Koninklijke Kpn Nv

Ladies and gentlemen, welcome to KPN's 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 prep and remarks. If you would like to ask a question, you may do so by pressing star 1 on your telephone. I will now turn the call over to your host for today, Matthias Wernleiner, Head of Investor Relations. You may begin.

Thank you, Operator. Good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPM's second quarter and half year 2024 results. With me today are Joost Farberg, our CEO, and Kirstie G., our CFO.

Good day, ladies and gentlemen. Welcome to KPN's 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 prep and remarks. If you would like to ask a question, you may do so by pressing star 1 on your telephone. I will now turn the call over to your host for today, Matthias Wernleiner, Head of Investor Relations. You may begin.

Thank you, Operator. Good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPM's second quarter and half year 2024 results. With me today are Joost Harberg, our CEO, and Kirstie Geh, our CFO. As usual, before turning to our presentation, I would 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 emissions, 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 Farber. Thank you, Matthijs, and welcome everyone.

Second quarter was a busy quarter in which a lot of large events took place, such as one, early April, the EU phone acquisition was closed and included in our financial statements. Two, we signed an agreement with the ANECO for the purchase of solar energy, and this combined with our previously announced wind energy deals means that we will come from sustainable sources when it comes to our energy usage as from 2027. Three, we announced a strategic partnership with ADP to jointly create a leading power company in the Netherlands. Four, we issued the new green hybrid bond to support our sustainability ambitions. And finally, we obtained an effective outcome of the 100 megahertz, 3.5 gigahertz auction recently. Let's now move to the performance of our business. And first of all, let me discuss some key highlights. Our group service revenues increased by 3.7% or 3.3% underlying, which means corrected for U-phone acquisition and divestments in Q1. Within the mix, we see continued growth in consumer, driven by both fixed and mobile, We see ongoing commercial momentum in post-pay and another quarter of broadband-based growth despite challenging markets. Business service revenues showed continued growth driven by both SME and Taylor solutions. And as expected, our wholesale service revenues declined mainly due to the Ufone acquisition. We delivered solid EBITDA and free cash flow growth in the first half of 2024. And together with our joint venture, Glassport, we added one 168,000 households to our fiber footprint. And finally, we remain on track to deliver on all Outlook items for 2024. As usual, Chris will give you more details on our financials later. As a reminder, our Connect, Activate, and Grow strategy is supported by three key pillars. First, we continue to invest in our leading networks, Second, we continue to grow and protect our customer base. And third, we further modernize and simplify our operating model. And together, these strategic priorities support our ambition to grow our service revenues and adjusted EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years, or simply put out our 337 framework. ESG is at the heart of what we do and is closely linked to this strategy, and we focus our efforts in three areas. Responsible, we prioritize reliability and security, and we support fundamental human rights across our entire supply chain. Inclusive, we will increase our commitment to diversity and inclusion in all respects, both as an employer and as a service provider. And sustainable, We will, for example, continue to reduce our energy consumption, even in the face of upward pressure from data volume growth. And with this, we will not only deliver financial results, which enables us to continue our progressive dividend policy, we will also connect the Netherlands to a sustainable and long-lasting future. And let me now walk you through the business details. Together with our joint venture Glassport, we added 168,000 households to the fiber footprint, and we now cover 60% of the Netherlands with fiber. And we are well on track to reach roughly 80% of Dutch households by the end of 2026. And after reaching that point, we foresee a material step down in our capex, dropping to below a billion euros. That's the framework. As highlighted at our Capital Markets Day, we are further optimizing the way we roll out, connect households, and activate customers. And this approach is already delivering tangible results with an acceleration in homes connected and fiber service revenue growth. In May, the joint venture Glassport announced the intended acquisition of part of the Delta Fiber Network, and the transaction involves around 200,000 homes passed and is subject to approval by the ACM. Let's now have a further look at the consumer segments. Consumer segment continues to perform well with consistent fixed and mobile service revenue growth. With UFO now included, we added more than 50,000 broadband customers and around 500,000 mobile customers to our consumer base. Customer satisfaction remains one of our top priorities, and I'm happy to see that we outperform against competition on the NPS, the Net Promoter Score. Now, taking a deeper look into our second quarter KPIs, we saw another quarter of broadband-based growth despite a challenging competitive environment. We are able to maintain a constant healthy inflow of new fiber customers, and combined with a growing ARPU, this led to continued growth of our fixed service revenues. And we continue to see solid trends in mobile. Our post-take base increased organically by 41,000 subscribers, partly driven by the ongoing commercial success of our speed-tearing proposition that we launched in the first quarter. Our post-take aperture grew almost 2%, and together this led to a solid 7% growth in mobile service revenues. Now let's move to the B2B segment. B2B delivered another good quarter, and a quarter with good service revenue growth. Growth was driven by continued strong growth in SME and the solid performance of our tailored solutions business, and driven by higher project and service management-related revenues in tailored solutions. Business net promoter score remains positive, although slightly down sequentially, mainly reflecting overall market sentiments. SME continued its strong performance driven by mobile broadband and cloud and workspace-based growth. And due to our future-proof propositions, we expect to deliver continued growth in SME going forward, though probably likely at a slower growth rate than we saw in the first half. Underlying LCE service revenues, so excluding disposals in the first quarter, increased slightly, mainly driven by continued strong performance in iot partly upset by continued pressure in normal and the ongoing declining legacy so we are confident that we are track here and lce still requires some work to deliver real sustainable growth and lastly taylor solutions continue to perform in line with expectations this segment caters to large customers often with an individualized approach Customers here are generally partners for life, and I'm pleased that we have taken important steps to improve profitability through a strong focus on standardization, value, and sustainable customer relationship. Then wholesale. In wholesale, service revenues decreased 10% or 2.7% adjusted for the EU fund acquisition. As expected, the underlying growth trend further leveled off compared to previous quarters, mainly due to a decrease in low-margin interconnect revenues because of lower regulated tariffs. Corrected for Ufone, our broadband-based declined with 6,000 customers. During the quarter, the decline moderated, and with the current level of fiber rollout in our attractive wholesale portfolio, we are confident that performance in wholesale broadband will improve. In mobile, we added 8,000 subscriptions to our post-paid base. Now turning to sustainability. This slide shows our performance on carbon reduction, circularity and diversity. As shown by working more energy efficient, we have been able to significantly reduce our carbon footprint over the past years. We also attach great importance to diversity in our workforce and we aim to have at least 35% of women across our senior management by next year from the current 29%. Now, that's it for me. Let me hand over to Chris to give you more details on our financials. Thank you, Joost.

