Koninklijke Kpn Nv

Good afternoon ladies and gentlemen and welcome to the Kpn Nv

Please do note that this event is being recorded. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session toward the end of today's pre-paid remarks. If you would like to ask a question, you may do so by pressing pound key 5 on your telephone keypad. I will now turn the call over to your host for today, Matthijs van Lijnhorst, Head of Investor Relations. Please, go ahead.

Yeah, thank you operator. Good afternoon ladies and gentlemen and thank you for joining us for Kpn's second quarter and H1 2026 results webcast. With me today are our CEO Joost Vaarwerk and our CFO Kies Vitae. Before we begin, please note the safe harbour statements on page two. Today's remarks may include forward-looking statements, including Kpn's expectations regarding its outlook and ambition, as also set out in the press release published this morning. All such statements are subject to the same hardware. With that, let me hand over to our CEO, Joost Farwe.

Yes, thank you, Matthijs, and welcome, everyone. Let me start with the highlights of last quarter. Group service revenues increased by 0.8% and that's driven by consumer, SME and wholesale. In the mix, consumer showed an improving growth trend across both fixed and model. In business, SME continued to perform strongly. Overall growth was impacted by a decline in low margin tailored solutions division and LCE. And wholesale continued to grow with international sponsored roaming as the key driver. Our EBITDA increased by more than 3% on a comparable basis, supported by revenue growth and lower costs. Free cash flow rebounded in the second quarter, as planned, and is up to 7% year-to-date. And together with Glossport, our joint venture, we remain the clear leader in the Dutch fiber market. And, of course, we are disappointed by ACM's decision prohibiting the proposed Glossport Delta fiber transaction. but our commitments to discipline fiber expansion remains unchanged and fully aligned within our financial framework. We partnered with Schwarz Digit to bring a European superclose to the Dutch markets to serve our larger customers and the government. And finally, we expect group service revenue to grow and to accelerate to approximately 2 to 2.5% in the second half of the year. Transcentralized Solutions and LCE led us to moderate our full year 2026 service revenue outlook. But of course the exit run rate is the most important indicator for the future when it comes to service revenues. Importantly, we remain confident in delivering a full year EBITDA free cash flow guidance while preserving our midterm ambitions, including shareholder distributions. Chris will take you through the financials later. First, let me briefly revisit our strategy and our operational performance. Last year in November, we confirmed we are well on track to deliver on our Connect, Activate, and Grow strategy, which is built on three pillars. One, we continue to invest in our leading networks. Two, we continue to grow and protect the customer base. And three, we further modernize and simplify our operating model. And together, these priorities support our ambition to grow service revenues in EBITDA by approximately 3% and free cash flow by approximately 7% on average over the full strategic period. Let's review our operational performance starting with fiber. We continue to lead the Dutch fiber market. As our fiber rollout matures, we are focused on turning coverage into active customers. And this is translating into continued growth in fiber broadband net ads, which now accounts for 72% of the retail broadband base. Consumer service revenue grew 1.9%, the strongest performance in five quarters, with growth improving across both fixed and mobile. Higher year-on-year customer satisfaction reflects what we differentiate with Kpn. Secure, high-quality networks, excellent service, and a seamless digital experience. Our fixed mobile convergence base continued to grow and now represents 61% of the broadband base and roughly two-thirds of the mobile base, supporting customer loyalty and value growth. Let's take a deeper look into our second quarter KPIs. We delivered another quarter of broadband-based growth, supported by a healthy inflow of new fiber customers, despite the challenging competitive environment. And combined with the growing RPU, our fixed service revenues continued to grow. In mobile, we added 18,000 post-based subscribers. And together with RPU growth and value-added services, this drove mobile service revenue growth to 3.2%. Now let's go to the B2B segments. Business service revenues declined by 1.1% year-on-year. As continued, strong SME growth was more offset by the decline in Taylor Solutions and LCE. At the same time, commercial momentum remained solid across both fixed and mobile. This quarter, for instance, we onboarded all seven university hospitals in the Netherlands. Customer satisfaction improved significantly year-on-year, reflecting the quality of our networks and services and reinforcing Kpn's position as a trusted and secure partner. And building on this strength, we recently partnered with Stekit to bring a European sovereign cloud solution to the Dutch market, responding to our customers' growing demand for secure and sovereign digital services. Within business, growth continues to be driven by high-margin SME with a growth of almost 7%, with strong demand across broadband, mobile, and cloud and workspace. In LCE, growth in mobile, security, and CPaaS was more than offset by declines in legacy services and low-margin cloud and workspace. We expect LCE to grow next year and to remain under pressure for the remainder of this year. Data solution revenues declines reflecting a tough period year-on-year comparison, and our continued focus on the value and the contract quality. And we expect tailored solutions to flip back to growth in the second half of the year, gradual improvements in the second half, that is. And despite lower reported service revenues, the contribution margin increased year-on-year in B2B. Finally, wholesale. While the broadband service revenues remained under pressure from the decline in copper, mobile performed strongly, supported by international roaming. Other service revenues also increased, that's driven by digital roaming. And now, before we move to the financials, as you all know, Chris will be leaving us on the 1st of November. And while we still have two or three to work together, I would like to thank him for his dedication and significant contributions to Kpn. And in the meantime, we are ensuring a smooth transition and we remain fully focused on executing our strategy. And with that, I'll hand over to Chris.

