Koninklijke Kpn Nv

Welcome to KPN's fourth quarter and full year 2021 earnings webcast and conference call. 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. If you would like to ask a question, you may do so by pressing star 1 on your telephone. Please note that this event is being recorded. I would now like to turn the call over to your host for today, Mr. Reiner van Eerskot, Head of Investor Relations. You may begin, sir.

Good afternoon, ladies and gentlemen, and thanks for joining us. Welcome to KPN's fourth quarter and full year 2021 results webcast. With me here today are Joost Vaarwerk, our CEO, and Chris Vigée, our CFO. As usual, before turning to our presentation, I'd like to remind you of the safe harbor on page two of the slides, which also applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations with respect to its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Let me now hand over to our CEO, Joost Vaarwerk.

Thank you, Reinhout, and welcome, everyone. I hope you're doing well, and I hope to see you soon in person as we gradually return to the office. Let's start with some highlights from the fourth quarter and the full year results. In 2021, we continued to make good progress against our strategic and financial ambitions. We delivered growth in mass market service revenues, supporting overall group service revenues. SME service revenues grew for the second quarter in a row, providing momentum and confidence that we can stabilize our total business segment service revenues by the end of this year. In consumer, fiber and our converged portfolio are delivering revenue growth every quarter. Mobile service revenues are growing and if fixed, the trend is stabilizing. Wholesale continue to make a strong contribution thanks to our successful open wholesale access policy. And as a result of all that, our EBITDA generation is becoming less dependent on just cost cutting as we are now delivering sustainable mass market service revenue growth. We were able to grow adjusted EBITDA in 2021, supported by improving group service revenues and a lower cost base. We added a record number of households to our fibre footprint in 2021, and we will at least maintain the current pace in the coming years. We were also rewarded for having the best mobile network in the Netherlands for the third time in a row. We reiterate our EBITDA and free cash flow ambitions for 2023. And at the end of the presentation, Chris will give you more details on our financials and walk you through our outlook for this year. Finally, the confidence in our strategy and the successful execution enables us to pay out a progressive dividend and allows us to structurally return additional capital to our shareholders. We completed the €200 million share buyback last year, and we now intend to execute a share buyback program of €300 million in 2022. We delivered on our 2021 outlook. EBITDA came in at 2.35 billion in line with the outlook we gave at the full year 2020 results. CapEx was around 1.2 billion and Free Cash Flow came in at 784 million, slightly ahead of our outlook. We reiterate our dividend commitment and we will pay a regular dividend per share of 13.6 cents over 2021. We've made strong progress in the first year of our accelerate to grow strategy. As a reminder, I give you the three key pillars of the strategy. First, leverage and expand our superior networks. Second, grow and strengthen our customer base. And thirdly, continue to simplify and streamline our operating model. I will touch upon our progress on these pillars in today's presentation. So let's start with the first one. We realized the greatest-ever annual fiber rollout in the Dutch market. We connected 433,000 households, and if you add the Glasport joint venture to this, it was over half a million homes in the Netherlands. In the meantime, and visible in our homes activated, we continue to add new retail and wholesale fiber customers, and we upgrade existing customers from copper to fiber. Today, we cover more than 40% of the Netherlands and jointly with Gosport, we expect to reach approximately 80% of Dutch households by the end of 2026. And after reaching that point, capex will come down to a much lower sustainable level. Let's delve a little deeper into our fiber business case. First on penetration, we see a significantly higher network penetration in fiber areas over time. Typically, one year after the first connection in an area, the penetration increases by about 7 percentage points. And this at the end rises even further after 7 years, when our average network penetration reaches over 60% for retail and wholesale together. On ARPA, while we do not directly charge a premium for fiber, it's clear that today fiber customers on average have an almost 11% higher ARPA. And that is because fiber customers buy higher access speed levels and more value added services such as content packages. And as we continue to roll out fiber, we expect that the growing fiber footprint will result in an improved penetration rate for retail and wholesale. In fact, our retail fiber base is likely to surpass our copper base mid this year. Finally, on spend related to fiber, alongside lower maintenance and service costs, we also foresee savings as we gradually shut down our copper network in the coming years, starting early next year. All in all, fiber is clearly at the heart of our strategy to create long-term value for all stakeholders. In our mobile network, we have modernized over 4,000 sites to date and our 5G network already covers more than 80% of the population on 700 MHz spectrum. We also made preparations for the 3.5 GHz spectrum, allowing for an even better 5G experience as soon as it becomes available, which is most likely to be early next year. Finally, we're also proud to announce that Ookla named us the best mobile network with the best coverage and the fastest 5G in the Netherlands for the third time in a row. We will discuss our second performance by turning to our second pillar, enhanced customer focus. Customer satisfaction remains a top priority and our efforts are paying off. In 2021, consumer net promoter score increased to plus 16 as we successfully invested in quality improvements and in the customer journey. The net promoter score of the business segment increased to plus 4, our best result ever as customers value KPN B2B for its quality networks and quality services. We believe that customer satisfaction, by the way, goes hand in hand with employee satisfaction. And as such, I'm pleased with the outcome of our employee engagement survey, which shows that 82% of our employees feel engaged at KPN despite the COVID situation. And within the market, this is a top tier level of employee engagement. In the consumer market, we are focused on delivering the best digital access and the best customer experience. To provide the best digital access, we continued our successful Super Wi-Fi campaign in 2021. We made the one gig proposition more accessible by lowering the price point while doubling the upload speed. We also introduced better hardware, for example, a new, more energy efficient version of the 4K SettleBox. Furthermore, we successfully invested in quality improvements in customer journeys, such as the introduction of our new app, the MyKPN app, and the new online shop. Recently, we announced and extended new entertainment partnerships with FirePlay and ESPN. And earlier this year, we integrated the Microsoft Game Pass Ultimate into our offerings. And these long-term distribution partnerships across a range of products enable our customers to have access to the best content and games. This year, we achieved consistent mobile service revenue growth supported by strong customer inflow, particularly on our unlimited data proposition. We intend to broaden this trend to fix service revenues as well. The underlying trend in fixed is improving as fiber broadband service revenue growth is more than offsetting the copper decline. And combined, we are well on track to grow consumer service revenues in 2022. Now let's take a deeper look into our fourth quarter KPIs. We've seen solid fiber inflow reflected by 43,000 new customers, offsetting churning copper customers. And this led to 3,000 broadband net adds. Fixed ARPU increased 0.9% year-on-year. And combined and excluding the impact of the revenue correction earlier this year, this led to stabilizing fixed service revenues in the fourth quarter. We see continued solid trends in mobile. Our postpaid base increased by 70,000 and postpaid ARPU grew almost a percentage. Combined, this led to continued growth in mobile service revenue. Let's now move to the B2B segment. At our strategy update in November 2020, we committed to stabilization of SME service revenues by the end of last year. We delivered on this a bit ahead of the plan already last quarter. This trend continued in the fourth quarter with SME service revenues increasing almost 5% points year-on-year, a very good improvement on the declines seen in the first half. The performance in LCE and tailored solution was in line with our expectations. In SME, we have seen solid mobile and broadband-based trends supported by our attractive KPN1 platform and KPN1 propositions. This also provides a strong platform to increase the density of product take-up by our customers as we leverage and cross-sell opportunities. This year, we implemented a clear segmented customer focus in our B2B approach with SME, LCE, and tailored solutions. and the strategy of SME and LCE is pretty much aligned, but they are in a different stage of transformation. LCE is lagging SME by about one to two years, so we're on the right track, but it will take some more time to turn LCE around. That being said, we delivered service revenue growth in SME in the second half of 2021, and this was an important milestone for us, and we are now confident that we can stabilize business service revenues by the end of this year. also showed a strong performance during 2021, supported by mobile and broadband growth and reflecting the attractive access terms we offer to other service providers in the Netherlands. As you all know, our regulator HCM is currently still conducting its fixed access review and it expects to start their consultation before the end of this quarter. From our perspective, we believe that we are operating in a highly competitive market where wholesale providers continue to outperform the market in terms of subscriber growth. And with our open wholesale access model, we guarantee sufficient room for wholesale providers to grow and to compete, and still offering customers in the Dutch market a wide variety of high-quality, affordable services. Now, finally, I will turn to sustainability. As highlighted by Chris during our virtual ESG webinar last month, ESG is at the heart of our strategy. In 2021, we published our ambition to become net zero by 2040 and also incorporated ESG into two core financing instruments. Our commitment to sustainability is evidenced by several important independent ESG benchmarks. For example, in November, we recognized as a member of the Dow Jones Sustainability World Index for the 10th year in a row. Looking back over the past 10 years, KPN is the only telco that has been mentioned every year. Now let me hand over to Chris to give you more details on our financials.