Now, let me take you through our financial performance. And let me start by summarizing some key figures for the second quarter and the first half. First, adjusted revenues increased 4.5% year-on-year in Q2, driven by continued service revenue growth and higher non-service revenues. Increased from spiky, more one-off type results were planned for the year, but were concentrated in Q2. Second, Our adjusted EBITDA after leases grew by 5.6% year-on-year in the quarter, and it has behaved fully in line with the pattern that we indicated at the beginning of the year. Strong growth driven by higher service revenues and the timing of larger project-related revenues and asset monetizations. The EBITDA margin of KPN increased 50 basis points to 45.2% despite higher costs. So overall, we saw strong growth and are confident in our ability to To reach our EBITDA target, expect, of course, some fluctuation of this number during the quarters ahead. Net-net expect to assume that through two and three combined, we result in the average EBITDA growth around 3% in line with four-year guidance. Third, free cash flow increased 3% or 11 million compared to the first half of the year, fully driven by higher EBITDA. We'll give you more detail on underlying cash developments later in this presentation. Underlying group service revenues increased 3.3% year-on-year, mainly driven by consumer and business. Our consumer service revenues increased by 4.3% year-on-year, driven by consistent growth in fixed and mobile service revenues, and especially solid-based developments in mobile. U-phones started to contribute to earnings and growth. Business service revenues also grew by 4.4% year-on-year, mainly driven by the convenient, strong performance in SME, but also with good progress in our tailored solutions business, even if margins in its business are lower than in classical telco connectivity. Adjustments for Ufone are wholesale service revenues declined 2% year-on-year, mainly impacted by lower regulated tariffs, which have little or no margin impact. Our adjusted EBDA grew 5.6% compared to last year, as we said, driven by continued group service revenue growth and the positive impact from projects that tail solution and asset sales, which provides a significant tailwind. The increase in cost of goods sold is mainly driven by third-party excess costs such as fast food, service revenue mix effects, and higher non-service revenues, such as handsets and hardware. Our indirect cost base was mainly affected by wage indexation. Our other cost items were broadly stable compared to previous year, all in all, translating into 10 million euros higher indirect objects. Our operational free cash flow increased by about 3%, fully driven by EBITDA growth. Our total capex was 38 million euros higher, mainly related to inter-year phasing. For the remainder of the year, we keep a strict fire on capex to ensure it stays in the same zone as last year and in a narrow margin around 1.2 billion euros. Now let's focus on the moving part of our free cash flow. With 364 million euros, our free cash flow was 3% higher than last year. This improvement was mainly a result of the EBITDA growth, driving the improvement operating free cash flow as per our plan, and improvement in working capital. We paid more interest than last year, and so far our tax increase was relatively muted. The cash margin of revenues remained quite stable at roughly 30% of revenues. Finally, we ended the quarter with a cash position of 1.1 billion euros, absorbing the UFON acquisition, the final dividend over the last year, and the completion of the $200 million share buyback. Then on return on capital, our focus to create long-term value is evidenced by a strong return on capital employed. Our ROCE improved by 75 basis points year-on-year to 14.4%, mainly driven by increased operational efficiency. We continue to run a very strong balance sheet, At the end of June, we had a leverage ratio of 2.4 times, still below our self-imposed ceiling of 2.5 times. Our interest rate coverage remained strong as well. For the year, we expect our leverage to stay below 2.5 times, also helped with the relatively benign outcome of the spectrum option. Our exposure to floating rates, less than 15%, and the average cost of senior debt decreased to 3.9%. Credit rating agencies acknowledged a strong balance sheet and market position, which is evidenced by solid ratings and a stable to even recently upgraded positive outlook. Total liquidity remained robust and consists of about 2.1 billion euros in cash and short-term investments, including our own drawn revolving credit facility. This provides ample flexibility for the spectrum payment and pursue other opportunities as they may arise. And in June, we issued a new green bond and hybrid bond put out a tender on the outstanding EuroHybrid. The successful placement, in combination with the tender, enabled us to protect the hybrid equity players from erratic agencies whilst optimizing interest costs. So we're on track to deliver a 2024 outlook we'll provide to you in April. In May 31st, we completed the 200 million euro share buyback program and bought back 60 million shares, of which about 58 million will be cancelled. And of course, and finally, we reiterate our midterm ambitions as provided at the Capital Market Day in November last year. So, let me wrap up with a few key takeaways. Soil progress has been made in a busy quarter, with many strategic events improving our long-term position. We see consistent group service revenue growth driven by consumer and business. And we see ongoing commercial momentum, especially in consumer post-pays, with a healthy inflow of post-paid net ends. We grew our broad-bend base despite a challenging competitive environment. Going forward, we see the acquisition of UFON contributing to realizing our growth ambitions. Our FIBA program remains at a solid pace, with an increased focus on connecting homes and has a proven attractive return profile, and our return on capital employed is strong, reflecting shareholder value creation. Finally, and as expected at the end, with a relatively strong first half compared to previous year, especially in terms of EBITDA generation. We are confident in our ability to reach our outlook, so it's clear that we'll see some fluctuation and reported quarterly EBITDA growth rates in H2. Overall, we remain fully on track to reach our full-year outlook on EBITDA and cash, and also to meet our ambitions for 2027, as well as close during the CMD. Thanks for listening.

