KPN Integrated Annual Report 2021

KPN Integrated Annual Report 2021

Connecting everyone in the Netherlands to a sustainable future

Contents

Contents

Report by the Board of Management

Governance

Report by the Supervisory Board

Financial Statements

Appendices

Report by the Board of Management

Financial Statements

Introduction by the CEO

4 Consolidated Financial Statements

96

Our purpose and the world around us

7 Corporate Financial Statements

158

Strategy, key performances and value creation model 10 Other information

165

Our value for stakeholders - Customer value - Shareholder value - Impact on society

Our performance - Network infrastructure - Focused innovation and digitalization - Safeguarded privacy and security - Sustainable employability - Environmental performance and responsible

supply chain

Our valuable assets

Appendices

15 Appendix 1: Alternative performance measures

174

22 Appendix 2: Connectivity of non-financial information 176

26 Appendix 3: Transparency, materiality and

179

stakeholder engagement

Appendix 4: List of top risks

194

30 Appendix 5: Social figures

202

34 Appendix 6: Environmental figures

204

38 Appendix 7: Supply chain

209

42 Appendix 8: Tax overview for continuing operations 211

47 per country

Appendix 9: GRI index

212

Appendix 10: SASB index

220

53 Appendix 11: Glossary

222

Governance Corporate governance Tax and regulations Compliance and risk Composition of the Board of Management

Report by the Supervisory Board Composition of the Supervisory Board Supervisory Board Report Remuneration Report

55 Statement ? This copy of the Integrated Annual Report 59 is the PDF/printed version of the KPN Integrated Annual 63 Report 2021. This version has been prepared for ease 71 of use, and does not contain ESEF information as

specified in the Regulatory Technical Standards on ESEF (Delegated Regulation (EU) 2019/815). The offi cial 74 ESEF reporting package is available on our website at: 77 84

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KPN Integrated Annual Report 2021

Contents

Report by the Board of Management

Governance

Report by the Supervisory Board

Financial Statements

Introduction by the CEO

Into the future, together

Appendices

Our resilience was tested again in 2021, more than we had hoped. It was another year in which our digital services enabled people to work from home, to follow education online or to keep doing business while stores were closed.

Once again, online access was often the only door to the outside world and contact with others. The pandemic is accelerating the digitalization of our lives in countless areas and in unprecedented ways. The data usage on KPN's networks, which broke records again last year, mirrored the various high and low points we all experienced.

Robust progress on strategy

We succeeded in making strong progress with our Accelerate to Grow strategy last year, thereby concretely demonstrating our purpose: we go all out to connect everyone in the Netherlands to a sustainable future. Our ambition is to make the Netherlands the best-connected country in the world ? a country where everyone is secure online, and can reap the benefits the digital world has to offer.

Our Accelerate to Grow strategy is beginning to be reflected in our results, too. The number of broadband customers we have, is moving in the right direction; we are seeing growth in mobile and our growth in wholesale continues. A key milestone for us last year was the positive development in the SME segment, which has grown service revenue even sooner than expected.

The quality of our networks is significantly boosting customer satisfaction. We have successfully accelerated our journey to sustainable growth and long-term value creation last year ? and we are all set to continue.

After years of declining revenues, we achieved growth in the mass market segments in 2021. In financial terms, we closed the year in line with our ambitious goals, with growing EBITDA and free cash flow. We are offering shareholders a growing dividend and have completed the first tranche of share buybacks to return additional value to shareholders.

Competitive market

With a large number of providers and wide choice for consumers, the Dutch telecommunications market is promising and competitive. Moreover, there are many asset-light players that use our networks for their sharply-priced offerings. The high quality of the digital infrastructure makes the Netherlands an attractive market for launching new products and services. Gaming, e-sports and streaming services are increasingly popular ? and customers expect a lot from their digital connections as a result.

We are well-positioned to continue to lead this market thanks to the targeted innovation of our networks, our attractive services and effective organization. The unsolicited takeover proposals we received last year are one of the clear signs that the telecommunications market itself is in demand. We considered these proposals carefully, taking into account the interests of all our stakeholders, and concluded that they did not provide tangible and material added value to our strategy.

Strong networks

The Netherlands builds a high-quality, future-proof digital infrastructure based on fiber and 5G, enabling a first class internet experience. With our strategy, we are playing a leading role in this. The power of these networks opens new avenues for economic growth, as well as digital opportunities in many areas.

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KPN Integrated Annual Report 2021

Contents

Report by the Board of Management

Governance

Introduction by the CEO

Report by the Supervisory Board

Financial Statements

Appendices

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KPN Integrated Annual Report 2021

Contents

Report by the Board of Management

Governance

Report by the Supervisory Board

Financial Statements

Appendices

Introduction by the CEO

We are rolling out our fiber network at a record pace. We have already connected 40% of the Netherlands to the best, most future-proof infrastructure. Last year, we started the Glaspoort joint venture together with APG. Glaspoort will roll out fiber to nearly a thousand villages and a large number of business parks vis a vis our existing plans. Last year, Ookla once again perceived our mobile network as the best in the Netherlands, with the fastest 5G.

