Koninklijke Kpn Nv

Good day, ladies and gentlemen, and welcome to KPN's third quarter earnings webcast and conference call. Please note that this event is being recorded. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks. 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, Matthijs von Lionhorst, Head of Investor Relations. Please go ahead.

Yes, good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPN's third quarter 2024 results webcast. With me today are Joost Farwerk, our CEO, and Kistie Ge, 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 KPM's expectations with respect to its outlook and ambitions, which were also included in a 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 me walk you through some of the highlights of last quarter. We continue to deliver solid results with our connect, activate, and grow strategy. Group service revenues increased 3.4% on an organic basis in the third quarter, with growth visible across all segments. Consumer was driven by another quarter of solid post-paid inflow and continued fiber revenue growth. Business continued to perform strongly, with all segments contributing and, as expected, wholesale return to growth when adjusted for EUFON. We delivered healthy EBITDA growth, and our year-to-date free cash flow was broadly stable compared to last year. And together with our joint venture, Glassport, we further increased our fiber footprint, and we now cover 62% of the Netherlands with our best-in-class network. Finally, we are confident to deliver on our full-year 2024 outlook and midterm ambitions. As a reminder, 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 revenue and adjusted EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years for Simply Put, our 337 framework. Let me now walk you through the business details. Together with Glossport, our joint venture, we added 137 fiber households to our fiber footprint. By the end of the year, we expect to cover 64% of Dutch households, and we are making good progress to reach our target of roughly 80% by the end of 2026. And after reaching that point, we foresee a material step down in our capex, dropping to below 1 billion. Within the fiber footprint, we focus on connecting households and activating customers, which is delivering good results with almost two-thirds of our retail base on fiber and strong fiber service revenue growth. Let's now have a further look at the consumer segments. Consumer service revenues continue to grow, driven by consistent fiber and mobile service revenue growth. Customer satisfaction net promoter score is a priority, and leading in the Dutch markets. We have witnessed some adverse movements recently, which have our full attention, because we aim to grow Net Promoters Forum. Now let's take a deeper look into our third quarter KPIs. We saw another quarter of broadband-based growth, despite the elevated churn in our copper base. We're able to maintain a constant healthy inflow of new fiber customers. And this, combined with a broadly stable RQ, led to continued growth of our fixed service revenues. We continue to see solid trends in mobile. Our post-state base increased by 45,000 subscribers, driven by the ongoing success of Unlimited and a successful launch of our new kids and teens proposition in early September. Our post-state RQ was broadly stable, and combined, this led to a 6.7% service revenue growth. Now let's move to B2B. B2B delivered a strong quarter with solid growth across the board. Also for business, the net promoter score remains leading, and we aim for higher than last year and last quarter. So recently also we saw some pressure here on the net promoter score, and this is our full attention. SME is currently the main growth engine of B2B, driven by solid performance in both mobile and broadband, and cross-sell to ICD services on the KPN1 platform. LCE continues to move in the right direction, has now reported growth for four quarters in a row. The service revenue trend is much better than seen in previous quarters. That's driven by IoT, higher roaming-related revenues, but also because last year included the small negative incidental. And as a result, we do not expect this growth trend to continue in the next quarter. Nonetheless, we are on a pretty good track here. And lastly, Taylor Solutions continues to deliver its plans. The growth in the third quarter was partly due to higher project revenues And this business remains subject to timing. The performance is moving to a more profitable level. So that's good. Wholesale. Our wholesale service revenues have sustainably reflected when adjusted for Uphone, driven by both broadband and mobile. Broadband service revenues were supported by higher fiber service revenues. And as expected, KPN's broadband base declined by 9,000, driven by the continued competitive environment seen in the wider broadband market and the ongoing migration of our proper customers to fiber and glassboard areas. In Molen, service revenues growth was driven by a significant increase in international sponsored roaming, As many MVNOs leverage KPN's existing roaming partnerships to offer seamless international roaming services to their subscribers. Other service revenues declined in wholesale, mainly driven by the lower regulated tariffs and less traffic, leading to a decrease in low-margin interconnect revenues. Now, let me hand over to Chris to give you more details on our financials.