Now let's turn to your questions. Thank you, Chris. Before moving to the questions, as usual, I would like to ask you to keep your questions to two, please. Operator, over to you to start Q&A.

Sure, thank you. Ladies and gentlemen, we will start the question and answer session now. If you would like to ask a question, you may do by pressing star 1 on your telephone. We'll take the first question from line Kewa Kiroyo from Deutsche Bank. The line is open now. Please go ahead.

Thank you. I've got two questions, please. Firstly, roughly half your wholesale base and only 38% of your B2C base is on copper. Could you give us a sense of to what degree this copper base sits within your current planned fibre footprint rather than ODF and deltas? Because I guess you have a quite good chance of recapturing through retail and wholesale fibre whether copper is actually within your fibre areas. And secondly, as you mentioned, Glassport reached agreements by 200,000 homes from Delta's footprint. The prior deals had been smaller. Do you see scope for further similar deals to the recent Delta I, or even large-scale consolidation of fiber infrastructure? Thank you.

So on that planned acquisition of Glassport, between Glassport and Delta, of course, that's quite an interesting opportunity. And let's first wait and see what the outcome will be. And it's really something currently being taken care of by the regulator and presented by Glassport to our regulator. So we at a distance look at this. But if new rules, we always look at opportunities to see if we can buy or build fiber in the Netherlands. So we did that in the past. This is an interesting one. And looking forward, perhaps new opportunities We'll be in scope, but let's first wait until how this ends.

Yeah, the first question on how much of our own copper will we overbuild with fiber? Well, obviously we have an aim to cover 80% of the country with fiber. Today we have got 60% of the country covered with fiber, which is roughly 80% of our copper base will be covered with fiber. And today we're at 60%. Not all of our copper customers have been moved to fiber yet. That's a gradual process, but ultimately, in the end, all our copper customers that have fiber lines will move over. So think about, in the end, about 80% of our business will move to, or copper lines will be covered by fiber. The remaining 20% will look at other solutions. Obviously, that's something to work on beyond 2027, and these other solutions might be continuing selective fiber rollout might be we continue to run off the S&P for as long as we can or find other solutions. But it's clear that the fast maturity of all the copper will be coupled with fiber.

Sure, and then just to follow up on that second point, just within your existing, I appreciate you'll overbuild the copper with the fibre, but just in terms of your existing copper customers, do you have a sense of to what degree they're going to be within the fibre areas? Because I guess some of these will also be within the 20% as well. I was trying to get a sense of to what degree that copper base will actually be protected by moving to fibre.

I don't have the exact number, but I think the estimate right now is around 80%. I don't have an exact number.

60% of our broadband customers is on fiber. And, of course, we need to migrate all customers in fiber areas to fiber ASAP. And when we come closer to the year 2027, currently we're also working on a plan how to cover the rest of the Netherlands. And... to, of course, to serve 100% of the Netherlands, but currently 62%, and we aim for 80% of the base on fiber in mid-term.

And you can see right now that fiber growth is outstripping copper decline, right? And if you look at customers or service revenues, the fiber growth, both in net-add terms or Euro terms or percentage terms, is outstripping the copper decline, and we expect that dynamic to gradually improve as our fiber base becomes smaller, our copper base becomes larger, and the copper base becomes smaller.

That's fair. Thank you, guys.

Here we will take the next question from line Andrew Lee from Goldman Sachs. The line is open now. Please go ahead.

Good afternoon, everyone. I had a couple of questions around the EBITDA growth. So, at the first quarter, you said on the call that underlying EBITDA growth would be quite strong in the second quarter with underlying growth above 3%. And obviously, we're having to strip a few things out. So, you phoned clearly and also the asset monetization. And if we do that, it looks like the underlying EBITDA growth in 2Q is 2.5%. So, kind of lower than the first quarter. So, I guess the question is what, if anything, has changed on an underlying basis versus your initial expectations? And I know, Chris, you mentioned that you'll see 3% EBITDA growth across Q2 and Q3 combined. But if we strip out all the asset monetizations you found and actually just look at underlying, what do you see as the… What's EBITDA growth on that metric? And how do you see EBITDA growth in the second half of the year? And if you could give us, just as an extra question, if you could give us just a bit more detail on what exactly the asset monetizations were in the second quarter, this quarter, i.e. that 10 to 15 million, and how much we should be anticipating each year from now on. Thank you.