Thank you, Joost. Let me walk you through our financial performance. And first, summarize some key figures for the second quarter in the first half of the year. To start, adjusted revenues decreased by 0.5% year-to-year in the second quarter, as higher group service revenues were more than offset by the decline in non-service revenues and others. which reflected the absence of prior year IP sales and IPR settlement benefits, actually lead to one of the facts, adjusted revenues increased by 2.5% year on year. Second, our adjusted EBITDA after leases decreased by 0.3% compared to last year, or an increase of 3.4% on a comparable basis, so again excluding IP sales and IPR benefits. This underlying growth was driven by higher revenues and lower costs. The reported EBITDA margin improved by 8 basis points to 45.6% of total adjusted revenues. And, as previously highlighted, our full-year EBITDA guidance assumes a U-shaped year-on-year growth pattern over the year, with continued lower growth year-on-year in Q3 and a planned pickup in Q4. Third, our net profit decreased by 1% year-on-year, driven by lower operating profit, partly offset by the absence of one-off costs related to hedge accounting recorded last year. And finally, as anticipated, our free cash flow rebounded in the second quarter, an increase of about 7% to €20 million compared to the first time of last year, mainly driven by EBITDA growth and changes in working capital. I'll provide more detail on the underlying test developments later in this presentation. In the second quarter, group service revenues grew by 0.8% year-on-year, driven by consumer, SME and wholesale. Exceeding the effect of Thales Solutions in the quarter, the underlying group service revenue growth was 2.2% year-on-year. And as previously guided, we expect group service revenue growth to improve in the second half of the year. Within the mix, consumer service revenues increased by 1.9% over the year, showing improved growth in both mobile and fixed. Looking ahead, mobile is expected to remain our primary growth driver. Business service revenues declined by 1.1% year-on-year, Kpn Nv and uptake the visitor rowing, while corporate declines continued to weigh on drawbacks. Our adjusted EBDA grew by 3.4% year-on-year on a comparable basis, ahead of our mid-term Gaker ambition, whilst the EBDA margin improved by 40 business points to 45.6%. Growth was supported by revenue growth and continued cost display. Higher direct costs mainly reflected increased handset and hardware sales, as well as higher third-party access costs. We also continue to make solid progress on efficiency, with indirect costs declining by €15 million year-on-year, supported by a lower workforce, lower energy costs and ongoing operational improvements. Compared to last year, our workforce was reduced by more than 330 FTEs. Year-to-date, we reduced indirect OPEX by €18 million. While the current run rate includes some phasing effects, Underlying progress remains in line with plan and we reiterate our ambition to deliver 15 to 20 million euros of structural net indirect OPEC savings in 2026 and a full 100 million euros of net savings in 2030 compared to 2025. Looking ahead, we expect a temporary 4 to 5 million euro headwind in the third quarter related to a one-off CLA payment but remain confident in delivering a full year EBITDA guidance. In the first half of the year, our operational free cash flow increased by 3.1% year-on-year, or 6.7% on a like-for-like basis, so excluding the IP sales and IPR benefits. The strong cash conversion reflected the continued strength of our underlying business and was primarily driven by EBITDA growth. Now let's look at free cash flow. Free cash flow increased 7% to €329 in the first half, supported by EBITDA growth and favorable working capital developments. This was partially offset by higher cash taxes, interest payments and restructuring costs. Interest payments were temporarily higher in the first half and are expected to normalize in the second half of the year, while the movement in provisions mainly reflects timing effects. Overall, our cash margin remains broadly stable at about 11% of invested revenues. Looking ahead, we expect a small free cash flow rate between 3 from EBITDA and working capital phasing relative to last year. And for the full year, free cash flow is expected to be in our way towards Q4, supported by the timing of EBITDA generation and working capital effects. We therefore remain fully confident in delivering on our full-year 2026 free cash flow outlook. And finally, we entered the first half with a cash position of €365 million, absorbing the final DIMP and savings over 2055 and the completion of the $206,000 share-buy-buy program. Let's focus now on return on capital. Kpn remains focused on creating long-term value, which is evidenced by a strong return on capital employed. ROSI was 14.4%, remaining at a strong level. The 20 basis points year-on-year decline reflects higher capital employed from Kpn Nv investments and higher spend on restructurings. Looking ahead, we scope to further enhance our ROSI, recent F27, financial ambition of 15%, consistent with continuous creation of shareholder and stakeholder value. We continue to run a strong balance sheet. At the end of June, our left ratio was 2.5 times. Leverage increased slightly during the quarter, reflecting the usual seasonal impact of dividend payments and share buybacks, partially offset by free cash for generation. Looking ahead, we expect leverage to end the year at or slightly below a self-imposed ceiling of 2.5 times, supported by stronger free cash generation in the second half. Our interest-coverage ratio remains strong at 9.1 times. The average cost of debt declines slightly following the partial unwind of interest rate hedges and slightly increasing our exposure to short-term floating rates. Even so, floating rate exposure remains limited at 80%. Finally, with a liquidity of €1.4 billion, we remain well positioned to cover debt securities through the end of 2028. We expect group service revenue growth to accelerate with 2-2.5% in the second half of the year. Combined with the 0.7 MFV in the first half, which reflects the decline in our TheraSolutions business, this brings our full-expected full-year 26 group service revenue growth to approximately 1.5% year-on-year. Importantly, our full-year EBITDA free cash flow guidance remains unchanged. This is supported by a favorable mix, with consumer and SME performing somewhat better than initially expected, alongside continued cost discipline. We therefore remain confident in delivering our full-year financial outlook. Our mid-term ambitions remain unchanged, including cumulative sharehold distributions. Let me conclude with a few key takeaways. We delivered a solid first half, with improving consumer trends and continuing momentum in SME, driving healthy service revenues and underlying EBITDA growth. In fact, for the second quarter in a row, underlying EBITDA growth came in above the 3% hurdle. We expect group share of revenue growth to accelerate to 2-2.5% in the second half of the year, up from 0.7% in H1. We remain the key leader in Dutch Fiber, with almost three quarters of our retail broadband based now on Fiber. And despite the competitive market, we continue to see healthy consumer inflow across both consumer and business, supported by strong customer satisfaction levels. Consumption remains strong, and free cash flow is progressing according to plan. Kpn Nv

