Speaker #1: 26, results webcast. With me today are our CEO, Joost Farwerck; our CFO, Chris Figee; and also our incoming CFO, Wouter Stammeijer, who will take up the role on the 1st of November.
Speaker #1: He's listening in. Before we begin, please note the safe harbor statement on page 2. Today's remarks may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions.
Speaker #1: As also set out in the press release published this morning. All such statements are subject to the safe harbor. With that, let me hand over to our CEO, Joost Farwerck.
Speaker #2: Thank you, Matthijs. And welcome, everyone. Let me start with the highlights of the third quarter. Group service revenues increased by 2.7%, with growth across all segments.
Speaker #2: And within the mix, consumers showed continued growth, mainly driven by mobile. Business inflected to growth, driven by continued strong SME and an improvement in LCE.
Speaker #2: And wholesale continued to grow, driven by mobile, while the decline in broadband subscribers moderated. The underlying business continues to perform, with healthy M&A and free cash flow growth year to date.
Speaker #2: And together with crossboards, we passed the milestone of 6 million fiber homes, and we remain the clear leader in the Dutch fiber market. And finally, we remain confident to deliver on our full-year 2026 outlook and midterm ambition.
Speaker #2: Chris will take you through the financials later, but first let me briefly revisit our strategy and operational performance. At our strategy update in November last year, we confirmed we are well on track to deliver on our connect, activate, and grow strategy, which is built on three pillars: rate and growth strategy.
Speaker #2: We continue to invest in our leading networks, three pillars. We continue to grow and protect our customer base, and three, we further modernize and simplify our operating model.
Speaker #2: And together, these priorities support our ambition to grow service revenues and M&A by approximately 3%, and free cash flow by approximately 7% on average over the strategic period.
Speaker #2: Let's review our operational performance, starting with fiber. Within our fiber footprint, 80% of the homes passed are already connected, so we have a strong platform to further commercial activation.
Speaker #2: And we've made significant progress with almost 75% of our retail broadband base now on fiber. Consumers continue to grow, led by mobile, while fixed remained resilient in the competitive markets.
Speaker #2: Customer satisfaction improved further, reflecting what differentiates KPN: secure, high-quality networks, excellent service, and a seamless digital experience. And our fixed mobile conversions base continued to grow, and now represents 62% of our broadband base and roughly two-thirds of our mobile base.
Speaker #2: Supporting customer loyalty and value growth. Now let's take a deeper look into our third quarter KPIs. Broadband net losses were 7,000 in the third quarter.
Speaker #2: And the churn was elevated early in the quarter, following the update to our general terms and conditions, which for one month allowed customers to cancel without a penalty.
Speaker #2: After July, trends improved through the quarter, and at the same time, broadband RPO remained resilient, supporting continued growth in fixed service revenues. In mobile, we added 24,000 postpaid subscribers.
Speaker #2: Blended postpaid RPO increased by 3.2%, supported by a more favorable customer mix and an increased uptake of value-added services. And combined, these factors drove mobile service revenue growth, which accelerated to 5.1%.
Speaker #2: Now let's turn to B2B. Business returned to growth in the third quarter, reflecting continued commercial momentum across all the three sub-segments, particularly in mobile.
Speaker #2: Customer satisfaction remained best-in-class, supported by our strong position as a trusted and secure provider. And beyond connectivity, we continue to broaden our mobile proposition with the launch of KPN Mobile AI, helping business customers work smarter and create more value from customer interaction.
Speaker #2: Looking at the underlying business, SME continued to deliver strong growth, slightly above 8%, with strong demand across broadband, mobile, and cloud home workspace. And also LCE returned to growth, with service revenues increasing 2.5% year on year, driven by mobile, IoT, and security.
Speaker #2: Security was particularly strong, although part of that was reflected in project revenues. And tailored solution revenues declined by 3.3%, and that's reflecting the carryover effect of the large contract changes in 2025 that hand-waved gradually eased out through the quarter and had lapsed by the end of Q3, supporting a further improvement in the fourth quarter.
Speaker #2: And finally, wholesale: while broadband remained under pressure from the decline in copper, net losses moderated, supported by strong fiber net ads and a smaller remaining copper base.
Speaker #2: And mobile continued to perform strongly, especially supported by our international roaming service. And other service revenues were broadly stable, as growth in visitor roaming was more than offset by lower revenues from legacy products and low margin interconnect services.
Speaker #2: Now, before we move to the financials, a personal note: as you all know, Chris will leave KPN and hand over to Wouter on the 1st of November.
Speaker #2: So this is his last chance to take us through every detail behind the numbers. Chris, thank you for the good cooperation and everything you've done for KPN.
Speaker #2: I wish you lots of success and fun in your future career. And now, Chris, over to you.
Speaker #3: Thank you, Joost. Let me summarize some of the key figures for the third quarter for you and you to date. First of all, the adjusted revenues increased by 2.9% year on year in Q3, driven by both higher group service revenues and higher non-service revenues.
Speaker #3: Second, our adjusted EBITDA after leases was stable, compared to last year, or increased by 2.4% on a comparable basis, excluding IPR benefits, driven again by higher revenues.
Speaker #3: Our adjusted EBITDA margin decreased by 140 basis points year on year to 44.8% of total adjusted revenues. Third, year-to-date free cash generation was stable, compared to last year, despite the prior year tailwinds from IP sales and IPR benefits.
Speaker #3: I will give you more details on the underlying cash development later in this presentation. As previously guided, group service revenues accelerated to 2.7% year on year, with full segments contributing.
Speaker #3: And within the mix, consumer service revenues increased by 1.8% year on year, primarily driven by mobile. Business service revenues came in strong and increased by 3.9% year on year, driven by continued momentum in SME and a rebound in LCE.
Speaker #3: Wholesale service revenues delivered 2.1% year on year growth in the quarter, driven by international sponsor drops. Our underlying EBITDA, that is excluding IPR benefits, grew by 2.4% year on year, supported by revenue growth.
Speaker #3: The underlying EBITDA margin decreased by 80 basis points, to 45.5%, mainly reflecting higher direct costs, including handset and hardware sales, and third-party access costs.
Speaker #3: Adjusted indirect OPEX increased by 7 million euros, mainly driven by higher personal expenses due to the annual wage indexation and the one-off CLA payment in July.