Thank you, Joost. As Joost mentioned earlier in our presentation, we delivered on our outlook for the year, and we are confident that we will continue to do so going forward. Let me start by summarizing some key figures. First, our adjusted revenues increased by 0.3% in Q4, supported by sustainable mass market service revenue growth. Second, the adjusted EBITDA after leases, our operating profit, increased by over 4% in Q4 and 1.2% for the full year 2021, driven by service revenue growth and a lower cost base. Our EBITDA margin was up 70 basis points to 44.7%. Third, our free cash flow increased 2.5% compared to 2020 and exceeded our target due to higher EBITDA, despite higher CAPEX and taxes paid. Our free cash flow margin improves 40 basis points to almost 15%. And finally, our continued focus on shareholder value creation is paying off, as evidenced by another solid improvement in ROSI return on capital employed to 11%. The adjusted group revenues were slightly down year on year, but we were encouraged by the gradual improvement throughout the quarters this year. And within the mix, consumer revenues were broadly flat, as growth in mobile service revenues and fiber revenues was offset by declining legacy services. Business revenues declined 4.3%, mostly driven by our LCE and tailored solutions performance, whereas SME moved to substantial and structural revenue growth. Wholesale revenues grew by 6.3%, mainly driven by broadband and mobile. Other revenues were mainly supported by lower intercompany charges, higher non-recurring benefits related to intellectual property rights, and some Fibro-Rorat-related revenues. Mass market service revenues continued to grow, plus 1%, 1.5% in Q4, driven by healthy trends across all segments. Please note that the mass market service revenue growth number is negatively affected by the revenue recognition issue in last year's numbers. On the underlying basis, the growth rate was close to 2% year-on-year. This also led to group service revenue growth, which was up 0.2% compared to the previous year. Wholesale service revenues growth was really solid at 4.7%, and SME service revenues grew by 4.8%, driven by continued good momentum in our basis. In consumer, mobile service revenues continue to grow. In fixed, fiber revenue growth is outstripping the declining copper revenue since two quarters by now. However, all in all, it's still offset by declining legacy services. But we're now moving to sustainable mass market service revenue growth across all segments. And within B2B, service revenues are expected to stabilize by the end of this year, and we're on the verge of sustainable top line growth for the group. The decline in total revenues was fully offset by lower indirect OPEX, leading to an increase of 1.2% in our adjusted EBITDA in 2021. Full year 21 net indirect OPEX savings amounted to 47 million euros, supported by lower personnel and IT and TI expenses. The cost savings were relatively moderate compared to previous years, mainly due to additional costs to support revenue growth. higher employee rated provisions and less tail width from COVID savings than in 2020. That being said, it's important to highlight that if we look through the specific effects, we look through them, we see continued structural decline in our cost base and a structural increase in productivity, as is evidenced by the continued decline of the number of FTEs employed at KPN. For example, our own staff base is now 4% lower than last year, whilst our revenues are broadly stable. For this year, 2022, we expect to see roughly the same pace of cost savings as in 2021, mainly due to some additional costs to support revenue growth, inflation, and costs related to services for Glassport, a joint venture with APG. The cost target of 250 million in the 21 to 23 period is expected to take a bit longer to realize as a mix of KPN's EBITDA generation is changing. On the one hand, KPN's revenue performance is better than expected. On the other hand, the run rate of cost savings is expected to be lower than initially anticipated in the next years. However, the changing EBITDA mix is not impacting the outlook for EBITDA growth as such in the coming years, and a 2023 ambition has been reiterated, as many of the cost headwinds are actually reflections of higher revenues. Now turning to Capex. As indicated, we stepped up our investments to 1.2 billion euros, driven by our accelerated fibre rollout. This is partly funded by a continued decline in non-fibre CAPEX. Fibre CAPEX amounted to just over 400 million euros and was up almost 40% compared to last year, representing about 8% of revenues. Non-fibre or other CAPEX declined to about 800 million revenues, 15% of revenues. It's important to realize that this bucket also contains customer-driven CAPEX, like CEP, consumer premises equipment. If we strip out customer-driven CAPEX, non-fiber CAPEX is seeing an even steeper decline. CAPEX overall is expected to remain at a peak level of 1.2 billion euros, or about 23% of sales in 2022. And within the mix, Fibre is expected to rise even further to about 450 million revenues, while other CapEx are expected to come down a bit further to around 14% of revenues. Customer-related CapEx may be stable or even go up, but that would be good news, as that would indicate stronger sales growth. Fibre CapEx thereafter is expected to remain stable for the 2022-2026 period. Our cash generation remains solid, and we've been able to grow our free cash flow. With this, we outperformed the outlook, despite a significant step up in capex and taxes. The higher capex caused our operational free cash flow to decline, but this was counted by several other line items. More