Earnings call transcript: KPN’s Q2 2025 growth in fiber and B2B segments

Koninklijke KPN NV (market cap: €18.2 billion) reported strong financial performance in its Q2 2025 earnings call, highlighting significant growth in service revenues and EBITDA. Despite a decline in net profit due to one-off costs, the company raised its full-year financial guidance, reflecting confidence in its strategic initiatives. InvestingPro analysis shows the company maintains a GOOD financial health score, supported by strong profitability metrics.

Key Takeaways

• Group service revenues increased by 3.7% year-over-year.
• Adjusted EBITDA rose by 6.4%, with a margin improvement to 45.5%.
• Net profit fell by 8% due to hedge accounting costs.
• KPN expanded its fiber footprint, covering two-thirds of Dutch households.
• Full-year EBITDA guidance was raised to over €2,630 million.

Company Performance

KPN demonstrated robust performance in Q2 2025, with its group service revenues growing by 3.7% compared to the previous year. The company continued to strengthen its position in the Dutch telecom market, particularly in the fiber and B2B segments. KPN’s strategic focus on digital transformation and fiber expansion has positioned it well against competitors in a competitive market landscape.

Financial Highlights

• Revenue: Group service revenues increased by 3.7% year-over-year.
• Adjusted EBITDA: Grew by 6.4% with a margin increase to 45.5%.
• Net Profit: Declined by 8% due to one-off hedge accounting costs.
• Free Cash Flow: Dropped by 15%, approximately €50 million.

Outlook & Guidance

KPN raised its full-year EBITDA guidance to over €2,630 million and free cash flow guidance to over €940 million. The company expects a 3% growth in group service revenues and aims to maintain stable CapEx at €1,250 million. Currently trading at a P/E ratio of 19.8x and offering a dividend yield of 4.19%, KPN presents an attractive combination of growth and income potential. InvestingPro data reveals the company generates a healthy 8% free cash flow yield, supporting its shareholder-friendly policies. KPN plans to achieve an 80% fiber footprint by the end of 2026, underlining its commitment to expanding its fiber network and enhancing service offerings.

Executive Commentary

CEO Joost Harbeck stated, "We delivered a strong quarter. Our group service revenues increased by 3.7% with growth visible across all segments." CFO Chris Viehay emphasized the company’s shareholder-friendly approach, saying, "Plan A is still to distribute all our free cash flow to shareholders." Harbeck also highlighted KPN’s leadership in the Dutch fiber market.

Risks and Challenges

• Competitive Pressure: The Dutch telecom market remains highly competitive, particularly in the mobile segment.
• Market Saturation: Increasing fiber penetration may lead to market saturation, affecting future growth.
• Regulatory Changes: Potential regulatory changes in the telecom sector could impact KPN’s operations.
• Cost Management: Continued focus on cost management is essential to maintain profitability amid rising operational costs.

KPN’s Q2 2025 results reflect its strategic focus on fiber expansion and digital transformation, positioning the company for sustained growth in a competitive market.

Full transcript - Koninklijke KPN NV (KPN) Q2 2025:

Conference Operator: Good day, ladies and gentlemen, and welcome to KPN Second 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 van den Jejen Horst, Head of Investor Relations.

You may begin, sir.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN: Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPN’s Q2 and Half Year twenty twenty five Results Webcast. With me today are Jorg Sarweg, our CEO and Kish Viehay, 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 Harbeck.

Joost Harbeck, CEO, KPN: Yes. Thank you, Matthijs, and welcome, everyone. Let’s start with the highlights of the second quarter. We delivered a strong quarter. Our group service revenues increased by 3.7% with growth visible across all segments.

And within the mix, Consumer saw a quarter of good commercial momentum, both in fixed and mobile. Business continued to perform strongly, driven by all business divisions and wholesale further accelerate. As a result, we delivered strong EBITDA growth. And alongside our operational performance, our EBITDA benefited from a favorable legal settlement related to intellectual property rights. KPN has a large portfolio of IPRs with over 300 patents, which demonstrates our commitment to innovation and our extensive portfolio and successful defense of our IPR allows us to license our technologies to major telecom vendors, providing regular income streams and vocational settlements.

As expected, our free cash flow declined year on year, mainly due to working capital phasing, higher interest and tax payments, but we’ll recover in the second half of the year. We further expanded our fiber footprint together with our Grosbort joint venture, we now cover two thirds of The Netherlands with fiber. And we raised our full year 2025 outlook for EBITDA and free cash flow. And the upgrade reflects the benefits from two IPR cases settled in June and July, combined with the solid business and financial progress we’ve made so far. We launched our Connect Exercising Growth Strategy in November 2023 and are now half way through now almost halfway through the execution of this ambitious plan with significant progress achieved, so we’re well on track.

Our strategy is built on three key pillars: one, we continue to invest in the 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 approximately 3% and our free cash flow by approximately 7% per annum on average in the coming years or simply put our three-three-seven CAGR framework. And given that we’re now nearly halfway through our strategic periods, we look forward to providing you with strategy update on November 5. Let me now walk you through some business details. We continue to lead the Dutch fiber market.

In the second quarter, we expanded our fiber footprint by adding 160,000 homes together with transports, now jointly covering two thirds of Dutch households. Our efforts in connecting homes and activated customers have paid off, reaching nearly 80% of total homes connected to the fiber footprint, while more than two thirds of our retail base now enjoys the benefits of fiber. Let’s have a look at the consumer segments. Consumer service revenues continue to grow driven by consistent fiber and mobile service revenue growth. Customer satisfaction remains stable and has our full attention.

Let’s take a deeper look into our second quarter KPIs. Our focus on loyalty and base management is paying off as we recorded a healthy inflow of 13,000 broadband net adds. Fixed ARPU grew by 1.2%. Our postpaid base increased by 37,000, which is a good improvement compared to the previous quarter. Our postpaid revenue declines primarily due to increased promotional activity in the non frail segment.