Thank you. Let me now take you through our financial performance. and start by summarizing some key figures for the third quarter. First, adjusted revenues for Q3 increased 4.2% year-on-year, driven by continued service revenue growth and higher non-service revenues. Second, our adjusted EBITDA after leases grew by 2.3% year-on-year, or 1.9% excluding new phone. So far, our quarterly EBITDA delivery has behaved fully in line with the pattern that we indicated at the beginning of the year. The EBITDA margin in the quarter stayed north of 45%, but decreased a slightly bit previous year to 45.3%, to be precise, as higher service revenues were offset by higher operating costs, mainly related to third-party excess costs, mixed effects, and wage annexation. And finally, our free cash flow remained broadly stable in the first nine months of the year compared to 2023, as higher EBITDA was offset by higher CAPEX, timing of interest payments, and higher cash taxes paid. I will share some more details on the underlying cash developments later in this presentation. In the third quarter, group service revenues increased 3.7% year-on-year, or 3.4% organically when we adjust for Uphone and divestment in LCE. Within the mix, in consumer, mobile service revenues especially continued to grow strongly, driven by solid commercial momentum. In fixed, the growth trends leveled off a bit compared to previous quarters as expected, business service revenues grew strongly, underpinned by growth in all segments, and finally, also returned to growth, given by both broadband and mobile, and has now inflected sustainably, or reinfected, I should say. We are pleased to report that all segments are reporting positive service revenue growth in Q3, and are expected to continue to show growth from here. For Q4 specifically, we expect year-on-year service revenue growth to gradually decelerate, as we have less tailwinds from price increase this year, and face some tougher comes in the quarter, especially B2B, but we'll make a full year service revenue objectives as planned. Our year-to-date operational free cash flow increased by 6% compared to previous year, fully driven by EBITDA growth in line with our CMD guidance with single digit growth. We have generated 542 million euros in free cash flow so far this year with a cash margin at 30% of revenues. The small decline of 9 million euros for the previous year, despite higher EBITDA, is mainly explained by different timing of coupon payments compared to last year and higher cash taxes paid. Without this timing effect of coupon payments, our free cash flow would have increased versus Q3 last year. In line with our outlook of more than 890 million euros, free cash flow growth will be weighted and tilted towards Q4, reflecting EBITDA growth and, as I said, the timing of interest payments compared to last year. Finally, we ended the quarter with a cash position of 590 million euros. and we continue to have a strong balance sheet. At the end of September, with a leverage ratio of 2.5 times net debt to EBITDA, in line with our self-imposed ceiling. Our leverage ratio increased a bit during the quarter, mainly driven by the spectrum payment in July and the interim dividend payment in August. We expect a leverage ratio of 2.4 times by the end of the year. Our interest cost ratio was sequentially lower, mainly due to the timing of coupon payments. And the average cost of senior debt decreased 30 basis points year-on-year to 3.9% due to lower interest rates and a sterling bond tender executed in the first quarter of this year. Our exposure to floating rates remains fixed at 15%. Total liquidity of KPN remains very robust and consists of about 1.6 billion euros covering our debt maturities until 2027. Now let's turn to our outlook and mid-term ambitions. We are confident to deliver on the 2024 outlook that we provide to you in April for the metrics you see on screen. We will make the plan. On August 1st, we paid out an interim dividend in respect of 2024 of 6.8 euro cents per share. And on the 31st of May, we completed our 200 million share buyback program. And a cancellation of about 58 million shares previously held in Treasury was completed in September. And finally, we reiterate our midterm financial ambitions as provided at the Capital Markets Day. As outlined back then, both service revenues and EBITDA are expected to grow by 3% per year on average and our free cash flow by 7% per year on average, with growth back-end loaded due to the CapEx development. Until 2026, our free cash flow growth is expected to be low to single digits since we face higher cash taxes and higher interest payments. As usual, we'll give more detailed guidance in 2025 at the presentation of our full-year figures over 2024. So let me briefly wrap up with our key takeaways. We generated solid financial results in Q3. We see consistent, organic group service revenue growth with all segments contributing. And a lot of quarter with strong commercial momentum in mobile. Our fiber rollout program remains at a solid pace and has a proven and attractive return profile. As planned, our EBITDA and free cash flow generation will be back and loaded, and we are confident in our ability to reach our 2024 midterm outlook. And finally, since it's already been three years since we presented our ESG strategy, we look forward to providing you an update on our upcoming webinar on the 26th of November on ESG or CSR. Thank you for listening. Now let's turn to your questions.

Thank you, Chris. Before we move to the Q&A, I would like to remind you that, please, to keep your questions limited to two, please. Operator, to you, to start the Q&A.

ladies and gentlemen we will start the question and answer session now if you would like to ask a question you may do so by pressing star 1 on your telephone the first question is from andrew lee at goldman sachs please go ahead

Good afternoon, everyone. Two questions. The first was on your comments around the free cash flow cadence over the next couple of years, which aren't dissimilar to what you said in the past. But obviously, it looks like you're making the point about the back-end loaded nature of free cash flow generation. given the cadence that consensus models have high growth in 2025 for free cash flow, meaningfully higher than 2024 and higher than 2026 as well. I wonder if you could just talk about how we should think about that low to mid-single digit free cash flow growth. I know you don't necessarily want to provide 2025 guidance today, but just giving us a little bit of extra colour in terms of The phasing of the puts and takes, given the consensus, obviously has struggled and everyone has struggled to reflect that. Second question was just on fixed, consumer fixed. So broadband net ads were around flat, given the high degree of competition. I wonder if you could just comment on how fixed service revenue growth is playing out versus your expectations at the back end of last year? Has the competitive intensity been meaningfully worse than you expected, and does it undermine your 2% to 3% service revenue midterm CAGR expectations?