Speaker #3: Partly offset by a reduction of over 400 FTEs over the past 12 months. Year-to-date, our indirect OPEX decreased by 12 million euros, and underlying progress remains in line with plan.
Speaker #3: And we reiterate our ambition to deliver around 20 million euros of structural net indirect OPEX savings in '26, a total of 100 million euros savings by 2020-'30, comparing to a 2025 baseline.
Speaker #3: Our year-to-date operational free cash flow increased by 5.5% on a comparable basis, adjusting again for prior IP sales and IPR benefits. And this strong cash conversion reflects the continued strength of our underlying business, primarily driven by EBITDA growth.
Speaker #3: Our reported free cash flow was stable year-to-date, as EBITDA growth was offset by changes in provisions and higher restructuring costs. The delta in provisions reflects mostly pension contributions, as well as a few other non-cash movements.
Speaker #3: And a delta in other free cash flow elements, mainly reflects prior year lease adjusted revenue effects, from the LTO transaction. Overall, our cash margin remained broadly stable at around 14% of adjusted revenues, finally we ended the quarter with a cash position of 440 million, after absorbing the impact of the interim dividend over 2026.
Speaker #3: With that, we continue to have a strong balance sheet. At the end of September, our leverage ratio was 2.5 times, stable both sequentially and year on year, in line with our self-imposed ceiling.
Speaker #3: Interest cover remained strong at 9 times. During the quarter, we successfully refinanced our 500 million hybrid bond, and this transaction further optimized our capital structure and reduced our financing costs.
Speaker #3: Our liquidity position of more than 1.5 billion euros remains very strong, and covers debt maturities through the end of 2028. And finally, in July, Fitch ratings upgraded its outlook on KPN from stable to positive, while reaffirming its credit rating reflecting our improving free cash flow profile, stabilizing market structure, and the diminishing impact of legacy revenue decline.
Speaker #3: Overall, our financing profile remains strong, and well-positioned going forward. We reiterate the 2026 outlook that we shared with you in July, and we remain confident in delivering our full-year financial objectives.
Speaker #3: In line with our commitment to shareholder returns, we paid an interim dividend of 8 euro cents per share on the 3rd of August this year, and we completed our 250 million share buyback program.
Speaker #3: And finally, we reiterate and reconfirm our mid-term ambitions, as presented at our capital markets day. Including our total cumulative shareholder distribution targets. So let me conclude with a few key takeaways.
Speaker #3: We delivered solid financial results in the third quarter, with accelerated group service revenue growth supporting underlying EBITDA and free cash flow growth. From here, we expect service revenue growth of around 2.5%, as a tailored solutions contract efforts have lapsed, and prior year comparisons effects from IPR and IP benefits are now behind us.
Speaker #3: Growth was broad-based, with all segments contributing. Mobile maintained strong commercial momentum, while broadband remained competitive. We remained a leader in Dutch fiber, with about three-quarters of our retail broadband base now on fiber, and more than 6 million fiber homes passed.
Speaker #3: And overall, we're on track to deliver our 2026 outlook and reiterate our 337 mid-term ambitions, including our cumulative shareholder distribution targets. Thanks for listening, and with that, happy to take your questions.
Speaker #2: Thank you, Chris. Operator, please open the floor for questions. Please listen. Please limit your questions to two, please. Thank you.
Speaker #1: Ladies and gentlemen, we are ready to take your questions from now. If you would like to ask a question, please press pound key 5 on your telephone to enter the queue.
Speaker #1: The first question comes from Keval Khiroya from Deutsche Bank. Please go ahead.
Speaker #4: Thank you for taking the questions. I've got two, and also best of luck. In the next role, Chris as well. Thank you. So the two questions.
Speaker #4: So you highlighted the reasons for the weaker consumer broadband KPIs. Would you expect that broadband-based to be at least stable in Q4, or do you see any risk still to the customer momentum in broadband?
Speaker #4: And second, you introduced the ad hoc more-for-more mobile increase. This year, in mobile, and you've changed the contract terms in fixed, which means you could presumably be a bit practical there as well.
Speaker #4: I appreciate you can't tell us your pricing plans. But would you say the focus on value over volume has increased, and have managed the volume side of the equation?
Speaker #4: If so, thank you.
Speaker #5: Yeah, thank you.
Speaker #3: For the question. Yeah, indeed, a weaker quarter on the broadband-based with a decline of 7,000. This is I mean, you all know that the analysis is a competitive market, but the reason that we go below zero is that we saw a temporary churn pressure early in the quarter related to the contract-free period.
Speaker #3: And that has to do with the change in the general terms and conditions we introduced. It was a call we made and we anticipated on that.
Speaker #3: With this, our terms and conditions are up to date. Clear and aligned with the relevance in legislation and case law. And it provides us also with greater flexibility to adjust our subscriptions and propositions in an year or in the future.
Speaker #3: Now, on that, as you know, if you look back every year, we have introduced one or more price increases. It's a bit of a sensitive topic.
Speaker #3: In the Dutch markets, so we do not communicate upfront on price increases but having said that, like I just said, in the way we changed our terms and conditions, we see more flexibility to adjust our propositions.
Speaker #3: We are pretty confident in the developers in Q4 when it comes to the broadband-based, so where I expect broadband-based consumer in Q4 to move back above the zero.
Speaker #3: So I expect slight or decent growth in Q4.
Speaker #4: That's clear. Thank you.
Speaker #1: The following question comes from Carl Murdoch-Smith from Citi. Please go ahead.
Speaker #5: That's great. Thank you very much. And similarly, Chris, best of luck for the future and congratulations later. Two questions from me, please. Firstly, can you talk a bit about the impact of the price of memory and how that's having an impact on the cost of CapEx equipment and handsets, et cetera?
Speaker #5: Is this manageable within current CapEx envelopes? Or could it potentially put next year's CapEx ambition of less than a billion euros at risk? And then secondly, obviously, lots of focus at the moment on agentic AI.
Speaker #5: And how this might impact potential consumer purchasing behaviors and I'd just love to hear your thoughts on how this could impact the market and what you're doing to prepare for it.
Speaker #5: That'd be great. Thank you.
