Koninklijke Kpn Nv

Good day, ladies and gentlemen. Welcome to KPN's fourth 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, Matthias von Leunhoff. Head of Investors Relations. You may begin.

Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPM's fourth quarter and full year 2024 results webcast. With me today are Joost Farberg, our CEO, and Pies Vigee, our CFO. As usual, before tuning 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 ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Let me now hand over to our CEO, Joost.

Thank you, Matthijs. Welcome, everyone. Let me start with some highlights from the fourth quarter and the full year. We have delivered on our 2024 outlook. Throughout the year, we've consistently grown our group service revenues. And within that mix, consumers saw another quarter of solid commercial momentum, especially in broadband. Business continued to perform strongly with all divisions contributing, and wholesale inflected to growth in the second half of the year, driven by mobile especially. Together with our joint venture, Glassport, we added another 574,000 fiber households to our footprint this year, and we connected more households than ever before. For 2025, we expect service revenues and adjusted EBITDA growth of approximately 3%, capex of approximately 1.25 billion, and free cash flow of approximately 910 million euros. Our dividend per share is expected to grow by 7%, and we intend a share buyback of €250 million in 2025. And with this, our total shareholder return is projected to grow by 10%. All in all, we're making good progress with the execution of our strategy, and we are set to maintain solid service revenues and adjusted EBITDA growth, in line with our mid-term financial ambitions We're investing in the digitalization of the Netherlands, and from 2027 onwards, we foresee a significant step down in capex, resulting in a material inflection in free cash flow. As usual, Chris will give you more details on our financials and the 2025 outlook later in this presentation. So we delivered on our 2024 outlook. Service revenues grew more than 3%. EBITDA came in north of 2.5 billion euros. CapEx at 1.25 billion was slightly higher than originally anticipated. Free cash flow came in at 900 million, slightly ahead of guidance. And we reiterate our dividend commitment, and we will pay a regular dividend per share of 70 cents over 2024. following AGM approval in mid-April. As a reminder, our connect, activate, and grow strategy is supported by three key pillars. We continue to invest in our leading networks, we continue to grow and protect our customer base, and we further modernize and simplify our operating model. And together, these... Priorities support our ambition to grow our service revenues and adjust the EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years, or simply put, our 337 CAGR framework. ESG is linked to our strategy closely, as we shared at our ESG webinar last November. hosted by Chris, we focus on three areas, responsible, inclusive, and sustainable. And in a nutshell, the core of our ESG strategy is to make our networks even more reliable and secure by design. Expanding our fiber network is key in this strategy. And with this, we connect everyone while promoting social and digital inclusion. And we do this in the most sustainable way as we aim to be net zero in the entire value chain by 2040. And with this, we will create a better internet where everyone in the Netherlands enjoys seamless access to a responsible, inclusive, and sustainable internet powered by fiber and 5G. Now I will walk you through the business details. We continue to lead the fiber market and we see more and more customers benefiting from the next generation infrastructure. Together with Glassport, we now cover 63% of Dutch households with fiber, and we are gradually progressing towards our target of roughly 80% by the end of 26. In 2027, therefore, we foresee a material step down in our capex, dropping to below a billion euros. And to sustain our network leadership position, we further optimized our rollout process, and we increased our focus on connecting fiber households and activating customers. And this approach is delivering tangible results with a record delivery of homes connected and ongoing new fiber broadband net ads. Let's have a look at the consumer segments. Consumer service revenues increased more than 4% year-on-year or 1% corrected for U-phone driven by fixed and mobile. Our commitment towards customer centricity has been paying off with customers with customer satisfaction trends improving. And that's important because NPS remains leading in the Dutch market when it comes to KPM, and it's an important target for us. So improvements on NPS. This week we launched our Household 3.0 strategy, and with this we will take the next big step in convergence, and we give access to an even broader range of digital services and best content in households, demonstrating our focus on effective base management in this respect. We recently secured the exclusive broadcasting rights for highlights of the Dutch Football League, Eredivisie. These rights enable our customers to have access to the best sports content. A deeper look into our KPIs. On the back of active base management and strong commercial execution, we saw a quarter of solid broadband base growth with a healthy inflow of new fiber customers Despite the intensified competition in the fourth quarter, this combined with a growing ARPU led to continued growth of our fixed service revenues. Fiber service revenues continued to grow well above 10%. Our post-paid base increased by 30,000, while the post-paid ARPU, excluding Ufone, declined by 2.8%. And combined, this resulted in only 0.3% mobile service revenue growth. The year-on-year growth trend slowed down sequentially, mainly due to a lapping of price increases implemented in October 2023, less out-of-bundle revenues in the fourth quarter, and some negative one-offs. Going forward, we expect this growth trend to recover. And Chris will give you more details later in the presentation. Let's now move to B2B. B2B delivered another strong quarter with solid commercial momentum in post-paid and organic growth across all the divisions. Our business net promoter score remains stable, and that keeps us clear leader in the Dutch market. Well, first of all, SME remains the main growth engine of B2B, driven by strong growth in cloud and workspace and supported by continued sort of commercial momentum in mobile and broadband. LCE recorded another quarter of growth, mainly supported by the continued good performance in our IoT business and IT services. KPM enhanced security portfolio, which is called XPath Safe Internet, has also started to contribute to LCE's growth. And lastly, tailored solutions. This continues to deliver as planned. Year-on-year, growth dropped a bit, mainly due to a one-off contribution to revenues in Q4 last year. And while this business always remains subject to timing, we will always show some variability in reported growth rates, Most importantly, underlying growth here is solid, and performance and margins continue to improve steadily. Our wholesale service revenues continue to improve, mainly driven by mobile. Broadband service revenues were broadly flat, despite the declining base, driven by higher fiber service revenues. Mobile service revenues came in strong, driven by higher performance from sponsored roaming partners and messaging revenues. And next to this, we recently extended the contract terms of some of our largest wholesale partners. Out-of-service revenues declined mainly due to lower regulated tariffs, leading to a decrease in low-margin interconnect revenues and lower volumes on traditional voice. Now a bit more on ESG. On this slide, you can see our progress on carbon reduction, circularity, and diversity. We are dedicated to enhancing energy efficiency to minimize the carbon footprint of KPM across our entire value chain. To support this, in 2025, we will begin sourcing solar energy from a solar farming partnership with Eneco, further advancing our green electricity goals. And this initiative, as well as the energy supply we will use from the windmill power gas from 2027, It's also important for ensuring energy supply at lower costs. Next to this, on the ESG part, we made further improvements on our diversity target, reaching 31% of women in our senior management. This brings us close to our ambition to reach at least 35%. Now, let me hand over to Chris to give you more details on our financials. Thank you, Joost.

