Koninklijke Kpn Nv

Good day, ladies and gentlemen, and welcome to TPN's first quarter earnings webcast and conference call. Please note, this event is being recorded. At this time, all participants are in listen-only mode. We'll 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. And I'll turn the call over to your host today, Matthijs van Leeuwenhorst, Head of Investor Relations. Please go ahead.

Yeah, good afternoon, everyone. Thank you for joining us. Welcome to KPN's first quarter 2024 results webcast. With me today are Joost Fouwerk, our CEO, and Kistie Ge, our CFO. As usual, before turning to our presentation, I would like to remind you of the same hardware 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 KPM'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 Farberg.

Thank you, Matthijs, and welcome everyone. Let's start with some of the highlights of the first quarter. Our group service revenues increased by 3.6%, 4% corrected for that business. Within the mix, we continue to see positive developments in the consumer, driven by both fixed and mobile. Business service revenues continued to grow with SME as the main contributor. And as expected, growth in wholesale leveled off a bit, but this was mainly due to lower regulated tariffs. And together with joint venture Glassport, we added almost 160,000 households to our Fiber footprint. We delivered EBITDA growth while free cash flow was a bit lower due to facing of working capital. Last month, our regulator approved the UFON acquisition that is important for us as it enables us a more effective base management strategy. And finally, our outlook, we have raised our full year guidance for EBITDA and free cash flow, reflecting the UFON acquisition. And the other items in our outlook are reiterated, including our ambitions for 2027, as discussed during our Capital Markets Day. As usual, Chris will give you more details on our financials later. Our Connect, Activate, and Grow strategy is supported by three key pillars. One, we continue to invest in our leading networks. Two, we continue to grow and protect our customer base. And three, we further modernize and simplify our operating model. And together, these strategic priorities support our ambition to grow our service revenues and adjusted EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years. And this is simply our 337 framework. Let me now walk you through the business details. In the first quarter, we added 130,000 households to our FIBA footprint. This number includes 21,000 households from acquisitions. And together with Hotspot, we now cover almost 60% of the Netherlands with fiber, and we are well on track to reach 80% of the Dutch households by the end of 2026. After reaching that point, the capital will come down to a much lower sustainable level. Our fiber business case continues to deliver results. Year-on-year fiber service revenue growth has accelerated to 13%, and we currently generate more than a billion of analyzed fiber revenues driven by a solid base inflow and attractive output. Let's now look at the consumer segment further. Our consumer segment started the year well with the acceleration of our fixed service revenues and continued strong momentum in mobile. Customer satisfaction remains one of our top priorities, and I'm happy to see that we can really outperform against competition on that promoter score. Let's take a deeper look into our first quarter KPIs. We saw another quarter of broadband-based growth. We realized 5,000 organic broadband net ads, and our fixed output grew 2.7% year-on-year. And we continue to see solid trends in mobile. Our pro-state base increased by 30,000, driven by the commercial success of our new speed theory proposition and our post-state architecture grew more than 5%. And combined, this led to a solid 8% growth in mobile service revenues. As mentioned, last month, we received green light for the acquisition of Ufone's Dutch 50s. And I'm happy with this deal, as it strengthens our position in the no-frills mobile segment. It enables us to play a more effective base management strategy by positioning the Ufone brand alongside our Flanker brands, such as Cineo and Access Role, and, of course, next to our main brand, KTM. And with this approach to our offerings, we remain relevant to all customers in all life cases. The closing date was 4th of April. And from that date, we added approximately 540,000 post-grade subscribers and 55,000 broadband subscribers to our customer base. Let's now move to B2B. Adjusted business service revenues grew 3.2% year-on-year or 4.4% per record for the divestments of two smaller entities. Growth was mainly driven by continued strong growth in SME. And business net promoter score was in line with last year. And we also here see that we remain the Dutch market leader. SME continues to be the main growth engine in B2B, driven by solid commercial momentum, especially in cloud and workspace. And due to our future-proof propositions, we expect to deliver continued growth in SME going forward. Underlying LCE service revenues increased slightly, mainly driven by the continued strong performance in IoT. Internet of Things has been a very successful part of our LCE business over the last years, and now representing 100 million euros of analyzed revenues with good contribution margins. Nonetheless, LCE still requires some works to deliver sustainable growth. And lastly, the tailored solutions business was followed again. And this business remained subject to the timing of projects and related hardware sales, but the performance is moving to a much more profitable level. And then