Earnings call transcript: KPN Q1 2023 sees steady revenue growth

Koninklijke KPN NV reported a stable financial performance for the first quarter of 2023, maintaining its full-year guidance despite a significant drop in free cash flow. The company highlighted strong growth in its fiber network and continued expansion in digital services, underscoring its strategic focus on innovation and operational efficiency. According to InvestingPro data, KPN maintains a GOOD Financial Health Score of 2.94, supported by strong profit metrics and positive price momentum.

Key Takeaways

• Group service revenues increased by 3.8% year-on-year.
• Adjusted EBITDA rose by 4.7% to €672 million.
• Free cash flow decreased by 70% to €128 million.
• KPN expanded its fiber footprint to cover 64% of Dutch households.

Company Performance

KPN’s performance in Q1 2023 was marked by steady revenue growth and increased profitability, as reflected in the 4.7% rise in adjusted EBITDA. The company continues to strengthen its position in the Dutch telecom market, leveraging its extensive fiber network and innovative service offerings. Despite a notable decrease in free cash flow, KPN remains committed to its growth strategy, particularly in digital transformation services. The company’s market capitalization stands at €17.75 billion, with a P/E ratio of 20.14 and an attractive dividend yield of 4.23%. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued. Discover more insights and 12+ additional ProTips with an InvestingPro subscription.

Financial Highlights

• Revenue: Increased by 3.8% year-on-year.
• Adjusted EBITDA: €672 million, up 4.7% from the previous year.
• EBITDA Margin: Improved by 72 basis points to 44.7%.
• Free Cash Flow: €128 million, a 70% decrease year-on-year.

Outlook & Guidance

KPN maintains its full-year guidance, expecting a 3% growth in service revenue and EBITDA surpassing €2.6 billion. The company anticipates consumer revenue growth of 1-1.5% for 2025, with B2B growth projected at approximately 5%. Long-term capital expenditure is expected to decline below €1 billion by 2027. Recent data from InvestingPro shows the company achieved 3.02% revenue growth in the last twelve months, with a robust EBITDA of €2.35 billion. Get access to KPN’s comprehensive Pro Research Report, part of our coverage of 1,400+ top stocks, for deeper insights into the company’s growth trajectory.

Executive Commentary

Joost Farben, CEO of KPN, emphasized the company’s commitment to value creation and network expansion: "We are a base company, and pricing is very important." He also highlighted the strategic importance of increasing network volumes: "We’re interested in creating value by adding more volumes on the network."

Risks and Challenges

• Market Competition: The Dutch telecom market remains highly competitive, with moderate price increases.
• Free Cash Flow: A significant decrease in free cash flow could impact future investment capabilities.
• Operational Reductions: The planned reduction of 300-400 employees could pose challenges in maintaining service levels.
• Economic Conditions: Macroeconomic pressures and potential regulatory changes could affect market dynamics.

KPN continues to focus on expanding its fiber network and enhancing customer offerings, positioning itself as a leader in the Dutch telecom sector. The company’s strategic initiatives and strong operational performance indicate a positive outlook, despite the challenges posed by the competitive market landscape.

Full transcript - Koninklijke KPN NV (KPN) Q1 2025:

Conference Operator: Good day, ladies and gentlemen. Welcome to KPN’s First Quarter Earnings Webcast and Conference Call. Please note that this event is being recorded. At this time, all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today’s prepared remarks.

I will now turn the call over to your host for today, Matthijs von Lienhorst, Head of Investor Relations. You may begin.

Matthijs von Lienhorst, Head of Investor Relations, KPN: Yes. Thank you, operator. Good afternoon, everyone. Thank you for joining us today. Welcome to KPN’s Q1 twenty twenty five results webcast.

With me today are Joost Faureg, our CEO and Kis Vige, our CFO. As usual, before we begin our presentation, I would like to remind you of the safe harbor on Page two of the slides, which applies to any statements made during this presentation. In particular, today’s presentation may include forward looking statements, including KPM’s expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Now let me hand over to our CEO, Joost Farben.

Joost Farben, CEO, KPN: Thank you, Maltijs, and welcome, everyone. So let’s start with the highlights of the first quarter of this year. On group service revenues, we increased by 3.8% of which 0.7% is related to UFOAM. And in the mix, in consumer, the service revenue trends slightly improved in the first quarter mainly driven by mobile. Our business segment continued to show solid growth and wholesale service revenues accelerated mainly driven by mobile.

We delivered solid EBITDA growth partly due to contributions from U Phone and Altio. And as expected, our free cash flow declines partly due to higher interest and tax payments as expected and this is also expected to recover in the second half of the year. We further expanded our fiber footprint together with our joint venture, Hansport, and we received an award from Umlaut for having the best mobile network in The Netherlands with the highest score ever measured in the world. Our new tower company OTO began its operations in mid February and therefore we upgraded our full year 2025 outlook accordingly which we are confident in achieving. Overall, we started the year well.

Of course, there is uncertainty given the current economic and geopolitical environment, but we are confident that the direct impact of U. S. Trade tariff measures on us is limited and consider our business resilient with strong demand for our essential productivity and communication services. As a reminder, our Connect activated growth strategy is supported by three key pillars: one, we continue to invest in our leading networks two, we continue to grow and protect our customer base and three, we further modernize and simplify our operating model. And together, these strategic priorities support our ambition to grow our service revenues and adjusted EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years or simply put our three-three-seven CAGR framework.

Let me now walk you through the business details. We continue to lead the Dutch fiber markets. In the first quarter, we expanded our fiber footprint by adding 100,000 homes together with Hosports, now jointly covering 64 of Dutch households. Our efforts in connecting homes and activating customers have paid off reaching 78% of total homes on our network, while two thirds of our retail base now enjoys the benefits of fiber. Let’s now have a look at the consumer segment.