And as a result, mobile service revenues grew by 1.3%. However, we expect this to improve in the coming quarters. Let’s now move to the B2B segment. B2B delivered another strong quarter, achieving 5.7% year on year growth with good performance across all divisions. Commercial momentum in mobile remains solid adding 22,000 new customers.

In today’s complex world, we help Dutch businesses become digitally resilient with security delivering encouraging growth across both SME and LC underscoring its strategic importance. Net Promoter Score is stable, which reflects the continued trust from our B2B customers for the stability, reliability and quality of our networks and services. SME remains strong, driven by cloud and workspace, broadband and ongoing momentum in mobile. LCE increased by 1.7% year on year, driven by ongoing growth in IoT, broadband and cloud and workspace, partly offset by continued price pressure in mobile. And tailored solutions delivered another strong quarter as planned with growth driven by higher project revenues.

And as you know, this business remains subject to project timing and seasonality. Then wholesale service revenues further improved in Q2, mainly driven by the strong performance in mobile. Broadband service revenues increased as well despite the declining base driven by fiber. Mobile service revenues remained strong mainly driven by continued growth of our Travel SIM business. And other service revenues saw a slight increase mainly due to an uptick in business around.

Now turning to ESG. This remains a core element of our strategy with a clear focus on three key areas: responsible, inclusive and sustainable. And the core of our ESG strategy is to make our network even more reliable and secure by design. Expanding our fiber network is a key enabler for this goal, helping us to connect everyone in The Netherlands to a sustainable future. And at the same time, we continue to build a better Internet, one that offers seamless access to a responsible, inclusive, safer and greener Internet powered by fiber and five gs.

So our commitment to sustainability is evidenced by several top ratings and important independent ESG benchmarks. Our next slide shows our progress on carbon reduction, circularity and diversity. We continue to reduce our carbon footprint across the value chain. Earlier this year, we began sourcing solar energy from a solar farming partnership with the NACO, advancing our green electricity goals. Scope two emissions decreased by 30% year on year, while Scope three emissions slightly increased due to an expanded scope.

And next to this, we made further improvements on our diversity targets, reaching 32% of women in our senior management. Now let me hand it over to Chris to give you more details, not specifically on diversity, but on our financials. Thank you.

Chris Viehay, CFO, KPN: Let me take you through our financial performance. Our financial performance benefited from a favorable settlement in June related to two intellectual property rights. While these IPR revenues and related costs are normal courses of business for KPN, Due to the specific nature of these set of settlements this year, we exclude this one off benefit in a few metrics to illustrate our underlying business performance. To that point, let me start by highlighting some key figures for the second quarter and also for the first half of the year. First, adjusted revenues grew by 5.8% year on year in Q2, driven by continued service revenue growth across all segments and higher non service revenues, including LTO and VIPR benefits.

Second, our adjusted EBITDA grew by 6.4% compared to last year, driven by higher revenues, the IPR supplements and, of course, contributions from newly acquired set of Altio. Note that we sold the same amount of value of IP addresses as we did in Q2 last year. Third, our net profit declined by 8% despite strong EBITDA growth due to one off costs related to hedge accounting. And finally, as anticipated, our free cash flow declined by 15% or just over €50,000,000 compared to the first half of last year, mainly due to working capital phasing. I will share more detail on the underlying cash development later in this presentation and obviously in your Q and A.

In the second quarter, our underlying revenues, excluding one off items in LTO, showed healthy growth, increasing 3.4% year on year, fully driven by growth in service revenues. Group service revenues grew by 3.7%, supported by all segments. And in the mix, we saw consumer service revenues increased by 1.3% year on year, driven by both fixed and mobile, with solid commercial momentum in both postpaid and broadband net adds. Business Service revenue growth continued to perform well, growing by 5.7% year on year with all divisions contributing. And finally, Wholesale service revenues grew by more than 8% year on year, mainly by the ongoing success of our profitable and good margin international sponsored roaming business.

On a like for like basis, the adjusted EBITDA of KPN grew by 4% year on year, well above the 3% C and D hurdle. Our underlying EBITDA margin was 30 basis points higher compared to last year at 45.5%. The increase in our direct costs or cost of goods sold was mainly driven by service revenue mix in B2B and higher third party access costs for this last quarter. Our indirect cost base was broadly stable, the savings from digitalization and less staff offset by inflationary effects due to wage and taxation. In the quarter, we further scaled down our workforce by about 50 FTEs.

And over the last twelve months, we reduced our total workforce by almost 300 FTEs. In the first half of the year, our operational free cash flow increased by 18% on an underlying basis driven by both EBITDA growth and lower CapEx. CapEx was €50,000,000 lower compared to previous year, but mostly related to timing of fiber payments. For the remainder of the year, CapEx is expected to step up, fully in line and stay in line with our full year guidance of 1,250,000,000 For the full year 2025 and excluding IPR benefits, we expect high single digit growth rate in the operational free cash flow. Now let’s focus on the moving parts of our full free cash flow.

We generated EUR $3.00 9,000,000 in free cash flow so far this year, representing a cash margin of about 11% of revenues. The anticipated year on year decline in the first half free cash flow was mainly caused by temporary negative impacts from changes in working capital related to timing, such as the timing of bill runs, the actual cash settlement of the IPR benefits, lower CapEx, which translates into a temporary drag on working capital, timing of inventory buildup and some other small effects, such as pension contributions. We expect these negative effects to reverse fully in the second half of the year. In addition to working capital, we also faced higher interest payments and increased tax cash taxes as per the plan. Consistent with our guidance, our free cash generation will be stronger in the second half of this year.