Yeah, well, Andrew, if you look... You can start shipping out all sorts of elements. I think the EBITDA growth is around 3% to 3.5%. And UFON will be there. It's going to be structurally part of the EBITDA growth of KPM Deliverance. On the asset monetization, what we did was we sold IP addresses, IPv4 addresses. We had a big portfolio of IP addresses that were on our balance sheet at a value of zero. They were not valued, but we were able to sell those. We'll also sell a chunk of those next year. That's already kind of agreed on. And we also expect we can sell a chunk of it in 2026. Maybe not the same quantum, but a significant amount. So asset monetizations have always been part of our plan. It's actually kind of more of a wholesale type of business than anything else. We've booked in a TVO, but it's more like a wholesale business where you sell or give access to some of your assets to third parties. So it was in the plan. It was a bit bigger and earlier than we anticipated. It was always part of the plan, and we continue to do that next year for sure. It's in there. And it also happened probably in 2026. So it is, to some extent, a recurring income stream. For Q3, I expect EBITDA growth to be 1% to 1.5%. So the two quarters together should be around 6.5% to 7% in order of magnitude together, giving you around 3.5%. total EBITDA growth over those two quarters together. So I think that's how we look at the business. What is underlying, what is not? As I said, some IP sales were planned, were always planned to take place. I just said they were all concentrated in this quarter. So I'd expect, with my experience, the underlying EBITDA growth is around 3% to 3.5% in this quarter. And if you add the two quarters together, you're still at that level in line with where the year aims to be.

Thanks, Chris. Sorry, if I can just clarify. So you're saying X, you think the underlying growth was 3% to 3.5% this quarter, stripping out Uphone, or is that including the benefit of Uphone and that 1% to 1.5%?

I would say 3% to 3.5% including Uphone. I mean, Uphone was always part of the plan. We announced it last year. So I would be inclined to include Uphone because it was part of the plan and it will be structural from quarter to quarter. So with that, you're looking at a solid 3%. you know, growth rate in the second quarter, including UFON.

And the one to one and a half in Q3 includes that as well, includes UFON as well. I mean, there's an argument that that's not, that's inorganic for this year at least.

Yeah, that's the way of looking at it. It's part of the plan and part of the plan to get to the 337 guidance that we gave and gave you part of the ambition for 2027 as far as I'm concerned.

Thank you. Thanks, Fritz.

Here we will take the next question from line from UBS. The line is open now, please go ahead.

Hi, thanks for taking the questions. I have two. The first one is, can you maybe talk through what you're seeing with competitive dynamics in terms of the consumer business? So specifically, are there any signs that Vodafone Ziggo is being more promotional on broadband ahead of getting Champions League rights in August? And can you also comment on how your recent broadband price rises have landed with customers? Second question is really just on B2B, because in your remarks, you mentioned in terms of SME, it has been a major growth engine for the unit. But in your remarks, you highlighted that that would slow in the second half. So can you just explain what's happening and what's driving this? Thanks.

Yeah. The Dutch market stays competitive, although it's 3%. main player market with two new costs on fiber on the side. But fixed especially is similar to previous quarters and remains challenging. There's lots of aggressive promotional activity from Odido, Ziggo and Delta. Odido continues to position itself as a challenger on our network, mainly when it comes to broadband. For example, preparing an update on content strategy, that's obvious. We decided to only follow selectively with promotions, and we really make the shift to focus on the base management. More and more fiber is becoming a large proportion of our base, so for us, we play a different ball game, and we're in the transition to that new ball game that is really focused on lower churn to create the highest value. And on the mobile side, which is still a relatively healthy market, I must say, competition mainly in the low end, no thrills part of the market, but now we consolidated Ufone, we also there have a good position. So all in all, more or less the same as previous quarters. And indeed, us playing an asset-heavy game via the Fiber rollout and Ziggo a bit under pressure trying to position itself as a content player. Having said that, there's not that much difference to the contact package of KPN and Ziggo. And even when you mentioned European football, we were able to distribute that to our customers as well. In the worst case, we also resell Ziggo Sports. Price increases were accepted in the Netherlands by our customers in a pretty okay way. We increased 3.8%, which was well explainable. Consumer Association made some remarks. But having said that, our regulator, ACM, investigated the whole market six or seven months ago, and the outcome was that there's no reason to interfere there, that it's a healthy market, and there's a lot of propositions out there against the different price points. And even also when you look at the one gig price compared to other countries, it's pretty fair what we have in the market. So I think well received by our customers, and we were not negatively impacted by that. And on B2B, yeah, SME is – It's doing good and will continue to do so. On the mid-long term, I expect 10% double-digit growth to slow down a bit, just to be a bit on the same side. Meanwhile, I see LCE doing better, and especially corrected for the divestment. We're more or less flat a bit on the positive side on LCE. So, of course, we want to uplift the whole thing when it comes to a higher number and better revenue growth, and I think we're in a on a good track there. And it's our attention not only to be supported by SME, but by the whole thing. So that's why we anticipate on SME going to do a bit less, but LCE compensating more than that on that, put it that way. Thanks.