The consumer service revenues increased 4.6% year on year of which bit more than 3% is related to UFO. We are satisfied with Yufund’s performance, which enables us to better address the no frills segment of the market. Our increased focus on loyalty and base management is further strengthened by the recent launch of our new household proposition, Combi ForDale, which rewards customers for taking multiple products for households. Currently 60% of our fixed households have adopted the fixed mobile proposition. Our consumer Net Promoter Score declines influenced by challenging consumer sentiment especially at the start of the year.

However, customer satisfaction trends improved during the quarter supported by the launch of the new household proposition I just mentioned. Now let’s take a deeper look into our first quarter KPIs. We saw another quarter of broadband based growth despite a challenging competitive environment. We maintained a constant healthy inflow of new FiberCon customers which combined with the growing ARPU led to continued growth in our fixed service revenues. As expected, our mobile service revenue growth improved sequentially mainly driven by commercial improvements.

And our postpaid base increased by 21,000, while the postpaid ARPU excluding new phones remained relatively stable. Let’s now move to B2B. B2B delivered another strong quarter with 5.1% year on year growth driven by SME and payer solutions. Commercial momentum remained solid in mobile and the majority of our B2B broadband customers now utilize the fiber network of KPN and Salesforce. And despite volatile economic environment, our business network UltraScore remains stable.

B2B customers appreciate KPN for stability, reliability and quality of our network and the quality of our services. In today’s complex world, we help Dutch businesses to become digitally resilient supporting them in their digital transformation to work more securely and more efficiently. SME continues to grow driven by strong performance in cloud and workspace, broadband and ongoing momentum in mobile. And to protect SME customers from digital threats, KPN offers extra safe Internet services, enhancing their digital strength against rising cybercrime. I believe more than 70% is currently already making use of that 70% of the base.

LCD service revenues remained stable with solid performance improvement, IoT and cloud workspace offset by some price pressure in mobile. And Taylor Solutions delivered as planned with strong growth driven by higher project revenues. And this business always remains subject to project timing and seasonality. Then our wholesale service revenues continue to improve mainly driven by mobile as well. Broadband service revenues increased despite the declining base mainly driven by higher fiber service revenues.

Mobile service revenues remained strong driven by ongoing growth in international sponsored roaming volumes. And furthermore, we expanded the contract terms for some of our largest wholesale partners. All the service revenues in wholesale represented a slight increase mainly due to an uptick in Vista roaming. Now let me hand over to Chris to give you more details on our financials.

Chris Vige, CFO, KPN: Thank you, Joost. Let me now take you through our financial performance. Now let me start by summarizing some key figures. First, the adjusted revenues of KPN increased 3% year on year as organic service revenue growth across all segments outpaced lower non service revenues. Second, our adjusted EBITDA after leases grew by 4.7% in the quarter or plus 3.1%, excluding all contributions from Youth Home and Altio.

This growth was mainly driven by higher service revenues. Our EBITDA margin increased 72 basis points to 44.7%. And in the first quarter, we managed to lower our indirect cost base despite wage indexation, but it was partly due to the intra year phasing effect as well. Our plan for the full year has had a slightly declining overall indirect cost base. So far, we had a solid start to the year, and we’re confident in our ability to reach this year’s EBITDA targets.

Third, our reported net profit decreased despite EBITDA growth due to one off costs related to the Alzio transaction. Finally, our free cash flow decreased 70% or EUR 26,000,000 compared to last year, but will pick up in the second half of this year. I’ll share a little bit more detail on underlying cash developments later in this presentation. In the first quarter, group service revenue growth sequentially improved to 3.2% on an organic basis. And within the mix, consumer service revenues increased by 1.2% year on year, corrected for Youthong, primarily driven by the improved performance in mobile.

Business service revenues recorded another strong quarter and grew by 5.1% year on year organically, driven by SME and Payment Solutions. And finally, wholesale service revenues grew by 6.1% year on year, corrected for Youth Home, mainly driven by the ongoing success of our international sponsored roaming business. Our operational free cash flow increased by 12% year on year, well ahead of mid single digit growth guidance. This growth was partly driven by the contributions from Altio and UFOAM along with slight lower CapEx due to phasing. Our total spend, so combining operating and capital expenditures, are broadly stable.

For the full year 2025, we expect high and solid single digit growth rate in operational free cash flow, supported by Alto and UFOAM and effectively stable CapEx. Obviously, if not for the gradual normalization of tax expense, the operational free cash flow would largely flow directly into our free cash flow. Now let’s talk a bit more about the moving parts of the free cash flow. Our solid operational free cash flow did not get translated into a full free cash flow growth yet due to higher interest payments, phasing of working capital and higher cash taxes. In fact, the timing increase of interest and cash tax payments explain the delta free cash flow compared to the first quarter of last year.

And as guided, our free cash flow generation will be stronger in the second half of the year, driven by continued operating cash generation and normalization of tax and interest payments, and we therefore reiterate our free cash flow guidance for the year. At €128,000,000 free cash flow margin was about 9.1% of revenues, and we ended the quarter with a robust cash position again. We continue to have a strong balance sheet. At the March, our leverage ratio stood at 2.4 times, comfortably below our self imposed ceiling of 2.5 times, even after absorbing the full effect of the Altium transaction. Our interest coverage was sequentially a tiny bit lower as we faced higher interest costs.

And we successfully issued an €800,000,000 senior bond and redeemed the remaining part of an outstanding hybrid. These transactions increased the average maturity of our outstanding debt and lowered the average cost of debt. Our average cost of debt is about 3.7% and exposure to floating rates about 16%. Our liquidity of around €2,500,000,000 remains strong, covering debt maturities until the end of twenty twenty eight. Now let’s turn to our outlook for midterm ambitions.

Following the closing of Altio in mid February, we upgraded our full year 2025 outlook for adjusted EBITDA after leases to more than EUR 2,600,000,000.0 and our free cash flow to about EUR €920,000,000 These outlook remain fully intact. Other outlook items have also been reiterated, namely group sales revenue growth, set of approximately 3%, driven by organic growth across all segments and CapEx remained stable at a peak level of around 1,250,000,000 The updated 2025 guidance illustrates that the consolidation of Altio will have a modest positive contribution to KPN’s future financial results on top of the existing three thirty seven financial ambitions that we presented at our Capital Markets Day in 2023. Now let me briefly wrap up with some takeaways. First, we had a solid start to the year with continued group service revenue growth across all segments, leading to healthy EBITDA growth, fully consistent with our March ambitions. In fact, our first quarter underlying service revenue and EBITDA growth came in well above the 3% hurdle.