Speaker #3: Yeah, so and Chris will follow up on this when it comes to our CapEx envelope. We're pretty much focused on the strategy and the financial framework we introduced a long time ago.
Speaker #3: And we will keep on doing that. Of course, it's a challenge when it comes to impact of memory and prices related to that. So the teams are working on it.
Speaker #3: We do a lot of hedging in the way we purchase upfront. And of course, we also innovate. So we buy against higher prices, but we also buy against lower prices due to innovation we do.
Speaker #3: It's a challenge to run our CapEx, but currently the teams are very well equipped to run it in the way we plan it. Sometimes it's tough.
Speaker #3: A challenge for the new CFO, but I'm sure we will manage it. In a good way, like we did over the last six, seven years.
Speaker #2: Yeah, yeah. Maybe on that point, Calvin. I have kind of two perspectives. My future perspective will love this thing. My current perspective is, gee, there's an attention point.
Speaker #2: Look, as Jo said, I mean, our CapEx envelope is a CapEx envelope. We'll solve this in the CapEx envelope. It is solvable within the CapEx envelope.
Speaker #2: It's not easy. But it means an increased focus on reuse, recycle, and refurb. A revisit on the amount of memory compute that you actually need in your devices when you don't have too much compute.
Speaker #2: So I think there's optimization going on around the actual spend. And then it becomes a matter of reprioritizing CapEx. Obviously, this equipment is critical for our customer experience.
Speaker #2: So you can't cut it back. It just means that you have to make choices in the allocation. So I think in our view is the envelope is the envelope, and we'll solve it inside that.
Speaker #3: And when it comes to your question on AI, on one hand, you could see there's a threat, although I think we manage it well.
Speaker #3: Agents such as Meta's Muse may reduce churn and switching costs for customers. Making it easier for customers to select another provider and to switch in an easy way.
Speaker #3: On the other hand, the Netherlands is a super competitive market. We know different sites and apps where customers already are very transparently able to compare all the propositions out in the market.
Speaker #3: And KPN ranks well when it comes to prices Uphone as well, and when it comes to quality, we always pop up first. And that is something we closely monitor around these developments.
Speaker #3: But so you could see there's a threat. I think it's a no-brainer. It exists. And that we have to play our role in that.
Speaker #3: On the other hand, we're introducing lots of agentic AI in our operating model. We have transformation programs ongoing to run the OPEX down in the years to come.
Speaker #3: We introduced a program to relate to net savings of 100 million up to 2,013. And I am super enthusiastic about the way AI is supporting us there.
Speaker #3: So it creates a lot of opportunities to improve customer engagement and develop new ways of working and to lower our OPEX.
Speaker #5: That's great. Thank you very much.
Speaker #1: The following question comes from Joshua Mills from BNP Paribas. Please go ahead.
Speaker #4: Hi everyone. Yeah, I'll echo the sentiments as well. Chris, I thought for the last call, I'd give you a geeky niche question on the free cash flow bridge for next year.
Speaker #4: So hopefully that keeps you entertained. I guess if I go back to the 337 guidance and take the starting point, the 7% CAGR gets you to about 1.16 billion of free cash flow for 2027.
Speaker #4: And then if you add on the 15 million or so from the LTO deal, you get to about 1.175. So first question is, is that the right way of thinking about the maths?
Speaker #4: Is there anything else I'm missing? I understand it's an around 7% CAGR number. So just kind of trying to get to the midpoint. And then if we do the bridge from 950 million, the free cash flow to next year, if you do 3% EBITDA growth in line with the guidance, that's about 80 million higher.
Speaker #4: EBITDA if you drop the CapEx to a billion, that's 250 million. So adding this all up, you get to about 1.28 billion of free cash flow.
Speaker #4: Which is obviously about 100 million guidance. So could I ask you for the last time to run us through the moving parts in the free cash flow bridge for next year, where that 100 million or so of headwinds come from cash taxes, interest costs, any working cap effects, just to help us with our modeling?
Speaker #4: Thanks very much.
Speaker #3: Well, Josh, I think I was still thinking whether this is a question or a job application. But I think let me walk you through some of the elements.
Speaker #3: Obviously, it leaves for Josh and Wouter to give you the full number for next year. I mean, we traditionally give four years guidance when we present four-year numbers.
Speaker #3: So the exact number will be, I guess, on the agenda on the Q4 numbers somewhere in February. But generally, I could say your approach is right the way we look at it.
Speaker #3: We've given you a 337 CAGR, and that's kind of similar frame that we apply by setting our own ambitions and targets for next year.
Speaker #3: So I think it's the right way to go about it from a mathematical perspective. Then moving parts, the way I think about it, indeed you have growth in EBITDA.
Speaker #3: There'll be step-down in CapEx to a billion. That is more or less in the books. In terms of how we plan to manage this.
Speaker #3: Against it, we'll have a step-up in tax. I think as you can see, this year we're doing better on tax than previously. We've been fairly conservative on estimating our tax spend next year.
Speaker #3: So it's looking good, but there will be an inevitable tax step-up as we are using our net operating losses. I think there'll be restructuring spend, which is a bit higher this year, which will also be a bit higher next year.
Speaker #3: I think we're accelerating the FTE decline to this year. We're doing about 400s. I wouldn't be surprised if next year we get to about 500 to 600 of FTE decline in terms of overall cost ambition.
Speaker #3: Interest flat, slightly up possibly. And then I think there's a significant working capital opportunity again next year, which we're preparing right now, seeing things against.
Speaker #3: And that's kind of the equating number that gives you to the number. So basically moving parts, I think you're right. Tax will be up.
Speaker #3: But again, tax increases have been less than what we anticipated due to various reasons. Better and longer use of net operating losses. Against it, slightly higher REO spend.
Speaker #3: Again, but that's positive spend as we're reducing staff, reducing costs. As I said, possibly acceleration of the FTE decline today, we're doing about 4% of our staff next year.
Speaker #3: Could be as high as about 6%. Interest flat is to maybe slightly up, but that's marginal. And the remainder is working capital. And there's still opportunity to improve working capital.
Speaker #3: And that's also stuff that we are doing today. Could be prepared for next year. That's kind of how I would qualify or outline the bridge into next year.