Cybersecurity

The importance of cybersecurity was made apparent several times last year. From large companies paralyzed by cybercriminals and global software vulnerabilities, to changing perspectives on the importance of digital sovereignty within Europe. Vulnerabilities in the legacy portfolio of InternedServices proved the importance of permanent vigilance within KPN. Raising awareness and improving the security of digital life is increasingly becoming a clear part of our mission. After all, a sustainable future must, first and foremost, be a safe and secure one. The integrity and safety of our systems and networks are therefore our highest priority; this is what our customers and society expect of us.

Increasing the cybersecurity of the Dutch business community also requires scalable and accessible solutions. KPN offers accessible security solutions for all business owners, from SMEs to large corporates. Moreover, we develop services such as secure data exchanges, to additionally safeguard critical data.

Our people

A big thank you to all employees for their great commitment and efforts; they make KPN what it is. It is encouraging to see that, despite the ongoing effects of COVID-19 and the increased pressure due to continued working from home, our employee engagement remains high. Technology is patient, but our people make the difference. That is why we also keep investing in developing talent, with a focus on increasing diversity, inclusion and being an attractive employer. We stimulate new ways of working that align with our core values of trust, courage and growth, with an eye for vitality and mutual connections. Only by having colleagues who understand the changing needs of our market we can continue to innovate and serve our customers better.

Sustainable future

Our stakeholders greatly value our sustainable nature. We continue to explore new paths so that we can remain a pioneer in the field of sustainability. KPN is the only telecommunications company to have been in the Dow Jones Sustainability World Index for 10 consecutive years. Our own energy consumption has been 100% climate-neutral for years, and continues to fall even as data usage on our networks rises.

Last year, we linked financial instruments to our climate ambitions with the issuance of a sustainability-linked bond and a sustainability-linked revolving credit facility. We have formulated robust circularity ambitions, and set a target to reduce emissions across our entire value chain to net-zero by 2040 and compensate for the remainder. We will do our utmost to achieve this goal.

Looking ahead

If 2021 has shown us anything, it is how resilient we are. In 2022, we will relentlessly pursue our path to sustainable growth. We will improve our services and networks, and further streamline our organization. This way, we will continue to play a leading role in the Netherlands' digital transition ? a transition that offers new opportunities for our country's prosperity and economy.

This will only be possible through collaboration with our stakeholders and partners ? something we do with great conviction. After all, the major challenges of our time, such as sustainability and cybersecurity, and the way we will help the Netherlands advance in the digital transition, require cooperation, solidarity and long-term thinking. This is how we will really make the Netherlands the best connected country in the world.

Thank you to all our customers, shareholders, friends and stakeholders for their support. I am looking forward to 2022 ? a year in which we will join forces to help the Netherlands advance even further.

Joost Farwerck, CEO and Chairman of the Board of Management of KPN

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KPN Integrated Annual Report 2021

Contents

Report by the Board of Management

Governance

Report by the Supervisory Board

Financial Statements

Appendices

Our purpose and the world around us

A central role in society

Our purpose

We believe connections bring people closer and move them forward. That is why we are going all out to connect everyone in the Netherlands to a sustainable future. Every day we build the network of the future, a network of people and technology solutions that moves us forward. We enable new secure ways of working and strive to offer first-class connections, flexibility and outstanding customer experience that is both safe and simple. This way people can relax, do business, make friends, collaborate and discover new worlds. We are striving to make the Netherlands the most connected country in the world. We want to lead the country's digitalization and become the preferred partner in digital life.

The connected society

Doing everything we can to connect everyone in the Netherlands to a sustainable future means KPN is focusing and investing in connected networks, connected customers and a connected organization. This is the core of our Accelerate to Grow strategy.

We are not the only company building telecommunications infrastructure. Competitors announced new fiber initiatives throughout 2021. According to the Digital Economy and Society Index (DESI), the Netherlands is one of the best performers in the area of connectivity in Europe. The same DESI research concluded that the Netherlands has one of the most advanced digital economies and societies in the EU, together with Denmark, Finland and Sweden. Moreover, together with Denmark, we have the highest 5G coverage of Europe, covering 80% of the Netherlands. We are a very connected society and accustomed to benefiting from innovations like 5G and faster internet speeds. This means there is even greater potential for internet use, and the Netherlands is ready for it. The Netherlands' digital infrastructure has the potential to become the fastest, most robust and innovative digital infrastructure and past and future investments are supporting us on that journey.

Globally, according to the World Economic Forum, industry analysts have suggested that 5G will increase the expected gross output, by 2035, supporting many new jobs worldwide. There are great opportunities ahead, thanks to the investments KPN and other network companies are making as we work towards a common goal ? connecting everyone in a sustainable way.