We will take the next question from line Nuno was from Bernstein. The line is open now. Please go ahead.

Hi, good afternoon. Thank you for the opportunity. Also two questions from my side. First one focused on the wholesale side, which this quarter was a bit weaker. Just to understand a little bit better on the broadband side, in terms of net ads, it was similar to Q1, but the growth rate was quite a bit weaker. So trying to understand if potentially there's a one-off there we should be aware of. And then on the mobile side as well, also curious organic, why it was weaker versus Q1. Then second question, probably a bit simpler, but just want to understand the integration of Ufone because we didn't see much of a dilution in terms of postpaid ARPU after Ufone. But when I tried to sort of back of the envelope, calculate the ARPUs of Ufone, they're quite significantly lower. So just trying to understand why there was no dilution in ARPU, postpaid ARPU this quarter. Thank you.

Yeah, let me take on wholesale. I'll give you a broader view of what's happening in the wholesale business. Obviously, there is a bit more also competition before with Delta and OpenDash Fiber also offering, you know, also broadband solutions. With that, I think we need to put the decline a bit in context. I mean, the Euro impact underlying ex-UFO is about 4.5 million year-on-year. So, it's actually something that is manageable. The decline was about 6K in the quarter out of a 1.1 million base. So, that's relatively manageable. We do not see any active migrations away from us. It's a matter of copper churn. So what you see is that fiber and wholesale is still growing. Fiber is growing nicely. Our fiber wholesale business is growing by 15% year-on-year, also growing quarter-on-quarter. When you look at our client base, our largest client is still growing. We've got some smaller fiber clients that are also growing in these months. There's one or two clients who are more in runoff modus, especially in the current competitive market, and they shrink. And you've got corporate churn. So in the broadband balances, the clients that are committed to broadband and to fiber, the larger ones and the smaller ones, are growing. And then the ones who are more in the asset milking strategy are declining. And then you've got the copper switchover, and it's that balance that actually changes a bit as there's a little bit more wholesale competition. But in terms of service revenue, it's broadband. Service revenue growth is still 1% plus. The decline is taking place in mobile and in other, which is affected by InterConnect tariffs, which is regulated and they're a low-margin business. And the discounts that we've given to some of our MVNOs in exchange for a multi-year extension of their contracts, and those feed into the numbers. But given the fact that we'll see at least next year an improving pricing environment with CPI going up, that we're seeing underlying growth in mobile, so net ads in mobile are positive, even if you strip off Uphone, given the fact that the broadband transit is kind of stable, we hope and expect at some point to return. I would expect also to go back to service revenue growth in Q3 and Q4. That's kind of the wholesale background. When you look at your question on ARPU, Uphone obviously has a lower ARPU. KPN RFU excluding UFone, it would have been around 17.3 is my estimate if I strip out the UFone RFU. So that's kind of small decline for the year, but fully in line with the plan. So KPN ex-UFone, which at some point we'll stop disclosing that. But on a like-for-like basis, mobile RFU around 17.3 in the quarter, which is a small decline. which is more a function of what I call the non-committed RPU, so top-ups, et cetera, roaming revenues. The committed part of the RPU is growing nice. It's growing north of 5%. We're fully in line for price increase and improvement in our bundle mix. So on RPU side, it's mostly a non-committed side, which is top-ups, other bundle calls, roamings that we've seen decline a bit. The committed part is going up.

Thank you. That's very useful. Thank you.

Thank you. We will take the next question from line . The line is open now. Please go ahead.

Yes. Good afternoon. Thanks for the presentation, and thanks for taking my questions. The first one is really on getting your feedback on your experience after introducing the speed tiers, tariffs in mobile. So how is that working? And then if you think medium term, how will speed tiers lead to upselling opportunities? I guess my thinking is that the Netherlands is quite an advanced market with early technology adopters. So people will, if the quality of network is good, will naturally go towards the highest speed tiers. And then once they are there, how will you manage the upselling over the medium term? And the second question is more a clarification on network operations and IT revenues, which were stronger in H1-24 compared to last year. I think 34 million this year and 11 last year. So how should we think about it in the second half of the year?

Thank you. Yeah, so... We invest a lot in our mobile network. And by the way, we all do in the Netherlands. We're a small, flat country, and it's easier to roll out a mobile network in the Netherlands than, for instance, in Switzerland. So we built the best mobile network in the world, followed by one of the best mobile networks. And so we're all in the top, what is it, five or top 10. So in the Netherlands, 100 meg download speed is not unusual. And it's difficult to differentiate yourself only on the quality of the network. We really try to differentiate ourselves on the quality of the service end-to-end. And introducing speed steering has been an important one. And we're moving more and more high-speed mobile sound limited to the fiber broadband proposition. which is you pay for the download speed and the speed itself, and the capacity is unlimited. And that works quite well in the Netherlands because we have such a great network. So it's us doing it, but also ODDO is playing this game very carefully. So what we see is that we introduce speed tiering on an average download speed, and now customers pay for higher download speeds just as they do at home on Fiverr. And that's leading to more customers on the limited and at the end also in that base, upselling to higher download speeds. And that's what we try to play very carefully. And also introducing the new spectrum we just acquired in the auction, 3.5 gigahertz, enabling us to really activate super fast internet in some areas. We now have 1.4 gig download speed on mobile. Uh, and that of course is very interesting hands in hand with the whole speed during things. So the more and more customers choose for fast download speeds and are willing to pay a 10 Euro or something like that more for it. So that, that, that will be an important one also in the coming years for us.