Let me talk you through our financial performance. And let me start by summarizing some key figures for the fourth quarter. First, adjusted revenues increased 1.7% year-on-year, as service revenue growth, organic growth across all segments outpaced lower non-service revenues. Second, our adjusted EBITDA at the leases grew 3.1% in the quarter, or plus 2.3%, excluding all EU fund contributions, and by all we mean not only the acquired EBITDA, but also the youth-owned growth during the quarter. Our EBITDA margin increased by 60 basis points to 43.6%. Third, the full-year free cash flow increased by 14 million compared to 23 to 900 million euros driven by EBITDA growth. We'll give you some more detail on underlying cash developments later in this presentation. In the fourth quarter, group service revenues increased 2% on an organic basis. And in this mix, Consumer service revenues grew by 1% organically, excluding, again, all UFON contributions. If we had included UFON on a pro forma basis, we would have added around 30 basis points to the year-on-year growth rate, which is close to the real trend for consumer. Going forward, we expect consumer service revenue growth to recover towards 1% to 1.5% in the first quarter of this year, supported by base growth and further commercial improvements. From the second quarter onwards, we see further gradual improvement, reaching about 2% service revenue growth year-on-year. Business recorded another strong quarter, underpinned by growth in all divisions. As expected and communicated, the reported year-on-year growth rate was a bit softer in Q4 due to a small one-off and a tougher comparison in Q4 last year. Adjusted for these items, on an organic basis, B2B showed similar growth to that seen in the first half of the year. and expected to continue to do so in the first half of 2025. This means for the full year 2025, we expect B2B to grow well north of 3% year-on-year. And finally, wholesale growth 2.3% organically in Q4, driven by the ongoing success of our international sponsored roaming business. For 2025, we see continued good growth in mobile, mainly due to our sponsored roaming and travel service business, especially in the first half of this year. In broadband, we'll benefit from the implemented inflation adjustments that roughly matches the declining base. And finally, we'll see the lapping of the cutting termination rates. With this, we expect also wholesale to grow north of 3% as well for the full year 2025. For the full year 2024, adjusted EBITDA grew 3.6% or 3.1% for UFON, driven by higher service and non-service revenues. Remember, we increased our initial guidance of EBITDA of €240 million to €2.5 billion to include new fund contributions. And from both perspectives, our guidance was met. Our EBITDA margin of 44.5% was broadly stable compared to last year, despite our cost base increasing significantly by about €100 million year-on-year. The increase in our direct cost was mainly driven by higher third-party access costs to this class board, higher content costs, and the service revenue developments in B3. The increase in our indirect cost base was driven by wage annexation and other inflationary headwinds, partly mitigated by continuous cost measures. We are pleased to see that our cost focus has driven a decline in the number of internal and external staff of about 2% in the last six months of 2024. For 2025, our direct cost base will continue to be impacted by our increase in third-party excess costs. Of course, most of you are 50% of your own JV transport, and service revenue mixed effects. Our indirect cost base will be mainly shaped by wage indexation, which will be offset by natural attrition, cost efficiencies, and lower energy costs. Our total energy spend is expected to be about 10 to 15 million euros lower year on year in 2025. With all of this, we foresee a flattish indirect cost base development in 2025. Our operational free cash flow continues to show healthy growth increasing by about 7% year-on-year, in line with our CMD guidance, driven mainly by EBITDA growth. CapEx was marginally higher in the prior year, which is why CapEx was related to fiber acquisitions, so CapEx that we bought, the business that we bought, mostly cabletex. For 2025, we expect to see a similar growth rate in operational free cash flow, driven by EBITDA growth and effectively stable CapEx. Obviously, if it hadn't been for the gradual normalization of our tax estate, the operational free cash flow would by and large be tricking down into a full free cash flow. Let's focus on the moving parts of our free cash flow. At 900 million euros, our free cash flow was around 2% higher than last year. This is mainly the result of EBITDA growth, partly offset by higher cash taxes and kinship working capital, stable CapEx, we managed to keep our cash interest expenses