favourable developments in working capital, lower interest paid and lower cash restructuring charges. Taxes of 77 million euros were a bit higher than planned. But this is due to the fact that we were not able to fully utilize the liquidation losses in 2021, as the German tax authorities have not yet concluded their 2014 tax audit. This will follow up in 2022. And for 2022, we already have an agreement with the Dutch tax authorities on this matter. Therefore, we expect cash taxes of up to 100 million euros in 2022, lower than the original expectations we provided to you a year ago. In 2023, we'll see a further step up in cash taxes to at least the original level we guided for. So effectively, we stepped our investment in fiber rollout and customer capex and funded these through lower mobile, IT, and network capex, lower restructuring charges, and lower cash interest paid. Working capital was no longer a drag on free cash flow, and we managed to increase our free cash flow despite the planned increase in capex. Our free cash flow margin improved 40 basis points to almost 15% of revenues and is on a clear path to improve further, in line with our guidance. We feel cash momentum is strong at our group. KPN focuses to create long-term value as evidenced by a strong return on capital employed. Our ROSI return on capital employed improved by 90 basis points this year to about 11%. ROSI has moved up due to increased operational efficiency and a more efficient balance sheet. For the coming years, we see scope to further optimize ROSI as part of our continuous pursuit to create shareholder value. We ended the year 2021 with a strong and resilient balance sheet. From Q3 to Q4, net debt increased by 14 million euros, driven by share buyback and tax payments, partly offset by strong free cash flow generation. At year end, with a leverage ratio of 2.3 times, comfortably below our ceiling of 2.5. Also, our interest covered ratio remains strong. Total liquidity at KPN stood at more than €2 billion and covers debt maturities for the next three years. And finally, KPN issued a €700 million sustainability-linked bond in November 2021. This, as Joost already mentioned, underlines our commitment to a sustainable future and climate change mitigation by integrating our target to reduce carbon emissions across the entire value chain into a core financing instrument. Before moving to our outlook and ambitions, I would like to say a word on inflation. While we do see some inflationary pressure from rising costs, we expect to be able to mitigate most of this as the majority of our revenues have some sort of CPI-linked features in place. Therefore, we target no material impact on our EBITDA as lower cost savings are expected to be offset by higher revenue growth. Regarding CAPEX, we have limited exposure to inflating outsourced labour costs since our fibre reward capacity has been contracted for the coming years with no link to inflation. That said, as always, there may be some small downside risks to working capital from supply chain shortages, which may require us to do some additional stocking. But this already is reflected in our outlook and we keep a strict eye on Capex to ensure it does not exceed the 1.2 billion euro level. In fact, if the strategic stocking requirement stays contained, we see some further upside to our free cash flow guidance for 2022. So bottom line, KPN is well shielded against inflation and therefore not considered to be a major concern. Now let's turn to our outlook for 2022 and ambitions for 2023. For this year, 2022, we expect the adjusted EBITDA after leases to come in at around 2 billion and 400 million euros, just over 2% growth, supported by sustainable mass market service revenues growth and continued cost control. CAPEX is expected to remain at a peak level of 1.2 billion euros. and we expect free cash flow of more than 825 million euros, which represents an increase of at least 5% compared to 2021. There are likely to be some small movements in most FCF items, but all in all, the delta free cash flow from 2022 to 2023 is likely to be very close to the increase in EBITDA. We expect to pay a regular dividend of 14.3 cents per share over 2022, a 5% increase. And finally, we reiterate our EBITDA and free cash flow ambitions for 2023, as outlined at the strategy update. For CAPEX, we expect to remain at the upper end of our initial guidance, or 1.2 billion euros. The execution of our strategy is on track, and we are focused to deliver long-term value to all our stakeholders. At a half-year result, we already indicated that we were confident that a progressive dividend policy could be complemented by structural incremental capital returns. And we are committed to return excess cash to our shareholders going forward. In 2021, we completed the first 200 million euro lack of a share buyback programme. The almost 47 million repurchased shares will be cancelled this week. For 2022, we intend to execute a share buyback program of €300 million. This means we will distribute more than €850 million to our shareholders in 2022, which represents a yield of about 7% at today's share price. So to summarize, today's results are an important proof point of the success of our strategy. We delivered on our 2021 outlook, showing an improving revenue trend, growing EBITDA, and growing free cash flow. we see a sustainable trend for mass market service revenue growth with positive signs in consumer, SME, and wholesale. With this, KPM has now put itself on a clear path towards growing revenues, growing EBITDA, and growing free cash flow, and notably also growing shareholder returns. Thank you for listening, and I'll turn to your questions.