And your second question on the revenues and network and IP, which effectively CRT sales, but it's a wholesale type of business. but it lands in the network because that network actually owns these assets. So the delta you see are mostly those asset monetizations we see. Okay, got it. I don't expect them to reoccur. We actually planned these things to happen more gradually over time during the year, and they all concentrated in the first, especially the second quarter of the year. So it's more of a concentration of these things than anything else. So it was part of the plan. the effort, but the mill happened in the first and especially second quarter.

Okay, got it. Yes, thank you. Very helpful. Thank you both.

Thank you. We will take the next question from line Joshua Mills from BNP Paribas. The line is open now. Please go ahead.

Hi, guys. I think most of my questions have been answered, but maybe it's a couple of quick follow-ups on the wholesale question. So the first is, if I look at slide 13 where you break down the the different business areas, broadband, mobile, other, with the growth rates year-on-year. Could you just give us a sense of what the underlying broadband and underlying mobile growth was adjusted for the youth phone transaction? That would just be helpful on one side. And then secondly, if I go back to the CMD last year, when you were talking about wholesale expectations for 2024, you were discussing a 1% to 1.5% revenue growth. Now, even if you were just for a Uphone acquisition, the run rate for the first half is negative and well below that. And I take the point about an improvement coming in Q3 and Q4, but it looks like you're going to miss that target. My question is, what's either changed in the wholesale business outlook or if things simply got worse than expected versus the message which you gave at the CMD? And if so, what has changed? Thanks.

Yeah, good point, Joshua. On the underlying growth rates in mobile, in ex-UFOAM, I'm talking service revenue terms, is minus 2.8. On broadband, it's plus 3. So the service revenues is mostly on mobile side, it's the cost for the extension of the MVNO, and then it's got the point other, whereas the interconnect revenues are landed. So ex-UFOAM, there's still growth rates, who also as a whole X viewpoint is a 1.8% decline, right? So if you can reflect back to what we expect in the C&D, what has changed, obviously I think it's mostly more broadband competition and that less broadband new inflow. So copper churn was still relatively high and we saw a bit less broadband inflow compared to the expectation. So in the plan, the mobile decline is increasing taking place almost according to plan. We knew this was going to happen in terms of interconnect revenues. We knew this was going to happen in terms of cost, one-off cost of extending MVNOs. We expected more broadband inflow. The inflow is there. It's still positive on fiber. There's no migrations of active migration of copper, but it's less, you know, less inflow and broadband. At the same time, you know, compared to the initial plan, the consumer side is doing better than planning even X new phones. Business is doing better than planning X new phones. So I think KPM as a whole is on track, but obviously you launch a plan and in practice things are different from reality. Two businesses are better and one is a bit worse. That means also we have to focus on supporting the existing customers, signing up additional customers, and that's what we're doing. But the all-time wholesale competition is, I think, what's changed. But then again, as I said, you've got winners and losers every year. And this year, consumer and business are beating the plan, also a bit less. But we've also seen years where it was the opposite.

That's very clear. And I mean, in the introductory comments, you made the point that broadband trends have been improving through the course of the quarter and should improve through the end of this year. I mean, just thinking about the net ad numbers, do you think it's fair to assume you can get back to stability at some point in 2024? Or are we likely to continue to see clients? Yeah, wholesale broadband specifically. Net ads.

I was going to ask me again. It's hard to look. What I see is different clients is showing different behaviors. So the ones who are clearly committed to broadband are back to growth. A bit lower growth than we used to have, but they're still growing. Whether it's, you know, the larger or largest customer or whether it's smaller customers, you see one or two customers that are in run-off mode, and they decline. And it's that balance. So I think the portfolio is healthy enough. I think, probably on fairness, Q3 will probably still see a small decline in broadband advance in wholesale. And Q4, it's hard to see what happens, but I think it's fair to see what Q3 will give you probably similar numbers now. Let's take a conservative view. From there, we're going to get better.

Great. Thank you very much.

And we will take the next question from the line. David Bergman from ING Belgium. The line is open now. Please go ahead.

Yes. Thank you. Good afternoon, everyone, and thanks for taking my question. First, on the IP and the assets that you plan to sell and that you're selling, could you give us a ballpark figure on what you think is the market value? You've said that they have zero book value, so that's my first question. And then second, on the corporate broadband base of CrystalMod that you have and your NetAds performance, to which extent, and I think you've partly answered my question, but to which extent are you seeing regional difference in this performance? And by that I mean in particular for the Delta footprint area, do you see more losses of copper clients in that area given that you face Delta with fiber and then probably also Vodafone Zico with an HSE network?

Thank you. Well, first of all, on the IP version for asset sale, different. I mean, we know what's going to happen next year because we more or less made the deals like Chris said. So that's locked in. And 40 years after, we're a bit cautious by giving you numbers on market value because this is a new market and the market value is changing overnight. Before you know, it was intended to phase out IP version 4 addresses and all move to IP version 6, something KPN did like more than five or ten years ago, something like that. But, you know, comes out, it's still needed in the market and therefore we can use this position, but others woke up as well. So I think for coming year, like Chris said, we will do a transaction more or less in line with what we did this year and also working on 26 already. I think, Chris, what we can say about this.