The improvement is supported by: one, continued operating cash generation second, the normalization of tax and interest payments throughout the year and three, the unwinding of the drag on working capital. Finally, we ended the quarter with a cash position of €331,000,000 absorbing the impact of the final dividend payment over ’24, share buyback payments and our bond redemption in April. Let’s discuss return on capital. KHTM remains focused on creating long term value, which is evidenced by a strong return on capital employed. Our ROCE improved by 20 basis points year on year to 14.6% due to operational, efficiency improvements and including LTO as well on a fully consolidated basis.

Excluding the RPR effect, our ROCE return on capital is 14.5%. For the coming years, we should scope to further enhance ROCE, reaching our 2027 financial ambition of 15%, consistent with continuous creation of shareholder and stakeholder value. We continue to have a strong balance sheet. At the June, we had a leverage ratio of 2.5 times. Our ratio slightly increased during the quarter, mainly driven by dividends and share buyback payments, partly offset by our free cash flow generation and higher EBITDA.

Similar to 2024, we expect the leverage to return to 2.4x by the end of the year, supported by increased free cash generation in the second half of the year. Our interest coverage ratio remained sequentially stable at 9.6x. And as a result of the bond redemptions in April, we increased the average maturity and lowered the average cost of our outstanding debt, which is now reduced by 11 basis points sequentially to 3.6%. In addition to the bond redemption, we also benefited from lower interest rates and from a soft restructuring when executing Q2. Our exposure to floating rates remained limited at 14% and our total liquidity of around EUR 1,400,000,000.0 remains strong, covering debt maturities until the end of twenty twenty eight.

Now let’s turn to our outlook for 2025 midterm ambitions. Given the reported results in the first half of the year, we feel confident in raising our full year’s guidance for EBITDA and cash flow. We now expect an adjusted EBITDA for leases of more than 2,630,000,000.00, EUR 2,630,000,000.00 and a free cash flow of more than EUR $940,000,000. The EUR 30,000,000 increase in EBITDA and EUR 20,000,000 increase in free cash flow guidance are primarily due to the two IPR cases that we settled in June and early July. The total full year contributions from these two settlements is estimated around €25,000,000 EBITDA pretax with €9,000,000,000 already recognized in Q2 and the remaining in Q3.

In addition to the IPR related uplift, we also see some upside in the underlying business performance. It is clear that excluding these IPR settlements, we would have confidently reiterated our financial guidance for the year. And the difference between the increase in adjusted EBITDA and free cash flow upgrades is mainly due to taxes on settlements and some small working capital effects. Other outlook items have been reiterated. Group service revenue growth set about at about 3%, driven by growth across all segments, and CapEx will remain stable at the peak level of around EUR 1,250,000,000.00.

And as of the July, TV had bought back 58,000,000 shares of about $233,000,000 and completed 93% of our $250,000,000 share buyback program. And finally, we reiterate our midterm or three thirty seven ambitions as provided at the Capital Markets Day. Let me briefly wrap up with the key takeaways. We simply delivered a strong quarter with good business results augmented by one off IPR benefits. Group service revenues continue to grow across all segments, leading to healthy underlying EBITDA growth, fully consistent with our three thirty seven ambition.

In fact, for the second quarter in a row, underlying service revenue and EBITDA growth came in above 3% hurdle. We continue to lead the Dutch China market, now covering two thirds of Netherlands, while steadily progressing with connecting homes. Currently, more than two thirds of our retail base are in fiber, which bodes well for the future. We see healthy customer inflow across both consumer and business despite a competitive market. As planned, our free cash flow generation will be back end loaded and will come out as planned for the full year.

Overall, we are well on track this year and continue to make good progress towards our annual and midterm targets. Obviously, our financial performance this year benefited from the IPR settlements, but also the underlying EBITDA growth supports the updated guidance, and we feel confident in the cash generation for the remainder of the year. And of course, next year, we will again distribute all of our free cash to shareholders, and it’s important again to highlight that if we had not achieved the IPR settlements, we have fully happily and cheerfully reiterated our outlook. Finally, as we approach the halfway point of our strategy, we look forward to providing you with an update of our strategy on November 15. Thanks for listening.

Let’s turn to your questions.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN: Yes. Thank you, Chris. And as always, before we start the Q and A session, I kindly request that you limit your questions to two, please. Operator, please proceed with the Q

Conference Operator: Thank you very much. The first question comes from the line of Polo Tang calling from UBS. Please go ahead.

Paulo Tang, Analyst, UBS: Hi, thanks for taking the questions. I have two. First one is just on consumer broadband net adds. Can you comment on what has driven the step up in broadband net adds in Q2? And has the broadband market become more promotional in Q3?

Second question is when can we expect an update on the ACM review of the Glassport Delta Fiber deal? And can you comment on how you think about use of cash and whether you would look to buy fiber assets rather than build fiber? Thanks.

Joost Harbeck, CEO, KPN: Well, Paulo, thanks for your questions. Consumer broadband net adds in Q2 were much better than in Q1. Promotional activities in the Dutch markets are pretty well, intensive, I should say. So I think that our main competitor moved to a reasonable environment recently, so that would be good. But we especially see us benefiting from our own CombiFord deal and our fiber footprint supporting this inflow.

On the promotional activities for the near future, I don’t think much will change. However, I think it’s important that we all realize that we want to create value on broadband, and that is the most important thing for us and I think for our competitors as well. On ACM, yes, that’s a good question. We’re waiting in the process. I think after summer, they will get their vision on the situation, and then we can react.

So we’re in the middle of a process around this deal between Classport and Delta. And let’s see what will come out of it. We think we have a strong position. And for us, it’s always buy or build. I mean, per area, we can decide to buy or to build the necessity opportunities there.

And in this case, it’s for us best to buy, but if it’s not doable, then we have to find an alternative.