Thank you. Let me take the first question on free cash flow. I'll also use the opportunity to explain a bit about the dynamics in Q3 and Q4 this year to make sure that we're all on the same page. with the timing of interest rate payments. It's slightly technical, but we had a bond of five and six-eight bonds maturing in September this year, which were obviously pay interest. Last year, the pay interest payment date was the last weekend of September, and due to the modified following convention, the interest payment shifted then to the next Monday, which happened to be the first day of the next quarter. The bond was redeemed, replaced by another bond, which was obviously a coupon in September. So basically, We paid off a bond where the interest payment was shifted to Q4, simply because of the weekend, by a bond where the interest payment happened in this quarter. So that shifts, actually, relative to last year, interest payments moved up towards Q3 and less towards Q4. Now, to make life easier, this bond was swapped to floating, re-swapped to fixed again, so the net effect of that is about 15 million. So in this third quarter, we had a, relatively last year, 15 million headwinds. that will be flat back in, you know, turned back in Q4. So basically cash flow year to date will actually flat certainly if you adjust for this, you know, very specific kind of phenomenon of the interest payment last year. So you're not asking if I'm still giving you the answer on this very specific point. Thank you. To make sure we talk to everybody to how to interpret this free cash flow in the quarter. Then multi-year free cash flow. Look, we have a solid growth, what I call operating cash flow, EBITDA minus CapEx. This year, we'll be up probably north of $80 million in terms of EBITDA minus CapEx. If you follow the guidance of the year, that mathematically comes out of it. And yet, we'll be paying about $50 million more in interest and taxes this year, some slightly higher Rio spans and some slightly higher spending leases. With that, we will make the free cash flow for the year. But the dynamic is that we will have a continued solid growth in EBITDA minus CAPEX. I'm worried to say what it actually will be like, but it's going to be, you know, double digits, the Euro terms, millions of growth in EBITDA minus CAPEX. And yet we have every year an increase in tax and interest. As you know, we are gradually burning through our net operating losses. So taxes are moving to about 300 million-ish in 2027 when we have fully used our net operating losses. So expect the sum of interest and taxes to go up by about 50-odd million, 50 to 60 million every year. So this year will go up by 50 million. Next year also by the same amount. So basically, you're growing your operational cash flow, EBITDA minus CAPEX. We'll be spending possibly slightly more in Rio restructuring because we are taking out costs, and we have to absorb the, you know, tax and interest, and that gives, I would say, low single-digit growth rate in free cash flow, as we outlined in the CMD, but it's mainly driven by the fact that our operating cash flow is going by, you know, 6% or 7% a year, but we have to absorb annually about a $50 million increase in interest and taxes.

Yeah, then you're correct, Andrew, on consumer fixed. And we operate in a competitive market. On the consumer fixed side, mobile is relatively... better with competition mainly in the low-end, no-frills part of the markets. And on fixed, we witness an increase of competition, aggressive promotional activities from our main competitors. But that's now already ongoing for two or three years. We focus, and it's also what we announced on CMD, on more on base management so it's really for us a shift from acquisition only to to really focus on the base and rewards existing customers loyal customers so only selectively we use targeted promotions to acquire and retain high value customers and combine this with a two-year contract so in in fiber our service revenue growth is uh is just super strong Most of the customers are now on fiber, but still we also have a couple of broadband bases there. We see pressure on service revenues. All in all, I think the mix of fixed service revenues is more or less in line with what we expected. It will not explode next year, so we increased our price points around 3.8%, so we expect growth in the coming quarters as well. And in the blend of everything, mobile is doing a bit better than we planned for. So all in all, on the consumer side, I'm, well, happy is a bit of too much, but satisfied with the developments today. And indeed, fixed state competitive environment. But for us, it's very important to stay calm while rolling out fiber as fast as we can to a level of 80%, because that's where our strength is.

Thank you. That's very clear from both answers. Thank you.

The next question, it comes from the line of Dhruva Shah from UBS. Please go ahead.