wholesale. In wholesale, service revenues increased 0.8% in the first quarter. As expected, the growth trend leveled off compared to previous quarters due to the decrease in low-margin interconnect revenues because of lower regulated tariffs in these traditional voice business. Broken service revenues increased 6% year-on-year, driven by a higher base compared to last year. Mobile service revenues increased 2.6% year-on-year and also driven by a growing mobile base and increased data volumes. Now, let me hand over to Chris to give you more details on our finances. Thank you, Joost. Let me now take you through our financial performance. I'll start by summarizing some key figures. First of all, adjusted revenues increased 3.3% in the first quarter, with growth visible across all segments, especially in consumer. Second, our adjusted EBITDA after leases grew by 3.6% year-on-year, driven by higher service revenues, but also due to the facing of some headwinds and tailwinds. Net net, Our underlying EBITDA growth is broadly in line with our report EBITDA growth. Our EBITDA margin increased 16 basis points to 44% despite weight indexation and higher lease costs. So overall, we had a solid start to the year and are confident in our ability to reach our EBITDA targets and expect some fluctuation of course in December during the quarters ahead. Third, free cash flow decreased 6% or 10 million compared to Q1 last year, but will pick up in Q2. will give you more detail on the underlying test developments later in this presentation. Group service revenues increased 3.6% year-on-year, or 4% corrected for divestment in the B2B space, and is thereby in line with growth in previous quarters. Our consumer service revenues increased by 4.5% year-on-year, driven by consistent strong growth in mobile and further improvement in taste. Across consumer, we see sole-based development, especially in mobile. Business service revenues grew by 3.2% year-on-year, or 4.4% for the credits for divestments, mainly driven by the strong Canadian performance in SME. Wholesale revenues were up 0.8% year-on-year, driven by both droppers and mobile, and negatively affected by some changes in regulated tests. Our operational free cash flow increased by 6%, in line with our guidance for mid-single-digit growth, and was mainly driven by EBITDA growth. The stock operating free cash flow did not yet fully trickle down to free cash flow. The delta as of last year is mainly explained by different phasing of working capital during the year. For the other free cash flow items, the impact of higher lease payments was fully offset by temporary low taxes. At 154 million euros, our free cash flow margin was 11% of revenues. All in all, in line with 2023, we expect this year's free cash flow to be back-end loaded reflecting many improvements related to working capital. So looking ahead, we expect a gradual improvement in December throughout the year. Finally, we end the quarter with a strong cash position. We continue to have a strong balance sheet. At the end of March, with a leverage ratio of 2.3 times, comfortably below our self-imposed sheeting of 2.5 times. Also, our interest coverage remains strong. Our exposure to floating rates is less than 16%, and the average cost of senior debt is 4%. Credit rating agencies acknowledge their strong balance sheet and market position, which is evidenced by solid rating and a stable outlook. Total liquidity will be robust and consist of about 2.3 billion euros in cash and shorter investments, including the on-drone revolving credit facilities. This provides ample flexibility for, for example, the final cash payment of the UPIN acquisition and pursue opportunities as they arise. And, of course, also to acquire Spectrum in the upcoming 3.5 gigahertz auction as expected to take place in this time. Early February, we reached a new senior bond and put out a tender on part of our outstanding scoring notes, due 2006 and 2029. With a successful placement, in combination with the tender, we increased the average maturity of our outstanding debt and lowered the average cost of debt as well. That moves our outlook for 2024 and ambitions for 2027. Given the solid underlying business performance and momentum, and the closing of the European transaction, we raised our full year 24 outlook for EBITDA and free cash flow. We now expect an adjusted EBITDA after leases of approximately 2.5 billion euros and a free cash flow of over 890 million euros. Other outlook items have been reiterated. Group service revenue growth is set at approximately 3%, mainly driven by continued growth in consumer and B2B, and CapEx will remain stable at peak level of about 1.2 billion euros. Finally, over the entire planned period until 2027, it remained our ambition to grow our service revenues in adjacent EBITDA by 3% and a free cash flow by 7% on average per annum based on a 337-figure model. So wrapping up with the key takeaways, we had a solid start to the year with consistent group service revenue growth drifting down into EBITDA growth. We had yet another quarter with solid commercial momentum, especially consumer model and SME. Our stable rollout program remains solid-based and has an improved and attractive return profile. And we've raised EBITDA and free cash flow for the year 2024 outlook, while other output items, including our ambition for 2027, has closed during this year and we are already reiterating. And finally, we almost finalized the share buyback program of €200 million in 2024, effectively again distributing all of our free cash flow to our shareholders. Thanks for listening, and I turn to your questions.