Thank you Chris. Operator, please could you open the floor for questions. Analyst, please keep of limits your questions to two please.

Ladies and gentlemen, we will start the question and answer session right now. If you like to ask a question, you may do so by pressing pound key 5 on your telephone. Our first question of the day is from Mr. Joshua Mills from BNP Paribas. Please, go ahead.

hi guys and thank you for taking the questions so one for me on the b2b side and then a second one on the on the consumer side so on the b2b side it looks like this is the reason why you've downgraded the service revenue guidance for the year i just want to understand within that was the bigger negative surprise on tailored solutions or lce because i think tailored solutions you'd always said would face a tough comp and this is more about Kpn Nv Kpn Nv And then, secondly, on the consumer side, I think in the past we've given some quite granular detail on where you expect service revenues to develop in Q3, Q4. Could you give us reminders of where you expect to see consumer service revenues land, whether it accelerates, and then whether there's any other price increases to come through that will help with that? Thank you.

Thank you, Joshua, for your questions. And I will start, please, with Paul. Yeah, you're right. The downgrading of total service revenue this year is related to the B2B effects. Because in consumer, we consider our growth pretty strong. In the competitive environment where we are, SMIC did very good wholesales in the plus. So it's all about Taylor Solutions and LCE. We guided for 2 to 2.5% survey revenue over the full year, but already last quarter we saw that we're moving more to 2 than to 2.5 when it comes to Taylor Solutions and LCE. And the effect of Taylor Solutions is... slightly more negative than we planned for the beginning of the year. It's low margin. We're cleaning up there, so I'm not that worried about the margin effect, but the impact on the service revenue is a bit stronger than we expected, and also LCE. We tried to get around in the coming six months. We expect that to happen only next year, and so in all honesty, when it moves below two, we think it's prudent to adjust our service revenue guidance. Having said that, In total, we will move up above 2 in this coming quarter and the coming second half of the year. And I think that's the most important message we have on service level. We will end the year on the level between 2 and 2.5 and we will exit the year on that level.