Hi, thanks for taking the question. Just continuing on the track of competitive dynamics and particularly on fixed, Adido recently launched a fixed wireless access product at an aggressive price of, I think, €20 per month for existing customers or €25 otherwise. So have you seen any impact from this so far in terms of the product launch, or are you factoring in any impact going forward? So that's on fixed. And then just on post-paid, again with Odido, I think their rebranding and the closing of the Tele2 brand has been somewhat of a tailwind for the other operators. And you obviously saw very strong net ads in Q3. But going into Q4 or latter quarters, will Odido's weakness and their inflection in terms of post-paid net ads be...

a headwind for kpn going forward thanks yeah so like i said competitive dynamics and indeed oddo launched a fixed wireless access proposition uh quite logical by the way because they only have mobile assets our strength is that we have a very good mobile network and the cyber network It recently launched, so not much to say on numbers here, but it's a proposition mainly targeting for the more rural areas where they can't cover with fiber, I would say. We already for years have a proposition like that for rural areas where we do not operate on fixed wireless access, but a combination of a copper line supported by mobile. in a blended gateway. It's called Faster Internet for Rural Areas, but then in Dutch. So I think we serve 60,000 customers on that. So there is a segment. There is a segment for these kinds of services. Having said that, it's uncomparable to Fiverr, of course. I mean, this is mobile only. So it's very difficult to serve a customer on TV, on the interface, on content like we do to all our households. So I would say interesting to follow. Of course we will, and for sure in some areas they could serve customers on these kind of services, but incomparable with what we do in the FIBUS footprint. And then your second question was about Daily 2 fading out. Yeah, well, Also, I do not expect some headwinds on both the retail or the wholesale side because of effects on Tele2. I think that's already under the bridge for a while. So, no. In short, I don't think that we see headwinds for KPN coming up related to that topic. Perfect. Thanks very much.

The next question is from Maurice Patrick at Barclays. Please go ahead.

Yeah, thanks very much indeed for taking the question. If I could just dive a little bit into your NPS comments. I mean, it seems to be quite clear from the call that you wanted to make the point that there was some pressure on the Net Promoter Score. I'm curious to understand what's driving that, whether it's the macro side, like you said, on the B2B side. I was intrigued that I was listening to Teletoon recently, and they were saying that they saw a huge consumer surplus still around pricing, so they could see significant scope for price up in the coming years because the consumer was underpaying. I wondered how importantly price sits in that wider NPS comment. So thoughts about NPS would be super helpful. Thanks very much.

Yeah, so indeed, we mentioned it in the call, and I think it's important to flag it because we flag it internally. We differentiate in the Dutch market on quality. We're seen as the best brand. We have the highest promoter score in the country. And we reward the whole company on that. So what Chris and myself, what we did is that we... We flag it internally to the 10,000 employees working at KPM that we expect more performance on the quality side, because that's how we differentiate. And that's why we also flag it now today a bit. Having said that, the net promoter score is also, in consumer markets especially, related to the rising cost of living impacting customer sentiment. so that we can't change that easily but we can change it on the end-to-end fiber steering and customer service the way we treat our customers and in b2b it's also related to overall macro environment so that is true um but we think it's important that we organize ourselves in in a way to uh to get that the network score up the target for the companies up in the consumer it's uh It's flat year-on-year and one down queue-to-queue, and then B2B, it's the other way around. So I think a bit down year-on-year and then flat queue-on-queue. So not that bad, by the way, but I think for a company like KPM, it's important to push it up.

So just a quick follow-up. So we shouldn't expect any major changes to your specialty in terms of how to address it. There's more just pushing fiber more and subtle shifts, just to understand that.

I mean, we made it the target for the company. We reward people on the things, and that's why we also think it's important to signal it every now and then. We also use our external communications to also activate our own people. And quality is a main differentiator for KPN, and that's why we always take net promoters for a serious topic.

Thank you so much.

The next question, it comes from the line of Joshua Mills from BNP Paribas Exxon. Please go ahead.

Hi, guys. Thanks for the questions. A couple from my side. One was on the wholesale business. So you talk about a sustainable improvement or inflection back to revenue growth. Could you maybe give similar color on how you expect the line losses in broadband to trend over the next few quarters? I understand that this quarter you had a slightly easier comp and then also revenues coming in from Blasport, but is your expectation that you will be growing your broadband lines in the medium term? That's the first question. And then secondly, and sorry for being so granular on this, but I think last quarter, Chris, you talked about an EBITDA growth rate in Q4 of north of 3.5%. Now that you've come in ahead of your expectations for Q3, should we still expect that Q4 EBITDA growth to be in that region, or will it be slightly lower? Thanks very much.