stable, and there was a delta and other mainly relating to the timing of lease payments. Our cash margin of revenues remained broadly stable at 16% of revenues, and the end of the year was a cash position of 762 million euros. KPN remains focused on creating long-term value, which is evidenced by the strong return on capital employed. Our ROCE improved approximately 40 basis points year-on-year to 14.4%, due to increased operational efficiency, For the coming years, we see scope to further enhance our ROCE, reaching our mid-term financial ambition to 15%, consistent with continuous creation of shareholder and stakeholder value. We continue to run with a strong balance sheet. At year-end, we had a leverage ratio of 2.4 times, below our self-imposed ceiling of 2.5 times, and also our interest coverage remains very strong. Our average cost of senior debt decreased 33 basis points year-on-year, mainly due to the sterling bond tender executed in the first quarter of 24, the senior bond redemption in September, and lower floating interest rates. Our gross exposure to floating rates remains low at around 15%. Our liquidity of around 1.8 billion euros remains strong, covering debt maturities until end 2027. And on a side note, please note that the carrying value of our joint venture transport on our balance sheet is now well over 500 million euros. Let's turn to our outlooks and ambitions. Note that our outlook excludes any contribution from a tower company that we intend to acquire, since it is still subject to ECM approval, even if we expect its approval to come in at relatively short notice. The potential EBITDA contribution from this tower business on a full-year basis, on a 12-month basis, will be close to €30 million. So this could mean a substantial uplift in our guidance for 2025, but then again, we can only really make this upgrade on a pro-rata basis, of course, if and when full regulatory approval has been obtained. Organically, for 2025, group service revenue growth is set at about 3% with all segments. We expect the adjusted EBITDA after leases to come in at around $22,580,2580, or about 3% growth, mainly driven by service revenue growth and a stable indirect cost base. Our quarterly EBITDA is expected to follow broadly the same pattern as in 2024. For Q1, we expect EBITDA growth between 2% and 3%, and Q2 substantially higher. Also note that we expect a similar amount of IP sales in Q2 as we had last year. CapEx will remain stable at around 1.25 billion euros. We expect free cash flow of around 910 billion euros, which represents a small increase compared to 2024. since we face higher cash taxes and interest payments, countering continued strong growth in operating cash generation. Free cash flow generation will be stronger in the second half of the year, due to the timing of tax and interest payments, and will be mainly recognized in Q1. Finally, over the entire period until 2027, we reiterate our financial ambition to grow our service revenues and to just adapt by 3%, and a free cash flow by 7% per annum on average, as reflected in the 337 K-year model. Note that our 2025 guidance and our daily trading are both in line and on track with the multi-year mission. Our financial framework is aimed at long-term valuation for all stakeholders. In this respect, we are committed to returning all our free cash flow to our shareholders. We intend to pay a regular dividend of 18.2 euro cents per share over 2025, which is up 7% compared to the 17 euro cents in 2024, and in line with our midterm ambition. In addition, we intend to execute a new share buyback program of €250 million in 2025, which includes a small carryover of about €40 million retained free cash flow from 2024, to ensure we continue to distribute all our free cash flow to our shareholders. Effectively, this means that our total cash shareholder distribution will increase by about 10% compared to 2024, and it is representing an attractive yield of about 7% at today's share price. So let me please briefly wrap up with the key takeaways. KPN, again, delivered on its outlook of consistent organic group service revenue growth. We delivered adjusted EBITDA and free cash flow growth, slightly above guidance, despite a cost headwind of about €100 million. We saw solid commercial interest in consumer and business. We continue to lead the Dutch market on fiber, with accelerated delivery of fiber-connected honks. And a successful global progress made in 2024 demonstrates a successful execution of the strategic plan, paving the way for future growth. With that, we are confident in our ability to deliver on our mid-term 337 CAGR financial ambitions, including shareholder distributions, and have announced full-year 25 financial targets that are completely in line with this multi-year plan. Thanks for listening. We look forward to your questions.

