Press Release


KPN announces 9.3% profit growth

Publish Date : 9 April 1998 at 11:55 CET - Net income of Royal PTT Nederland NV (KPN) increased by 9.3% in 1997 to NLG 2,690 million. PTT Telecom contributed NLG 1,941 million and PTT Post/TNT NLG 694 million. The remaining part of net income came from the other KPN group companies. Earnings per share rose to NLG 5.72 in 1997 (compared to NLG 5.29 in 1996).

KPN's sales went up by 44.3% to NLG 30,776 million, mainly due to the acquisition of TNT Ltd. and GD Express Worldwide. PTT Post/TNT generated sales of NLG 15,267 million in 1997. PTT Telecom recorded sales of NLG 15,473 million. KPN's operating income rose by 6.2% to NLG 4,642 million.

Sales at PTT Post/TNT increased by 12.8% through greater volumes in its three main business areas(Mail, Express and Logistics). PTT Telecom's sales grew by 8.4%, which was the result of 15.4% volume growth and 7% negative price effects.

Dividend

The KPN Board of Management has decided to pay a second interim dividend of NLG 2.00 per share over the 1997 financial year which shareholders may elect to receive either in cash or in shares. It was decided to pay a second interim dividend to prevent that the later date of the annual shareholders meeting (in relation to the demerger) would affect the moment of dividend payment. The first interim dividend amounted to NLG 1.10. The 1997 dividend will be equal to the sum of the first and second interimdividend (NLG 3.10). No final dividend will be paid. The dividend will be made payable as of May 25,1998, after the option period that runs from April 29 to May 20 1998, has expired.

Demerger

In June 1997, the Board of Management announced its decision to recommend to its shareholders that they resolve the demerger of the Mail, Express and Logistics activities of Royal PTT Nederland. The partition of assets necessitated by the demerger required an examination of the financial implications of effecting a stand-alone basis for Vision Networks. The partition will in fact produce a three-way split whereby KPN NV (the new telecommunications company), TNT Post Group NV and Vision Networks NV will each be financed in a way that will, in principle, allow them to function independently of each other. The demerger of Mail, Express and Logistics activities will result in the transfer of an amount of approximately NLG 3.6 billion of the Company's equity, whereas the internal demerger of Vision Networks will result in a transfer of an amount of approximately NLG 1.7 billion of the Company's equity. Vision Networks will remain for the time being a non-consolidated affiliated and associated company of KPN until its sale.

Personnel

Royal PTT Nederland counted 134,923 employees at year-end 1997, corresponding with 115,433 Full Time Equivalents (FTEs). Employees of the Royal PTT Nederland holding company were transferred with their jobs to TNT Post Group or KPN on January 1, 1998.



PTT POST/TNT

PTT POST/TNT enjoyed an excellent year compared with 1996. It recorded a net profit of NLG 694 million of which TNT/GDEW contributed NLG 64 million. Sales more than doubled to NLG 15,267 million as a result of the acquisition of TNT/GDEW. Compared with the 1996 pro forma figures , sales rose by NLG 1,730 million (12.8%) in 1997. Mail, Express and Logistics each made a contribution to the higher sales. Operating income increased by NLG 212 million (19.1%) in 1997. Mail contributed NLG 24 million, Express NLG 139 million and Logistics NLG 20 million. The remainder of the increase is the sum of lower non-recurring costs and higher amortization of goodwill.


Mail

Sales in the Mail business area increased by NLG 464 million (6.9%) in 1997. Dutch Domestic Mail (comprising the activities of the former business units Letters, Parcel Service and Philately and those of EMS Express) rose by NLG 131 million (4.1%). This increase came almost entirely from higher volumes (NLG 137 million) and is partly due to the introduction of a new service called 'Port Betaald Gemengd'. This service resulted in an increase in bulk mail sales and a decrease in sales from single-items of mail.

Dutch Direct Mail, consisting of Distriprofs (direct mail distribution including direct non-mail), Dataprofs (database management), Mailprofs (mail room management and employment agency activities) and Print & Mail (print- and mail activities), generated a growth of NLG 149 million (9.6%), including a contribution of NLG 46 million from acquisitions.

International Mail, consisting of some of the activities of the former business unit International, the products and services of TNT Mailfast and activities performed by Belgische Distributiedienst, saw its sales rise by NLG 235 million (17.8%). Acquisitions accounted for NLG 116 million of this increase, principally the acquisition of Belgische Distributiedienst, while NLG 77 million came from positive currency effects.

Post Offices and other consists of Postkantoren and some other business units and service centers that perform supporting activities. The sales of 'Post Offices and other' decreased by NLG 51 million in 1997 compared with 1996, despite an NLG 19 million increase in Postkantoren's sales. The decrease in sales was caused mainly by termination and reduction of activities.