We've now effectively committed to sell about a million addresses. year next year and we used to own eight so we still have a big chunk on ability that are valued at mill so that's you could argue some unlocked hidden value it's just hard to add a number to it because these prices are volatile but in any case um it's a value here but zero is also again pretty conservative and would only get better from here on the upside so we still have a significant chunk of these actions left that are not really valued Again, it's difficult because prices do fluctuate. So the bulk is still in our portfolio. On your question on regionals, I think when you look at the order balance that we have, I mean, I estimate the order balance for some main cable customers is still positive. Despite their commercial actions, we still are a net winner from them in terms of broadband. I think you're right. There where we have copper and someone else has fiber are our most challenging areas.

Yeah, and for us, we play the game more and more really in a regional way. So we play it area after area, and we differentiate on terrorists, and we differentiate on services, and sometimes we defend, and sometimes we attack when we see ourselves rolling out fiber, even in the areas where others try to roll out fiber as well. It's clearly that KPN is attracting most of the customers. And like Chris said, when we face fiber against copper, then we differentiate on other levels, or we use the combination of fixed and mobile to counter. And more and more for us, the challenge is to really play this game on a regional, on a local level, to strengthen our position.

Thank you very much. Very quick follow-up on this very point. You mentioned that you might take decision as from 2027, So does it mean that for the Delta footprint, we shouldn't expect a big strategic move before that time?

Well, yeah. We have a rollout plan, and that's leading to 80%. Around that plan, every now and then we see an opportunity popping up, and we're always happy to look at projects to improve the value of KPM and accelerate our strategy. But the way I look at things is that the most powerful weapon we have in our hands is to continue the rollouts, but not for nothing. We aim for 80 and not for 100%.

When the opportunity came up that Fastport could acquire the $200,000 from Delta, as a parent company, we were obviously keen to support that acquisition. So you need to be opportunistic and deal-driven, but it's a case-by-case. As Jo said, the plan A is to be organic. and to our own strength and be organic and roll out fiber and actually, you know, be very competitive. And in this situation, that actually also triggered an interesting response to which Flosport reacted, and we will continue to support them.

Thanks very much.

We will take the next question from line Maurice Patrick from Barclays. The line is open now, please go ahead.

Yeah, good afternoon, guys, and thank you for taking the question. I mean, just building on the last one, please, on the fiber acquisition, the Glassport fiber acquisition of 200,000 homes. Is it possible that if you look at these acquisitions opportunistically, this will take it beyond the 80% target of coverage? I see, obviously, you target 80% as your organic target. I'm wondering if these bolt-ons are sort of adding to that as opposed to replacing existing build targets. I guess related to it, just philosophically, in buying homes from Delta Fiber, you're probably avoiding overbuild, whereas if you plan to go there otherwise, you'd have been a second network. So how do you think about the economics of effectively buying someone who's there rather than being a second person to Delta Fiber there? Thank you.

Well, yeah, first of all, yes. Every now and then, such an opportunity is about... uh do we can do in the in the plant 80 and and sometimes could also be that we can go beyond the 80 so that depends a bit on on the infrastructure we um we're talking about so um could be that we are accelerating our rollouts and could be that we are expanding our footprint that depends and um well with respect to that glossport 200k thing with delta Delta appears to steer away from overbuilds and that supports healthy market development. That's their decision. Of course, we encourage that, but if needed, we can also roll out fiber in areas where they are already present and then overbuild. But in this respect, avoiding overbuild is a positive effect.

Just as a quick follow-up, were you planning to roll out in those 200,000 homes that you've acquired?

Were we planning to roll out?

Yeah. Were the 200,000 homes sitting inside your 80% number? I don't know. They were part of the planned KPN FABBA bill.

There were homes that were on our list, but we didn't have any contractors committed or contracted that. So it would be homes that probably at some point we'd roll out, but they were not on the immediate rollout calendar, and we did not have any construction companies, contractors for that. Thank you so much.

Thank you. We will take the next call from line C from Citi. The line is open now. Please go ahead.

Hello, good afternoon. Thank you for taking my questions. I have two, please. The first one, I just want to go back to the fiber deployments. I think in the previous quarters, you always mentioned that you encountered Delta and ODF fiber deployments in the past, but now it seems that, well, at least from the press, it seems like the deployment by competitors has slowed down. Just wondering if that's the case, or do you expect that Since the land grab is finishing and they could put more focus on increased penetrations, which could mean that competition could step up further for your wholesale business. And my second question is on the EBITDA growth. I think you've just said 3% to 3.5% growth this year includes UFO. Just looking into next year, given that the price increases could come down,

little bit and you're still expecting three percent growth and just wondering if you can elaborate on what could be the driver to make up the difference thank you let me see the question we see the fact that the others indeed what we've seen is certainly on delta retreating from some of their commitments withdrawing in some areas stopping building streams obviously doing a transaction with the plus port I think it's a positive for us. I don't see that as a bigger threat to wholesale competition. I think actually it's supportive to KPN. The fact that we have less areas where we'll have immediate delta fiber competing with our fiber, competing with our copper. So I think the areas of competition will be less. I think they're retreating to their core areas where they have already met quite a significant penetration level. I would see it actually as a positive towards this, and less of a wholesale threat, because there are less areas in which they'll be present.