Here, Joshua, two questions for me, one on wholesale. Let me give you a bit of color on what's happening on the wholesale service revenue. So what happened in Q3 was two things. One is, obviously, there's some migrations of lines to Glassport. So basically, customers are leaving, but at the same time, KPM sells, provides the active layer to Glassport. So Glassport basically... gets the ODF access, we provide the active layer, which we get rewarded. So that's about one-third of the line loss, our customers migrate to Glassport. We have a bit of business going towards the JV, which we don't show up in EBITDA, but then we get rewarded those active layers we provide to them. Secondly, there's one large customer, not the largest, but a larger customer, which is effectively in run-off mode and gradually runs up the business, pushed through a hefty price increase in the summer, which led to some line losses on their side. So A couple of perspective or nuances on the broadband development. So what do you expect for broadband? In terms of total base, I reckon with a stable to a small decline next year, simply because some of the copper churn we see in retail also affects the broadband copper base. But we'll also have an indexation going on. This year we have zero indexation. Next year there will be some indexation with that. The broadband service revenues and wholesale will probably be around stable. And on top of that, we see good growth in mobile, both from our MVNO customers, who have all been extended in terms of contracts. So all our MVNO customers have extended their contracts now for quite some time. We see more growth on their side. We see solid growth on sponsored roaming revenues. And we see solid growth in newer products. So basically, when you look at wholesale, this quarter, a particularly funny quarter because it is one single client, And as the fast food movement underlying stable, I reckon with possibly a small decline in number of lines, but that's mostly copper, not fiber. And a combination of indexation, price effects lead to stable-ish broadband service revenues. And you can see growth from the mobile and sponsored roaming sites. With that, we think organically, if you adjust for the Ufone transaction, also growing. It will be growing towards north of 2%, towards 3% next year organically. Then on Q4, look, we tend to look at the quarterly growth rates. And that's why this quarter you see very high service revenue growth and somewhat lower EBITDA growth, which is a function of what happened last year. So my prediction of Q4 is you'll see it reversed. You'll see slightly lower service revenue growth despite somewhat higher EBITDA growth. So EBITDA growth in Q4 will be safely north of 3%. There's a method that if you take the year-to-date EBITDA and you believe our statement that we're going to make at least $2,500, then you can infer what the EBITDA and Q4 will be and the implied growth rate. So all I'm saying is the year-on-year growth rate every quarter is often affected by what happened last year, but we stick to the full-year guidance, stick to the full-year plan, which means that the Q4 EBITDA growth will be safely north of 3%, but also be somewhat lower surface revenue growth due to year-on-year comparison. You've got these quarterly fluctuations, I tend to look more at the underlying run rates. And if I look at, for example, the run rate of earnings in Q3, and I just then take it to Q4, it's safe to say that Q4 EBITDA growth will be north of 3%.

Got it. Thanks very much.

The next question comes from the line of CEE from Citi. Please go ahead.

Thank you for taking my questions. I have two, please. My first question is really following up on the comments on wholesale service revenue on the broadband. I think you talk about you see some contribution now starting from Glassport. I'm wondering if you can quantify it and maybe help us to understand how to think about And my second question is on your comment on the cost-cutting program and also maybe also help us to understand how it contributes to your operating sales or free cash flow guidance. I think when I look at your OPEX, it hasn't really, it's actually gone up for two years. And maybe you can help us with how should we think about the cost-cutting from this year onwards for next year and the year after. And following up on that, because I think you mentioned that we should see more reorganization cash flow for next year. And I just want to quantify if that includes the 50 million step up that you included in the 50 million step up. You talk about interest and tax. Thank you.

You have sneakily bundled a bunch of questions into two. I counted four. Let me see how far I can get. But in terms of the – I don't have the number by heart. It's not massive, but it contributes to the overall broadband service revenue. So think about a 2% indexation we're going to push through in line with the regulatory framework that we have. And in that regulatory framework, the regulatory part of the business will be indexed by 2%. The other part will be more in line with our retail broadband price increase. And transport charging will be part of that. I don't know the number by heart. It's not changing the needle as much, but it contributes. When it comes to the second question of cost cutting, indeed our costs have gone up, mostly given by energy and inflation. That should gradually decelerate. Obviously, we're still working on the plan for next year, but it should look better next year. I mean, energy costs will be a tailwind next year. Our CLA increase will be much more muted next year. And if you look at the FTE count, the total count of internal and external staff in Q3, we dropped by another 60 or so. And I think by the end of the year, we'll have another 100 or so down. So the last six months of 2024, I think our total labor base, total staffing base will be dropping between 150 and 200, helping us to limit the impact of CLA. So The cost-cutting programs will be taking place, but they're also needed to make the EBITDA target. I mean, in the capital markets, the guidance we give, the 337 guidance, that requires a certain prudence when it comes to cost, so those cost savings will be required to make the 3% EBITDA target. It's in the plan, and we're executing against it. And the Rio cash out, you know, the 50 million is really interest and taxes on restructuring. I don't have the full number yet because it's only October. There will be some more restructuring spent, I expect, given all this.