Paulo Tang, Analyst, UBS: Thanks.

Conference Operator: The next question comes from the line of Maurice Patrick calling from Barclays. Please go ahead.

Maurice Patrick, Analyst, Barclays: Yes. Thanks, guys, for taking the question. If I could just ask a little bit more about the broadband competition. Just keen to understand if you are seeing a change in competitive intensity after VodafoneZiggo has changed its pricing. They obviously even made a material adjustment to EBITDA guidance for the year, think signaled this desire to stabilize that base.

And just linked to that, there’s been some noise around fixed wireless access propositions from your competition and how that might stimulate their growth. I’m just curious to understand if you’ve seen any impact from that on the total broadband markets and is that your net adds? Thank you.

Chris Viehay, CFO, KPN: Orest, let me take some of those questions. On Gopin, on the maintenance side of the price actions, they’ve changed the lines pricing a bit, it’s still very close to KPN. I think if you look at details of it, maybe €1 to cheaper and other megabits in a few euros more expensive on one gig. So it’s very much it’s still very close. What I think what we’ve seen notably in broadband in the last quarter is improvement in churn and improvement in migrations.

If you look at Page eight in our little document, the graph on top left hand side, you can infer that actually churn has gone down, both on copper and on fiber. We’ve seen less migrations from book to back book, so that’s actually supported. So we’ve seen stable growth in gross adds. Fiber continues to do well, but have some notable reduction in churn. I relate that to our loyalty programs that we’ve installed a higher portion of clients in contract that supports a lot.

I think the copper to fiber mix is gradually improving in KPM. And the fourth one is possibly, yes, there might be some fatigue in the market with regards to these commercial activities, but that’s more speculation. Actually, we see the loan program being contract based, the copper to fiber mix also supporting churn. So I think that’s good. Also, went to Q3 as well.

I obviously, we’re only in last July, but so far, so good in terms of broadband. Commercial intensity as such, I would say it’s relatively stable, has not deteriorated further, put it in. And on fixed wireless, we don’t see a lot of outflow to fixed wireless customers. When we check, there are some but not a whole lot. It feels that fixed wireless is really addressing a different market segment.

A lot of new competition to fiber, but other customers have otherwise have, you know, going for a different solution. Yeah. So it’s a bit of a

Joost Harbeck, CEO, KPN: niche segment that we think, first of all, because of all households in The Netherlands are connected to a fixed network or to make fixed networks. And we also use fixed wireless access, but that’s always in combination with a couple line in rural areas. But that’s what we do already for a very long time. So for us, fixed wireless networks always in convergence with a fixed connection as total service in rural areas. But so far, not really a change in the market.

Chris Viehay, CFO, KPN: Thanks, guys.

Conference Operator: The next question comes from the line of Keval Kjerjak calling from Deutsche Bank. Please go ahead.

Keval Kjerjak, Analyst, Deutsche Bank: Thank you. I’ve got two questions. So firstly, you saw strong revenue trends in wholesale. Can you comment on how we should think about the revenue growth going forward? And to what degree you expect sponsored roaming revenues to fall off in H2?

And secondly, you’re now getting close to the end point on the fiber rollouts and less than the €1,000,000,000 of CapEx. I appreciate you have the November strategy update. But at this stage, would you be able to share any broad source on whether you think structurally there’s room for CapEx to continue to fall beyond 27%? Some of your peers have obviously targeted lower post fiber CapEx. Thank you.

Chris Viehay, CFO, KPN: On your first question on wholesale, mean, sponsored revenue is doing really well. They will continue to grow. Whether we keep this space, I don’t know, but I think it’s going to be north of 5%. I feel reasonably comfortable. And there’s a fair pipeline of new customers waiting to be signed up for these type of solutions.

So this I see growth in the second half of the year possibly be splitting over also into next year on this specific point. There is some whisper that there’s a concern about margins on this product. We’re not concerned on margins on this. Mean this is a we don’t really detail these margins out, but it’s not far off from what KPM’s EBITDA margins are at all. So it is actually is a profitable business, certainly on the marginal return on capital.

It’s a very profitable business. And as I said, maybe the full 8% that we saw in the first half of the year, but this is a significantly is a growth option for H2 and possibly into next year as well.

Joost Harbeck, CEO, KPN: And on your fiber rollout question,

Chris Viehay, CFO, KPN: I mean, we’ve built a full plan to move up

Joost Harbeck, CEO, KPN: to 80% fiber footprint in The Netherlands somewhere end of twenty twenty six. And so often we get the question, do we get to 80%? Or what after the 80% are you going to roll out to 100%? I think 80% is a good target since it is a lot. I don’t I’m not familiar with many incumbents trying to cover really that much of the country as we do, taking into account that 80% of that is house connected as well.

So on that Capital Markets Day, we don’t want to, of course, spoil the day itself by telling you what we’re all working on. But of course, we will give insights on the step down in CapEx and how to get there the fiber footprint and how to move further to 02/1930. And these are all relevant questions. If it’s going to be 75 or 85, I think for us, it’s also important to really, at the end of the building program, make a step down in CapEx and, of course, give you also an idea how we will run free cash flow after 2027.

Keval Kjerjak, Analyst, Deutsche Bank: That’s clear. Thank you, guys.

Conference Operator: The next question comes from the line of Andrew Lee calling from Goldman Sachs. Please go ahead.

Andrew Lee, Analyst, Goldman Sachs: Yes, good afternoon. I just had one question, which is around wholesale and I guess follows on from your questions on competition earlier. Your wholesale broadband net adds stepped down more than they have in quite some time, down, I think, 1,000 in the quarter. Could you just talk through what’s driving that? Just give us a bit more color around the competitive intensity you’re facing and how you see that playing out over the coming quarters?