And adding to that, they originally announced both a rollout of roughly 2 million households, and now they clearly stated in the market that they moved back to a footprint of between 1 and 1.3 million households. So that's a big difference between what they promised the market earlier.

So we see this as definitely a positive and it should be a reduced threat of also competition rather than a bigger threat because it means it will be less new areas and when they focus on areas where the penetration is already high. On your question on growth rates, maybe it's good to take a little step back on also response to Andrew's questions. I'm merging Andrew's question and yours into one, into what's happening in Q3, Q4 next year. I mean, I said Q3 will be a bit less and maybe it should be a little bit more clear. That also has to do with the year-on-year comps and timing of CLA increase and timing of price increases. So last year, if you recall well, we moved from Q2 to Q3 from a flat EBITDA to suddenly a jump to 1.8% last year in Q3. There are a little bit more one-offs in last year's Q3 numbers, so that challenges the comps a bit. And secondly, we have in the second quarter, or in this quarter, our CLA increase, the second chunk of the CLA increase kicking in. And the mobile price increase only kicks in in Q4. So in Q3 of this year, you have slightly more difficult comps. You have a labor cost increase affecting your CLA base. And the mobile price increase only kicks in in Q4. So that means Q3 will be a bit more muted in growth. Q4 will be well north of 3%, I would expect. Also, you have to be there to get to the 2.5 billion of EBITDA. So Q4 EBITDA growth will be back north to 3.5%. And that's to provide us the right runway into next year. This year, obviously, we also included the UFON into our guidance for the year. So we increased the guidance for the year to 2.5 billion, including UFON. So all the quarterly numbers and the full year numbers of the iron line are including UFON. As I said, including UFON, we increased our guidance for the year. The number for next year, obviously, we'll give it around the four-year results, as we always do. But, you know, we've got a pretty strong commitment to stay in line with the 337 framework that we communicated, including Ufone. But, as again, the Ufone acquisition has been added and included in the earnings upgrades for the year. So, maybe that gives us a bit of color on QC and Q4.

And we also know that next year the – Cost of labor, the CLA part, will be less than this year. This year we have an increase of, again, 5.8, and we already know that next year will be less, but more on that Q1 next year.

Thank you very much. Thank you. We will take the final question from line Ousmane Ghazi from Barenburg. The line is open now. Please go ahead.

Hello, everyone. Thank you for the opportunity. I hope you can hear me okay. I just had a quick one on, sorry, on wholesale again, and one on Huawei. So on wholesale, I mean, you've given out the step between copper and fiber, both on revenues and customers for the first time. I was just trying to calculate the R-proof for a wholesale and fiber customer. And I guess surprisingly for me, both the R-proof for copper and fiber turns up at around 23 euros, whereas I was thinking that fiber would be higher because, you know, there's this move from ODF to Hula, which is obviously priced at a much higher level. So could you perhaps give some color on why the two R-proofs would be similar? Sure. And then on Huawei, I guess there's more of an opportunity, I guess, for you to address some kind of domestic concerns, I guess, with the changes in the Dutch government and some of the background of the politicians that are there. There's some concern that there will be a push on slipping Huawei out or renewed push to, you know, to slip Huawei out of the networks. And I was just wondering if you could give your kind of view on that. That would be helpful.

Thank you. Yeah, my first question on wholesale pricing, fiber versus copper. I think the main difference is that in the copper portfolio, you see a relatively large share of Vula, WEA integrated solutions, and less on passive only. On fiber, we see a little bit higher share of ODF access. So that That explains the similarity in pricing going forward. However, obviously, all the new build-out of fiber that we do will only be accessible on the Vula term. So you expect, over time, the price from these two to diverge and fiber to outperform the RPU of copper as a bigger chunk of new fiber growth should be available out there as well.

Dan on Huawei. Already for years now, we are closely aligned with our government on how we deal with non-Western vendors. We have a dual vendor or multi-vendor approach. We announced that Ericsson will build a new 5G core network, and we're in the middle of that as we speak. We selected Nokia for an important part of our domains. And we mainly keep Huawei in our radio access network. And we report to our government. I think we're fully aligned. And also when it comes to the new government, even our prime minister, we know quite well. And he was in the middle of this whole discussion with me. We also look at what's happening in Germany, which is for us an interesting development because we think we can introduce that in our approach as well. voluntarily and without impacting our plans. So I think on Huawei, I mean, it's always important to keep a close eye on that. But as we speak, we're always aligning with our government on this part.

Got it. And are you saying that you would look to proactively take the German approach in the Netherlands, or would you rather wait for the government to kind of revisit this?

Well, our approach has been and is that we approach our, we prefer to approach our government proactively on the plans on how we deal with things instead of waiting until they come to us. So also in this respect, we're very interested on what's the latest development in Germany. And we will have meetings with our government soon to update them on our approach. But like I said, we're in pretty good alliance with our government.

Thank you very much.

Thank you.

Thank you all very much. That concludes the call for today. If there are any further questions, please reach out to the International Relations Team. Thank you.

Ladies and gentlemen, this concludes today's presentation. Thank you for participating, and you may now disconnect your line. Have a nice day.