Jos, you want to add? No, I think these cost-cutting programs on our side are more big transformation programs. So it's not only focusing on cost-cutting, but also on the operating model of KPM and portfolio simplification. We leverage the power of data and AI to improve customer processes. We are automating our operational processes. We're digitalizing the customer journeys through all channels, rationalizing IT. So it's three, four programs we centrally manage and steer. And indeed, there's a lot of cost-cutting related to it, but it's also an improvement of the health of the organization.

very clear thank you the next question it comes from the line of aj sony from jp morgan please go ahead hi there thank you for taking my questions um she's got a couple the first one's just to follow up on the ebitda trends um so i think at q2 you said you were guided to three and a half percent growth year over year. I know you kind of already answered this in an earlier question, but on my calculations, that gets your EBITDA for the year to around two, five, ten. So just wondering why you maybe haven't upgraded your guidance for EBITDA for the full year for the first one. And then the second was just around your slightly softer, maybe ARPU growth in Q3. Is this being driven by the competitive environment? Are you seeing customers trade down or not willing to pay the slightly higher prices for the premium service of KPM? Any coloring there would be useful. Thank you.

Yeah, the first question. Your cap rate is pretty spot on. I think we said our EBITDA will be at least 2,500. So I think your number is consistent with that. Let's see how the world looks like at Q4. But again, I think we'll meet the target of at least 2,500. And if it's 5 to 10 million more, that's not really something you officially upgrade your guidance for. As prudent and conservative as we are, we hold it consistent with at least 2,500. And our Q and Q3, My view is, look, it's more of a mixed effect. The KPN branded sales actually doing quite well. Our KPN brand has a record sales of SIMs in the third quarter. And RPU at KPN is also developing very favorably. You have some mixed effects in SIMU and Ufone, but you've got a larger share of, like, no-frills brands in RPU. And if they grow faster, you see a slightly diluted effect on the blended RPU for KPN as a whole. And secondly, you see some volatility on the non-committed side. So if you give more customers into unlimited data bundles, they do less top-ups. So there's a bit of a non-committed decline, which is a function of what's happening in the committed side of things. But it's mostly a mix effect between the Ufone SIM U and KPM.

That's great. Thank you very much.

Your next question comes from the line of Iqbal Kiroya from Deutsche Bank. Please go ahead.

Thank you. I've got two questions, please. So you talked about 2025 free cash from the context of the mid-term guidance. I appreciate your guide with the full years, but how do you think about 2025 revenue growth in the context of the service revenue CAGR of 3% as we shift to lower price rises? And secondly, Netherlands is now moving closer to 100% FDTH coverage. Your plans would imply you would likely overbuild the alternate areas in some of their footprints over the coming few years. Do you think that's likely, or do you think we get another endgame to avoid overbuild? Thank you.

Perhaps I'll take the second question first. Yeah, so our first 60% of fiber in the Netherlands is pretty clean, so not that much of overbuilt in the footprint. There's a good reason why we build a strategy around 80% and not 100%, and that is because also others like Delta are investing in fiber. So we think that the optimum value for KPN is in the footprint of 80%. Now, looking at the quarters to come and the fiber plans we have, it is realistic to assume that we will face more overbuild in the final 15% than we did in the past. Of course, we try to avoid it. Also, what we see is if we roll out other initiatives, withdraw themselves. Glassport is trying to work on a deal with Delta to take over 200,000 households. So at the end, I think we all in the Netherlands try to create value. It's not that we can avoid overbuild through the Netherlands, but every now and then, when doable, we try to avoid it.

Yeah, and when it comes to free cash on revenues, for next year, free cash load, low to single digits, low to single-digit growth, mostly due to the increase in interest and taxes. When it comes to service revenue growth, if you look at where we are today, year-to-date, we report about 3.7% growth. Organically, it's around 3.4%, 3.5%. I would reckon that next year, the 3%, we're going to be at 3% or very close to 3% for next year. And as I peel the onion and go segment by segment, And organically, I think the consumer side of things will be around two-ish, broadband, broadband, and mobile. I think business will be north of three and a half, still solid revenue growth developments in business segment. And on an organic basis, excluding any, you know, the Ufone effect, which will still happen in Q1, of course, wholesale should be close to 3%. So if you put it in the mix, I think the total service revenue growth next year is going to be at or at least very close to the 3% that we got it for. That's clear. Thank you.

The next question that comes from the line of Titus Khan from Bank of America. Please go ahead.

Good afternoon all. Thanks so much for taking my questions. Just two kind of follow-up questions. If I may, the first one would be just on your question. earlier commentary around MPS in B2B. Any way you could provide more color on kind of which segment is that coming from? Is there any way related to your SME growth slowing a little bit or is that basically coincidental? And then secondly, just a follow-up question on your earlier comments on the mix shift in the B2C segment. And out of the net ads right now, how many are coming from Simul, Uphone, from your second brand? And how many are actually on your KPM main brand? And how is that evolving over the last couple of quarters, maybe excluding the Uphone acquisitions?