And if there’s anything you can do to alleviate that pressure? Thank you.

Chris Viehay, CFO, KPN: Sure. So also I mean, first and foremost, wholesale top line continues to grow and EBITDA continues to grow. We expect the wholesale business to be a growth business run to next year. The mix of growth appears to be shifting away from broadband towards alternative mobile type solutions with sufficiently healthy margin. On this particular point, I think what we’re seeing is there’s growth on fiber.

We see a little bit more wholesale competition for growth. There’s growth on fiber and there’s some churn on copper. We think it’s churn towards competing networks in overbuild areas. So it is actually churn on lower ARPU copper lines that are one of our main broadband clients, we’ll be shifting them to the overbuild situations in alternative networks, which has accelerated. I don’t think it will stop at the end.

But then in the end, there is a limit because at some point, there’s only so much overbuild we have. So I would expect this to continue into Q3, possibly into Q4. But then at some point, the overbuild is actually gone on copper. So it’s copper lines in overbuild areas where I think they’re shifting to other areas. That is a bit of a drag on earnings.

At the same time, this lower margin business, lower ARPU business, and there’s a price increase that we generally put through on fiber on broadband. And there’s still growth on high margin fiber. So revenue wise, the impact is manageable. Base wise, you can see it. And I think that will continue for some time until the overbuild situation until the copper lines and overbuild situation have been reduced to a smaller amount.

I mean, that’s the case. That’s what’s happening. But then again, also, we’ve been fairly agile in our strategy trying to find new revenue sources, which is mobile related. Thank you.

Conference Operator: The next question comes from the line of Max Finley calling from Rothschild and Co. Redburn. Please go ahead.

Steve, Analyst, Rothschild and Co. Redburn: Hi, it’s actually Steve here. Thanks for taking the questions. I’ll go for three, but the two are very, very short, hopefully. First of all sorry,

Chris Viehay, CFO, KPN: just on minority dividends, you

Steve, Analyst, Rothschild and Co. Redburn: had EUR 28,000,000 minority dividend come through in the second quarter. Is that related to the Alter deal? And just remind us how we should think about that kind of going forward and whether we should be including that in free cash flow? Secondly, just coming back to Glassport.

Chris Viehay, CFO, KPN: Can you the associate losses kind of picked up a little bit in

Steve, Analyst, Rothschild and Co. Redburn: the quarter. I mean, they’re small numbers. I would have expected it to be kind of moving into profit at this stage as your network loading improves. Can you just sort of maybe cut a little bit of a light on that and maybe remind us how that kind of put and call works with ADP? And because I think it needs to be profitable or free cash flow positive before they can put the stage, but I can’t remember.

Maybe you could just help us on that. And finally, just on the IPR settlement, what are the costs associated with that? And should we expect any more IPR settlements or things of that ilk going forward to help EBITDA and cash flow? Yes.

Chris Viehay, CFO, KPN: Steve, on the OTO question at the moment, it’s a one off difference for Alteo. It’s a one off. So I wouldn’t plan on $28,000,000 of dividends from Alteo going forward. I mean it is a good deal because the if you look the numbers, you can see the cash payment, the amortization payment that we did, but then you also received a dividend as part of the financial restructuring of that business. So the net cash out to keeping was actually relatively small, around $70,000,000 which also explains so I say, you think it’s without pumping our chest, it’s a better deal than people expected or envisaged.

Those explains why our return on capital employed to KPN is up, including the consolidation of this business. So it’s a one off. There will be dividends to KPN going forward, but not of this magnitude. This was a one off like restructuring of the balance sheet. But then again, I mean, the cash out with you was probably around net debt about $70 or so So it underlines the high return on capital of this transaction.

On Classport, well, Classport is actually EBITDA and EBIT positive at this point in time. There’s this interest cost and some financial derivative accounting issues moving from the EBIT and full net profit. Also, you know, Classroom went through a refinancing as well. So I think those two elements feed in. Actually, as I said, Classroom is performing above plan financially.

It’s just the interest charges and hedge accounting that affect the bridge from EBIT to net profit, but EBIT and EBITDA are positive. In terms of consolidation, basically, the only two formal conditions are it happens between ’26 and 2030 and the number of HPs whose pass the limits should reach a certain threshold. I think we’re nearly at that threshold, so the consolidation trigger is almost at our discretion. And of course, it’s important to once it’s full free cash flow positive, that should be 28, 29. I keep hoping for ’28, it might be 29 around that date, and then we’ll consolidate.

But there’s no further limitations as part there’s no requirement to be free cash flow positive. Just makes sense to do it last year. But my core summary is financially, Classford is performing actually better than planned at EBIT positive, just the interest cost that they need to make. On the shipments?

Joost Harbeck, CEO, KPN: Steve, on the IPR shipments. Yes. So it’s not that we have these settlements every quarter, right? IPR revenues are normal course of business. We have a large portfolio of IPR with over 300,000,000 patents and that demonstrates a bit the innovation power of KPN and usually providing financial benefits between 8 and 10,000,000 per year.

Every now and then, we have a discussion with a large worldwide telecom tender. And sometimes that leads to a real, yeah, lawsuit. But this time, we were able to come to reasonable settlements. Indeed, the costs related to that are relatively high, but that’s also because this is very specific job done by six people in our own organization. And for this, we hire international lawyers and

Chris Viehay, CFO, KPN: we pay them a fee

Joost Harbeck, CEO, KPN: for the outcome of the settlement. So it could be that we have another settlement perhaps somewhere next year. But usually, what I like more is that they just pay for what we ask them and that we have a continuous flow of income. And these settlements not only good for a onetime effect,

Chris Viehay, CFO, KPN: but also means that in the future,

Joost Harbeck, CEO, KPN: they will pay for the IVR we they use.