Express

Express sales increased by NLG 1,014 million (19.5%) in 1997 compared with the pro forma 1996 results. Of this increase, NLG 805 million resulted from higher sales of Express Europe and NLG 209 million from higher sales of the Express International line.

Express Europe consists of the express activies of TNT and GDEW in Europe and the former business unit EMS, excluding EMS Express. The increase of Express Europe's sales by NLG 805 million (20.2%) included NLG 263 million (6.6%) generated by positive currency effects. Leaving this aside, the sales of Express Europe rose by NLG 542 million (13.6%). These higher sales came from a general volume increase in the European market, driven by economic growth and the increase in cross-border traffic. The growth of sales was offset in part by a margin deterioration caused by intensified competition.

About half of the increased sales of Express International (NLG 209 million) resulted from currency effects. The remainder, NLG 105 million, came from an increase in existing activities. Also here the growth was driven by the increase in cross-border traffic and general economic growth, while increasing competition resulted in lower prices.

Logistics

Sales in the Logistics business area increased by NLG 241 million (13.9%) in 1997. This includes NLG 138 million resulting from currency effects. Leaving aside this favorable effect, sales rose by NLG 103 million. Important contributions to the growth of sales came from the United Kingdom, the Benelux countries and Italy. The further expansion of activities in the automotive industry played a large role in this performance. Also in other geographical areas the automotive logistics grew. The NLG 241 million increase in sales of Logistics were achieved in spite of the sale of the German company Netlog in 1997. The contribution of this company to the sales of Logistics in 1997 was therefore NLG 211 million lower than in 1996.

Prospects 1998 TNT POST GROUP

Assuming stable exchange rates, the Board of Management of TNT Post Group expects the increase in sales in 1998 to be in line with the 1997 development. The Board expects, again assuming stable exchange rates, that operating income and net income will increase between 10% and 15%.

TNT Post Group expects capital expenditure in 1998 to be well above the 1997 level. TNT Post Group may incur in debtedness to finance certain capital expenditures and business opportunities.

The number of FTEs at TNT Post Group is, while expected to be more or less stable for the Group as a whole, expected to decline in the Mail business area as a result of ongoing efficiency programs and expected to increase in the Express and Logistics business areas, as a result of further growth of businesses.

Dividend policy

TNT Post Group will announce its dividend policy not later than May 25 1998 (date of issue prospectus).

PTT TELECOM

PTT Telecom's net result in 1997 was NLG 1,941 million, a 9.4% increase over the year before. The sales of PTT Telecom increased by 8.4% to NLG 15,473 million. Increased sales of mobile communication services (by NLG 524 million) and national telephony services (by NLG 366 million) contributed particularly large shares to this growth.

National telephony services

Sales increased by 5.6%. A volume growth of 6.4% was partly offset by a price-effect of 0.8%. The growth of sales was achieved through a strong increase in the number of subscriber lines (ISDN) and an increase of (telephony) traffic. The call rate rose by 4.3% to 3.71. Average call duration increased from 193 seconds to 196 seconds. A further growth of sales can be achieved in 1998 following the introduction in 1997 of new services such as VoiceMail (with approximately 0.9 million users at year-end 1997) and Het Net (with 146,000 users at year-end 1997).

International telephony services

Sales of international telephony services remain under pressure. The decrease in sales by NLG 96 million (4.4%) was however limited. Against a volume increase of 12.4% there was a negative price effect of 16.8% as a result of a reduction of prices. The negative price effect is the direct result of PTT Telecom's pro-active pricing policy, aimed at limiting its loss of market share. The 'Europe' tariff was introduced in July 1997, reducing call charges by 10%. This was followed in October 1997 by a generic tariff reduction of 25%.

Mobile communication services

With an increase of 27.8%, mobile communication services made the largest contribution to the increase of sales at PTT Telecom. The strong market growth yielded an increase in volume of 42%, which was partly offset by a price reduction of 14.2%. The number of subscribers increased in 1997 by more than 47% to 1,185 million. PTT Telecom introduced pre-paid phone cards in 1998. More than 80,000 cards were sold within the space of two months. The reduction of 61,000 subscribers in the analogue NMT network was caused to a large extent by subscribers who migrated to PTT Telecom's GSM network. A growth of 442,000 subscribers was recorded in the GSM network. PTT Telecom's share in the growth of the mobile market in the Netherlands exceeded 50%. The number of pagers('Buzzers' and traditional pagers) increased by 89,000 to 733,000. The market share of Station 12 (satellite communication) increased further; therefore Station 12 strengthened its position as global market leader.

End-user equipment

Sales of end-user equipment increased by 8.6% (NLG 132 million) in 1997. Almost two-thirds of the sales consisted of the supply, installation and servicing of business communication equipment. PTT Telecom succeeded retaining its marketshare in this highly competitive market for end-user equipment. The margins on end-user equipment however remain permanently under pressure. This was reflected particularly in the consumer market where price erosion increased during 1997.