We continue to lead the Dutch fiber market with ongoing delivery of connected homes. Currently, two thirds of our retail base and more than half of our B2B base are in fiber, which bodes well for the future. As planned, our free cash flow generation will be back end loaded, and we are confident in our ability to reach our 2025 and midterm outlook. We are currently at approximately 25% completion of the $250,000,000 share buyback program for this year, effectively distributing all of our free cash flow to our shareholders. Overall, we think we believe solid results in the first quarter.

As mentioned, uncertainty remains on the future direction of U. S. Tariffs and the wider economic implications. We are confident that the direct impact of U. S.

And reciprocal trade tariffs on our operational KPIs and financial results is limited. Any impact can be managed within our CapEx envelope. Obviously, we keep a close watch on the impact of global trade and economic developments on the Dutch economy, where we consider our business to be resilient. Thanks for listening. Now let’s turn to your questions.

Matthijs von Lienhorst, Head of Investor Relations, KPN: Yes. Thank you, Kish. As always, before we start the Q and A session, I kindly request that you limit your questions to two. Operator, please proceed with the Q and A.

Conference Operator: Thank you. Ladies and gentlemen, we will start the question and answer session now. Thank you. We will now take our first question from Polo Tang of UBS. Your line is open.

Please go ahead.

Paulo Tang, Analyst, UBS: Hi. Thanks for taking the questions. I have two. The first one is on consumer broadband. Can you maybe just talk through what the customer reaction was to your 3.3 price rise and what has been the impact of VodafoneZiggo cutting its broadband pricing by €5 per month?

And are you seeing any signs of consumer NPS improving in Q2? My second question is just on your fiber build rate, because it slowed down to about 100,000 homes a quarter from the peak of 168,000 in Q1 twenty twenty four. So why have you slowed down? And how should we think about the build rates from here? Thanks.

Joost Farben, CEO, KPN: Yes. Thanks, Paulo. Yes. So in consumer broadband, increased prices and most of the service providers increased prices. On the other hand, that goes hand in hand with discounts.

But the price rise of KPN landed well in the markets because we can firstly explain why we do this in line with CPI indexation. And of course, we invest a lot in the quality. And also then with launching the new proposition, Combi4, Bill where we really focus on the existing base of customers. And we explained that we do not want to surprise existing customers only with price increase, but we also surprised them with free OTT services in combination, landed quite well. So we started the quarter with a bit of a dip in the Net Score.

But during the quarter, we already saw the Net Promoter Score climbing up. So I expect that to improve and also that will be visible in the second quarter. Now on fiber, you’re right, we’re slowing down a bit. We focus more on connect and activate than home spas only, to put it that way. The strength of our fiber rollout is compared to competition that we really connect most of the households while rolling out.

So it goes bit and batches. I expect second half of the year, especially much stronger on house passed than this Q1 with 100,000 average. We still aim for 80% end of twenty twenty six. Approximately 80% could be a bit more, a bit less, but we will continue to roll out. And in this pattern, I expect it to come close to that 80%.

And in 2027, we still foresee a material step down in our CapEx dropping to below €1,000,000,000 and that is completely locked in our strategy.

Paulo Tang, Analyst, UBS: Thanks.

Conference Operator: Thank you. We will now take our next question from Andrew Lee of Goldman Sachs. Your line is open. Please go ahead.

Andrew Lee, Analyst, Goldman Sachs: Good afternoon. Just had a question just one question really on the competitive environment in The Netherlands. You, I think, had been saying that you felt that the consumer growth could recover in the second quarter. And you now are saying that the recovery comes in the second half. I think that’s a bit of a shift.

So I just wondered if you could talk through what’s changed. And also, how confident are you that price rises, either just in line with inflation, will be enough to support that recovery? You very much.

Chris Vige, CFO, KPN: I’ll take the first one, Andrew. I think it’s just on margin. Think we see really on mobile, actually, the recovery from the fourth quarter came earlier. So actually, I think we said that mobile would recover in the second quarter, recover in Q1. So think mobile has actually done better than we planned, and we think the current growth rate in mobile in Q2 will be similar to Q1.

So more or around the 2% or 2% plus. And on fixed, I think it will be similar to what it is today around 1% growth. So I think it’s really on the margin. The good news, I think the mobile recovery that we predicted in Q4 came a bit earlier in Q1 and seems to continue. With that, I think consumer market is not going to be the growth champion of the group, but probably grows between 1% to 1.5% for the full year.

So don’t read too much in it. I think it’s just fact that mobiles recovered earlier than we envisaged. And your question on price increases, again, I think they’ve landed relatively well. I mean, we announced that there was no real, I think, impact NPS. I think there was some NPS feedback on talk by the ACM around willingness or supporting customers to switch, but especially the combi formula that Joe described really did well and boosted our NPS.

And I think the price increase that we’ve announced is in simply indexation, nothing more, nothing less. So that actually feels have been absorbed pretty well by most of our customers.

Andrew Lee, Analyst, Goldman Sachs: Thank you. I’m just trying to get a bit of an insight into that’s helpful. I’m just trying to get an insight into the competition from, Voziggo and Adido. Obviously, that’s been more intense over the last six to twelve months. But you’re just trying to get a sense as to whether the kind of second derivative or what you’re seeing, I.

E, has anything changed in their behavior or nothing’s changed, therefore, don’t see things getting materially worse and therefore, you get easy comps into the second half of the year? Or are you seeing any kind of canaries in the coal mine that give you a suggestion that actually competitive intensity is abating in some way?