Thank you, and I would like to ask you to limit your questions to two each. Operator, over to you.

Ladies and gentlemen, we're starting the question and answer session now. If you have a question or remark, please press star 1 now on your telephone. Star 1 for questions or remarks. Go ahead. Our first question is from Andrew Lee of Goldman Sachs. Go ahead, sir. Your line is open. Thanks. Good afternoon, everyone.

A couple of questions.

I'm going to go on the line, by the way. Hopefully, it's better for you. But I had a couple of questions on revenue growth. So, just firstly, on the B2B revenue growth stabilization, there was a little bit of a deterioration in your LCE revenue growth in the quarter. But we're pretty close to that point of stabilization that you're guiding to now. So what exactly are you seeing and what's giving you the confidence that that will materialize by the end of the year? Then on to consumer revenue growth, you've described sustainable mass market service revenue growth in the penultimate slide of the presentation. Is consumer side sustainable or is there actually upselling that can accelerate that growth? And what exactly are you factoring into your guidance for 2023, given you've lowered your cost-cutting but kept the EBITDA guidance the same? Thank you.

So on B2B, the most important milestone for us was to turn around SME, not only because we were far on the road by migrating our customers to the new environment, but also because SME represents the most important part of the B2B EBITDA. That we succeeded in, and we're doing exactly the same on LC. I mean, we started later. It's a bit more complex market as well. Larger customers, not that easy to migrate. But having said that, we've done approximately 80% of all the migrations. And we know it works. So after we migrated 95% of the whole base, we expect that revenue to inflect and grow exactly like we did in SME. The whole idea is the same. We only follow SME a year, maybe two years later. But all in all, we expect that the total B2B service revenue end of this year is bottoming out and starting to grow in a total. And that is because we're very sure because of the program we have in place on our B2B business. Consumer, of course, also a good trend, especially in mobile. The growth is now in a couple of quarters in a row in the base and in the ARPU, which is reflected in the service revenue. We also see the trend improving on broadband. That's very important. Only slight growth last quarter, so it's not enough, but the trend again is moving in the right direction. Also, there we see ARPA improving by the move to fiber. This year, we will cross the level of fiber-based compared to copper-based customers. All in all, we expect that to work in a positive way as well.

Thanks. Then just sustainable mass market service revenue growth guidance, A little conservative, given what you just laid out. And what exactly are you anticipating within your 2023 guidance, just in terms of the balance between the revenue growth and the cost-cutting, given you've lowered that cost-cutting or extended the timeframe for the cost-cutting?

When you look at the underlying where could mass market service revenue grow, we think it could go to 2% per year. We'll be there in Q1, but that will be a bit flattered because of the comparison to last year when we had this revenue correction, so the base year-on-year comparison will look good on Q1. I think Q1 could be coming in around 2%. Underlying is going to be a bit less, but I think gradually we should be able to move our mass market service revenues to 1.5% to 2% growth year-on-year. As that reported, we'll be around two in Q1, underlying a bit less, but I think we should move there gradually over time. We're encouraged by the early signs of the broadband-based developing, encouraged by the signs that the higher speeds are becoming more and more bought by customers when you look at fiber sales. At the same time, we've got to deal with some legacy that's in decline. If you look at what happened in consumer, mostly the legacy decline caused a decline in service revenues. For 2023, if I add it all up, we think mass market service revenue will be between 1.5% to 2% growth, stabilization of B2B service revenues, cost cutting at least 50 million, I think is the current trend, and summarizing direct cost as possibly the cost of content and direct consumer equipment go up a bit. That together drives the base assumption for 2023. We want to reiterate our outlook for the year.

hope that gives you some some more color yeah really helpful thank you very much our following question is from mr luigi minerva of hsbc go ahead please yes thank you and thanks for taking my questions the first one is

on page eight of your presentation. I think the chart on the upper left side is very interesting. It looks like you're projecting significant increase in your network reach up to exceeding 60% in year seven. I'm wondering if this means essentially a significant market share gain And how do you expect your competitors to react? So in other words, whether this may trigger a tough pricing reaction from your competitors? And secondly, thanks for giving us an update on the timing on the ACM review. And I was wondering if you know why it is taking so much longer and what is your base case, whether you think that essentially the right incentives to protect your fiber deployment will still be there in the new regulatory framework. Thank you.

Yeah, so first on the picture, On slide eight, what we show you there is based on our experience, how we see our penetration grades improving over time, rolling out fiber in areas, which is also including wholesale. So the 60% we show there is our retail performance, including what other service providers like T-Mobile, for instance, are doing on our network. We have a wholesale retail strategy. It's always a balanced strategy, and we believe that by that we can leverage our network value best. But of course, it's always interesting to see what happens in the market, and that is in that year one, year seven, and above that framework, you see, for instance, other service providers on our network growing faster net than we do. We migrate a lot of our customers to Fiber and of course see also new inflow of new customers on our Fiber network, but we also see a decent grow from other players and we did not decide to start a price fight on that. So we think there's room for a lot of players on our network and that fits our strategy. I think for this year should pick more or less in growth our fair share from the markets. And we understand that we should not push the market to a limit because this way we think we create most value. On ACM, yes, regulated after a debate with our regulator. So we think we have a clear and strong position, also supported by the picture you were referring to, We think that the Dutch market is working very well. There's a lot of investments. We are investing in fiber, but others are rolling out fiber as well. There's a lot of service providers in the country offering broadband against different price schemes. And the competition is there. So all three points regulators should look at work quite well in the Netherlands. And having said that, of course, we also understand that they will look to our pricing framework on the wholesale side on fiber. And perhaps we have to lower a bit on the especially high speed part of our propositions. But we feel confident that we can have a good discussion with ACM whenever they're ready for that.