Net promoter score B2B, yeah, that's really a LCE thing. So also there's a bit of difference compared to consumer market, how we measure net promoter score because we test like five to ten customers in a quarter. And that is really related to what I already mentioned, overall macro environment sentiment. So B2B, to be honest, It goes up and down in a different way than the consumer, because that's a broader base for what we use for the measurement of network multi-score. But this is really a large enterprise thing. And your second question was a mix of inflow on mobile customers. So we acquired Ufone. We have a brand called Simyo. That's more the no-frills segment. KPN is doing good on Unlimited. I would roughly say 50% coming from our lower frills brands, and 50% is moving in KPN. And so the strategy of the combination of these brands works quite well.

Super. Thank you.

The next question comes from the line of Luigi Minerva from HSBC. Please go ahead.

Yes, good afternoon. Thanks for taking my question. The first one is on the adjusted EBITDA after lease margin that decreases in this quarter to 45.3%. So that's 0.8% below last year. And I just wanted to understand better what is driving it. And if I read well your comments in the release, It may be driven by other OPECs increasing by 12% due to higher marketing themselves. So, yeah, I just wanted really to make sure that's the reason and how temporary or structural it may be. And secondly, the second question is on CapEx and the implications for free cash flow. So your guidance is for 1.2. In 2023, you did 1.25, so 50 million above 1.2. Year-to-date on CapEx, you are running 15 million ahead of your pace from previous year. So I'm just wondering whether... It is like inflation, so the deployment is costing more just because of inflation, or you are adopting a higher pace than you were thinking, or whether eventually you have that kind of 50, 60 million of CapEx flexibility to still make your CapEx outlook and support free cash flow in the short and medium term. Thank you.

Yeah, on the EBITDA margin, it is 45.3, down a bit. I think there are two things. You see some margin dilution, but it's relatively manageable. On the gross margin or contribution margin, mostly around discounts and costing to make to acquire broadband customers. As Jo said, the market is very competitive. Some of our peers are going quite deep in terms of acquisition spending. So the cost for acquisition and the consumer side of broadband has gone up. So mostly it's more product actions and discounts. And there is a little more inflation affecting your total cost base, your major labor cost base. That together drives a small dilution in your EBITDA margin. I feel pretty okay we can keep the margin above 45%, which I think we're still probably, you know, best in class in Europe. Also noted, it includes the third solution systems and the greater business that we have, right, which has a different margin profile. So if you look at the telco-only business, I think our margin would be, you know, close to 50%. in the high 40s. So the 45% is a blend of our KP and Telco business and the system integrator business, but I think we should be able to run it above 45% on a regular basis. And, you know, the broadband market is competitive, so that will be costly, I think, for the foreseeable future to keep your base stable. When it comes to CapEx, 1,112,050 million, I think we're probably aiming towards that level for this year. It has gone up a bit. It's mostly inflation. Inflation when it comes to capitalized hours, but also inflation through licenses and products you buy from third parties. And inflation that has to come with, for example, a fiber rollout. So it's mostly dealing with inflation. But that's all, Luigi, embedded in our free cash flow guidance. So basically free cash flow guidance for the year and for the coming years includes this CapEx number. If need be, we can always try to pull the handbrake, but given the fact that the fiber rollout is still very much value-creating, we don't want to push it back too much. So it's around that level driven by inflation, but all included, embedded, and absorbed in the free cash flow guidance for the year.

Thank you so much.

The next question that comes from the line of Steve Malcolm from Redburn Atlantic. Please go ahead.

Yeah, thanks very much for taking the question. I'll go for two, Chris, and try not to wrap them up into 10. I'll do my best. Just on wholesale, it looks to me like the sort of revenue recovery was tilted towards the mobile business. You mentioned sponsored roaming. I saw the prepaid net ads were up $220,000 in the quarter. I guess that's it. I haven't heard the expression sponsored roaming before. Can you give us an idea of what that is? And it sounds sort of suspiciously low margin to me, but maybe you can kind of – You can alleviate any fears I might have there. And then just on the B2B growth, you mentioned north of 3.5%, which is obviously brilliant for an enterprise-facing telco. How sensitive is that to the economic outlook in the Netherlands? Is that sort of under any imaginable scenario as far as you're concerned? I mean, I know not every scenario is imaginable, but just sort of give us a sense of how important it is that economic growth doesn't disappoint to get to that 3.5% number. Thanks a lot.