Speaker #2: Yeah, so Joshua?
Speaker #3: So I think you mentioned all the right buckets. One thing I would like to add to Chris's story is that when we lower the run rate of CapEx with 250 million in a year, the effect is in cash, 250 million in a year after.
Speaker #3: But in the year itself, it's a bit less because some of that CapEx would have been paid in '28. So taking it into account, I think it's a healthy financial framework we're running here.
Speaker #3: Especially next year and the year after. But that effect of minus 250 is a bit lower in the year itself than in the year after.
Speaker #4: That's very clear. Let me just squeeze one last one in. On working capital, is the main most you hear that delta between the timing of the CapEx on the P&L and the cash flow?
Speaker #4: And if not, when would we expect working capital to normalize in future? Is this something that we should be thinking about as a flat working capital item in our modeling from '28 onwards?
Speaker #4: Or are there other factors?
Speaker #3: Well, '28, I think '27 will probably be still a positive number. As Josh said, there's a bit of a working capital drag, but there's working capital opportunities against it.
Speaker #3: I think the whole thing normalizes when CapEx normalizes. So I think probably '28 is more normal number. But at this point, Josh said, there's work done to compensate for the working capital that the working capital timing effect of the CapEx delta that you have next year.
Speaker #3: So I think '28 is probably the first year when you have really stable CapEx numbers and you have more stable working capital.
Speaker #4: Great, thank you.
Speaker #2: The following question comes from Molly Whitcomb from Goldman Sachs. Please go ahead.
Speaker #5: Hi guys, thank you for taking my questions. I just have two please. Firstly, on mobile. I understand that the one euro more-for-more security increase was maybe reversed.
Speaker #5: So just maybe a little bit of color on how should we be thinking about trends in mobile consumer given that that's the case. And I think you also maybe put through some price increases in October.
Speaker #5: So just how they've landed. More generally, a little bit of color on that would be great. And then my second question, I just wanted to come back to the terms and conditions update.
Speaker #5: You mentioned some case law. I just want to check, this isn't at all connected to the ECG ruling that we saw with one of your European peers, is it?
Speaker #5: And also, will this likely affect your competitors as well, just a little bit more detail on that would be great, thank you.
Speaker #3: Yeah, thank you. Mobile consumer, yeah, I mean, we're following a couple of price increases, like you said. We did a more-for-more adjustment, which worked quite well because it also was related to an improvement of the proposition.
Speaker #3: So we also introduced a security shield on our proposition, which is called Extra Valid Mobile, with an additional pricing we have to usual price increase we did.
Speaker #3: So that's related to 5% year-on-year revenue growth. Also, we see a strong base growth. Also, we see a good supportive premium mix. Unlimited accounts for 45% of the acquisitions in September to give you an example.
Speaker #3: So it's not related to one price action we did. It's a whole ecosystem we're running here on mobile. And yeah, mobile's good market in the Netherlands.
Speaker #3: And we're playing our role here. And I think we will continue to do so. And your second question was about?
Speaker #4: Molly, Molly, can you repeat your second question, please? We couldn't follow.
Speaker #3: I totally follow the question.
Speaker #5: Yeah, of course. So you mentioned earlier, that you had updated your terms and conditions on fixed and less like kind of misheard some commentary in the background there, some case you said something about getting case law up to date or something along those lines of being in line with more recent case law.
Speaker #5: So I just wanted to check that this wasn't at all connected to the recent ECJ ruling. One of your European peers had kind of some ruling on backpack increases.
Speaker #5: So just wanted to check if that was connected at all. And if your competitors will also have to update terms and conditions and you might benefit on that side.
Speaker #3: Well, I don't think it's really related to EU ruling. To be honest, every now and then we have to adjust our terms of conditions to see where we are, how we are aligned with developments in legislation and some case law.
Speaker #3: And we also found out that we could use and benefit from a more flexibility to adjust subscriptions or propositions over time. Well, so with this, we can run our base in just a little bit better way than we did in the past.
Speaker #3: We're a base company with super important to focus on the value of the base and to run it in an excellent way. And for that, we did this.
Speaker #3: We anticipated on one month all customers free of contract. And we also knew that our competition was aware of that because we had to announce it.
Speaker #3: But it is really on how we run our base, not it's not related to EU regulation as far as I know.
Speaker #5: Okay, very clear. Thank you very much. And best of luck to Chris as well. Thanks.
Speaker #2: So next question comes from Polo Tang from UBS. Please go ahead.
Speaker #4: Hi, I'd like to copy everyone else and just wish Chris the best in his new role. I've got two questions. So firstly, on broadband consumer broadband, I knew that you flagged that losses in Q3 were mainly due to one-off terminations because you changed the terms and conditions tracks.
Speaker #4: But Q3 also saw Ziggo offer ESPN to all its subscribers for two euros 50 per month. And you also had Ziggo expanding into the Delta fiber footprint.
Speaker #4: So my question really is, how much of an impact do you think Ziggo had in terms of your broadband declines in Q3? And do you see a risk of this continuing in the coming quarters given that Ziggo is a nice incentivized to remain promotional ahead of their spin-off in mid-2027?
Speaker #4: My second question is really just around fiber build. So can I clarify if the plan is still to build to 80 to 85% fiber coverage in the Dutch market?
Speaker #4: So just looking up thus far, KPN covers about 70 to 75% in the Netherlands. Delta fiber, ODF cover the rest. And there's limited fiber overbuild in the market.
Speaker #4: So I'm just asking in terms of if you build to 85%, will this not increase fiber overbuild? And will it not induce more broadband competition into the market?
Speaker #4: Thanks.
Speaker #3: Yeah, but Polo on the first one, right? If you look at our broadband developments in the year, I mean, except for like one and a half months, our churn had been really subdued.
Speaker #3: We've been investing heavily in churn, loyalty-based programs, RFU protection measures, et cetera. And churn has been actually lower than previous years consistently. The lower net ad growth in the year was because we have a lower share of new sales because I think we also have been very restrained in joining the discount frenzy.
Speaker #3: And we've more focusing on base optimization churn reduction. So that has actually worked throughout the year, except for one month and a half where Joost alluded to, the terms and conditions changed led to cancellations in Q2.