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

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 so by pressing star 1 on your telephone. First question is from Carol Curio from Deutsche Bank. The line is open now. Please go ahead.

Thank you. I've got two questions, please. Firstly, you spoke about an expected improvement in consumer service revenue growth, particularly beyond Q1. Can you elaborate what's going to drive that and to what degree you're dependent on base growth in mobile and broadband? And then secondly, on the OPEX side, we saw a bit less OPEX pressure in the quarter and in the first nine months. Is this just phasing or is a bit more cost-cutting focused? What's perhaps a revenue backdrop in some areas is a bit weaker. Thank you.

Well, let me start and then hand over to Chris. Yeah, on the consumer service revenues, first of all, we don't expect negative one-offs in the first quarter. And we also adjusted our portfolio in two ways. In one way, we excluded a lower-priced attractive bundle introduced in the discount battle in Q4, so that we took out, to be honest. And the second one is that we introduced a plan that is called More for More, which is all about the low-end base in the full consumer model base. We offer more, but also for €1.25 on top of what they paid. That was introduced on the 1st of January, so that will for sure have a positive impact. Chris?

Yeah. Whatever happened in the fourth quarter, reported mobile service revenues were affected by three one-offs. One-offs in iPhone credits that we talked about and some lower billing issue in our system. Small point. That means underlying mobile service revenue growth is around 1% if you're correct for those. On top of that, we saw some lower out-of-bundle traffic more uncommitted argues. I think it has to do with our double data solution that we give to customers. And as I said, we went relatively deep in an acquisition discount in December. Now in Q1, of course, those one-offs will not reoccur. The acquisition discount has been terminated. And the double data, the multiple data offer that will lapse. It's still there, but it will lapse so that the year-on-year effect will fade away. So basically with all this, it means that we expect consumer mobile in Q1 to grow 1% to 1.5% per year. So go back to that growth rate. As I said, it's excluding any Ufone benefits, so we exclude all of Ufone, not just the acquired business, but also the growth of the business, which is about 0.3% in mobile and 0.4% in total consumer revenues, which means consumer mobile in Q2 should go back to about 2% growth. So that's kind of the growth dynamics when you show in Q4 up to Q1. So underlying growth in mobile in Q4 is around 1%. We'll go back to 1% to 1.5% in Q1, and we think towards Q2 and Q2. Sixth will be at this level, roughly. We've got some base growth assumed, but our guidance is pretty limited, pretty conservative when it comes to base growth, which means that the consumer market will be around 1% to 1.5% total growth in Q1. As to your second question, this is actually quite a decent outlook, consistent with the 3% CAGR that we see for KPM as a whole. On your question on OPEX, yes, OPEX was gradually getting better. There's not a short-term response to failing revenue trends. We are taking OPEX measures, but they take a bit of time to land. So we started working on OPEX in the second and third quarter of this year more intensively. you saw our total FTE base drop by about 2%, about 200 people in the second half of the year. And that was a result of initiatives we started to take in Q2 and Q3, and then they gradually land. So there was not a handbrake as a response to OPEC revenues, no more the consequence of measures we started to take in the middle of last year. And we expect those OPEC benefits to gradually also fit into 25 with a total flat cost base. I hope that's clear. Thank you.

Yeah, thank you, Dave.

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

Yes, good afternoon and thanks very much for taking my question. So the first one is really on capital allocation. And I suppose, well, I'm interested to see how you think about the trade-off between the share buyback and the effort that will take to consolidate Glassport when the time comes. So, is it an either-or, or you think you can actually afford to do both within your leverage ratio constraints? And the second question is on the CAPEX outlook, particularly as we go into 2027. Now, obviously, that's a... super important part of your multi-year guidance. And, you know, consensus is gradually moving towards your ambition of much lower capex. I just want, obviously, you are reiterating this guidance, so you believe in it, but I just wanted really to to kind of, you know, get more color on the degree of your confidence. You know, obviously the cyber deployment will reach its target, but how can we really be sure that nothing else will pop up, you know, whether it's, you know, densification from 5G, edge computing, AI, data centers, I mean, you name it. No, the history of the sector with CAPEX is pretty mixed, as you well know. So it would be interesting to hear how confident you are that you can actually bring CAPEX sustainably to that lower level from 2027 onward. Thank you.

Yeah, so that, of course, is a very relevant question because Much of our plant is built around 2027, where we will lower our capex. And why we are so confident is that we are, in our view, a bit of usually or over-investing against what is usual for telco in the country. We're building a fiber network, and related to that, we do 1.2, 1.25 billion per year. And we... we're pretty good on track to meet the target of 80% and of 26%. Will it be 80%? I don't know. It could be 82%, could be 78%, because also the number of households is changing in the Netherlands. But that is probably not the most relevant part. The most relevant part is that we are building our plan around lowering the capex again back in... or looking forward to 27%. And since so much is related to fibre, but not everything, We are pretty sure that we're going to do it. It's not that we are squeezing all kinds of other investments to make the fiber network work. So we're investing in the edge. We built our 160 metric core locations to facilitate that. We built the best mobile network in the world. We consider 5G as a very interesting development to manage networks in a super-efficient way, but we are very prudent by introducing all kinds of services, especially consumer markets. We only do that when it's supported by a business case that works. So it's not that we are under-investing in some areas to cover up for the fiber investments, and I actually think that That 2027, we will step down in CapEx, therefore. Well, Chris knows even more about CapEx than I do, so he will elaborate on this. Your question on capital allocation, I mean, it's very important for us because some of them are in here for a long time to reward our shareholders. Capital allocation is important. So, dividend, and on top of that, share-by-dex. And also, when we enter the year of 27, that will be the formula as I look at things. Glassport consolidation is not really cash-involved. That's a flip of one share, and then we consolidate Glassport. But it's not that heavy cash-involved.