Chris Viehay, CFO, KPN: But if you see the IVR cash settlement and the cash increases net of any cost of any lawyer fees associated. So this is a net benefit to KPM.

Steve, Analyst, Rothschild and Co. Redburn: Sure. Once again, the lawyers have done fairly well.

Chris Viehay, CFO, KPN: Yes. It’s a good business. Yes.

Steve, Analyst, Rothschild and Co. Redburn: Okay. Thanks, guys. Thanks very much.

Conference Operator: The next question comes from the line of David Wagman calling from ING. Please go ahead.

David Wagman, Analyst, ING: Yes. Hi, good afternoon, everyone, and thanks for taking my question. The first on ADC growth, which was very good, actually better than what you had guided for. So you go back to growth faster than expected. So could you comment on what has been driving this and what you would expect going forward?

So I think you mentioned IoT, broadband, also CPaaS. And then secondly, on Consumer. So you delivered quite nice performance on the CAS, indeed, especially in fixed. But then the sales growth was a bit lower and a little bit lower than what you guided for mobile. So could you comment on what we should expect for the coming quarters, especially in the brand mix, let’s say, and also your strategy?

I’ve read recently that Q4 would stop FMC, for instance, if this is correct or not. Thank you.

Joost Harbeck, CEO, KPN: Yes. So to start on your LCE question, I mean, B2B is doing great. It’s growing above 5%, which is compared to other surplus, I think, outstanding job. But having said that LCEs are focused to get it up above the current growth rate, goes a bit up and down. And that is because there, this large enterprise segment, we’re finalizing the movement from old to new portfolio.

So still, we have to migrate some legacy portfolio to the new environment. Having said that, I’m okay with the current results. We always focused on real inflection to happen in the second quarter. In reality, we report growth now for a couple of quarters in a row. But it’s the parts of B2B that we are really focused on to get it faster growing.

On mobile, we see a strong inflow of net adds, but there’s pressure on pricing, of course, that’s a competitive market. And on connectivity, we are doing better and better. We’re also rolling out fiber business areas. So when we report home spas, that’s not about the business areas in The Netherlands, but we also have a program to roll out fiber there, and that’s really speeding up and improving. So yes, all in all, that’s one of our intention points to get LCE to the average of B2B growth in Adonai.

And the consumer, yes, mobile service revenue is a bit weak, you could say, in total. I’m positive on the KPN development. I mean, we report blended service revenues and ARPUs, but the KPN brand is really doing good with high ARPUs on unlimited. Of course, we had a new phone in the game, and that’s big base. So it’s difficult to compare KPN with KPN and UFON compared to two years ago, for instance.

And in the no frills segment, that’s where the competition is heating up, I would say. So there, we have to be careful. I mean, we show strong growth of net adds, but for us, it’s all about the balance between net adds growth and value creation. And on quarter by quarter development, I would say, usually, we expect a better quarter in Q3 because of the development seasonality. We’re going to increase the prices.

So looking at the current situation, I would say that we

Chris Viehay, CFO, KPN: logically improved Q3 and Q4 compared to Q2. Chris, I think we’re talking David. Obviously, when you look at back at Q1, and this data is bit lagging that we did increase service revenue market share in The Netherlands. We’re gaining a bit of share across all the group. As you said, activity is most pronounced in the no field segment, but not splitting over into premium segment.

So I think at KTM level, we’re gaining net adds especially in unlimited. We’re introducing a bunch of new unlimited proposition as well over the summer, growing roaming bundles. I think it’s doing well and that competitive advantage is to this point quite contained, but contained to the infill areas. And as you also for the second half of the year, I expect gradual bottoming out with a higher number in Q4 when the price increase is being pushed through. So I would say, we’re not looking for too much on a quarter to quarter to quarter basis because this is a long term business, but I would expect over the second half of the H2 as a whole, it continues to be around 2% certain revenue growth on an average basis.

That should be feasible, but more tilted at the end. But then again, let’s not fall through the step of diminishing this thing on a quarterly basis. We’re in the long term path, and I think the second half will look better than the first half.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN: Thank you very much, both.

Conference Operator: The next question comes from the line of Joshua Miles calling from BNPP Exam. Please go ahead.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN0: Hi, guys. Thanks for questions. I have two, please. The first one is just around the comments you made there about the no frills mix versus KPN. Could you give us a bit more color both on where the subband kind of penetration is today on your postpaid mobile, on your broadband base?

And then maybe just an example in the last quarter of the 37,000 postpaid net adds you added, what was the split there between KPN and new phone? Because it looks like there is some ARPU dilution from the mix shift as well, pretty good to get a fair there. And the second question was around the recent deal signed between VodafoneSiggo and DeltaFibre, where VodafoneSiggo is going to be wholesaling from Delta in about 600,000 new homes for next year. How do you think that will impact your retail broadband net adds, your wholesale broadband net adds? And perhaps if you could give us an idea of what your market share your retail market share in those 600,000 homes is today, that

Chris Viehay, CFO, KPN: would be very helpful. Thanks.

Joost Harbeck, CEO, KPN: Joshua, on your second to start on your second question, we don’t believe that the VodafoneZiggo wholesale deal on Delta is a structural change in the strategy more than, yes, opportunistic move. They clearly have a at least that’s what we read because that’s not really clear, but they speak to a network strategy, of course. That’s their business model. I think they can do a DOCSIS upgrade in main parts of The Netherlands. And this deal is really centered around the areas where they don’t have a network in the first place because that’s a Delta network and that’s in a limited households and our market share is lower than compared to the average of The Netherlands.

So not that really impactful on KPN developments, I would say. We follow our strategy, and we do not think this is a paradigm shift in the VodafoneZero strategy. And your question on no frills, yes, I think main part of the base is KPN, right? So that’s roughly 75%. And so the rest of that is sitting on UFO.