Yeah, just to add on that on the B2B side, but, you know, we reported declining B2B growth. Exit resolution would be around, you know, 2.5 to 3% in each quarter. And I think in the second half of the year, you'd expect Total B2B growth in the segment also being north of 3% in each of the coming quarters, driven mostly by SME. I think on the flip side where LCE is 0.7, below our planned bid software, SME is doing better. So you would expect SME to grow around 7% in the second half of the year. That continues to do better than planned. But the total B2B will be growing at 3% plus in the second half of the year. Kpn Nv mobile to accelerate because you know our basis of significantly about 100k mobile RPU doing better we have indexed mobile service revenues we have additional price increase on security solutions that will add to our view we see i think that successfully managed renewal delta from the back look i think we're getting better at that as well And when you look at the premium side of the market, we have really increased our frontal pricing. Odido did the same. So I would say that the upper end, the premium part of the mobile market is in quite a decent place. And in the no-frills segment, in the non-committed part, we've seen stabilization and increasing of roaming revenue. So I'd expect consumer revenues to be around 2%. With mobile up, it could be about 4% in the second half. On fixed, I think the underlying fixed growth is close to 1%. It will moderate a bit in Q3. It has to do with the comps last year. For example, last year we increased our pricing of our second setup box. That's not happening this year. So you see a little bit more volatility in the fixed survey revenues in the second half of the year. I think underlying 1%, 1.5% is feasible, certainly into next year. but to be very precise in the second half you see mobile north of four fixed below one for a total server revenue growth in consumer around around two percent and then again beats being uh more so free thanks that's one very quick follow-up on the lce softness is there anything structural here is that that you're seeing more competition from ai players on the cloud side or something like that or is it just a normal course of business Well, I think what we're seeing is on the other cloud and workspace is going down a bit at lower margin business. I think mobile is doing actually quite well in NLCE. There's some price pressure, but good volume wins. I think the pressure is more on your corporate VPN, corporate connectivity, which is a bit of broadband and a bit of voice where we see somewhat more competition. And then finally, it's an IoT as well. IoT is a business where you have strong volume growth. and then the occasional repricing right so you grow volumes and then to your last customer we price you know the price particular uh so we have a saw tooth we have a new pattern and we're now filling this year that downward part of the salt tooth and then we'll grow again so I don't see any AI companies coming in no uh but you want to answer that well we have more or less the same strategy as is me but we started on screen because that's

generated far more cash than LG but it's a decline in legacy like Chris said and it's making the new business grow move your customers to future-proof business takes more time than we expected it's also more complicated than more mass market steering on SME but in principle we have the same strategy here move our customers to future-proof portfolio and then it will grow it takes some time but I'm pretty convinced we will end up there thank you

The next question is from AJ Sonny from JP Morgan. Please, go ahead.

Hi guys, thanks for taking the question. My first one is around the KPIs we saw on the NetApp side. I think some were expecting a bit of a tailwind from the Adidas security breach which didn't really materialize. Is this due to competition stepping up within Q2, which maybe offset this tailwind? And the second one is just looking into next year. You mentioned H2 service revenue around 2% to 2.5%. within this there still feels a little bit as though there are headwinds from LCE and wholesale broadband so looking ahead into 2027 could we actually see service revenue growing higher than this or what other headwinds or tailwinds do you see for next year thank you

Yeah, so on the broadband net, that's your first question. I think Q2 was taking into account that we live in a competitive broadband market, still a rough quarter for us. So, first of all, we had this Odido breach that provided the temporary uplift. But on the other hand, Vodafone Ziggo is far more competitive. They drew a line in the sand. They don't want to lose customers. the competitive intensity is moderated also because Odido is trying to fight back from that breach effect so recent pricing moves by Kpn and Odido early July were there Odido implemented some mobile front book price increases that leads to a more rational market we see compared to Q2 Q3 starting on a much lower level less like I call it rough So, BoxQ2 was, according to the last five quarters, the most competitive one. It started with our competitors, one impacted by a negative incident and the other really trying to fight back and spending a lot of costs on that to make the decline less or turn it around. At the end, we follow our own strategy. We believe in investing in our base and not hunting after all the price seekers. and until now that works quite well. So taking everything into account, I'm not that... I'm not pretty satisfied with the plus four we report to this quarter. It's not as before, but taking into account everything that happened, I'm pretty okay with that.

Yeah, and to your question, AJ, on the silver revenue growth, I think we've got fair visibility on the second half of the year. So 2% to 2.5% we feel pretty comfortable to underwrite that. Obviously, it's June, so it's early to say what service revenue growth in 2027 will be. I would say 2% to 2.5% is probably the right ballpark. If I have to look into my crystal ball or read Yoshi's Tea Leaves, I would say, if anything, consumer should be around 2% to slightly higher. SME is growing at 7%. I don't count on that continue, although SME has been outperforming expectations for a few years now. But I wouldn't count on SME growing by 7% again. So some moderation is expected, although it will probably be the highest growing business that we have. But I wouldn't count on that staying at 7%. LCE and third solutions normalizing and improving a bit into next year. and then wholesale will be similar to this year. I think it depends a bit on how we end the year. So it's hard to say the full guidance on service revenue growth for next year. That was already in June. But if I look at the moving parts and what we see in the second half of the year, I would say bank on 2% to 2.5%, same range, with slightly different compositions. Great. Thank you.

The next question is from Mr. Poloteng from UBS.

