0(Acquisition)/disposal (344) 28 (161) (647)

Other (98) (32) 0

Net cashflow from investing activities (2,133) (3,678) (2,542) (2,306) (2,302) (2,758)

Group dividend/hybrid paid (979) (39) (67) (173) (494) (515)

Of which hybrid (33) (67) (67) (67) (67)

Share purchases 0 2,948 0 - - -

Debt issued/repaid 114 (2,611) 0 - - -

Other (11) (25) 0

Net cashflow from financing activities (876) 240 (134) (240) (561) (582)

Net changes in cash and cash equivalents (2) (417) 396 602 401 (6)

Cash and cash equivalents start of period 1,012 947 531 927 1,528 1,929

Exchange rate differences, other (65) 1 - - - -Cash and cash equivalents end of period 947 531 927 1,528 1,929 1,923

Tax Recapture e-Plus 335 180 - - - -

FCF reported (KPN definition) 1,652 844 623 775 894 1,156

FCF (BCAP definition) 689 584 623 775 894 1,156




Barclays | KPN

9 August 2013

FIGURE 14

Forecast Balance Sheet

€mn 2012 2013E 2014E 2015E 2016E 2017E

Licenses & other intangibles 3,301 4,065 3,561 3,174 2,804 2,451Goodwill 5,157 5,158 5,158 5,158 5,158 5,158

Property, plant and equipment 7,895 8,491 9,159 9,170 9,122 8,834

Financial fixed assets 1,000 883 883 883 883 883

Deferred tax asset 1,822 1,890 1,890 1,890 1,890 1,890

Total fixed assets 19,175 20,487 20,651 20,276 19,857 19,215

Inventory 111 104 99 94 89 84

Receivables 1,696 1,841 1,891 1,941 1,991 2,041

Prepayments & other 5 7 7 7 7 7

Current assets 1,812 1,952 1,997 2,042 2,087 2,132

Cash and cash equivalents 1,286 531 927 1,528 1,929 1,923

Other 28 0 0 0 0 0

Total assets 22,301 22,970 23,575 23,846 23,873 23,271

Pension provisions 1,557 1,500 1,442 1,385 1,327 1,270

Deferred tax liabilities 211 75 49 47 45 42

Restructuring provisions 0 0 0 0 0 0

Other 967 1,078 1,078 1,078 1,078 1,078

Non current liabilities 2,735 2,653 2,570 2,510 2,450 2,390

Accounts payable 3,858 3,932 3,957 3,982 4,007 4,032

ST portion of debt 1,527 2,428 1,527 1,527 1,527 1,527

Accruals & other 472 (826) (640) (121) (812) (808)

Current liabilities 5,857 5,534 4,844 5,388 4,722 4,751

Long-term liabilities 12,369 8,970 9,987 9,453 9,052 8,411

Other liabilities assoc with noncurrent asset groups held

for sale 6

Shareholders' equity 1,334 4,724 5,083 5,404 6,548 6,607

Minority/hybrid 1,089 1,092 1,092 1,102 1,112

Exchange right 0 0 0 0 0

Liabilities & equity 22,301 22,970 23,575 23,846 23,873 23,271




Barclays | KPN

9 August 2013

ANALYST(S) CERTIFICATION(S)

We, Jonathan Dann, Maurice Patrick, San Dhillon, Michael Bishop and JP Davids, CFA, hereby certify (1) that the views expressed in this researchreport accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part ofour compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

The POINT® Quantitative Equity Scores (POINT Scores) referenced herein are produced by the firm’s POINT quantitative model and Barclayshereby certifies that (1) the views expressed in this research report accurately reflect the firm's POINT Scores model and (2) no part of the firm's

compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

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Primary Stocks (Ticker, Date, Price)

KPN (KPN.AS, 08-Aug-2013, EUR 2.00), Equal Weight/Negative, A/C/D/J/K/L/M/N

Disclosure Legend:

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Barclays | KPN

9 August 2013


associated Designated Market Maker may be on the opposite side of orders executed on the floor of the New York Stock Exchange in the stock.

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S: Barclays Capital Canada Inc. is a market-maker in an equity or equity related security issued by this issuer.

Guide to the Barclays Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below)relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverageuniverse").

In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral orNegative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating

Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month

investment horizon.

Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

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Industry View

Positive - industry coverage universe fundamentals/valuations are improving.

Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

Negative - industry coverage universe fundamentals/valuations are deteriorating.