Other activities

Sales from other activities increased by 7.9% (NLG 145 million). Sales from consolidated affiliated (and associated) companies rose by NLG 121 million, mainly as a result of more sales from activities in the ICT field, such as Chipper, Videotex, Infonet and Communication Solutions Nederland, and new activities like those of AP Beheer (the holding company of ANWB Travelcom) and UBN Belgium. Sales in the leased lines segment increased by NLG 49 million, mainly due to an increase in the number of international leased lines. The amendment of charges imposed on PTT Telecom in 1996 by the Minister of Transport, Public Works and Water Management resulted in a negative price effect of NLG 45 million in 1997.

Results of affiliated and associated companies

The results of international affiliated and associated companies showed a positive development in 1997. This was due among other things to the contribution made by Telecom Eireann which was included in the results for the first time. In addition, partly due to book gains on the sale of a number of subsidiaries. KPN's share in Unisource's results improved by NLG 72 million. Unisource's sales increased by more than 29% to NLG 3,143 million.

Worldpartners, of which Unisource is a shareholder, tripled its sales in 1997 and now provides services to 600 companies worldwide. Negotiations on participation of Telecom Italia in the AT&T-Unisource alliance are in progress. Sales of Telecom Eireann (in which KPN holds a 20% interest together with Telia of Sweden) increased by 24%. Telecom Eireann contributed NLG 66 million to KPN's results. The number of subscriber lines in the fixed and mobile networks increased by 7% and 48%, respectively. In the Czech Republic, SPT Telecom increased its sales by 22% to more than NLG 2,464 million and contributed NLG 44 million to KPN's results. The number of subscriber lines in the fixed and mobile networks rose by 16% and 101%, respectively. Sales of PT Telkomsel in Indonesia more than doubled in 1997. There was also an explosive growth of the average number of customers. With 342,000 subscribers, PT Telkomsel is now the market leader for mobile communications in Indonesia. KPN's share in the results of Telkomsel was -NLG 5 million. Although the long-term prospects for PT Telkomsel still remain attractive, PTT Telecom will continue to monitor developments in Indonesia very closely. A cost reduction program is currently being put in place and investments are being cut to a minimum. The investment in PT Bakrie Electronics Company (BEC) in Indonesia was completely written down in 1997.

KPN's prospects for 1998

The domestic and international (tele)communications market is expected to continue its growth in 1998. This is expected to result in continued growth in revenues for KPN.

The development of new services and the expansion of the Internet are important causes for the growth of national telephony services. As a result, KPN expects to compensate for a decrease in revenues resulting from a decrease in its market share because of increased competition. Mobile communications services are expected to continue its strong growth in 1998.

International telephony services will continue to be subject to price pressures. It is expected that the pressure on prices for international telephony services will not be compensated by sufficient growth in volume and it will, therefore, lead to a decrease in revenues. The international accounting rate system will continue to make way for bilateral interconnection agreements between operators.

KPN is increasingly affected by direct government involvement concerning its business operations. By maintaining a consistent and constructive relationship with parliament, the State, OPTA and the NMa, KPN seeks to ensure that its commercial freedom is not hampered. Models not based on sound business-economic principles for cost calculation may have far reaching consequences for current tariffs, resulting returns and ultimately investment policy.

The implementation of reorganization- and cost reduction programmes is an important goal for KPN in 1998 to safeguard profits of activities in its home market in the long term. As a result of the anticipated organizational changes, KPN expects to take a major reorganization provision in the course of 1998. The current estimate is that the provision could involve an amount of approximately NLG 500 to NLG 800 million.

KPN expects a higher level of investment in 1998, compared to 1997. Fast implementation of new technology such as SDH(syncronous digital hierarchy) will contribute to the simultaneous creation of additional capacity and a higher quality fixed network.

The Board of Management of KPN NV intends to pursue a progressive dividend policy. The increase in dividend per ordinary share is expected to be at least equal to the increase in net income per ordinary share.

The Board of Management of KPN expects the net result in 1998 before deduction of the aforementioned provision to be slightly higher than the 1997 net result. The provision will not have a negative effect on the dividend per share to be paid in 1998.

SAFE HARBOUR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain information contained in this press release, particularly in the 'Prospects' section is forward-looking. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. In addition to the assumptions specifically mentioned in the above paragraphs, there are a number of other factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the actual effects of recent and future regulatory changes and technological developments, globalization, levels of spending in major economies, the economic climate in Southeast Asia, levels of marketing and promotional expenditure, actions of competitors and joint venture partners, employee costs, future exchange and interest rates, changes in tax rates, unexpected costs of integrating recently acquired businesses and future business combination or dispositions or the Telecom reorganization.

Page publication date: 9 April 1998 at 11:55 CET