Thank you very much. If I may just briefly follow up on the first question. Do you think that your competitor infrastructure, so the cable, will be pushed to expand their footprint with fiber in order to match your ambition as from slide eight?

That is a bit late in the process because we organized so much capacity to roll out fiber. We crossed... Half a million this year, so we connected to half a million households. It's a record in the Netherlands. Looking at others that are rolling out fiber, that's more below 100K or around 100K. So there's not that much capacity left over in the Netherlands. On the other hand, cable is doing quite well with the upgrade to DOCSIS for the short term. So looking at the Netherlands, the infrastructure in the Netherlands is quite well, We're number four on the index, number four in Europe. So I think it's a bit late in process for cable to move to fiber. You never know. But, of course, they're also more than welcome to join us on our fiber network. Thank you so much.

Our following question is from Mr. Ousmane Khazy of Beardenburg. Go ahead, please. Your line is open.

Hello, everyone. Thank you for the opportunity. I've just got two questions, please. Firstly, on T-Mobile, Netherlands just about a week or so ago significantly increased their broadband pricing. It was the first time in a while. I guess two aspects to that question. Firstly, do you see the retail kind of competitive environment shifting in your benefit as a result of that, and if not, why? And secondly, I mean, do you see any regulatory implications of the price increase? And, you know, if you can let us know, you know, what the lobbying locally has been in the press and stuff from them, that would be helpful. My second question was on the service revenue question. growth that you've kind of indicated of 1.5% roughly in 2022 for mass market service revenues. Is that assuming any return of roaming revenues, or would that be upside? Thank you.

Yes, thanks. On T-Mobile, it wasn't a surprise for us since three years ago they consolidated Tele2, and they came up with the voluntary remedy to keep the prices low, and they promised no increases for the first three years. Now, that period passed a couple of weeks ago, and they now increase tariffs. So that's not a real surprise. They only did a CPI correction until now. Of course, they blame it a bit on KPN because of our expensive excess fees, but we also see price increases not related to that. And, well, I think that's up to them how they communicate it. I would discuss these matters with KPN or ACM, not with my customers. But all in all, the price increase after three years was expected. Chris, maybe you on the service revenues?

The last time we had a normal roaming year was 2019. In 2020, the EBITDA from roaming halved. Our roaming revenues dropped by 30%, our EBITDA from roaming halved. This year, we saw a bit more. Today, we're running about 60% of pre-COVID normal roaming revenues. Our plan assumes that stable to slightly up, not material. If roaming were to normalize, that could be upside. But I can't bank on it. I can't plan it. Current earnings is about 60, 70% of pre-COVID roaming earnings.

Great. Thank you very much.

Our next question is from Mr. Georgios. He wrote the acronym of Citi. Go ahead, please. Your line is open.

Yes, good morning, and thank you for taking my questions. It's just a couple of follow-ups on your guidance, specifically the target for 2023, and thank you for giving us an indication around roaming. I wanted to ask two follow-up questions on that. Firstly, around the ACM decision, whether your 2023 numbers have already made some assumptions, of perhaps a slightly less favorable outcome than what you have now, or whether your base case is a continuation of the current rates. And then the second question is around cost, and I appreciate you already mentioned that you kind of said it with revenue options. But I guess not all companies can do that in the sector, so I just wanted to get a bit of context as to where you're seeing inflation, and if you could give us any indications of the you know, quantity of inflation you are seeing. And specifically on energy, I just wanted to clarify if in 2023 you still have hedges in place or whether by then that wouldn't be the case. Thank you.

On the first question, on ACM and 2023, I refuse to speculate on the outcome of what the ACM review could do. Our 23 outlook is guided as on the same presumptions as before. That shows also a bit of confidence that we think there is not a material issue. There's nothing wrong in the market. Again, if you look at consumer retail prices, there's a report that was produced by Analysis Mason. We sponsored it, but it was an independent report that showed the retail pricing is in line with where Europe is. We see sufficient infrastructure competition on infrastructure and such, and the techers, the wholesale parties on our network actually still grow faster than KPN or Ziggo. We think there's not a lot of issue in the markets. If you look at the T-Mobile pricing announcement, It appears that, especially on the passive lines, there is not an issue. If anything, it could be on the Vula, on the pond side of things, but on the passive lines, not at all. So at this point, we've kept our assumptions stable, see no need to adjust them. When it comes to inflation, inflation shows up in a couple of points. We see wage inflation, given what we have in terms of CLA agreements. It's between 3.5% to 4% per staff member, increasing salary costs. That's some energy price inflation, but by luck or skill, that remains to be decided. We've locked about 80% of our energy costs through Forward, so only 20% is spot, 80% has been locked in. So that's, at this point, a manageable quantum of increase. And then we see some inflation in, for example, CPE equipment and in CAPEX. But on the cost side of things, I think it's well contained and it's certainly not more than what we can price to our customers. So the EBITDA mix will be flat because, you know, I think I said waste increases between 3.5% and 4%, and energy has been shielded from our long-term energy buying contracts. If anything, it will show up in capex, not in fiber, because most of our fiber contacts are fixed price and locked in for years. So it should be on the non-fiber part, for example, on consumer premises equipment. But we see a number of opportunities to counter those and still stay within capex very close to or at the 1.2 billion.