You can go ahead. Thanks. Firstly, congrats to Chris on the new role. Secondly, I've got two questions. The first one is just about EBITDA growth. So you briefly touched on it in your prepared remarks, but can you talk in a bit more detail through the phasing of EBITDA growth in terms of Q3, Q4 and quantify some of the puts and takes? So looking at Q3, from memory, you've got one-off gains from last year dropping out, plus you called out the New Age Greenland impact. So therefore, to clarify, should we expect Q3 EBITDA growth to be another quarter in terms of, well, actually, should Q3 EBITDA growth actually be declining is the question? And then will you get any further IP sale benefits this year? Second question is, can you comment on the level of fiber overbuild in the Dutch market currently? Also, can you confirm if you still intend to build to 80% to 85% fiber coverage longer term, or would you consider wholesaling from the likes of Delta Fiber and ODF? I'm just asking the question as Kpn covers roughly 70% of the Netherlands. and ODF and Delta Fiber cover the remainder of the market. Therefore, if all your fiber bill from here is overbilled, will this not increase competition in the Dutch broadband market going forward? Thanks.

Yeah, Paul, let me take the first question. So in Q3 last year, in the third quarter, we had 16, 160 million of earnings from the IPR supplements. Obviously, they will not come back this year. So I would expect Headline EBDA in Q3 to show a small decline versus last year simply due to this effect. Underlying small growth, a bit less than this quarter. If I look at the distribution of EBITDA of the year, it's more tilted towards Q4. So four-year guidance firmly intact. You can now figure out what Q4 will be like, but it's a little bit more back-end loaded than in Q3. Kpn Nv Four years EBITDA confirmed reiterated a little bit more tilt towards Q4 and Q3 and on the headline basis the small decline.

Yeah, Paul, on the fiber rollout, we guided for a fiber footprint up to 85% in the future. That is including small M&A. Now that deal between us or Glassport and Delta is blocked by negative position by ACM. Of course, we disagree with that outcome. It took them two years to get on paper why they bought it. We can't follow the line of reasoning, so we've decided to appeal ACM's decision, but that will take time. If we can't buy anything, we can't do M&A, small M&A, then we will move up to 80% probably. Let's see where we end up after we fight that ACM decision. It's not all overbuilt by the way. There's still a region where we're building that where we really are the only ones. It's also related to new builds. We expect 70 to 80,000 new build houses in the Netherlands every year. So we will connect these Our strategy is not today that we serve our customers via a whole by deals with third-party fiber networks. But of course, one of the strategic questions for us is, okay, how do we serve our customers outside the fiber footprint? We do that today with a mix of copper, bonded copper, fixed wireless access, bonded with copper, So there are several solutions we use today. And how we move further to 2030 is what we're working out now. It's a relevant question. Besides the whole ACM decision, it's important anyhow. But that's something for us to first decide on and then to inform the market. We're not changing our fiber rollout plan. It's all within the financial framework we guided for, and we believe that some of overbuilt areas, overbuilt is not a good business case. So we have to decide how to serve our customers there. But that's for the future. Thank you.

The next question is from David Wright from Bank of America. Please, go ahead.

Yes, thanks, guys. And you've given a great deal of granularity, far more than most would provide, I think, on the next couple of quarters. But I guess it was just a bit more on the 27 service revenue CAGR at the midterm. You've obviously brought down the 26. I think it's probably fair to say that some of the LCEs may be just a little bit less Kpn Nv

Well, let me start, and then Chris can give you 27 overall. Yeah. no longer is the rise in the we're working on a plan to get on 27 so we have a pretty good view but this goal is about you too and not about 2027 but uh we um we're not we're not skipping our guidance uh for uh the full strategic period that's the first thing so if we have anything to change there for the full period and uh we'll be formally uh communicated to the market like we said we're uplifting uh service revenues in the second half of the year have uh if it's 2 it's more difficult to get it up to 3 if it's 2.6 then we're in a better movement but I'm pretty convinced that we are well we're increasing prices every year in consumer in both on broadband and mobile in between we increase prices we do it in SME we're good in SME by approaching the market ourselves and via partners mobile is great we're We're still believing in a plan for the full strategic period. It's going to be 2.45, 2.6, that I don't know yet. We're pretty confident underwriting the 2.5% growth forecast for the second half of the year.

The exact number for service revenue growth in 2017 is still a couple of months out. It depends a bit how you end the year, but at this point I see no reason to deviate from that same range. But in the end, EBITDA growth in the end is also more important than service revenue growth, right? So I'm pretty okay with the cost performance this year. That gives a cushion for EBITDA growth for next year.