Chris Vige, CFO, KPN: Certainly, no canaries in the coal mine. I think when you look at price development, both today, either way, the backward price increase for the January 1, around 3%. Odito, Vodafone, I don’t know, we also something similar. I mean, so the price adjustment on their front book, I mean, they were more expensive than we were. Think their price is now more or less in line with us.

And so I think the competitive intensity is not really changing. In fact, I think we’ve seen running up into the second quarter, our order balances improved. Typically, the order balances goes before the net adds. So early indicators into Q2 at the end of the first quarter, so early March, we saw the monthly order balances also vis a vis competition doing better. So I would say competitive intensity, stable.

Price changes by competitors are within the range, within the margin, really changing. Our COMB 4 dollars less actually quite well, should be the lower churn. And I was we saw some encouraging around the operational KPIs into Q2 because of the order balances. Now obviously, Q2 is still a few as to three months ago, but I think the momentum at the end of Q1 going into Q2 was reasonably supportive.

Joost Farben, CEO, KPN: And the good step we made is really two fixed mobile converged brands in the market. That’s the only player. KPN on one side, Yufund on the other side, both covering convergence, but the lineup completely different. So above 200 megabytes of fiber per KPN and below for UPhone. Also when it comes to mobile, UPhone completely different price than position than KPN.

But both fixed mobile together. That’s really helpful.

Andrew Lee, Analyst, Goldman Sachs: Thank you. That’s helpful.

Conference Operator: Thank you. And our next question comes from A. J. Soni of JPMorgan. Your line is open.

Please go ahead.

AJ Soni, Analyst, JPMorgan: Thanks for taking my question. Mine is really around the EBITDA phasing for the year. I think previously, you said that Q1 would grow to be around 22.5%. I think even if you strip out the towers, you still get a 4% for Q1. And you said you expect a material step up into Q2.

So do you still see that going ahead into Q2? And how do you see that phasing over other quarters to get to your throughput spend growth for

Michael DiClaire, Analyst, KBC Securities: the year?

Chris Vige, CFO, KPN: Yes, Ajay. Good question. On the phasing, I think Q1 is actually better than expected. I think Q2 will be similar to Q1 in terms of if I include the tower company, I would expect EBITDA growth north of four. I expect we have a step down in Q3 below two percent and then above 3% beginning in Q4 ish.

One of the factors is and I was getting a bit wobfish around accounting is the way you account for your holiday provisions, and you may have seen we’ve changed basically the way people book the holidays. So the classical pattern where you do take donate to your holiday provision in Q1, Q2 and Q4 and you release in Q3, That is changing for the year. So that supports a bit the EBITDA growth in Q1, Q2 and Q4 and detracts a bit from Q3. The technical thing basically is distribution of earnings across the year. So that means I would see Q1 was a 4.7 including LTO.

I’m pretty bullish on Q2. Certainly, of 3% could be starting again with a 4% handle in Q2, including a tower company. Q3 will then be a bit less with the year on year comps around this holiday effect. Historically, you always had a release from your holiday provision in Q3. You don’t have it right now.

So Q3 will be around less than 2% Q4, again, back to three So full year guidance, fully intact. But distribution is quite high in the first two quarters, a bit lower in Q3 and a back end to Q4. And this is technical accounting around all the provision is like working through it on the intra year phasing. But that’s kind of the outlook for the year. We feel pretty confident with that.

And also, I’m pretty cool looking at the full year guidance for the year if you add up all the quarters.

AJ Soni, Analyst, JPMorgan: Okay. And just a quick follow-up on that because the numbers you’ve given there would kind of give us a sense that you would beat your 3% target for 2025. I know you haven’t changed guidance, but is that the right way to think about it? Unless Q3 is significantly lower than your guidance of 3%, it feels like you’re going to be comfortably above that

Chris Vige, CFO, KPN: 3% mark for Q3 will be low too, right? Q3 will be low too. So I think you can do the math and solve for the Q3 number now. But I think we started the year pretty well. I think we’re confident on the year, but it’s kind of it would be odd to see in March or April with volatility across the globe to be increasing your guidance for the year.

Let’s put it this way, we feel pretty okay with how we’re trading, and we’re confident in reiterating our guidance for the year. It’s just that the Q3 will be below two percent and the other quarters will be, again, below above 3%.

AJ Soni, Analyst, JPMorgan: That’s great. Thank you very much.

Conference Operator: Thank you. And our next question comes from Siyi He of Citi. Your line is open. Please go ahead. Hello and good afternoon.

Thank you very much for taking my questions. I have two, please. The first one is, I wonder if you could comment on the competition on your infrastructure side. It seems that the broadband wholesale has turned growth because of the inflation and also because of the contribution from Glassport. Just wondering whether you think this low single digit growth could be sustainable going forward?

And the second question is on the cost cutting. Chris, I think you mentioned that you expect OpEx to only moderately down for this year. But looking at your FTE reduction, especially in your own FTE, it seems has picked up since Q4 last year. I’m just wondering why don’t we why shouldn’t we expect higher OpEx reductions given the FTE changes? Thank you.

Joost Farben, CEO, KPN: Well, let’s start on the fixed on your infrastructure question. So on the infrastructure side, we cover more or less a clean footprint of 64%, not as much overbuild compared to the off coast in other areas. So moving forward, will face more overbuild, we have a Delta and already have running a bit more than 1,000,000 households in different footprints. Yes, we our lineup and in our strategic approach we differentiate by focusing on the base management instead of acquisition. I think that’s very important step we made there And that’s where we expect growth to come from.

So like I just said, rewarding loyal customers, offering speed upgrades, free security services, things like that. We have a strong base currently 35% or more is in the contract and we expect that to improve looking forward. Already on the fiber footprint two thirds of total KPM base is already on fiber. So that’s an important to run because fiber customers are happier customers and they churn slower than other customers. And besides that, we have positioned Q4.

So yes, we see a growth of north a bit more than 1% on broadband. And the way we position ourselves now with the growth income to KPN both and Yufeng, we expect it to continue because we also will probably it’s not totally fully already decided on. But usually, we do another price increase mid of the year. But that decision is up for somewhere coming month for us to take or two months from now. But so all in all, following the run rate, I expect the broadband to continue.