If I could ask for a lab on the energy comment you made, this 80-20, I guess that's the ratio for 2022. Is it possible to give a hand indication? Is it more or less a rolling charging strategy, so 20% every year? So it takes four or five years before you see the full impact? Yes, exactly. Is there a...

Look, we pay about 60 million in energy expenses. The big chunk of it, almost half of it is taxes, and the rest is pure energy. We have a policy of 80-20, fixed buying, 20% on the spot market. We are a little bit overexposed at this point in spot because we didn't want to lock in at current energy prices for long-term buying, but effectively our strategy is around 70%, 80% long-term buying. So as you say correctly, any energy increase, price increase, will feed in gradually over time as we really strive to have 70% to 80% bought into forward contracts.

Very clear. Thank you.

Our following question is from Mr. Ulrich Graf of Jefferies. Go ahead, please. Your line is open.

Yeah, thank you. I was wondering just for the overall shape of the B2B revenue stabilization and inflection, whether you can give us any indication when the LCE service revenues separately might bottom out at all, or if you don't want to do that, what the drivers for that could be separately. And the second question is, where do you see The market setup settling down with T-Mobile, I mean, it's pretty clear how KPN is positioned vis-à-vis Vodafone Ziggo, but what role do you think T-Mobile will play in the market? And I'm thinking about this going to be a mobile-centric play with sort of also run convergence offers just to the extent that they're needed. to support the market share and a half, or do you think there is a more strategic effort on their end to reposition, and what implications has that for your market approach in the mass market? Thank you.

Well, like you say, of course, Ziggo is the largest consumer service provider in the Netherlands with a market share of above 40% retail and T-Mobile is operating around 7.5%. Yes, they are growing, but they also have a very small market share and it's all on our network. So we expect them to keep on doing what they're doing, but we also should keep an eye on the total market, I would say. So, of course, they have a very strong position in mobile. They consolidated other providers in the Netherlands, and they have the largest base post-paid consumer mobile in the Netherlands. So that is where their strong position is, and that's where they really make their money. And yeah, what they will do on broadband, the question is out. I mean, there's just a change of ownership in the company. So we will find out and of course follow that. But it's very important to also take a look at our position against SIGO. in the broadband market. B2B, we said LCE will follow SME, probably in a year it's a bit too close, so we think it will happen in the second year that LCE will inflect. The total of things will improve end of this year. But we're pretty confident because we follow exactly as we did in SME, the migrations of the base to the future, lower price points, but very future-proof.

Yeah, I would think that if you take the non-SME part of this business market, so LCE and integration together, we still have hopes that by Q4 this year, you get to a bottoming out of that business. So 2023 will enable the entire B2B market to start to show stabilization and growth. But by Q4, we're very lucky Q3, but more likely Q4, you can see we're bottoming out of LCE and integration.

That's helpful. Thank you very much.

Our next question is from Mr. Paulo Tang of UBS. Go ahead, your line is open.

Hi, thanks for taking the questions. So I have two. The first one is really just coming back to cost savings. So I think you've made it very clear that net savings are taking longer to realise But can you maybe just expand a bit more on why this is the case? So on one side, is it because you're investing more in specific areas? And can you maybe just give a bit more color? I think you mentioned the Glassport joint venture. Can you expand on that? Alternatively, is the delay in terms of net savings because the gross savings are taking longer to realize? So that's the first question. The second question is really just about competitive dynamics. So can you maybe just talk a bit more about about what you're seeing in terms of the broader market. I appreciate you've already talked a lot about T-Mobile Netherlands, but has there been a change of approach from Vodafone Zigo, given that they've lost exclusivity on content like Formula One and HBO? Also, are you seeing any impacts from Delta Fiber, given that they're expanding their footprint? Thanks.

Well, before we move to the cost-saving part, on the whole competition landscape in the Netherlands, we are improving our position. But to mention that I'm satisfied now, no, because we're not even growing our fair share in the market. So it's not that we are super aggressive out there. We're really balancing our actions out, and we also see a strong growth on our network from others. So it is true that probably Ziggo lost some customers and we did grow a bit in the fourth quarter. But if you take into account what happened over the last years, I think that we are all trying to create value in the Netherlands. It is true that we improved ourselves on the content part. We're very happy with the Viaply deal we made and we see recently good inflow of new customers who want to watch Formula One races. We also improved the ESPN deal. We introduced gaming. So we're not only Fiber Co., but we're also adding value for our service providers from home, and I think there we really improved our position in the Netherlands compared to the others. So I expect value to come from that as well. So we all have to find our new position. But it's a delicate balance, and I don't see super aggressive behavior from our side at least. Costs, discipline remains super important for KPN, and we will stick to our indirect cost-saving target of 250. Maybe it takes a bit longer. That's also because of new costs coming up, like the costs related to the joint venture, inventory costs, reinvestments in top-line growth. But although this is indirect costs, it's also what we... call healthy indirect costs because it's all related directly to revenue growth. For the cost part, I will now give the floor to Chris.