And I'm just finding on this, When Chris and I started together, we made an overview for the company where we make our money, and it's mass market. So it's consumer, SME, and wholesale. That's where Chris, 85% of our cash comes from. Of course, we try to fix the paper solutions and the LCE parts, but that's why we started in fixing consumer, SME, and we have a challenge also, but it's still growing. And so we're really also focused on the value steering of things. So we really prioritize SME above LCE, for instance. I'm convinced we can fix it, but it takes more time. It's a lower margin business.

And just very quickly, my second, the fiber deal that obviously fell through, it did seem a little bit of a surprise and perhaps not going well. so consistently with the direction of wider EU regulation. Has there been any sort of more commentary that indicates what the pushback was to that particular deal or is this something, I mean I'm assuming that you can appeal in the court, but

Yeah, well, I mean, listen, for us it's not a surprise if it takes a supervisor and a competitive regulator two years to work on a decision that you know is going to be a negative one, because, yeah, So we have good conversations with ACM. They're probably listening in as well. So we're not going to disclose what we discussed with ACM about this, but we will appeal. That's one thing. And second, it's a bit, they're flipping around the regulatory model. And according to me, yeah, I... A long time ago I was a lawyer, but the legal, the way this has been built up is a bit strange for us. You refer to European movements, that's completely opposite, so the Netherlands is an exception there, but we think it's also a very strange decision, and I'm convinced that we defied it. 70% of these cases we win, it's not an appeal we do on ACM, but it's in the the court of Rotterdam and let's see but so yes it's strange and on the other hand it's also naive to anticipate on further consolidation in the coming 12 months because of this decision so that's why we have to take it into account but let's see we'll have very good thank you thank you James the next question is from Miss Molly Wilcom from Goldman Sachs please go ahead

Hi, thank you for taking my questions. Firstly, just on cost savings, I know we've discussed potential phasing for the rest of this year, but you've maintained your kind of 15 to 20 mil cost savings guide for the year. You've managed 15 so far this year. I understand there's a bit of a drag in Q3, but is there any potential to outperform on full-year cost savings? And then secondly, just to come back on LTE again, you said you're expecting there to be some sort of improvement into 2027. I understand it's early days, but I'm still not really understanding what's giving you the confidence that you're going to see an inflection there. And secondly, I think you've spoken to, as part of this question, sorry, I think you've spoken to the tough operating environment in LTE. Is there one particular kind of main aggressor that you're seeing? Just a little bit more colour on that would be great. Thank you.

Well, like we said, I mean, it's mid-year 26. For me, it's a bit unusual to talk about next year. Of course, I appreciate your question about LCE because it's very fragmented market. We are the main player there. We have the largest position. We're competing against international players, ICT players, smaller players, but it's mainly... us against foreign companies like whatever Beaky International, ICT providers, etc. So it's pretty fragmented. We try to move away from being a workspace provider. We're the largest workspace provider, but according to us, it doesn't make sense because there's not enough margins on there. We're good at reselling workspace nowadays, so we're shifting that So part of the impact on the revenue is also by decision of us. And we're really focused on the connectivity part. So the traditional connectivity part on the fixed side, on fiber, but also on the CPaaS new kind of business when it comes to communications. So we're launching new portfolio there. And it takes longer. To build it, to migrate customers, to sell it, to sign off contracts. So it's a tough environment and not that easy to steer as a mass market. But like I said, I think we will fix it one day or the other, but it's not going to happen in the coming months.

And Molly, on your cost question, obviously, indeed, the reported cost reduction was like 15 to 16 million. So I had more than 50% of the 15 to 20 million that we guided for. There's a bit of phasing in the year in that. And then in Q3, you have this CLA increase. So I think in the Q3 set, the third quarter will probably report a small increase in costs, but a declining cost in that very quarter. But for the full year, we'll make the guidance efficient to 20 million. I think we could end at the upper end of that range. I feel pretty okay with that. And the most important thing is to be on track with the 100 million net savings by the end of this decade. So that's what we're working against. But I would say the results so far We're still on track to deliver that, and by this year, the 50 to 20 million is reasonably secured. But there will be a bit of phasing again. 2.3, as I said, costs will be a bit higher. 2.4, they'll be lower again. That's just going through the motions of the year. But with that, we feel confident with the rate we've given and are on track towards 100 million savings.

Makes sense. Thank you very much.

The next question is from David Bachmann from ING. Please, go ahead.

Yes, hello. Good afternoon, everyone. Thanks for taking my question. And first of all, Chris, thanks and wishing you all the best. On my two questions, now the first one on the regulation, so looking at the regulatory and legal reasoning of the ACM, and I understand clearly you disagree, but are you looking at the regulatory truth that is expiring, I think, in 2030? So do you see any read-across, basically, on how the ACM has been looking at this case at the Dutch market, and then reason for you to appeal right now? And then second question on the next incoming, let's say, mobile spectrum auction. Yeah, if you could give us your rough expectation. I know it is early, of course.