Yes, so that’s why it’s so important for us to really focus on the KPN strategy, the unlimited part and keep it separated from that no frill game.

Chris Viehay, CFO, KPN: Let me on the first on the delta, mean, that’s 600,000 HP. I don’t know how much Hooseneck they have, but as Joe said, confirm the market share of keeping in broadband is less than average. A chunk of that is in fiber, so I would not be too worried about that because it’s already on fiber. There is some copper base, but these are copper clients that have been already exposed to competing fiber for some time. So I don’t expect an immediate shift also because if obviously, we’re not privy to the details of the transaction.

But our understanding of the typical delta wholesale agreement is very much in line with our ACM commitment. So we don’t think this really need to a price side or so. So if you look at all that, will we impact is we’re going to be managing one, not really affecting the total result of KPN. And as on this question on the on no fails and fails in KPN, we have three quarters of mobile basis KPN and one quarter is on the other two bands. So that affects the report of our unit.

Yes, on fixed item, almost everything is taken, right? So there’s only a limited part, probably around 5%, no fills.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN0: Thanks. Maybe just one follow-up on that commentary around your market share in the areas where there’s no cable being lower nationally. It seems quite surprising given vote rates goes national market share is around 40%. So in those areas today, is it the case that DeltaFibre already has quite a lot of market share on the retail side or that your ISP partners over indexed to those rural areas rather than KPN? It just seems like usually, you would expect in a non cable area to be higher.

Chris Viehay, CFO, KPN: I was thinking those areas, was dealt with the high markets already. So I mean, we let’s see what the estimates, but I wouldn’t rule out that some of the video games would come at the expense of Delta and yes, because I think that’s

Steve, Analyst, Rothschild and Co. Redburn: where they have a relatively large share.

Joost Harbeck, CEO, KPN: And then we I mean, we give you averages of market shares. You mentioned 40% is lower nowadays. Us is a bit stronger than but all in all, it’s different per region, right? So the original Delta region is where Delta is super strong, but it’s limited to 1,000,000 households or less. The largest cities, this portfolio, Zito is strong.

And as we are strong in more or less the rest the country. So it depends a bit on the area what our market position is, and that’s how we also took the decisions on fiber rollout.

Chris Viehay, CFO, KPN: Thanks very much.

Conference Operator: The next question comes from the line of Siyi He calling from Citi. Please go ahead.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN1: Hello. Hi. Good afternoon. Thank you for taking my questions. I have two, please.

The first question is really on the consumer service revenue growth. Chris, I think you mentioned at Q1 result call, you’re talking about you don’t expect consumer to be the main contributor to your service revenue this year. But now you’re looking now you’re having accelerated fiber penetration in the consumer broadband base, and you expect mobile service revenue to improve as well. And just looking out for the next coming quarters, maybe one or two years, do you see there could be a possibility that consumer service revenue growth could be more in line with the group service revenue trend, which is around 3% going forward? And so my second question is on the indirect cost.

I think also you talked about some potential reductions in your indirect costs, but still by this quarter, we haven’t seen too much move going forward. I’m just wondering if you can help us understand how to think about those lines going forward. Thank you.

Chris Viehay, CFO, KPN: Yes. I think the consumer service revenue growth, in all fairness, I don’t think we’ll be at the 3% level for this year, probably also not for next. Obviously, in the long run, I see that opportunity with fiber coming in and copper churn becoming less simply because we have less copper customers. It’s going to take some time to get there. And I think also because we have a combi full deal products, which you also explained about the payment discount products, while some of the charges of that are added books in the fixed ARPU.

Joost Harbeck, CEO, KPN: So there’s a reporting element of

Chris Viehay, CFO, KPN: this as well. So I would say the growth of KPN in the coming years will be driven by business and wholesale and consumer needs to top line lagging somewhat. I mean bottom line could be better. It is high margin business, but top line growth in consumer will probably be not the leading part the business and also will continue to drive this going forward. That is fair for outlook.

I think the cost base, we stayed effectively flat over the quarter in the first half year. And if you strip out all one offs, incidentals, I think also underlying. We effectively had a flat cost base with, I would say, about 300 FTEs in class, that’s actually going quite well. That supports EBITDA growth going forward. I mean in this business, you have positive sales revenue growth, positive gross profit growth in a flat cost base that critical down to your bottom line.

So on the cost side, would say, flattish for the year. That’s easy by about 300 in the last twelve months. And we aim to certainly continue at this pace of reducing FTEs and reducing labor costs going forward. So that should help us in the mid to long term. I hope it gives you some color how we look at the business in the mid to long term.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN1: That’s very clear. Thank you.

Conference Operator: The next question comes from the line of Ajay Soni calling from JPMorgan. Please go ahead.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN2: Hi, guys. Thanks for taking my question. My first is actually just on the FTE reductions that you referenced there. So it feels like you’re reducing around 70 FTEs per quarter. Just wondering where these reductions are coming from and you’re expecting these for the rest of 2025 and into 2026?

And then my second question is just around the EBITDA growth. I think previously, you highlighted Q3 would be slightly softer on an underlying basis and then stepping up again in Q4. If I

Conference Operator: could just confirm that, please. Thank you.

Joost Harbeck, CEO, KPN: So on the FTE reduction, there’s we have a workforce of around 10,000. One third roughly is working in the customer interface. There’s technical people and there and there’s a lot of people working in support. And we have programs in place to make company more digital and to make the end to end processes far more first time right, especially focused on customer quality, but also relate to simplification and yes, at the end, FTE reduction. So it’s not an FTE reduction program, but it’s leading to FTE reduction.