Of course. Look, Paolo, on the cost side, a few points of color. Of course, our FTEs continue to decline, so productivity goes up. We dropped about 4% of FTEs, about 700 FTEs last year. I think our labor capacity will still decline again this year, maybe not 700, but at least a three-digit number again, 400 to 500 FTEs, possibly. Natural attrition is quite high. That means a good side of things that we spend much less on restructuring charges. So we see structurally our labor cost base is declining. So where do we see some... headwinds as inflation. And of course, we spent 80% as heads, but still, you know, inflation of energy costs could go up between 5 and 10 million if you add it all up. Energy price deltas, you know, looking at the non long-term forward part of energy. On Glassport, if you remember, we rent lines from them, so we pay actually passive line, passive fees to Glassport for their lines. That is an OPEX charge that shows up at our network business. That wasn't there when we started the plan. But the Glassport lines that are in fiber, we rent from them, charging ODF fees. And revenues, as Jo said, we're investing in growth. There's a bit of more investment in marketing communications, because we want to keep this growth momentum. Keep it up. And secondly, if you've got more customers, more customer activity, you will see somewhat more call volume in your call centers, more service tickets. We're trying to get customers to move to self-service as much as we can. But if, for instance, when you grow your volumes, you will have a little bit more support costs. So it's a bit of inflation shows up in energy. It's a manageable amount, but still. It is a close for Glassport where we pay ODF fees for passive lines, and there's costs that come with higher revenues, a little bit of higher marketing and communication spend, and somewhat higher support cost. Again, that does not affect EBDA, so our EBDA target remains unchanged because all these elements are reflected into higher revenues, but it means that they come on top of the savings that you expect if you were to just look at the EFTs.

Thank you.

Our next question is from Mr. Joshua Mills of BMP . Go ahead, please. Your line is open.

Hi, guys. Thank you. A couple of questions for me related to CAPEX and then the guidance. So, if I start on slide 25, you've moved the 20, the 2022 guidance towards keeping several at the top end of the 1.2 billion. I'd just love to know how you're thinking about the 2023 CAPEX guidance as well, which is also now at the top end. Is that because you're planning to accelerate the pace of the rollout of fibre to the home? Or are there other reasons why we're maybe seeing a bit more expenditure there? And I guess if I take consensus at the moment, Looking at the 2023 free cash flow, consensus is already quite a bit ahead of the $8.73 million. I know that's a minimum target. So are we eating into the kind of upside opportunity on free cash flow for 2023 to this higher capex number? And then the second kind of follow-up question would be, again, going back to that FIBA slide, you're talking about lower FIBA capex after 2026. If I look at consensus, by that point, although there's fewer numbers, I suppose, people are thinking that could be a number below 1.1 billion. Given the message you've just laid out around continuing the pacified rollout, the good commercial traction you've seen, would it be more realistic to think about 1.2 billion as a stable CapEx level going forward even beyond 2023? Thanks very much.

Should I take them? Joshua, on CapEx, on slide 25, you can see Fibre CapEx next year moving to 450. I think next year, KPN will get to over 500,000 homes past rolled out. I think, by the way, Glassport will get to even also big numbers to the The KPN plus Glassport together, if you wanted to add them up, you'd probably get to about 650,000 fiber-to-the-home connections rolled out. Fiber will move to 450. That will be our cruising speed for the years thereafter. I think you'll see a little bit more consumer capex, which I think is good capex. It's a function of new sales, consumer premises equipment. We'll continue to see some downward sliding, like the other Capex, mostly non-mobile Capex. We see some savings in our network Capex. This year, 2022, we're a significant spending program on the ERP solution for corporate functions. They'll be done after 2022. close to normal in 2023, which I think means that it's fair to assume, also add a bit of inflation in the mix, we're humming around 1.2 billion for the next two years. Beyond that, allow us to give you further guidance when we get there. But it's fair to assume we stay at that level, driven by, especially on fiber, and consumer capex cruising at a higher speed and fiber to 450 as we depicted here. We feel strong on our free cash flow this year. Cash momentum is good. We outperformed our cash guidance, if you wish, in 2021. It goes on 2022 at 825 or at least 825. We feel we're doing good on cash. The implied step-up in 2023 will come from a couple of things. There will be another lag down on interest rate payments in 2023. It's almost inevitable, given our book and given where our rates are. We see, by that time, working capital is really no longer a drag. It was already a positive in this year. In 2022, working capital could be flat to a small negative, depends a bit on our strategic stocking, whether it's required or not, but we don't see it continue in 2023. and we continue to see lower restructuring charges as we find other ways to increase our labor capacity. So even at 1.2 billion on CAPEX, we still feel confident on the cash flow guidance that we have, and the cash momentum is strong at our group. As I said, rates, interest expenditures will come down. Working capital will really not be, I don't think it will be a drag in 2023. It could be a small support in 2023. Restructuring charges will be lower as well. it all fits together into continued good cash momentum and maintain our free cash flow targets for 2022 and 23. okay so i just said

Be very clear that the difference between the guidance last quarter, which is 1.1 to 1.2, and the 1.2 billion now, sounds like it's mainly coming from other capex, which is slightly higher for a number of reasons, but you believe that can be offset in your own free cash flow guidance by lower interest and working capital costs.

It's fiber that's going up. Fiber is up to 450. It's consumer capex, which is going up notably, and all the other changes we're managing and will not impact our free cash flow guidance. We find ways to counter that.

Got it. Thank you.

Our next question is from Mr. Steve Malcolm, Redburn. Go ahead, please.

Yeah. Good afternoon, guys. Thanks for taking the question. Just a couple on the revenues. I mean, we've been through the cost inflation in some detail. I mean, you're clearly telling us that whatever rising costs you expect is almost equally matched by rising revenues, which are coming ahead of where you thought or coming in ahead of where you thought you'd be. Can you shed some color on what the sources of that extra revenue growth is? Is it just prices? Is it just the fact that CPI is going to be higher? So, you know, when customers get their new bills in June, July, that CPI number will be higher. But any color on those extra revenues would be great. And then just on the timing of the price rise, can you just tell us when, at what point you strike CPI for the June price rises and the positions of your competitors with regards to CPI, you know, whether they're likely to follow suit that have actually ridden into their contracts. I mean, I think we can all guess that Werder van Zegel almost certainly will, and I guess Timo under new ownership and being five times levered might well, but is CPI actually a part of their pricing? It would be good to know on that front. Thank you.