Yeah. Luigi, on your first question on Comcapix, look. When you run a telco and you ask around the company, how much money do you want to spend? I mean, the bottom of calculations always add up to 3 billion of CapEx that people invest every year, right? So there's always a management decision. So we were in control of the CapEx that we spent. It's pretty clear that the step down will come of a step down in fiber. So we don't, there's no magical squeeze of CapEx somewhere else or a fantasy productivity increase. No, it's the gradual fading out of the fiber projects. So that's fully in our control. It doesn't mean fiber falls off the cliff. We'll continue to work on fiber, but at a much lower pace than what we've done so far. And we see other projects, like whether it's 5G or at locations, we'll be able to fit in that problem. Still, at the CAPEX that we guided for, which is in the guidance, we'll still be, you know, And the average capital intensity is not a really low number. So within that, we should be able to fit the remaining CapEx that we want to do. So we are comfortable with that. And, you know, as you said, it's a management decision. When it comes to Classboard, we are the end people, not or people. So we will see we continue to do Buybacks and Classboard. Technically speaking, and I'll give you a long answer, if you take EBITDA today, you compound the 3% per annum. and you keep it that stable, then basically our leverage ratio at that time would be 2.2 to 2.3 times. So well able to absorb the gloss port conservation, which adds about 0.2, and you'd still be at 2.5 times, given the fact that your leverage ratio increases. And then again, at that time, you know, we're done with fiber, so our fiber spend is much lower. We have a balance sheet that consists of the most modern assets, We've got much more cash flexibility, so you could argue we could even sustain a bit of more debt. I mean, the 2.5 times is less holy than it is today, coming in 2008. It doesn't mean we're going to go berserk and go massively above 3, but if our leverage ratio drifts up by 0.1 times at that time, that would be fairly manageable to us. So long answer to say, look, we are confident that our capex will drop. It's in our control, and all the other programs are embedded in that planning. and we've thought about it before. And secondly, the consideration of plus quote and capital return should go hand in hand.

That's excellent. Very clear. Thank you.

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

Thank you. Two questions from my side. The first is just a bit of a follow-up on CapEx. And I know... We're splitting hairs here, but the CMT you guided for around 1.3 billion of capex a year out to 2027, and clearly 24 and 25 are going to be a bit above that. My question is, is that additional 50 million or so of capex driving faster fiber rollout speeds than you'd anticipated, i.e., are you going to get that 80% coverage perhaps slightly quicker if you maintain this run rate? Or is there something else in the CapEx budget which is driving a slight increase there? I'd be very interested to hear the answer. And then the second question, now that you've had Uphone for a few quarters and perhaps a bit more focus on the sub-brand or value segment of the market, could you give us an idea about how you're seeing the mix shift within your own customer base from main brand to sub-brand and perhaps where you think that will go over the medium term just so we can think about the underlying RP development? Thanks very much.

Yeah, on CapEx, the $50 million or so extra, it's effectively wage inflation showing up in CapEx. I mean, that's the honest answer. And wage inflation really takes place mostly in the cyber area, where the cost for work here has gone up. The cyber professionals, especially the ones who can do Homes Connect, are obviously in high demand. So, yeah, the cost per hour of these people has gone up. So, basically, the $50 million is, in all fairness, not going faster. It's going to be slightly more expensive. We have to wait and see, especially in the construction sector, which also means that we're pretty confident this will fall out when you stop doing fiber because it's really in that area. On a side note, when you look at the fiber business case, however, it doesn't change the case. I mean, if you do a fiber IRR... It doesn't really matter how much a home pass costs. It's all about penetration and RPU uplift, so those are still there. So the $50 million, I'd rather not have it. It's kind of unavoidable if you want to continue to do fiber. It will fall away when you stock fiber, but the fiber case itself is less vulnerable to this amount.

Yeah, and Ufone. First of all, we're very happy with the fact that we welcomed Ufone in the KPN family last In the past, KPN decided to eliminate Delfort in hindsight. I'm not sure if that was a good decision, but looking forward, it's a very good decision that we now have you found with us. In the Dutch market, our main competitors, they all run a flagship brand supported by some flanker brands, and that's working quite well. We can strengthen our KPM proposition by introducing new funding in the market. That's what you also currently see in the base and revenue development. So KPM Unlimited is becoming more and more important, especially combined with FIX, especially focusing on households to serve our customers. But that is expensive for a lot of people. So there is a no-fail segment. that is quite significant and that we cover much better with Ufone in a very successful way. There's also all kinds of discussions coming from Dutch politicians on the pricing of internet in the Netherlands. of people who can't make both ends meet can pay for internet. But we position Ufone excellent in that area, and we see it working quite well hand in hand. So good inflow of unlimited, and against that, a good inflow of Ufone on the mobile side, and also fixed good inflow on KPN's fiber, but also Ufone is working quite well. So all in all, that was a great move that we could make last year to consolidate Ufone.

Great. Sorry, just a follow-up. If you take Ufone and Simio together now, how much of your base, perhaps just on the mobile side today, is on sub-brands rather than the main KPN brand, if you're happy to share it?

Well, probably I'll start a bit of guessing now, so that's a bit tricky. I'll get back to you. But, of course, KPN is our main brand in the past. low prices and high prices on the same brand, so still a lot of debt in the base. So the main base, of course, is KPM, but Simio is doing quite well, which is a smaller part, and Ufone as well. So probably one-third, 25% on Simio and Ufone, but then I'm guessing, so I'll check it.