Look, on the wholesale side, Sponsored Roaming Basic, KPN, has a unique network of roaming contracts with many other companies across the world with a unique network of roaming solutions that we use, for example, for international IoT services, et cetera. We can use it for travel SIM solutions. So the $220,000 really is more a travel SIM solution that we provide to one specific customer. It's a suspiciously low margin. Look, it's not the margin that you make on a broadband line, but the marginal cost of this business is relatively low. So it is actually quite profitable business. It's low capital intensity. So it is actually profitable business and has high growth, building on that sort of global roaming contracts that we have at KPN, to which you can advise travel sim solutions, IoT solutions for customers across the globe. So that's in it. And again, the marginal cost of that is relatively low, so it's an attractive business to us. The second one, on the 300%, any economic scenario, obviously, Steve, there's always a world in which the whole thing collapses and nothing works anymore. But in general, I would say this feels like reasonably well-sustained. In the absence of a massive wave of bankruptcies, this should work. We see today that high growth that we saw in this year was in cloud and workspace. That's paving up a bit. I'd expect at some point there's a certain degree of saturation of your customers in the cloud and workspace business. But overall, it feels this is pretty robust in a reasonable economic climate. If the economy falls off a cliff and you get massive increase in bankruptcies, then the world's different. So that's not in the assumption. But it should be reasonably robust also against some sort of economic deceleration.

Okay, great. Thank you very much.

The next question comes from the line of Nuno Vaz from Bernstein. Please go ahead.

Hi. Good afternoon. Thank you also for the opportunity to ask questions. So two topics from my side. One on fixed B2C. I've noticed if I track the number of units per household quarterly, this quarter saw a bit of a decline. on fixed, so that would suggest you churn more TV and voice subscribers versus previous quarters. Just wondering what's happening there, if that's true, and if that may be related to one of Fonziego's new UFO rights and promos. Second question, a bit of a funny one. I've noticed that your EBITDA growth adjusted for UFON, so the delta between the growth reported and the growth adjusted for UFON sort of halved. So in the second quarter was one percentage point. This quarter is about 0.5 percentage points. So that would suggest the beta contribution from your fund sort of halved. It's not a big amount, but I'm just curious what's happening there.

Thank you. Yeah, so in the B2C fixed environment, yeah, like we described, competitive market, one player losing a lot of household customers, us more or less stable. Within that base, we migrate, I believe, 37,000 customers to Fiverr last quarter. And we see the base on copper declining, and it's also related to the migration from copper to fiber, of course. And in that base, we still do a strong combination of TV and connectivity. Of course, there's a trend to more internet only, especially among youngsters. But for us, that's more an opportunity than a threat because that's a segment we really can improve our position in. So, yeah, that is a bit of the trend I guess you were asking for.

And on your second question, congratulations, you found the Easter egg in the numbers. Now, the profit contribution from Ufone in Q3 was less than in Q2, which has to do with the fact mostly it's roaming, right? If you have a no-frills mobile operator and these customers travel in Europe and start to dial and make calls from the holiday addresses, they get charged with roaming tariffs so we find that for no frills operators the summer tends to be lower margin than for typical kpn simply because you know roaming charges as a percentage of you know the rpu are relatively high during the summer so it's typical for no frills operators to have a relatively higher share of roaming charges as these customers travel into europe and obviously Now, OPSA no-frills customers don't travel abroad. They travel inside Europe, so you don't charge them extra. So the room-like home hits them a bit more. So that's actually the explanation why the Uphone profit in Q3 typically is lower than other quarters. This is a completely S plan, but it shows up in the delta. But it was spotted in Europe.

Thank you very much for the explanation. Thank you.

The final question comes from the line of Usman Ghazi from Barenburg. Please go ahead.

Thank you very much. I just have one question, please, on the Huawei situation. I know last time we spoke, you had mentioned you were going to approach the Dutch government with the German kind of compromise, and I was just wondering if there was any update on that. Thank you very much.

Yeah, we're in close contact with the government on... non-Western vendors and we agreed on the plans on how to move further. So pretty good on track there. So we update our government every quarter. I think in Germany we saw a solution KPN is already working on as well. So all in all, I would say if there's any update to give, that is that we're on track updating our government every quarter. and fulfilling the obligations we have there. So, yeah, I'm pretty confident that we are fully aligned with the government and that we are on track with the programs. And, of course, we made announcements on replacements of Huawei in the core networks of fixed and mobile, replaced by Nokia and Ericsson. and that we still keep them in the radio access network with all kinds of measurements. KPN is fully running our networks ourselves. We do everything ourselves. So I think we are in a pretty good situation there.

Okay. Thank you, Joost. Everyone, that concludes the call for today. Thank you all very much. And as you obviously know, in case of any questions, you can reach out to the investor relations team. Bye.