Below is the list of companies that constitute the "industry coverage universe":

European Telecom Services

Belgacom (BCOM.BR) Bouygues SA (BOUY.PA) BT Group PLC (BT.L)

Cable & Wireless Communications PLC (CWC.L) Colt (COLT.L) Daisy (DAY.L)

Deutsche Telekom AG (DTEGn.DE) Elisa Oyj (ELI1V.HE) Iliad SA (ILD.PA)

Inmarsat plc (ISA.L) InterXion Holding NV (INXN) Jazztel Plc (JAZ.MC)

Kabel Deutschland (KD8Gn.DE) KCOM (KCOM.L) KPN (KPN.AS)

Liberty Global, Inc. (LBTYA) Mobistar (MSTAR.BR) Orange (ORAN.PA)

OTE (OTEr.AT) Portugal Telecom SGPS SA (PTC.LS) Sonaecom SGPS SA (SNC.LS)

Swisscom (SCMN.VX) TalkTalk Telecom Group (TALK.L) TDC (TDC.CO)

Tele2 AB (TEL2b.ST) TeleCity Group Plc (TCY.L) Telecom Italia SpA (TLIT.MI)

Telecom Italia-RSP (TLITn.MI) Telefonica Deutschland (O2Dn.DE) Telefonica SA (TEF.MC)

Telekom Austria (TELA.VI) Telenet Group Holding NV (TNET.BR) Telenor ASA (TEL.OL)

TeliaSonera AB (TLSN.ST) Vodafone Group Plc (VOD.L) Ziggo (ZIGGO.AS)

Zon Multimedia (ZON.LS)

Distribution of Ratings:

Barclays Equity Research has 2400 companies under coverage.

44% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 51% of companies with this rating are investment banking clients of the Firm.



Barclays | KPN

9 August 2013


41% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 47% ofcompanies with this rating are investment banking clients of the Firm.

13% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 42% ofcompanies with this rating are investment banking clients of the Firm.

Guide to the Barclays Research Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's pricetarget over the same 12-month period.

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A high/low Value score indicates attractive/unattractive valuation. Measures of value include P/E, EV/EBITDA and Free Cash Flow.

A high/low Quality score indicates financial statement strength/weakness. Measures of quality include ROIC and corporate default probability.

A high/low Sentiment score indicates bullish/bearish market sentiment. Measures of sentiment include price momentum and earnings revisions.

These scores are valid as of the date of this report. To view the latest scores, which are updated monthly, click here.

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London

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New York

Barclays Capital Inc. (BCI, New York)

Tokyo

Barclays Securities Japan Limited (BSJL, Tokyo)

São Paulo

Banco Barclays S.A. (BBSA, São Paulo)

Hong Kong

Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)

Toronto

Barclays Capital Canada Inc. (BCCI, Toronto)

Johannesburg

Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)

Mexico City

Barclays Bank Mexico, S.A. (BBMX, Mexico City)

Taiwan

Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)

Seoul

Barclays Capital Securities Limited (BCSL, Seoul)

Mumbai

Barclays Securities (India) Private Limited (BSIPL, Mumbai)

Singapore

Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)


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Barclays | KPN

9 August 2013


KPN (KPN NA / KPN.AS) Stock Rating Industry View

EUR 2.00 (08-Aug-2013) EQUAL WEIGHT NEGATIVE

Rating and Price Target Chart - EUR (as of 08-Aug-2013) Currency=EUR

Date Closing Price Rating Price Target

20-Jun-2013 1.49 1.80

24-Apr-2013 1.68 1.82

07-Feb-2013 1.91 Equal Weight 2.30

24-Jan-2013 2.64 4.24

13-Dec-2012 2.84 5.15

24-Oct-2012 3.29 6.06

10-Oct-2012 3.65 6.55

25-Jan-2012 4.94 Overweight 6.06

26-Oct-2011 5.78 7.28

10-Jun-2011 6.01 Equal Weight 6.67

07-Sep-2010 6.87 9.09

Link to Barclays Live for interactive charting

A: Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of KPN in theprevious 12 months.

C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by KPN or one of its affiliates.

D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from KPN in the past 12 months.

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of KPN.

K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from KPN within the past 12 months.

L: KPN is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.

M: KPN is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or anaffiliate.

N: KPN is, or during the past 12 months has been, a non-investment banking client (non-securities related services) of Barclays Bank PLC and/oran affiliate.

Valuation Methodology: We value KPN by using a DCF based SOTP. Our WACC assumptions range from 8-9% and our perpetual growthassumptions from 1-1.5%

Risks which May Impede the Achievement of the Barclays Research Price Target: Our thesis assumes a recovery in performance in Germanmobile and continued competitive stability in both mobile and fixed line operations in the Netherlands, any deterioration in these assets would putour thesis at risk.

Clos ing Pr i ce Target Pr i ce Rat i ng Change

Jan- 2011 Jul - 2011 Jan- 2012 Jul - 2012 Jan- 2013 Jul - 2013

0.75

1.50

2.25

3.00

3.75

4.50

5.25

6.00

6.75

7.50

8.25

9.00

9.75





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European Telecom Services (Cont'd)

Michael Bishop JP Davids, CFA Gonzalo Fernandez Dionis

+44 (0)20 3134 5626 +44 (0)20 3134 3437 +44 (0)20 3555 5178

[email protected] [email protected] [email protected]

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