Got it. Thank you.

Thank you. We will take the next question from line RJ Soni from JP. Morgan, the line is open now. Please go on.

Okay. Thanks for taking my questions. The first one is on interest costs, which KHAs lack year over year. I think the CMD guidance for this increased by 35 million. So I just wanted to understand how that changed and what's the trajectory going into 2025 and beyond. The second one is around CapEx. Are you expecting CapEx in 2026 to be pretty similar to what you've got in 2025, given the inflation you mentioned on your Fiverr? And then my last one is just on shareholder remuneration. You mentioned you aim to pay out 100% of pre-cash flow. Given this, if you look at, say, a 2027 consensus, there's definitely headroom there to do more than your guided 1 billion share buybacks over the 24 to 27 period. So I just wanted to understand your views on that, whether you could actually beat that guidance that you gave the CMV on the buybacks. Thank you.

Yeah, on the first thing, on interest costs, indeed, I think we outperformed in 2024 interest costs. Next year, ROIDs will go up. The number to model for is 250 million euros. 215 million is the expected interest going out. So let me take a question a bit broader. So what are the building blocks of our free cash flow? What I expect is our operating free cash flow, EBITDA minus CAPEX, to go up about 7%. And then interest charges will go up to 215. Taxes will be around 180. And then the remainder will be working capital and all the other. And then you get to, say, 910 million free cash flows. I hope I make your modeling life a bit easier, but this is kind of what we expect to happen. On free cash flow 1250 and 26, I think it's a fair assumption to keep it stable at that level. Obviously, we are very much aware that there is an inflationary pressure upward, and it's our job to keep it stable. So our function is to have 1250 really as a ceiling and keep it at that level. And a third one, let me answer first, and George can compliment. I don't exactly know what consensus has on shareholder remuneration 2027, but I can Our job is we return all our free cash flow to shareholders, or effectively all of it, in a mix of dividends and share buybacks. In the CMD last year, we increased the share of dividends to also stickle our confidence and to come to the expectation of some of our shareholders. The mix, I think about, let's see, depends a bit on some of the share prices at that time, depends a bit on how we look at the world. But current thinking is, yeah, I see no reason, given the balance sheet that we have, to stop returning cash to shareholders. No, I agree.

And it's not our intention to disclose the 2027 guidance today. But, of course, the whole idea is that in 2027, free cash flow will improve. And due to that, shareholders will benefit from it. How we work it out, we will design next year. And, of course, we'll first sign off with our boards. But the whole idea is, of course, that in 2027, shareholders will benefit from the approval of our free cash flow. Great. Thanks very much.

We will take the next question from line C, from CP. The line is open now. Please go ahead.

Hello, and thank you very much for taking my questions. And I have two questions. It's all about market competition. Actually, the first one is on the consumer market. I think in your report, you mentioned that you see increased competitive environment. But at the same time, you reported probably one of the best broadband net ads. Just wondering if you can comment on that. A similar question goes to the wholesale. We see that wholesale broadband decline has worsened a bit this quarter. Wondering if you can comment on what you see on the infrastructure competition side. Thank you.

Yeah, so we are operating in a competitive market for years now, and we'll stay like that, I assume. Compared to other countries, by the way, especially on mobile, until now, pretty okay. But we have to deal with competition, and there's also a bit of a traditionally, I should say, Q4 is always a very hot market. I think what we did good is launching Ufone in the broadband area. We booked in a lot of fiber customers. So I think Chris explained quite well how service revenues developed and how we look at Q1 following Q4. On the broadband net, we consider this a very good quarter. It's not that we now count for 10 per quarter, but I must say the combination of Ufone and KPM works quite well.

Yeah, I mean, we still have, as Jozef said, Q4 tends to be competitive in quarter typically around Black Friday. Compared to our main competitor, we continue to have a positive order balance each of the last months and also in these intense fourth quarter months. So I think the team did well. It's kind of careful not to multiply that number by four and add it to the 25 and that adds. But Q4 was a good number. Some of our initiatives really work well. And wholesale, yeah, there's wholesale competition on broadband. That leads to some shrinkage in wholesale. Basically, the effect is that we have copper churn, like we have copper churn in our regular business as well. So we take all the copper churn. And then for our main wholesale customers, we take one third of the inflow. So we used to have all of the inflow because we were the only wholesale broadband wholesale player in town. Now there are multiples, so we take a chunk of the inflow, but we have all of the copper churn. So that means there will be, I guess, some decline in base in wholesale broadband. But then again, we've implemented a price increase this year. Part of the churn actually is churned to Classport, to our own customers. So that's officially external, but it feels like internal. And we serve those customers as well. We pay for the, well, we serve the active layer. So the combination of that, you know, small decline in wholesale broadband license, the broadband competition, and shift to Glassport, but then again, the revenue increase from price increases and from the Glassport active services means that I would think that wholesale broadband service revenue should be around flat. Maybe small decline, small positive, around zero. And then we're left with growth in wholesale mobile. both from national carriers and from sponsored roaming carriers. So the business is changing a bit also, but I think the team is responding well with the new initiatives also in the mobile space.

That's very correct. Thank you.

We will take the next question from line Andrew Lee from Goldman Sachs. The line is open now. Please go on.