I think in the future, we will benefit from this more than we do today, but still we see a step down in FTE already in a run rate, and that is good because the benefits really kick in next year. So for us, this will

Chris Viehay, CFO, KPN: be an important focus point,

Joost Harbeck, CEO, KPN: and I think there’s lots of opportunities here. I mean, KPN done a lot in optimizing your operating model. But since there’s a lot of opportunities on these big transformation programs supported by AI platforms, we think we can go further. So that’s for us an important focus point. And like Chris described, the first steps down in FTE are in the run rate.

Chris Viehay, CFO, KPN: Yes. And my second question on Q3. Look, obviously, I have most to blame because I tend to guide for how the quarterly distribution looks like. But in the end, it’s all about the long term view, right? This is about getting us towards 2027 and the anticipated and promised CapEx step down, and we should try to look through quarterly fluctuations.

But then again, as you’re asking, Q3 will be a bit softer, but obviously, I’d like to tell you what roughly the pattern is so that you can place and position and order context in which these things happen. The Q3 will be a bit softer. I think, actually, mostly due to accounting for holiday provisions. Now let’s not dwell on this too long. Clearly, Q3 will indeed be a bit softer than Q2, although I felt that the initial hint that we gave is probably the floor, it could be a bit better than what we initially guided for in terms of Q3.

Without going overboard on the quarterly guidance, there is a pattern in the year, which is affected by these holiday provision schemes. But I think Q3 will look a bit better than what we initially guided for if I look at the also including but also excluding the IPR benefit that will land in Q3. I would like to EBITDA wise, be fine. So with that in mind, in the end, we’ll pursue $20,630,000 this year, 2,600,000,000.0 for the year. That’s the plan for the year.

And there will be some distribution. But I think in light of that, I would say, financially, trading wise, Q3 looks it could be less than Q2, obviously, but it’s going be a bit better than what we

David Wagman, Analyst, ING: initially wanted get.

Chris Viehay, CFO, KPN: But then again, that’s only one quarter. It’s about the long term story.

Conference Operator: Okay. Thank you. And the final question is for Paul Sidney from Berenberg. Please go ahead.

Paulo Tang, Analyst, UBS: Yes. Thank you very much. I also had two questions, please. Firstly, a question for Chris. You’ve upgraded free cash flow guidance twice this year already, but most of that is mechanical, but there’s some organic upgrades in there.

You’re clearly guiding for falling CapEx in 2027. I’m not wanting to preempt any message at the strategic update in November, but are your thoughts around capital allocation changing? Will excess free cash flow continue to be used for shareholder remuneration? Are there any caps on the level of buybacks you can do? The fiber rollout more than 80%, potentially any acquisitions that you could do that perhaps weren’t possible a few years ago?

And secondly, you’ve clearly articulated the 7% free cash flow CAGR out to 2027. But how do you expect return on capital to evolve Could this get close to 20% over time in your opinion? Well,

Chris Viehay, CFO, KPN: first of thanks for noting that we increased our free cash flow price in the year. I would expect the flowers and cheers in this call, but I’ll get them from Joost. For sure. For sure. I think we’re on track to beat our free cash flow guidance, right?

And the increase, number one, due to the acquisitions, we want to be fair that what we buy, we add to our free cash flow guidance and the second increase is an IPR benefit. It’s a one off, but we want to make sure that we do not use the one offs to meet the underlying business. The one offs are really on top of. And as we share our free cash flow to shareholders, basically, they’re yours. And that’s the result of this.

So we distribute them to shareholders. Plan A is still to distribute all our free cash flow to shareholders. And that’s what we typically do. We can do that with investing $1200000000.0250000000.00 dollars in CapEx. And if you make a step down to $1,000,000,000 we’ll still be investing about 70% of revenue.

So we’ll then stay fully invested and investing fully and able to distribute all our free cash to shareholders. That is the plan that we stick to. I would say, over time, you’ll see the portion of dividends going up. I think in the long run, it would be fair to run us like an 80% payout ratio of your free cash flow and the remainder in buybacks. I mean that’s not cost in stone, but I think that’s probably a good long term anchor point for your dividend.

So basically, it means that whilst our cash free cash flow is ratcheting up, our dividend will be going in line with. And we think in the end was something like order of magnitude 80 of our free cash flow in dividends and the remainder in buybacks. The specific distribution, we’ll decide on that when we get to 27%. Perhaps you can say a little bit more in the capital markets update in the second half of the year, but I think that’s the end game for us. The question on return on capital employed, we’re moving towards 15%.

Could we go to 20 I’d love to have that problem. First, I think 15% is a good level, I mean, that’s consistent with a significant amount of value creation. I think if we run this business at 15%, we’ll be doing very well. I mean, that’s the point. If you run your business at 15%, I think the marginal investment is probably better to allocate towards growth than more return if you’re running at 15%, right?

So I’d love to get to 20%. We’ll do anything we can to get to up, of course, our return on capital employed to a higher level. But I think at this point, it’s fair to assume that 15% is what we’re going to, and it’s fully consistent with shareholder value creation and a fairly equal spread on the overall cost of capital. And I think with that, we’d probably also stand out in Europe. And we won’t hesitate to do more, but at some point, investing in growth at this level of profitability might create more value for you guys.

And obviously, in line of staying disciplined to make sure we generate sufficient cash in anything that we do.

Paulo Tang, Analyst, UBS: Appreciate it, Chris. Thank you.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN: Okay. Thank you all for your attention and questions. That’s

Chris Viehay, CFO, KPN: webcast.

Matthijs van den Jejen Horst, Head of Investor Relations, KPN: In case you have any further questions, please feel free to reach out to the IR team. If you go on holiday, please enjoy your holidays. Goodbye.

Chris Viehay, CFO, KPN: Bye. Bye bye.

Conference Operator: Ladies and gentlemen, this concludes today’s conference. Thank you for attending, and have a nice day.

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