FINANCIAL STATEMENTS - KPN

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For the GBP 275 million bond, maturing in March 2016 with annual interest payments, KPN hedged the currency exposure by effectively fixing the counter value in GBP to EUR 328 million. KPN also hedged the interest rate exposure by swapping the interest rates from GBP fixed to Euro fixed on an annual basis (approximately 4.89% per annum). For the GBP 250 million bond, maturing in May 2019 with annual interest payments, KPN hedged the currency exposure by effectively fixing the counter value in GBP to EUR 290 million. KPN also hedged the interest rate exposure by swapping the interest rate from GBP fixed to Euro fixed on an annual basis (approximately 5.12% per annum). For the GBP 400 million bond, maturing in November 2026 with annual interest payments, KPN hedged the currency exposure by effectively fixing the counter value in GBP to EUR 467 million. KPN also hedged the interest rate exposure by swapping the interest rate from GBP fixed to Euro fixed on an annual basis (approximately 5.02% per annum). For the GBP 850 million bond, maturing in September 2029 with annual interest payments, KPN hedged the currency exposure by effectively fixing the counter value in GBP to EUR 971 million. KPN also hedged the interest rate exposure by swapping the interest rate from GBP fixed to Euro fixed on an annual basis (approximately 5.98% per annum). For the USD 1,000 million bond, maturing in October 2030 with semi-annual interest payments, KPN hedged the currency exposure by effectively fixing the counter value in USD to EUR 756 million. KPN also hedged the interest rate exposure by swapping the interest rate from USD fixed to Euro fixed on a semi-annual basis (approximately 8.56% per annum). Some of these hedges contain reset clauses at pre-agreed dates, in order to mitigate counterparty exposure during the life of the swap. These reset clauses may result in early Euro settlement obligations with the swap counterparty for part of the outstanding notional. This could lead to additional cash inflows or outflows before maturity. Bonds denominated in EURO In September and December 2011, KPN changed its interest rate profile by swapping the fixed coupons on three Eurobonds. This initiative was announced at KPN’s Investor Day in May 2011. The bonds have been swapped to a 2-year duration, which is expected to result in lower interest costs, while maintaining visibility on interest paid for the next two years. The Eurobonds with maturities on September 21, 2020 (notional EUR 1.0 billion), October 4, 2021 (notional EUR 500 million) and September 30, 2024 (notional EUR 700 million) have been swapped to a floating rate based on 3-month Euribor using fixed-to-floating interest swaps. At inception, the first two years have been fixed with a floating-to-fixed interest rate swap. In subsequent quarters, KPN entered into additional forward starting swaps to maintain a 2-year horizon of fixed interest rates. For the fixed-to-floating interest rate swaps, KPN meets the criteria of, and also applies, hedge accounting. KPN determines the effectiveness of these fair value hedges at inception and on a quarterly basis, based on a regression method. Based on the current hedge accounting rules, KPN is not allowed to apply hedge accounting for above mentioned floating-to-fixed swaps. These swaps are held at fair value through profit and loss, designated upon initial recognition. Until 31 December 2012, KPN booked a loss in the income statement of EUR 40 million (2011: EUR 11 million gain). KPN | Annual Report 2012 131
Consolidated Financial Statements Notes to the Consolidated Statement of Financial Position continued An overview of the interest-rate swaps at December 31, 2012 and December 31, 2011 is presented below (in millions unless stated otherwise). Nominal Currency Maturity date Pay Receive Hedge accounting Fair value in EUR 2012 1,000 EUR September 21, 2020 Floating Fixed Fair Value 79 500 EUR October 4, 2021 Floating Fixed Fair Value 47 700 EUR September 30, 2024 Floating Fixed Fair Value 60 Total 186 Nominal Currency Maturity date Pay Receive Hedge accounting Fair value in EUR 2011 1,000 EUR September 21, 2020 Floating Fixed Fair Value -12 500 EUR October 4, 2021 Floating Fixed Fair Value -1 700 EUR September 30, 2024 Floating Fixed Fair Value -13 Total -26 Nominal Currency Maturity date Pay Receive Hedge accounting Fair value in EUR 2012 1,000 EUR September 21, 2015 Fixed Floating None -14 700 EUR September 30, 2015 Fixed Floating None -9 500 EUR October 4, 2015 Fixed Floating None -7 Total -30 Nominal Currency Maturity date Pay Receive Hedge accounting Fair value in EUR 2011 1,000 EUR September 21, 2013 Fixed Floating None 5 700 EUR September 30, 2013 Fixed Floating None 4 500 EUR October 4, 2013 Fixed Floating None 2 Total 11 Foreign exchange contracts The fair value of foreign exchange exposure hedge contracts is determined using market forward exchange rates at the balance sheet date. Amounts in millions of EUR Contract volume 2012 Fair value 2012 Contract volume 2011 Fair value 2011 Term shorter than 1 year 72 – 60 3 Term longer than 1 year – – 2 – Total 72 – 62 3 In 2012, the cash flow hedge reserve decreased by EUR 310 million before tax (2011: increase of EUR 109 million) resulting from changes in the valuation of the USD and GBP cross currency swaps. As KPN applies hedge accounting, any change in swap value will result in an opposite movement in the cash flow hedge reserve, such that there is no income impact. The change in 2012 is caused by the significant drop of the Euro interest rates compared to GBP and USD interest rates. For further details on derivative financial instruments, reference is made to Note 29 ‘Capital and Financial Risk Management – Exposure to Foreign Currency Risk’. 132 KPN | Annual Report 2012
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FINANCIAL STATEMENTS - KPN

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