Good afternoon. I just had a question on your cost efficiencies. The basic question is, do you think there's more to be done or that can be done in cost efficiencies? I appreciate that you talked about flattening indirect costs in 25 versus 24, and also that you have the Glasgow access headwinds as well as wage indexation. in the context of some of your peers that have announced big cost-cutting exercises in the Nordics, for example, in recent times, and your top line that looks like a high-structural quality company at 3% growth, but the kind of operational gearing is not quite delivering to that level yet. How should we think about your ability to manage costs and your ability to outperform on that front? Or is there even risk to the downside? Thank you.

Well, Andrew, good question. On the operational gearing, obviously, we're getting charged about $30 million more flush port costs every year. So that's about 1% of EBITDA. So if there is operational gearing at KPN, it will only show up after we control the flush port. But it's in there. So that's all on that part. On the cost side, look, I think the challenge we have to cause, you have to absorb the CLA increase. We'll have a CLA increase in 2025 of a little over 3% starting January 1st. And obviously, you have a CLA increase that came in in 24 in two buckets and a chunk came in perhaps for half a year. So there's a CLA with a headwind in cost, which lasts basically for the first six months of 2025. It's a remainder of the 24 CLA increase and the CLA in year one. Again, you need to reduce staff. As I said, we've reduced staff by 200 in the last six months. And we expect to continue to decrease our staff at the same rate during the year. At least that's the plan. We've got some better energy expenses, energy prices coming down. But that was... compared to plan. So is there more to be done? Obviously, yes. But we take the more long-term view. I don't believe in just announcing a massive restructuring and hoping for the best. We do this every year. So I think our plan is to have a continued flat to declining cost base. I would say 25 would be flattish. If we are successful in the measure we intend to take in 25, you could see a further impact in the year 2026. And there are always handbrakes you can pull in 25. But in taking the wide, long-term view, I would expect our call space to gradually improve over time.

Yeah, and adding to that on the longer term, there are two big themes. One is fiber rollout. If we decline the speed and stop the program, that will also mean that we can further simplify the front end and back end of our organization. Thousands of people are working over there. And secondly is that we are working on transformation programs on the new KPM. We're digitalizing the front end and the back end while we speak. And there's also cost savings related to that. So it's not only that we are doing our organic runway business, but on top of that, we launched last year a couple of transformation programs really based on new technologies to simplify the organization. And a bit on the longer term, six, seven quarters from now, I expect cost savings to kick in from that as well.

Thank you.

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

Good afternoon. Thank you also for the opportunity to ask two questions from my side. First of all, it's quite simple. If I put your guidance together, is it fair to assume that there'll be another working capital of 30 to 40 million next year? Because that'll be the third year in a row where you have this positive working capital. So if you could understand a little bit better what's driving this positive working capital. And then second question, you touched already a little bit on this when you flagged Ufone as a way to sort of combat regulatory concerns on pricing on broadband, on the budget broadband. But if you're speaking about the telecom market review from ACM that came out recently, I think their main issue that they flag is that there's a lot of dormant contracts in your portfolio, and they believe the consumers might not have been informed efficiently that their contract expired, that they might have cheaper offers available. If you could comment on that, and if you see risk of potentially some regulatory overhang in more consumers resubscribing to cheaper plans. Thank you.

Yeah, well, on your second question, that we're in the middle of that debate, and we think it's a very good thing ACM is looking at this because it's also good to have all the facts together. We have one of the best internet networks in the world, and we're investing a lot in there. So in quality, we do very good. Also, if you compare our propositions against foreign prices, other European countries, then in the benchmark, we do quite well. and we encourage our own customers to move to better propositions ourselves, and that is what we call Household 3.0, swap to the base instead of the acquisition game. We are a base company, and so we are informing our customers in a proper way to be upgraded to higher speeds and more content. So for us, it's not about Lower tariffs, it's getting more for more. Like I mentioned, we started on the 1st of January. I think on the real low end, people who can't make both ends meet, we started a couple of pilots with municipalities in Utrecht and Amsterdam to support the households that are in trouble on a low-priced system. basic internet kind of proposition because that's the segment we should support. But in general, we think we are super good on the quality and also quality compared to price. And it's especially that last part that I mentioned that we should look at to solve. And for the rest, we're pretty okay with ACM looking at things. A year ago, they concluded that the internet market in the Netherlands is in excellent shape. and no interference needed. So, yeah, I don't expect them to change that opinion, but, of course, they want more facts.

Yeah, on the first question on working capital, love the question, because we make a living out of optimizing working capital. Now, we've done a lot, but really only structure working capital improvements, so we do some vendor financing, some handset financing, but not a whole lot. I mean, there's still the unused capacity I'd like to keep it that way. We spent the last years in improving payment terms, so receivable terms and payment terms, carefully not touching the SME sector, because that's very touchy-feely. We don't want to go there. But if you go into your balance sheet, you always find opportunities. You spend the time on where you find funny payment terms, funny receivable terms that you can optimize. Having said that, this program actually has an added limit. So next year, there will be a small positive working capital contribution, but less than the number you have, less than what we have today. because at some point you want to do sensible things and not go too far. So where do the numbers add up? It's about the quality of earnings. So I think we're planning for an increase of cash earnings in 2025. So technically line delta provisions will be better, specifically in the free cash flow forecast, which has to do with the cash quality of earnings going up. And thirdly, in 2024, we had quite some lease payments, catching up on lease payments, that will not reoccur. So in your model, it's a line item delta provision and others that make up for it with some positive working capital, you know, contributions, but much less than last year.