So on regulation, I mean, this is more a competitive regulation topic than the telco regulation part. So on the last part, we are no longer regulated. that was a debt and we also fought in court and by the way we succeeded there in two steps so Kpn a couple of years ago suddenly was no longer regulated on the telco regulatory parts and then we came out with that voluntary wholesale proposal for the market. It's up to 2030, and that is supervised by ACM. But that's the model. So, of course, also this ACM, but ACM is about two things. One, the left part is telecom regulation part, and the other part is more the competitive environment. this one is in competition so not about specific telco regulation and they just say listen on the wholesale side you have more or less 75 percent of the country in your hands you are dominant as they call it so the more you buy the more dominant you become and that is that's not good for the market that is more or less in a very short what they say in Moving up to 2030, we will, of course, perhaps change the model for a longer period of time. And we will work on that and discuss that with the telco part of FACM moving to 2030. But so far, no changes there. And on mobile spectrum, we are discussing that with the Ministry of Economic Affairs. That's another part of our government. I think it will happen in 2028 or 2029, somewhere there. It's a multi-band auction zone, an important one. And there we aim for the same strategy for our government as well as last auctions, that they encourage us to invest in our infrastructure and in our mobile networks. so that they don't make us pay too much for the license, but they encourage us to invest in certain areas and in the quality of the networks. Outcome of that is that we have the two best mobile networks in the world in the Netherlands, so it's a pretty convincing KPI for our government as well. But we're in the middle of that and it's up to us to make it happen and to come to a clear model in the Netherlands together with our government and the other telcos.

Thank you very much.

Our next question is from Karel Kiroya from Dataman. Please, go ahead.

Thank you. I've got two questions. So firstly, what do you think it would take for the fixed arbor growth to improve more materially? There is a competitive backdrop you talked about, but you've also now got an impressive 72% of the retail base in fiber. So isn't there something you can do to drive that fixed broadband up and growth higher, a bit like the security feature in mobile? Or does it ultimately need the market to improve overall? And then secondly, can you give us a view on how we should think about the wholesale mobile revenues in the second half and beyond and how the sponsored roaming elements will support versus H1? Thank you.

Well, I mean, the competitiveness is one thing that the more competitive the market, the more we have to fight for our base and the more back book, front book movements will happen. And so investing in our base is one thing, adding more in the portfolio for households. It's also an important part of our strategy, especially on the security side, like you mentioned. But cooling down the market is an important one for us as well. It's not healthy if we all hunt for the same customers. There's a lot of rotation in the market and all the more or less customer bases are the same as previous quarter. So I think cooling down the market, following our own strategy, adding more services on the portfolio, in-home security, etc., That will work. But to get it above 3, that's hard work. So I'm not that... I'm fairly okay with the last quarter. I think above 1 for now is good, and we try to lift this further up. But it also relates, as you said, to the market developments.

Yeah, I guess to me the most important is market developments and then we've been able to limit migrations from front book to back book to a relatively low amount, but still the biggest threat to our view is that delta between acquisition pricing and back book pricing and customer pricing advances. So if that thing normalizes, that would actually help our view Kpn Nv And I think a business that is now used to and able to connect and onboard customers pretty quickly. So that gives you a bit of competitive advantage in this space. Will this continue to grow at this pace? I mean, at some point it will flatten down a bit. I think there's a bit of margin pressure coming on the goal over time. So I'd expect second half of the year to be good. Possibly to flatten out a bit over time. It's not a level of growth you will sustain in the long run, but it's nice margin business that will help you grow. Generally speaking, I do see more opportunities from broader mobile in wholesale, but more on the national level in the medium to long term. So in summary, it's we've got a good business in sponsored roaming continue to grow in the second half of the year at some point this level of growth will be fading as other people join the party but we do have a number of like clear on-hand opportunities also in domestic national mobile partnerships that will support mobile and also in the medium firm so that will they will carry the baton from you know a few years down the road

Thank you both. The next question is from Mr. Paul Sidney from . Please, go ahead.

That's great. Thank you very much. Good afternoon to everyone. Just a few questions for me, please. First one, a bit of a follow-on. I mean, if the industry moves to a value over volume approach, particularly in consumer, pricing is more important than ever. We've seen Deutsche Tell putting up back book broadband prices earlier this year. Swisscom's done a similar move We've seen AT&C putting up prices from their old legacy products. I just wondered, is there potential and desire for Kpn to be a bit bolder on price increases, particularly in the back book, given that I think we all believe that the service that you're giving is being priced too cheaply? And if customers want to churn, then so be it, because those will be low-end customers. And then just secondly, apologies, Chris, I ask you this every quarter, but in terms of capital allocations, you're committed to returning free cash flow to shareholders but are there any initiatives bubbling up under the surface within the company that may be not obvious to us that Kpn can invest in to create value given all the optionality you have given there's a very strong cash flow generation we expect over the next few years