Speaker #3: We showed up and net ad losses, churn spike in Q3. After that, the whole thing normalized. If you look at the current order balance on a weekly, monthly basis that we track, it's actually similar to the beginning of the year.
Speaker #3: Obviously, Odido had running through it, but it's actually a fairly stable order balance that we see on a weekly, monthly basis. We also had a few activations in October that are pushed for technical reasons to the third quarter.
Speaker #3: For the fourth quarter. So all of that means there's a lot of stuff going on. We do recognize that Ziggo is active on Delta.
Speaker #3: Ziggo has a new SPN contract, but except for the two freaky one and a half freaky churn months, the overall order balance has been stable and our churn has been relatively low.
Speaker #3: So it gives us quite some comfort that in Q4, you'll see the returns of some sort of positive net ads.
Speaker #1: Yeah, and Polo on fiber, I mean, you're right. We announced a target of up to 85, not 85, up to 85. We currently are almost on the level of 75.
Speaker #1: Having said that, Delta and ODF, they also build the footprint of a million. So the Netherlands is above 90% fiber coverage. So now for us, it's very important to understand how we move further.
Speaker #1: And maximize the fiber of the value of our current fiber infrastructure. We will continue to expand the fiber footprint in a more disciplined value attractive way.
Speaker #1: And also within the financial framework, because that's also a target we announced. And some targets are more important than other targets, I would say.
Speaker #1: So we also have a more flexible toolkit how we serve our customers outside our footprint. And we evaluate all the options how to move how to move above 80%.
Speaker #1: But also through the lens of customer experience, strategic control, long-term value creation, you name it. So perhaps in the next quarter, we will come back to the target of 85% and how we are going to run it.
Speaker #1: But the CapEx step down is something we already planned for next year. It's no way to move back from that. And we will execute on that.
Speaker #1: So I think that's the way we will move further.
Speaker #4: Okay, thanks.
Speaker #2: So following question comes from AJ Soni from JP Morgan. Please go ahead.
Speaker #4: Hi guys, thanks for taking the question. My first is on consumer fixed growth, which has slowed a bit in Q3. I know you have the economy discount headwind throughout this year.
Speaker #4: If I look at 5R per growth, it has been quite limited in 2026. Do you think this 5R per growth does step up in 2027?
Speaker #4: And the second question was just to follow up on your cash flow bridge, which was around your accelerating FTE reduction next year. So what are you seeing that's going to be driving that much bigger FTE cut in 2027?
Speaker #4: Thank you.
Speaker #3: Well, I think still to say what where fiber RPU will be next year, if I look at broadband service revenue growth at around 0.2, 0.3% per annum.
Speaker #3: If you look at where we started this year, I would have the consumer service revenue growth at 1.9 is where we expected it to be.
Speaker #3: It's driven by more mobile and less fixed than what we anticipated in the beginning of the year. So mobile has been doing better in terms of net ads growth and also sticky price increases.
Speaker #3: That actually stuck in a filter down to bottom line. In fixed, we see RPU is actually kind of in line with what we expected.
Speaker #3: There's a slight the headwinds are small base effects, which are negative. I think less growth than what we anticipated. Obviously, the decline in Q3 is part of that.
Speaker #3: And also, yeah, the market requires a little bit more discounts or less revenues from the additional setup boxes or additional streaming services. So I think that drives fixed to be around 2.3%.
Speaker #3: I would expect that probably in Q4 to be a similar number. At some point next year, I would hope that accelerates, but that's something for next year.
Speaker #3: But I think compared to where we started, the medium most important point that group service revenues and consumer service revenues is on plan. And that fixed RPU is more like where we planned it to be.
Speaker #3: And relatively stable. On the FTE reduction, where it's comparable, various initiatives. We've obviously given you guys 100 million net cost savings opportunity and target.
Speaker #3: The adoption of more agentic AI service in call centers is the ramp down of our fiber rollouts, which require less fiber related staff and project management staff.
Speaker #3: I mean, we are obviously scaling down the fiber rollout to that organization will be right sized and normalized. There is other initiatives ongoing notably in the B2B market.
Speaker #3: We see we've seen a few larger customers leave. We'll right size and adjust organizations on that. So a range of initiatives across the group that will, as we see, accelerate the reduction in labor potential and staff at KPN.
Speaker #3: But all of these initiatives are underway, have been launched, have been discussed with works councils, and are basically in set in motion.
Speaker #4: Great. And so then for this year, you've obviously expecting the 15 to 20 million opex reduction. Do you envisage that stepping up then in 2027?
Speaker #1: Well, we'll get back to that next year. But more important than that is that we focus on the net opex reduction of 100 million in 2030.
Speaker #1: So and that means that we have to lower the cost every year. And we're confident on that. The run rate is good. We see an FTE reduction in all the areas where we introduce this digitalization and AI agents.
Speaker #1: And probably for next year, we'll focus more on the overhead of the company where the opportunities are higher as well. Because the labor fees are higher there as well.
Speaker #1: So but we'll give you more updates on that next quarter.
Speaker #4: Great. Thank you. Best of luck, Christine, you will.
Speaker #3: Thanks.
Speaker #2: So following question comes from David Wright from Bank of America. Please go ahead.
Speaker #4: Yeah, thank you guys. And yeah, Chris, best of luck in that kind of guidance granularity on cash flow, et cetera, is always what is being very much appreciated on our side.
Speaker #4: A couple of questions. Firstly, just on the kind of satellite agentic AI risk, we're all asking this questions, but I do feel like operators are all giving a broadly similar answer.
Speaker #4: Which tends to be that pricing is a bit of a moat for Europe. It's obviously been very painful, but that low pricing does present a less easy opportunity for satellites and/or less potential disruption from AI agents.
Speaker #4: I just wondered to what extent you really do think there could be any sort of curveballs here that are not quite anticipated by the industry or anything that you think is really sort of a little bit wild out there that could change the game.
Speaker #4: And then I guess the other question is, we've had, I think, Vodafone, Ziggo, openly talking about elevated commercial expenditure this year. It's quite clear they want a big step up in cash flow growth next year, which probably suggests less commercial expenditure.
Speaker #4: There's obviously new ownership in one of your other competitors. I'm just wondering if you are anticipating or maybe hoping for a slightly less disruptive competitive 2027.