Chris Vige, CFO, KPN: Yes. On your cost question, I think you’re right. We are now running about 200 FTEs below last year, dropped to around, I think, 56 FTEs in this quarter. The plan for the year is to reduce FTEs by at least 300 towards 400. That would be very supportive.

And again, the lowering spend on energy was guided for minus 50, that also kind of in the back. I think the two caveats. One is if you reduce your costs right now, you have the e base right now, it really starts to impact full year 2026 more than full year 2025. So basically, the full year effect will be felt more next year than this year. So that’s one.

The second thing is the competitive intensity in the market and our own actions, say, the combi volume also drive more customer interactions. The number of service tickets or calls are quite high that requires us to keep our support staff at elevated levels, higher than we initially thought and planned. So in the 200 step down is already an increase in your support staff to keep your customers happy. It depends also a on how that evolves. So we have a plan and a mission to reduce FTEs in that part of the business considerably.

But then you also need to have the activity level to come down, and that has not happened yet. So I think all in all, FTE sat down 300 to 400. If you end up at the higher end of the range, that’s a function of how good we’re managing back customer interaction, moving our customers to the app, to digital interaction, etcetera. That should help us. But then again, it will be more 26 impact run rate thing than a 25 thing to reduce your FTEs further.

But overall, the statement of flat to slightly declining cost base that we guided for, that seems also reasonably secured from where we sit today.

Conference Operator: Thank you very much. Thank you. And we’ll now move on to our next question from Pavel Chirouya of Deutsche Bank. Your line is open. Please go ahead.

Andrew Lee, Analyst, Goldman Sachs: Thank you. I’ve got two questions, please. So first, the Glassport Delta deal is still under review. What’s your latest view on when we should get the final ruling? And do you still think the initial regulatory concerns can be overcome?

And secondly, as you mentioned, two thirds of your B2C base is now on fiber and churn should be low. Can you give some color on just how the fiber churn compares to the copper customers? Thank you.

Joost Farben, CEO, KPN: Yes. So, Crossport is working on that deal with Delta. I think it’s encouraging to especially that Delta is willing to sell off potential overbuilt households to Crossport. So that is a positive signal for us. And we’re still waiting for our regulator to come up with the final decision.

Regulators in The Netherlands, they like regulating and but they especially take a lot of time on everything they do. But I’m very confident that one way or the other that will be at the end successful deals since I do not see any serious ways to block this from a legal standpoint. But yes, we have to wait and follow the procedure. We expect the decision before summer.

Chris Vige, CFO, KPN: And on your churn question, you’re right. Twothree is now on five zero one on copper. What does it mean for churn? We’ve seen if you look at the underlying churn trend, we’ve seen copper churn gradually moving up in all fairness. And fiber churn also moving up a bit, but substantially below.

Copper is north of 10% year over year, fiber substantially below. So that should that mix gradually help us. But then again, the limited amount of clients on copper that you’re in, mean, that’s still something you feel. I think the movement of the two effect, one is getting more and more customers from cockpit fiber. And then the comp before, they’ll think what really is all about convergence and having multiple products at TPM, so fixed mobile and entertainment, that should over time drive churn down.

So in the long run, when your copper base declines relative to fiber and the impact of the company volume kicks in, we should see a material reduction on churn. But for reference, corporate churn is north of 10% and fiber churn is well below 10%. I think the fiber churn is like 60% or so of fiber churn above the copper churn. Okay.

Conference Operator: Thank you for that. Thank you. And our next question comes from David Wegman of ING. Your line is open. Please go ahead.

David Wegman, Analyst, ING: Yes. Good afternoon, everyone, and thanks for taking my question. The first one is on the cost. Could you give us more insights on the direct cost year on year evolution? So and for instance, on the path between, let’s say, to a split between the wholesale cost from Glassport and the change in mix that might be at play?

And secondly, on the indirect cost evolution, can you discuss the drop in IT expense? Thank you.

Chris Vige, CFO, KPN: I think on the direct cost, look, on Plusport for full year, the total cost charge by Plusport was about €25,000,000 higher, about €6,000,000 a quarter up from last year. So there’s about €25,000,000 a year going through your direct cost. There’s more direct costs going in. That’s a part of the roaming. Roaming costs are going up.

To some extent, we’ve got more sponsored roaming business, which we also procure roaming services. So Net net, it’s still a very good margin business, but there’s still more direct costs coming through. And then the third element is the cost around your spend to acquire broadband customers. That is, I think, notoriously high in this market. So product plus actions and spend is quite high to, let’s say, win broadband customers.

So the direct cost increase for the full year, about $25,000,000 of that is plus 4,000,000 to $6,000,000 a quarter. I think we’re almost 4 to €5,000,000 a quarter in terms of extra spend. And the remainder is a combination of these costs around B2B and B2C customer acquisition costs. On IT expenses, there’s a bit of timing, but it’s something else that we’re negotiating our total lease costs. Our licenses costs are getting better.

So we’ve made a considerable effort on reducing them of licenses, renegotiating licenses over time. But still, there is underlying upward pressure on IT costs, general. The way to battle this is to limit licenses, renegotiate for longer terms and eliminate legacy systems. So that will fluctuate a bit during the year.

David Wegman, Analyst, ING: Okay. Fantastic. Thanks.

Conference Operator: Thank you. And we’ll now take our next question from Steve Malcolm of Redburn at Blantych.

Steve Malcolm, Analyst, Redburn: Two questions, please. First, just following up on your comments, Chris, on the consumer revenue outlook. I guess when we look into the second half of the year, it’s pretty obvious you lap Uphone and you’ve got a lower price rise this year than last. I think it’s sort of plus 3% versus plus 4%. So I guess we should as you said, we should be thinking kind of the underlying 1% to 1.2 that we saw in Q4 and Q1.