A more developed digital ecosystem can contribute to sustainable economic growth. The impact on GDP per capita is driven by the productivity and efficiency gains afforded by digital technologies. This occurs through greater output from new products and enhanced productivity, as well as knock-on benefits such as a better quality of life for citizens, health, personal safety, a more resilient economy, and equitable society. These are just a few of the reasons why infrastructure investments by KPN are so important for Dutch society.

KPN as part of Dutch society

The core of our strategy is to accelerate and enable society's digitalization. Every day, we improve the network of the future, a network of people and technology that makes progress happen. In 2021, KPN signed an agreement with APG to participate in a joint venture, Glaspoort, to further accelerate the roll-out of fiber and lead the digitalization of the Netherlands. This transaction creates additional value for stakeholders. Together with Glaspoort, KPN can strengthen its Accelerate to Grow strategy and reach a higher roll-out speed. KPN continues to pursue its existing fiber roll-out plans. Glaspoort will make a significant contribution to the Dutch digital infrastructure by taking up the long tail of KPN's fiber roll-out plans and will roll out ~1.1m fiber connections in the next 4 years. Glaspoort is a network company, pursuing an open access wholesale strategy, based on non-discriminatory terms, fostering competition and innovation in the Netherlands. By the end of 2021, KPN had rolled out fiber to 3.22m households in the Netherlands. Together with the new joint venture Glaspoort, we expect to connect 80% of households with fiber in the Netherlands by 2026.

Thanks to our constant network modernization efforts, our 5G network has been recognized with an innovation award from the umlaut Connect Mobile Benchmark and two Ookla speedtest awards for best and fastest mobile network in the Netherlands. Together with partners, we are testing the benefits of 5G in field labs across different industries. For example, with collision avoidance tests in the automotive industry and innovations in the health industry.

There are so many opportunities for our services, and KPN is excited to be tapping into their potential together with other players in Dutch society. We want everyone to be connected at all times, so they can get the most from the world around them and live their best lives.

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KPN Integrated Annual Report 2021

Contents

Report by the Board of Management

Governance

Report by the Supervisory Board

Financial Statements

Appendices

Our purpose and the world around us

Our market position

Consumer market KPN aims to be the preferred digital partner for all customers in the Netherlands. We do this by providing digital access with our fast fiber network, reliable copper network, 5G services, in-home WiFi and our workforce. We are by far the party with the biggest roll-out of fiber in the Netherlands. In 2021, we accelerated our fiber roll-out and increased our fiber footprint to ~40% of Dutch households. Another applied technology to increase internet speed is through a hybrid fiber/coax approach. We believe in the superiority of fiber in terms of stability and reliability, and symmetrical up- and download speeds. Higher upload speeds will become increasingly important with increased data usage and new applications, such as gaming.

New technologies such as fiber and 5G open new doors to our customers, making the best quality the new standard. We want to connect customers in the best possible way, while providing them with a seamless experience. To do this, partnerships with third parties will be one of the key elements of our consumer market strategy. Through our platform we want to provide customers with everything they need in their home environment, such as connectivity, entertainment, online gaming and virtual reality.

We are proud that our mobile network won an Ookla and umlaut award. Our mobile network offers the best coverage and the highest speed in the Netherlands according these awards. Although we see some of our competitors focusing on a `value for money' approach, we believe that the superiority of our network pays off on its own as evidenced by the increase in our customer postpaid mobile base of 64k. Our focus on fixed mobile convergence (FMC) is paying off too; we have the highest market share in FMC in the Netherlands.

Business market Simplification and migration to standardized solutions continue to be key topics in the business-to-business (B2B) market. We want to offer our clients the most innovative and best portfolios through our customer-centric approach. Our business market strategy has a clearly differentiated segment approach. Our product and service propositions are specifically aligned to our small and medium enterprises (SME), large corporate enterprises (LCE) and tailored solutions customers.

For our SME customers, we offer standardized and future-proof solutions (KPN ??N portfolio) and focus on cross-selling with the aim of becoming the preferred digital partner for both fixed and mobile. For example, working from home offers many possibilities in the B2B market, and KPN is ready to meet these needs.

Our LCE customers are served through our modular Smart Combinations proposition, where we offer connectivity, cloud, security and workspace services. Competition in the LCE mobile segment continues to be strong, with competitors challenging us on price. We remain focused on delivering quality in the mobile market.

Wholesale Wholesale shows sustainable growth and our wholesale service revenues keep rising. Our increasing fiber penetration and mobile network coverage make KPN an attractive partner. We remain committed to our open access model in order to guarantee consumers in the Dutch market the highest quality services. We offer sufficient room for all our wholesale customers to grow and compete. In 2021, we renewed several long-term agreements with most of the larger broadband service providers in the Dutch market.

Changes in the regulatory landscape in 2021 did not affect our open wholesale policy. We see more and more fiber investment initiatives from different network players, which is positive for the competitive landscape.

SWOT

We continuously review our business model and adapt our resources and capabilities to counter risks and create new opportunities. The overview on the next page summarizes our main insights and position in the environment in which we operate.

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KPN Integrated Annual Report 2021

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