Speaker #4: Is that a realistic proposition? Thank you.
Speaker #3: Yeah, okay. David, thanks. And there is I mean, there are a lot of reports out in the market on satellites. So yeah, it could be a risk.
Speaker #3: I think it's more for us a fallback scenario where we use satellite to serve the ministry of defense as an example. Also in these reports, you find back that the Netherlands is a bit of an exception.
Speaker #3: I mean, we're not really a country. We're more a large village, city like Singapore or something. 90% or more of all the households are connected to three fixed networks: copper, cable, and fiber.
Speaker #3: And all priced against a decent level, one gig for roughly well, for a naked internet line, something like 20 euros. So compared to satellite subscriptions, it's not easy to beat that when it comes to satellite services on quality and on pricing.
Speaker #3: Having said that, of course, we follow everything because, yeah, if you make it for free or whatever, it's always a risk. So satellite is on our risk radar screen, but compared to other countries, also confirmed by the reports, the risk in the Netherlands are pretty low.
Speaker #3: AI, I think there's more opportunities in AI than risks. But also there, it's on our radar screen, but I and we tried to push the company to embrace AI and make use of our transformation programs.
Speaker #3: Well, it's always difficult to predict what Vodafone Ziggo will do in the future. I think I'm not sure if they know themselves, but it's true that they push a lot of cash in the market to make the base grow and that's what they do.
Speaker #3: I we noticed that they already announced that the broadband-based developments of this quarter is the best in years. So we're waiting, but so that's working.
Speaker #3: But against a very high price, taking into account what they promised the market on debt reduction, et cetera, free cash flow, then yeah, okay, one could assume that they will slow down a bit somewhere next year.
Speaker #3: Having said that, hope is not a good way to build your strategy. So we're not hoping on anything. And we're anticipating on a competitive market, just like this year, next year.
Speaker #3: And that's where I expect the teams to act on and to still make our broadband base grow.
Speaker #4: Very good. Thank you.
Speaker #2: The next question comes from Paul Sidney from Berenberg. Please go ahead.
Speaker #4: Yeah, thank you very much for taking the questions and Chris and Marissa and all the best for the future in your new roles. So sort of first question is, you've delivered 3% service revenue growth.
Speaker #4: You're clearly guiding 3% midterm growth for the same metric. I mean, this is well ahead of your European peers, which are struggling for that top line growth.
Speaker #4: I mean, I'm just wondering just big picture question, what does KPN do better than its peers? Is it product differentiation? Digitalization in B2B? Fiber rollout ahead of your peers?
Speaker #4: Or is it simply just that you're part of a better market structure with regulatory support? And then just secondly on capital allocation, very solid balance sheet committed to returning free cash flow to shareholders.
Speaker #4: But are there any other initiatives that maybe not obvious to us that KPN can explore to create value, whether it's data centers, satellite collaboration, fiber bolted acquisitions, just to sort of name a few examples.
Speaker #4: But great to get your thoughts on that.
Speaker #3: Yeah, so Paul, I think of course it's very interesting to listen to Chris in his farewell call to elaborate on where KPN is doing better than others.
Speaker #3: But I think what we did when we started, Chris and I together, almost seven years ago with a new team, is focus. And what we said is, let's especially focus on where we make the cash.
Speaker #3: Most of the telcos, they combine ICP with connectivity, international asset-heavy investments. We wanted to be a very healthy focus company in the Netherlands instead of a company wrestling in a different country in Europe.
Speaker #3: And we said we're clearly making a lot of money in mass markets. So that was a decision we took. Let's first fix that. Consumer wholesale and SME and then let's repair the B2B in the second phase.
Speaker #3: And let's focus on where we really are good at. And that is infrastructure-heavy investments and high margin and cash-generating profits. And that's what we did.
Speaker #3: So do we build a lot of fiber? And we focus on where we make the money. I would but Chris, what do you think?
Speaker #4: I think similar, but we're relatively simple company. One country operation. I think the market helps, although it doesn't always feel I think certainly in broadband, the market is highly competitive.
Speaker #4: In mobile, you see a more pronounced three-player market structure. That does help us a bit. I mean, I think to some compared to other markets, but I think a strength of KPN has been to be identifying clearly where do we make money and then we put our capital in those areas where we make money.
Speaker #4: And if we don't make money and make money means on a fully allocated, fully loaded basis, including all the network costs and areas where you don't make money, you de-emphasize, restructure, reduce.
Speaker #4: And I wouldn't be surprised if you see more of that focus in the coming years. I think that's probably in the end at the end of the story.
Speaker #3: Yeah, we also introduced a portfolio review, what we do frequently. So are we improving the cash we make on portfolio is going so sometimes on certain items where the strategy is okay, but the way we run the portfolio is not good enough.
Speaker #3: So it's interesting.
Speaker #4: Yeah, and your second question, right? I mean, look, we clearly have a clear capital allocation policy. We return all our free cash flow to shareholders after spending all our money on CapEx.
Speaker #4: I mean, we're going back to a belief in CapEx next year. Which is still around 17% of revenues, right? So it's still we're investing quite heavily.
Speaker #4: Is it completely comparable to other telcos? No, because then you have to really dig down into how your CapEx capitalized labor. But it's still a significant amount of investing going on at KPN mostly in our networks.
Speaker #4: So I would say the return of cash to shareholders is not at the expense of future growth, right? So we're investing a lot. And we deliberately choose to spend about 80% of that cash to dividends to make sure it's well covered in the remaining 20% in buybacks where there's obviously always a bit of flexibility around it.
Speaker #4: But I think the initial focus of KPN is really to return to shareholders. Within the 1 billion, we should be able to fund the future investment growth.
Speaker #4: Could there be opportunities in other asset-heavy industries like data centers? Yes, but I think always on the back of the stuff that we already have, like monetize the investments that we've already done in data centers.
Speaker #4: In decentral metro core locations and what have you. So I think our focus on the coming years is continuing, I think, on the current path.
Speaker #4: I think we've been fairly successful with that. And new initiatives are on the digital infra base and if they are, it's more within the existing CapEx envelope and using assets that we have and skills that we have to make sure we continue paying the cash to our shareholders because I think predictability is a shield is also worth a lot.