Understood. That's very clear. Thank you.

Thank you. We will take our final question from Line Olo Thang from UBS. The line is open now. Please go ahead.

Good afternoon. Thank you for taking my two questions. The first question is just about fibre overbuild. Can you talk about the level of fibre overbuild in the Dutch market? From what I can see, the level of fibre overbuild between KPN and the ODF footprint specifically seems to be around about 0.4 million homes. But if both KPN and ODF go ahead with the stated build targets, then the level of overbuild, to me, seems to be about 2 million homes. So do you agree with these numbers? And can you talk about what you're seeing in terms of competitive dynamics in the areas where there is this fibre overbuild? Second question is just really about your post-paid mobile ARPU. I'm conscious that you kind of gave an explanation in terms of some of the moving parts, but if you actually look at your post-paid mobile ARPU, it's been stuck at around about €17. for several quarters. Now, given that you have CPI-linked pricing and also upsell to unlimited bundles, I would have expected some modest growth over time. So, therefore, can you maybe just talk about what the offsetting factors might be in terms of why mobile postpaid ARPA has been stuck at €17 or the puts and takes? Thank you.

Yeah, Apollo, on fibre, so we build a plan at the end to do 80%. Delta is one of the main fiber builders beside us, partly building outside our footprint. One of the reasons we came up to 80% is that we're less building in Delta areas. And Delta is also trying to sell parts of their network to Glassports. So all in all, you could say that Delta is trying to, well, to be successful in their own original footprint, to put it that way. ODF is in the larger cities where we plan to build fiber as well. It's more or less our final fiber wave because our copper network is there in pretty good shape. They build up to – well, they announced two or two and a half. They stopped now selecting new areas. So you mentioned 1.4. Probably they are somewhere – landing on that point. I don't expect them to go further than that and to end up around two. So next, Overbuilt, ODF, unless they change strategies, but I mean, it comes out in the Netherlands that Overbuilt is working from our side, but less from the other side. So if we come into an area where they start with a customer base of 0% and they come into an area where Ziggo is above 40%, KPN 39%. It's very difficult to build up a base above 30, and the penetration is very important for your business case. And we bring in immediately 30, 39% of customers. So we are very strong there. So I think the message is clear in the Dutch market. Delta stopped, ODF stopped, selecting new areas. And that's where we are. Let's see how everything will end up. So there is overbills, but until now, one million on one side, a bit more than a million on the other side. And we're trying to keep it that way. Yeah.

On the mobile RPU, I think it's committed and uncommitted. So basically, when you look at our RPU, the committed RPU is behaving as planned. So all the price increases land. And there's always a bit of leakage over time due to Renewal Delta front book and back book. So you increase your price and it floats a bit during the year. Obviously, we're battling that. We've got now over 50% of our mobile clients in contract. 30% of our base is unlimited. We're giving away additional security solutions to our mobile clients to limit that Renewal Delta. But the real development is on the non-committed part, the lower value, the lower interest part, which is the outside bundle solution. calling is gradually reducing. I think it's also a function our customers are moving to to a limit to a certain extent. So basically to swap between uncommitted and committed that keeps the total RPU stable. And it might be a small mix effect between KPM and SIMEO. It is obviously a number XU phone, but it might be a small mix effect between KPM and SIMEO. But really it's the committed RPU is behaving as we planned and then uncommitted outside abundant calling is going down gradually. And the final question that you didn't ask, but I still want to answer, which is around timing of cash flows and results. I want to make sure we're all on that page. If you guys look, service revenue growth in 2025 will be 3%. Consumer will bounce back in the first quarter 1.5%. B2B will be substantially north of 3%. I'd expect the one-offs in SME to revert. SME will be north of 5%, 5% to 6%. Also recovering so fast. Pager of revenue growth in the year will be around 3%. EBITDA in the first quarter, around 2% to 2.5%, but then substantially higher than that in the second quarter. Free cash flow will be back-end loaded because the rates and taxes will be paid in the first half of the year. Remember, in 2024, we paid interest and taxes more in H2. This year, we'll pay interest and taxes more in H1. So in the year-on-year comps, you'll see free cash flow be muted in the first half and then come back in the second half. But most importantly, and I was very glad with the question you asked, these are all quarterly wobbles in a bigger plan. The master plan is 3% GAGR over time and a cash flow uplift in 27. And that's, I think, the most important anchor they're working against. So I wanted to give you some clarity on how the quarterly evaluations or numbers will evolve. But that's, again, all in the bigger picture of delivering for the fifth year in a row and able to deliver for the sixth year in a row as well towards the 27 cash flow uplift. Yes. Can't make it any better than this, guys.

Okay. Thanks, Chris. And thanks, everyone, for your questions. That concludes the call for today. If you have any further questions, please reach out to the IR team. Goodbye.