Well, the whole point you touched on value steering, of course, is on our radar stream as well. I mean, compared to other years, prior years, I mean, we did more than we used to. Of course, we used CPI increase more or less every year on full broadband and mobile-based consumer, on the SME base, and in part of the contracts in LC as well. And in between, we did some price increases in broadband, in mobile, related to improving the proposition on security, etc. Of course, we don't want to scare off our customers. So, yes, when we can offer our customers more quality on Kpn, there's good reason to increase prices. And we can explain it. If we can explain it, then it's good. Let's put it that way. So that's on our mind. Yeah, do we scare off customers? Well, we have no-frills brands as well. So we follow a balanced approach, high quality, higher priced Kpn. Works quite well. Mobile site, unlimited, gets the higher price, but also supported by security packages, etc. and then there is on the Ufone site or on the Simul site you can buy a cheaper proposition with less guarantees and lower speeds so in that balance we think we can play this strategy excellent but well you refer to other telcos we are looking at that as well we are doing more or less the same in the Netherlands but we have to play it it's a delicate balance we try to find here let's put it that way

Kpn Nv Nv Nv Nv Nv Nv Nv Kpn Nv Nv Nv Nv Nv As you say, we've got a balance sheet that has a 2.5 times net EBITDA leverage. And because of EBITDA growth, it gradually goes down. If you wouldn't do anything, this thing gradually moves by 0.1, 0.15 terms every year. So that means that if additional opportunities would come up, you've got a balance sheet that gives you room to invest. Obviously, you need to save a bit of money for... Spectrum Auctions need to save a bit of money for the future. But we think that the ability of Kpn to invest into new opportunities, if they come up, is still there, still there, given the fact that we still invest, have this balance sheet, we invest a billion, and then we can still pay out all the schedule. So the model still stands as far as we're concerned.

That's great. Thank you very much. And Chris, all the best for the future.

Thank you. We'll now go ahead with today's final question, coming from Karl Murdoch from Citi. You can now go ahead, please.

That's great. Thanks very much. Two from me. Firstly, just following up on Paul's question, kind of on the CapEx step-down for 2027, how do you operationally manage such a big step-down in CapEx? What are the key steps and risk factors around such a big change in the CapEx budget? And should we be able to see the step down immediately from Q1 next year? And then secondly, just on the sustainability and the growth differential between SME and LCE, is there any risk of contagion between the issues in LCE and SME, or are they just totally different markets and competitive dynamics, given what you were saying about LCE facing mostly international competitors? Next.

Yeah, so on capex stepdown, I mean, capex is, the way we run it is more or less six to eight quarters in advance. So today we're not steering 2026, today we're steering 2027. If we're building fiber, we're planning at almost two years in advance. So the step down is mainly related by the way to the fiber rollouts. So that is what we are more or less currently already booking in. So it's not that suddenly on the 1st of January we have to decide where to cut from the capex. It's completely or more or less fully related to the fiber rollouts and that's tiered today. So my message is 2027 capex is tiered today and not next year. So yes, we do it in advance and it's pretty prudent how we run it. So pretty predictable as well. SME versus LCE, these are, as far as I'm concerned, completely different markets. So there's a consumer and then there's a SOHO and then followed up by SME, which is really about 10 to 500 employees at max. And far above that, that's where LCE starts. Lots of SME customers are still in residential households, for an example. So we moved the part of LCE in our own definition to SME. because we saw an opportunity there and we have a better sales system and a better platform and a better machinery supported by AI already on the SME part. So for us, these are two different markets and that's according our own definitions. And the more we put in SME, the more successful we are to put. So the way we look at LCE today, it's the more really the larger companies are in there and the rest is SME.

We're planning the CAPEX next year right now, right? So the plan is, we're nearly done. It's obviously, there's a value equation, scarcity, I always say, and the plan for next year is nearly ready. There are a few more things to solve, but then we have a plan ready, fully operational for CAPEX next year. And operation, yes, some parts will be slimmed down. For example, when you step down your fiber rollout, you can scale down with your fiber department. So that will be, you know, scaled down in staff level as well to reduce the size of that factory, that operation. And that's actually being executed in parallel. And the second point to make on SME. So a lot of our SMEs are going through partners, right? Distribution through third-party intermediaries that work with our Kpn One platform and that are paid commission also based on the revenue they generate. So they also have an interest in keeping RFQs at a healthy level. So the distribution model in SME Selling via partners to small and mid-sized companies is different from selling to professional procurement offices and large corporates. I think that makes these markets really different. Okay. Thank you, Chris.

That concludes today's session. In case of any other questions, you know where to find us. Cheers.

This concludes today's presentation. Thank you so much for participating. You may now disconnect your line. Have a nice day.