Speaker #4: Great, appreciate your comments. Thank you very much.
Speaker #1: The next question comes from Maurice Patrick from Barclays. Please go ahead.
Speaker #4: Yeah, thanks again for doing the call and good luck again. Chris for the future. Just a couple of ones from me, please. The first one on fixed wireless access.
Speaker #4: You've been pretty dismissive of the impact of that on your base. I'm curious if you're still seeing no real impact on broadband from competitors pushing FWA, first question.
Speaker #4: Second question, slide six, you show the penetration of fiber on your retail base now 73%. It's been growing pretty steadily at about 1 percentage point per quarter.
Speaker #4: But curious to understand inside the cohorts, does it slow when you get to a certain level? Like are there certain I mean, are there certain points at which it stops growing?
Speaker #4: And then just the last sub-question, post the blocking of the. Transport deal. Wondering if your view on consolidation of fiber networks has changed versus organic.
Speaker #4: Thanks.
Speaker #3: Yeah, Maurice, thanks. So on fixed wireless access first. Yeah, we introduced it ourselves as well in areas where we can use it, not broadly in the Netherlands.
Speaker #3: But taking into account that in the Netherlands, we run the best mobile networks in the world. So the best one is KPN and the second on the world level is Odido.
Speaker #3: There's already a lot of unlimited subscriptions out in the market and it works more or less the same as fixed wireless access. So if it's to sell an internet connection on fixed wireless access, is in a country like the Netherlands not really working?
Speaker #3: It's a niche market. It works quite well in some areas. I have a small boathouse somewhere out in the regular rural area. So there I can use fixed wireless access.
Speaker #3: But to be honest, I just use unlimited from KPN. It works quite well. So not really impactful, I would say. Fiber growth, yeah. I mean, we launched an updated strategy called Connect Activate Growth.
Speaker #3: And if you look at the numbers, we are more focused on connecting households than passing more houses. So we pass now the 6 million, but we and we connected or we passed 59,000 houses more last quarter, but we connected 73,000.
Speaker #3: And that is because we want to yield more the investments we already did. So I think there's a huge potential in what we already build it for.
Speaker #3: It's not that the customer footprint of 73% is related to the 72 or 73% fiber footprint. We could grow the consumer base in the fiber footprint as we are doing now with all the investments we did and homes passed, homes connect ratio of 80%, quite unusual.
Speaker #3: So I will push the company to grow further on the installed base on fiber. And on ACM, yeah, someone mentioned regular wind tail or something in the previous question.
Speaker #3: Well, that's not the case in the Netherlands. ACM for some reason did not approve a very small, but important fiber deal when it comes to how they look at the market and in short, I think they try to avoid KPN by other fiber assets because we already have a super large position in the Dutch market.
Speaker #3: Looking at what they did put on paper, we do not agree. And I think from a legal standpoint, it doesn't make a case. So we will fight it.
Speaker #3: But that will take time. And meanwhile, we're looking at all the options around us. So we're building ourselves in a decent way within the financial framework.
Speaker #3: But we all, yeah, are also looking at how to move further within the coming two years in the creative way and that, of course, we also have to discuss with our regulator.
Speaker #3: So probably it will take some time. I'm convinced that in the future there will be more there will be more room to acquire fiber footprints.
Speaker #4: Great. Thank you, guys.
Speaker #1: The next question comes from Ulrich Graten from Bernstein. Please go ahead.
Speaker #2: Yeah, thanks very much. I have two questions, please. The first one is still on consumer broadband. We've discussed this in quite detail already, but I was just wondering your position in July as special because of the terms and conditions change.
Speaker #2: Could you talk about how the NetApps actually were then in August and September? Were they at prior levels, i.e., already in positive territory or was there a bit of a sort of tail of these thermal condition changes that sort of carried through the quarter and your expectation is that it will improve in the fourth quarter, but you don't really have the evidence in August and September yet for that?
Speaker #2: And my second question, if I may, is on the business. On the business top line trends, you cut the full year outlook last quarter.
Speaker #2: I think largely because of low margin revenues in business. So there is a lot of volatility in this. And I was wondering when we look at the third quarter now, is that in business, is that a normal quarter?
Speaker #2: Is that a normal run rate that we can sort of look at or would you say, no, third quarter really is a particularly strong quarter in business and it's not necessarily representative of what's to come?
Speaker #2: Thank you.
Speaker #3: Well, I would say on business, it's a strong quarter when it comes to SME and LCE developments. But in total service revenues, it's will not change because probably LCE will be a bit lower.
Speaker #3: I mentioned one of the benefits on the security side with a large customer. But that's always in and out in results. But we expect tailored solutions, especially to flip up far above the zero just because we got rid of these contracts we didn't want to run anymore.
Speaker #3: So in total service revenues in B2B will be yeah, good.
Speaker #4: I think Q4 will be very similar to Q3 in terms of where business revenues will come in.
Speaker #3: And what we described on the consumer broadband base in words, we already mentioned that the first month, July, of the quarter was not good.
Speaker #3: And that was related to a 30-day period of that terms of condition things we described. But the other two months were above zero again.
Speaker #3: So it was really a hit in July. That created a minus seven. And the August and September were above zero.
Speaker #2: Thank you very much.
Speaker #1: The next question comes from David Fachmann from ING. Please go ahead.
Speaker #5: Hey, good afternoon, everyone. And thanks for taking my question. And of course, already was the best Chris in your role. The first question is on the competitive dynamic that you see in six broadband for Q4 until now and going forward.
Speaker #5: So even for instance, of course, Ziggo efforts, but also Odido, you know, launching a simple in fixed. And then my second question on the COGS evolution in Q3, if you could comment, you've already provided some detail.
Speaker #5: And also what to expect for Q4 and maybe already 2027. Thank you.
Speaker #3: Yeah, so competitive dynamics in the market, well, on mobile, I think the market and we are continue to perform well. And the good news there is it's both an RPU and a base increase.
Speaker #3: So I expect that to move on like that. Fixed is a competitive market. And you mentioned Odido with simple. We run Uphone the Vodafone Zero has no frills s brand.
Speaker #3: So on one hand, I would say we anticipate on promotional activities across the markets to continue. I mean, our main competitors are preparing for some kind of listing somewhere next year.
