Everyone Connected - jaarverslag2017.kpn

1 Everyone ConnectedKPN Integrated Annual Report 2017 2 KlasseContact feels just like I m at school. I really can still communicate normally with the outside world. I try not to use my phone on public transport. Everyone connectedWe make life more free, fun and easy by connecting people. We re passionate about offering secure, reliable and future-proof networks and services, enabling people to be Connected anytime, anywhere, whilst at the same time creating a prosperous and more sustainable connect people through our products and services, as well as by supporting socially responsible initiatives. The KPN Mooiste Contact Fonds, which celebrated its 10th anniversary in 2017, connects vulnerable groups in society, such as elderly people or sick children, with the world around them.

2 In our online annual report ( ), we take a closer look at this in a documentary about the significance of social contact in a digital at a glance Who we are and what we doThe long-term value we create 1 KPN at a glanceIntroduction by the CEO 2 Our main achievements 4 Review of the year 5 Who we are and what we doOur purpose and the world around us 6 Our strategy and activities 8 Our value creation model 10 Our capitals to operate 13 The long-term value we createThe value we create for our stakeholders 14- Customer value 14- Integrated products and services 16- State-of-the-art networks and ICT infrastructure 20- Sustainable employability 22- Shareholder value 24 The value we create for society 29.

3 Innovation 29- Reliability 32- Sustainability 34 Our long-term impact on society 41 How we safeguard long-term valueCorporate governance 42 Compliance & risk 46 Composition of the boards 52 Supervisory Board Report 58 Remuneration Report 64 Financial reportConsolidated Financial Statements 76 Corporate Financial Statements 123 Other Information 131 AppendicesAppendix 1: Alternative performance measures 139 Appendix 2: Overview and connectivity of non-financial 142 information Appendix 3: Transparency 146- About this report 146- Stakeholder engagement and materiality determination 151 Appendix 4: Glossary of terms 157 Digital appendicesFor an overview of our social and environmental figures, GRI Content Index and list of top risks, please see Pages of the Report by the Board of Management 1-53 ContentsOur reporting approach in 2017 In preparing this Integrated Annual Report, we have taken the principles of the International Integrated Reporting Council (IIRC) into account.

4 For the CSR information included in this report, we followed the Global Reporting Initiative (GRI) Standards - Option: Comprehensive. We have detailed our reporting approach in Appendix 3. KPN participates in several sustainability benchmarks, like the Dow Jones Sustainability Index (DJSI), Carbon Disclosure Project (CDP) and the Transparency Benchmark (TB). Our ambition is to maintain a leading position in these benchmarks. This way, we keep improving our performance by comparing it with that of peers. An overview of KPN s performance in different indices during 2017: Ranked as the telecommunications industry leader on the DJSI World Index and included for the sixth consecutive year. Included in CDP s Climate A List for the second year.

5 KPN s Integrated Annual Report 2016 won the European Excellence Award for the best Integrated Annual Report & CSR report. Our 2016 report was built around our nine most material topics. For our 2017 report, we have used our value creation model to structure our reporting. The section, The long-term value we create describes how our strategy and activities lead to value creation for our stakeholders and society by using our assets. In How we safeguard long-term value we describe our governance framework and the main topics that our Board of Management and Supervisory Board dealt with in 2017. Throughout the report we provide detailed performance data. The Financial Report includes the Financial reportAppendicesHow we safeguard long-term value 2 Customer first, improving business performance, financially healthy, and leader in sustainability introduction by the CEOKPN may connect devices, but it s really people that we connect, making their lives more free, fun and easy.

6 Our reliable and energy-efficient networks and data centers ensure fast and stable connections at home, at work, on the move and in emergency situations. Every day, our expert employees look for opportunities to further resilient KPNIn April 2018, I will hand over to my successor, Maximo Ibarra. I have served KPN for a total of 34 years, including two terms as CEO, working with great pleasure and passion, in a sector that is continuously changing. I am proud that KPN is in good shape in all respects. Customers are significantly more satisfied than they were years ago. We have succeeded at a challenging time for the sector in making the company stronger, more flexible and financially healthy.

7 We have improved our reputation throughout the years and are among the top 3 European telecom companies in this respect. We maintained our market positions in the Netherlands, despite strong international competitors and at the same time managed to become the most sustainable telecom company in the world. That is a considerable achievement, for which I would like to thank a large number of dedicated colleagues. Best service provider through simplification and digital transformationTechnology is an essential part of who we are and what we do. Everything we want to achieve for our customers and society has an effect on our own business operations. The KPN Simplification program and the associated digital transformation ensure that we work in an increasingly uniform manner across all our channels.

8 We now have one single face, making us recognizable to all our customers. For example, the shop experience used to be different from the online one, and the online experience was different from a conversation with a customer service agent. Those experiences are now moving closer together. This is reflected in our Net Promoter Score (NPS), which is higher than ever working in an agile manner, we have been able to respond far more quickly to market and technological developments. This fits perfectly with our ambition to become the best service provider in the Netherlands. We want our employees to provide our customers with the best service, products and networks, so we need to continuously challenge ourselves.

9 From customer service, shops, webcare and mechanics to ICT staff, account management and corporate departments, we all have to make a strong and constantly innovatingKPN delivered a solid performance last year. Our strong operating and commercial performance provided the foundation for a solid financial position. The growth in customer numbers illustrates our strong performance. In the Consumer segment, we have more postpaid customers and households with fixed-mobile bundles, more broadband customers and interactive TV customers, while our SME segment has experienced strong growth of multi play cost control in all segments and the ongoing simplification of our organization, systems and product portfolio also contributed to a strong financial position.

10 A structurally lower cost level resulted in run-rate savings of EUR 110 million compared with the end of 2016. Our free cash flow continued to grow too, and totaled EUR 745 million (excl. Telef nica Deutschland dividend) in 2017. Hybrid access strategy including fiber roll-out, VDSL upgrades and continued mobile investment ensure our infrastructure remains best in class. Also, with customer demand and online behavior changing and much more on-demand and streaming ICT is fascinating. It s developing at an increasingly rapid pace. Smartphones first appeared in 2007; now there are billion worldwide. You can use them in many different ways - time and place are no longer an issue. Working, relaxing with Spotify or Netflix, using apps, social media, you name it.