It feels like a reasonable run rate. Looking beyond ’25, I mean, is there any reason to think that, that consumer revenue service revenue growth rate will improve? It seems like sort of 1% to 1.5% is going to be hard to break out of. If that is the case, just to be clear, we should be looking for sort of 4.5 to five in the rest of the business, I. Wholesale and B2B, you’re kind of broadly comfortable with that.

Is that kind of the shape of the three divisions? And then just a quick sort of detailed one on tailored solutions this quarter. That was obviously a pretty big driver of the revenue upfront in B2B. Can you just give us a bit more color on that and how we should think about tailored solutions for the rest of the year because we don’t normally see plus 15%? That would be very helpful.

Chris Vige, CFO, KPN: Yes. So I’ll jump on this one, Jochen. You’re congrats. Yes. On consumer, I think you’re right.

This year, 1% to 1.2%, up to 1.5% for the year, but say 1.2% ish is probably the right number. I think mobile better than fixed. UPhone will come in UPhone growth will come in, right? So we’ve now excluded all UPhone business, including the growth of UPhone. So you might say we’ve not done ourselves justice because the growth of UPhone is the delivery part of the strategy.

That will start to contribute. So I think on mobile, you see for the rest of the year growth around two ish, right, fluctuating around two and possibly higher in Q4 when the price typical indexation kicks in. On fixed, it’s a bit lower. I think around 1% and some chance of flattening off in the second half of the year, depending a bit on how competitive it is, but that leaves you with between 11.5% for the year. Is it hard to break out of?

Yes. What would be the drivers? So I think if churn goes down, right, that would be the key driver for the sync because then you get more of your fiber. Because I think mobile will probably be around two it actually feasible in the long run? And then the strategy is to bring up fixed, but that’s a function of the amount of churn in the market and ease in the market.

So that in order to get to the 3%, indeed, you have to have higher growth rates in business and wholesale. We feel pretty confident on that. I mean, is doing quite well. Obviously, on the mobile side, we have both the national carriers and sponsored roaming, and there is no reduction in growth there. Mean, that’s still we see new wholesale customers signed up as well.

And it’s a good pipeline of wholesale clients waiting to be signed up on this type of business. And in business markets, I would say, continuing look at the risk is, of course, a massive recession and bankruptcies, but that’s not really in cards. If not, we will see LCE gradually during the quarter gradually inflecting in the second half

Joost Farben, CEO, KPN: of the year as per

Chris Vige, CFO, KPN: the plan. SME growing around 5%. And indeed, Data Solutions is quite lumpy. It was very high in the first quarter. I predict it’s going be very high in the second quarter and gradually taper off.

And it’s a function of when projects come on steam. So expect the second quarter to be Data Solutions, it’s like it could be with a 10% handle as well in the second quarter and then gradually going down in the second half due to year on year comps and the timing of projects coming on to steam. So basically, I think very long story short, brief assessment, Steve, as always, Because you were 1% to 1.5%, the rest combined with 4% to 5%, confident on that for that to break out fixed to 2%, two point five %. And for that to happen, you need to have larger.

AJ Soni, Analyst, JPMorgan: Chris, I mean,

Joost Farben, CEO, KPN: we’re a base company, right? And so pricing is very important. You mentioned looking beyond 2025. So the step we are doing is really accepting we’re a base company. Usually Telco’s hunt for acquisition and report on that edge.

We consider that for us not the games play and step we made. We think that really reducing churn should make base grow. And that is question mark is going to work. We invest now in existing customers, rewards existing customers and try to lower the churn and for a company like ABN, that’s the most efficient way to make base growth. So there’s a lot of customers we think in the Dutch market looking for a discount.

And every year, rotate for a new Samsung TV or a discount of EUR 400 on the ZinkoSite. We were not looking for these kind of customers. That is a mistake. So we want to create value out of base we have and make that base grow by adding more valuable customers. So that’s why we are, of course, keeping an eye on everything that’s happening on discounts and on the acquisition side, but also that’s why we focus so much on that churn reduction

Chris Vige, CFO, KPN: and that should

Steve Malcolm, Analyst, Redburn: a quick follow-up. I mean, do you think you can get the churn down without pulling back on the price rise just by having more fiber customers? Because I guess that does play a big role. Just on that Taylor Solutions business, Chris, is it good margin business Just to clarify.

Joost Farben, CEO, KPN: Yes. I mean, on price rises, we understand the discussion every now and then in the market. But the real problem in The Netherlands is not Internet prices, but the energy prices. That’s, by the way, done by our own government. So I think we should have that discussion better on the table.

But to our customers, we’re perfectly able to explain why we increased prices and to be honest, it’s quite modest. We only follow CPI, while we invest a lot in fiber. We give to all the consumer customers away a free security package. Only 10% use it today, but we expect to lock in a lot of customers via the security. We’re the only one providing that security solution to the consumer base and we do the same in SME.

70% is in that base already and it’s for free. So we’re not only getting communicating price increases We’re also communicating about the increase of quality and the additional services we give them and where we really differentiate from competition. And Taylor Solutions, that’s a completely different ballgame of course. We cleaned it up in the way that we are not hunting for revenues only, but for yes, revenue streams where you really can create margins as well.

They’re doing a great job there, especially to the government and the Ministry of Defense. The Dutch Army is one of our most important customers. We run large projects. And every now and then, such a project kicks in, in the revenue. So it’s not that we’re going to do this number every quarter, but it’s business cycles.

But we expect a decent performance from Taylor Solutions, not on the level as Q1, but much better than we did like a couple of years ago, Yes.

Chris Vige, CFO, KPN: On the margins, Joost and I, we’ve been through the cleanup of business. So we walk around with a massive like margin paranoia when it comes to trade solutions. So we have every deal looking at margins. And this is also a business that’s CapEx light, right, is network service management. So we did the free cash flow margin.

I mean EBITDA margin is less than typical telco, but there’s hardly any CapEx involved. So the free cash flow margin of this business is not that far off of the free cash flow margin of the group. But rest assured that the first thing that Joe and I ask when a data solution deal comes for a signature is like, before we sign, can we please walk through the margins in all details to make sure we’re writing good business?