Okay, Steve, I'll start and hand over to Chris on revenues. It's not only CPI correction that's supporting service revenue growth. It's a mix of migrating customers to fiber, where we immediately see higher revenues on the fiber base. So that's an important one. Also, by introducing better packages on content for our customers, we expect more from that. Migrating our customer to the higher speeds is very important. Mind you, a year ago, it was below 10% that bought 1 gig on fiber. In fiber areas, we currently see inflows of around 20% on 1 gig, so that's an improvement, and that, of course, is against a higher price. On mobile, we are improving. We're working on the base, but we're also working on the RPU because of Unlimited, which is against... a higher ARPU than the average. So that whole unlimited market is now really ours, and we see a healthy inflow there. So we really work on the mix of things, the base, the ARPUs, the ARPA, to improve service revenues. Somewhere mid-year, we always take the decision to increase prices related to CPI, CLA increases, purchase power in the Netherlands. It's a bit of a call we make beginning of Q2.

Yes, Steve, when you look at our cost base, of course, we're affected by inflation, but not every euro of cost will be affected by the headline CPI number. As I said, wage increase will be around 3.5% to 4%, which actually is a bit less than CPI. Energy is locked in. Only a chunk of that will be affected by energy price increases. The rest will not. We'll only gradually feed in over time and possibly be a bit less as energy prices normalize. We've got other cost sources that are basically fixed in. you can't multiply our cost base by five percent it's it's more nuanced than that so there'll be some chunks where we get infected by higher pricing other areas where it's not or whether the different price increase and we look at our prices charge the customers some of them are linked to cpi some of them are not and related to cpi although it's not a one-on-one one link so during the year mid-year we can and will decide what we do. It doesn't mean we necessarily push through all the CPI increases automatically to our customers. We'll make a balanced trade-off also looking at what's actually happening to our cost base, what's happening to purchasing power with our customers, where is the competitive environment. We may or may not follow the full inflationary impact. We may do a bit less if it's not needed, but it's also because not all of our costs one-on-one interact or move with inflation.

That's great. Can I ask one quick sort of follow-up just on the comments you made on wholesale pricing and the ACM consultation? Can you give us a flavor of the current mix of products in terms of speed take-up and cost differential between your lowest speed and your highest speed products, and maybe how we should think about that differential changing? It sounds to me like ACM is going to push for lower prices on the 1 gig and above products. Any kind of color you could provide on that would be very interesting. Thank you.

Well, I think for pricing, you can refer to our website. Our pricing are kind of public, so you can look at those prices. I think the discussion is mostly on the pull areas, I think, and less on the passive areas, at least if I read the press and if I look at what our competitors are putting into the news. I think the discussion will center around the pull areas and possibly higher speed pricing.

It is more about the new fiber areas we're building than the older ones. We moved from point to point to a new architecture, POM, which is more or less worldwide industry thing. That's what happens all over the world. All telcos were moving to POM. And for that reason, we can only sell virtual local access instead of real passive access like we see in the older areas. Meanwhile, it's also important that customers migrate to higher speeds. And therefore, the discussion on the wholesale pricing will take place around what we ask for higher speeds. So the whole debate is more about future fiber than the fiber we built until today.

Okay. Thank you.

My next question is from Mr. Keval Kuroya of Deutsche Bank. Go ahead, please.

Thank you. I've got two questions, please. Firstly, you talked about the strategy of unlimited ups in the mobile. But do you think the mobile market, as well as obviously FIT, can sustain price increases given the unlimited mobile price points are lower than where they were two years ago? So could we see price increases in mobile as well? And then secondly, the copper switch-off should be mature by next year. So can you share more on how we should think about the related OPEX savings and the phasing of those as well. Thank you.

All these incumbents are talking about copper switch-off. Last year, we piloted that in a couple of areas and succeeded quite well there. We really switched off a couple of number exchanges to pilot for 2023. We announced it a couple of years ago following ACM guidance on that. We really will start to clean up the copper network in a lot of areas as from beginning of next year. We're a bit prudent on predicting how much OPEX and CAPEX we can save there, because the first year, it will be less than a couple of years on the road. But still, we do a lot on copper when it comes to services, service tickets, additional CAPEX on new houses, etc. So it's about tens of millions we can save by moving the copper base for 100% to fiber, because fiber is far more efficient not only to deliver, but also to maintain. It's far more sustainable and future-proof as an infrastructure. We really expect a lot from that. On Unlimited, of course, we hesitated long, but I think we waited too long, to be honest, by introducing Unlimited. It's priced in such a way that we give a discount to customers in a full package. So, but it's still above 25 euros. And I think it is important to keep it there. So when we will increase mobile tariffs, that's what we more or less do on an annual basis as well. But that depends a bit on what's happening in the markets. But I think the good news is that We moved to unlimited. We're now moving in fiber to a gig. The Netherlands is really about high-speed access, but also against a higher price. I also think the whole market understands that because we need to create value and we do a lot of investments there. I would say that we do pretty okay and probably we can increase there, but let's see.

I think the good news is that, of course, as you said, on mobile, the unlimited inflow is now about 30% of new customers for some time. And we see the unlimited equivalent, which is the one gig speed in fiber, is also significantly going up. In fiber only, it's getting toward 30% of unlimited inflow. So that's the original source of the potential RPU uplift from clients moving to higher speeds. What does it mean for pricing? Well, let's see. I mean, we have, as I said, a CPI component in our mobile contracts, and during the year we'll see what we do. We will make sure there's a balanced price response, not necessarily pushing all the CPI increase into our prices, but looking into our cost base as well. But there is some pricing headroom there. And we'll see throughout the year how we actually materialize that. To me, the good news is that a bigger chunk of our customers, both in mobile and fixed, are moving towards the upper end of bandwidth and paying for that.

That's clear. Thank you. Okay.

Thank you very much. That concludes the webcast for today. If there's any further questions, please contact the Investor Relations Department. Thank you very much.