Steve Malcolm, Analyst, Redburn: Yes. Right.

Chris Vige, CFO, KPN: Thanks. So hold on to

Steve Malcolm, Analyst, Redburn: that paranoia, Chris. That’s great. Thanks very much.

Joost Farben, CEO, KPN: Thank

Conference Operator: you. And we will now take our next question from Luigi Minerva of HSBC. The line is open. Please go ahead.

Matthijs von Lienhorst, Head of Investor Relations, KPN0: Yes. Hello. Thanks for the presentation and for taking my questions. The first one is on the Net Promoter Score for consumer. Now I noticed from the annual reporting that in 2024, the NPS was the metric where management STI compensation was not paid because you missed on it.

And then now in Q1, we see further step down. So I guess the question is, what kind of measures you’ve taken to inverse the trend? I appreciate the color you gave earlier on that Q2 looks a bit better, but it would be keen to understand better what measures have you taken? And then the other question is on following up on the B2B question from Steve earlier. When it comes to LCEs, do you still expect to deliver positive growth in 2025?

This quarter, it’s marginally down. And I was wondering if it’s kind of early sign of macro uncertainty. Thank you.

Joost Farben, CEO, KPN: Yes. So Luigi, thank you. Net Promoter Score, we made it fairly important in the company, especially for consumer mass market or mass market, I should say. And it’s also a financial target for management in company. Yes, so minus 14% or 14% instead of 16%, which is more or less our target for this year.

We’re still the leading telco when it comes to Net Promoter Score, but every now and then we face this. We’re doing a lot of work outside on rolling out fiber and that every now and then it creates a lot of customer traffic. But the main thing really was media discussions around how expensive is the Internet and especially exactly around that period of time, we did the Net Promoter Score measurement cycle. So and also in the customer interface every now and then, we have when we face an outage of customer systems and that happened in the first quarter as well, it immediately impacts your Net Promoter Score. But I mean, we’ve been in ups and downs on Net Promoter Score and we know how to run it.

So I’m pretty confident that we will lift it up in the coming quarters to a decent level and that we still can outperform our main competitors in these markets. And yes, on UFO and Xinyo, we do plus 40. We’re not reporting on that. So that also means that indeed especially in Netherlands pricing Price is an important part of how customers experience the service. But besides that, KPN is starting from around

Chris Vige, CFO, KPN: the level of 60%. And on LCEWT, yes, we are still expecting and planning and hoping for or hopeful for positive service revenue growth in the second half. You’ll see a decline in Q2, I think. And then we turn it according to Q3, Q4. And if you open that business up, you look under the hood in that this obviously, there is a pressure on mobile where obviously, there’s price competition.

We are able to sustain our base, but there is ARPU pressure on mobile, which is countered by all the other businesses in NLCE where there’s growth. And there’s actually quite some demand by Dutch businesses for support and digitization of their operations. The demand is actually quite good in all this. There’s quite good development in IoT and machine to machine solutions. So I think with that, I would expect for the full year of LCE when we’re looking back on the year 2025, a small positive net growth, single below 1%, but small positive net growth on LCE revenues for the year, having turned to corner then in the second half of the year.

And that means that LCE to me is really is about 2026, right? If you if we’re enabled, as we plan, as we expect to turn this thing around in the second half of the year and make it sustainable, then LCE will be a contributor to growth next year. I mean that’s the whole plan. It’s about the run rate 26%. But when you look at the numbers, expect some decline in Q2 and then the turnaround in the quarter for Q3 and Q4 for a net net full positive growth for the year and then more a better run rate into 2026.

Matthijs von Lienhorst, Head of Investor Relations, KPN0: That’s great. Thank you so much.

Conference Operator: Thank you. And we will now take our next question from Joshua Mills of BNP Paribas. Your line is open. Please go ahead.

Matthijs von Lienhorst, Head of Investor Relations, KPN1: Hi, guys. Thanks for the questions. First one on B2B and then the second on wholesale. On the B2B side, you sound very confident about the medium term resilience of those revenue streams despite the macro backdrop. And I guess, KPN suffered more than most on the B2B side over the last fifteen years.

So the question is what makes you more confident that you can be so much more resilient now versus in the past? Is it that the pricing is just a lot lower having been rebased? Or the business mix has changed enough and there’s longer term contracts that give you that visibility? And perhaps some I think can really detailed breakdown of where you expect the individual B2B revenue lines to go over the next twelve months. But in order of conviction and where you have more visibility, is it fair to say that you maybe have more confidence in the LTE than the SME and the tailored solutions segments in that order?

That would be slightly longer, but first question on the B2B side for you guys. And then the second question, just around wholesale, the line losses were a bit better than last quarter. Previously, you’ve given some indication of the impact you see from the old nets and also your wholesale partners. So was hoping that you could give a bit more of an indication on the dynamics you’re seeing in the wholesale net adds and op net markets as well today. Thanks.

Joost Farben, CEO, KPN: Yes, Joshua on B2B. If you compare KPM, I would say with others in other markets then the difference is that we started on the cleanup probably a decade ago. So where we faced super high tariffs on legacy business and we really had to do the migration not only to IP based kind of services, but also to much lower tariffs. So usually, when you start fixing your telco B2B business, then you take a hit by starting the migration. And that’s why a lot of other telcos waited for that because in the first wave, you start eating up your own revenues, put it that way.

And that’s what we did in past. So we know where we are because we’ve done the migrations and we know where we are on LC because we’re not completely done with the migration. But on Smee to take an example, we migrate full base to our KPM one platform. And by doing that, lost a lot of customers because or a lot of connections I should say. Because during the migration customers find out, hey, can optimize a lot.

We do not need 10 connections. We can only do with one fiber line and two WiFi etcetera, etcetera. But that is behind us. So now we have a base of pretty good customers. We try to log in via free security services.

We try to add mobile or fiber. And but a pretty good clean base with a decent decently priced services. And the payment solution, like Chris described, we cleaned it up well, that was also a trip of probably eight years. So all kind of leaders really focused on the top line instead of on the valuable things. We’ve been through all the contracts, through all the large customers.

And of course, there’s a huge price on mobile. And of course, for every tender, price is lower. But we also decided on that part to use it to approach it more like wholesale customer approach. So we’re interested in creating value by adding more volumes on the network and not in our views when it comes to large super large customers. So I think there we are in a pretty good shape.

And then now see where somewhere we passed the midpoint. So ending the phase of migrations and fixing the portfolio, and then you know where you are. So in short, the difference between us and other players is that we’ve done I mean, at KPN over the last ten years, it was always like €100,000,000 down on B2B and we had to cover up in other segments. And that improves over the last five, six years. So I do not expect big spikes.

That’s also why we think that LCA will lift up, but it will we will not surprise you with suddenly 5% to 10% or something. And Smedes at 10%, we already announced it’s more likely that it will move back to 5% growth, but still that’s a decent growth. So all in all, looking under the hood, that will be different a lot like we said. And I think that it’s all about fixing the base, fixing the pricing and move everything to IP new platforms. So all in all, did a lot over the last eight years and that’s why we are more confident probably, I would say, than ours to predict our business.

Chris Vige, CFO, KPN: And then your second question, wholesale online losses a little bit less is some support from customers that moved from B2B to wholesale. So that distorts the picture a bit. Think underlying, it’s similar trends in last year. So I would say wholesale competition is as it was around Q4, Q3 last year. That’s kind of continuing.

We are hopefully in conversation with most of our wholesale customers and actually in pretty good spirits. Obviously, we try to protect our base. We try to protect the revenue per line as well. We also try to help them achieve growth in wholesale markets. So I think what’s so line the competitive intensity in wholesale is similar to what it was last year, even if the numbers show a bit of better outcome.

I think the difference is we see more winning is now most of our customers to work with us to grow and to find a better growth in on the KPI base. Obviously, that has to set up the real numbers. So numbers are what they are. Underlying trends is all a bit better, but expect the intensity to continue for the coming quarters. But there is some underlying improvements our ability to talk to a customer, work with them to see what we can do to grow with them.

Matthijs von Lienhorst, Head of Investor Relations, KPN1: Great. Thanks very much.

Conference Operator: Thank you. And the final question is from Michael DiClaire of KBC Securities. Your line is open. Please go ahead.

Michael DiClaire, Analyst, KBC Securities: Yes, hi. Thanks for taking my question. Question would be on the FTE reduction that you touched upon earlier between three to 400,000,000 potentially this year. I was just wondering, can you give a bit of a breakdown where or in which department these reductions will take place? I assume it’s mainly customer interactions.

And maybe also looking a bit forward, yes, what do you think that the potential is beyond 25%, let’s say, going into 26% as we see, of course, the chatbot and AI capabilities improving, which should be a bit of a tailwind for you? And then also a small follow-up again on the B2B. I recall that during the Capital Market Day, you assumed that the revenue growth or the service revenue growth between B2C and B2B would converge, let’s say, or get a bit narrower. I understand, of course, the improvement in 2026 following the transition. But yes, given the competitive pressure in mobile, is it maybe fair to assume that the original conversion that you assumed in during the Capital Market Day that this will be maybe a bit less than originally planned?

Those would be my questions, please.

Joost Farben, CEO, KPN: Okay. Well, on SG 300 to 400, Chris mentioned, I think good news is that we’re already below 200. So 200 less than end of last year. And one important thing there is indeed customer interaction. If you compare KPN to others, I think we still have a lot of people working on the customer interface, all has to do more or less with the fiber thing.

So I think we’re good on track to make the three to 400 step down happening. More important is that we have a couple of transformation programs in place, which is really about how we run the company end to end from the main portfolio. And the big one there is, of course, mass market broadband, but also in B2B, we’re looking at how we run more end to end. And so this all has to do with the implementation of AI tools, how we run data. We’re having a program in place which is called autonomous operations.

And that all has to do with less people working in a far more efficient and way of improving productivity. So it’s not only on customer interface, but we expect that to continue, especially when we slow down the fiber rollout, it will be easier to get this thing more efficient and more under control. But it’s also about staff reduction in general. So we’re not only looking at customer interface, it’s also the indirect FTE, as you call it, so people that are not daily working in the customer interface, but are working in an office behind the laptop. There we can optimize as well.

So we’re pretty confident that also in the years to come that we can benefit from these transformation programs to simplify the company further when it comes to people, but also improving the output of the company hand in hand by that.

Chris Vige, CFO, KPN: Yes. And your second question on the convergence, a lot of word convergence, on growth in B2C and B2B. Obviously, to the Capital Markets Day, I think the overall growth of the two together is in line with the plan. But you’re right, the mix is bit different. I mean, we find it B2C finds it tougher to go up and B2B finds it easier to stay high.

So in comparison, right? We did not some of the two, the growth is the same. I think it’s we find it more difficult than what we originally planned for to have our B2C growth go up due to having competitive intensity in the markets. And the fact that we, as Joe said, we’re a base company and you think there’s a market need to behave like a base company not to pursue growth at the expense of everything. And in B2B, as Joe said, there is underlying strength in our distribution scheme, strength in still employment in the Dutch markets.

I mean, the labor market is still very tight. So most of our SME and midcorp customers will not let go of staff because you can’t rehire them. And as long as they keep their staff, they keep their all their devices, subscriptions and what have you. And I think we see also more growth in what we call mission critical business coming towards us, driven by security concerns, data concerns, etcetera. So I think compared to the Capital Markets Day, your observation is right.

The sum of the growth to sum to is actually where we want it to be, a little bit more tilted towards B2B than to B2C. Okay. Thank you.

Matthijs von Lienhorst, Head of Investor Relations, KPN: All right. Thank you all for your attention. That wraps up today’s webcast. If you have any further questions, just reach out to the Investor Relations team. Thanks again.

Conference Operator: Ladies and gentlemen, this concludes today’s presentation. Thank you for participating. You may now disconnect your line. Have a nice day.

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