Speaker #3: So move into that moment, they will probably try to make the base grow next year as well. We will continue to focus on value creation or having said that, of course, it's not our intention to report negative broadband-based developments every quarter, but it's also important that we do not follow crazy discount schemes.
Speaker #3: So we follow our own route. We believe in household steering. To be honest, we report on broadband and on mobile RPUs, but our main trick is to run households where broadband and mobile are combined as one ARPA instead of two RPUs.
Speaker #3: And we will do that. So yeah, competitive market, we anticipate, like I already said, that it will not change. That's the best way to build our strategy.
Speaker #3: And we will play our own focus on value creation strategy there.
Speaker #4: I think on your question on the cost of goods sold, the COGS that go through our contribution margin, I would say similar developments like what you see in the fourth quarter that a few components, the cost of sports most totally ESPN that contract has gone on to that will be then in a full quarter.
Speaker #4: We elevated. I would expect similar level of promotional activities in previous quarters. We have the allocated cost of plus sport that easily throughout the year.
Speaker #4: And against that, also in our COGS in Q3, obviously have the roaming charges. I mean, in the summer season, we pay more roaming fees.
Speaker #4: We also get more roaming income. But you pay more roaming fees. Mostly because they're much more Dutch people going out than others visiting the Netherlands.
Speaker #4: So typically in the summer, retail side will roaming negative. That's then negative. So if you add to all those moving parts, I would say something similar develops in development in the fourth quarter.
Speaker #4: And it will probably also be an increase in COGS next year as you get the full year of ESPN cost kicking in. And obviously we're taking initiatives to counter that either internal revenues or in terms of cutting back on COGS spend.
Speaker #4: But if you go through these moving parts, I'd say, David, the best estimate of some similar development in Q4 is in Q3, even if the moving parts are a bit different.
Speaker #5: Thank you very much both.
Speaker #1: Unfortunately, we only have time for one more question. And the final question comes from Conrad Sommer. From ABN AMRO Auto BHF, please go ahead.
Speaker #6: Hi, thanks for allowing me the opportunity to ask a question. The first one is, are we likely to get new quantified financial ambitions for the next four years when you are going to report your full year numbers in February?
Speaker #6: Or is the change in CFO going to delay that progress process? And my second question is, can you share with us what percentage of your consumer grades from copper remains a customer by using your fiber connection instead of moving to a competitors?
Speaker #3: Well, let me first take the first question. And thank you for that. So when we present our annual results, we of course will primarily focus on the guidance 27.
Speaker #3: We more or less did that with the carriers we did put out in the market, not planning to change that. But to get more detail and substance on that is for me the most important thing to announce beginning of next year.
Speaker #3: It doesn't have to do anything with the change of CFO. So CFO changes is not delaying anything. But with Chris and the team, we would have done the same.
Speaker #3: I'm also aware of that 27 will be the final year of the four-year strategy we announced some time ago. So of course, we will give more insights on how to move further somewhere in time.
Speaker #3: But probably later in the year. And then your second question was on installed-based copper. In the fiber footprint, am I correct?
Speaker #6: Yeah, I mean, people have to, well, they get rid of their copper connection. They need to make a choice. They can either use your fiber connection or they can maybe use the cable connection of an alternative.
Speaker #3: Yeah, so all our customers move more or less, yeah, in simple words, we move all our customers from copper to fiber. First of all, the customers who want fiber, we move to fiber.
Speaker #3: And then second, the customers who don't want fiber, we move to fiber with a copycat of the copper service. And then later off, we were convinced that we can sell up, for instance, we say we give you for two months one gig for free.
Speaker #3: And if you like it, then you have to pay for it. So all KPN customers are moved to fiber. Same for wholesale customers. And we see an increase of the penetration of roughly 60, sorry, 6% in the first wave.
Speaker #3: So when we build fiber in a new area, the our consumer base is improving and the wholesale base is improving and the total adds up to an improvement of 6%.
Speaker #3: And then in a couple of years, we see in the older fiber areas, our penetration ratio moving up to 60%. So in the areas where we build fiber longer than five years ago, we are already above 60%.
Speaker #3: So and that is why we truly believe in fiber. The business case is working. A lot of customers on Ziggo don't want to move to fiber because they just don't want to move the TV interface or the remote control.
Speaker #3: But when they move households, or when they move out of the country, once in 10 years, people move, they go for fiber when there's fiber in the building.
Speaker #6: Very clear. Thank you very much.
Speaker #4: All right. Thank you, everyone. Before I would like to conclude today's session, I would like to give the word to Kiss.
Speaker #7: Yes, thanks, Matthijs. Maybe Professor Figee might say a few final words of wisdom. And I thought about this call and when you're full-time visit KPN running payment terms, RPUs, NetApps, order balances, occasionally you put yourselves in the shoes of a shareholder or an analyst and you think, valuation is you guys are figuring out is paying today worth the future cash flows that are going to come in, right?
Speaker #7: And I guess in our sector, you're looking for companies where the future assumptions required to justify valuations are not too heroic, where free cash flows and dividends provide some support and where you kind of paid to wait for your assessments and your analysis to come through.
Speaker #7: That's why at KPN, we've always aimed to reduce the cost of capital by being very predictable on the return on capital, right? You may have accused me from time to time to be very meticulous and precise, but being predictable means safety, security, and predictability.
Speaker #7: Thereby reducing in my view the cost of capital for KPN and we've delivered the 20 cent DPS on this year and committed to a 25 cent dividend per share on next year.
Speaker #7: And then when I look at my two colleagues in the eyes, I think they'll for sure deliver that. That means if you add your share buyback program, KPN's share price yields cash return of well over 7%.
Speaker #7: So when you look at the tangible support to valuation, the volatility around future cash flows, and all the uncertainty in the market and the competitive environment, at KPN, I think you're being paid to wait for the future to unfold, right?
Speaker #7: Our share price provides a clear anchor and we've always worked against that. And I'm very sure that KPN will continue to do so in the sector.
Speaker #7: So I'd like to thank Joost. Joost, there's a gray zone when a colleague becomes a friend. You've clearly crossed that line. And I hope to continue to stay in touch and see you on Saturday morning at the Albert Heijn in Den Haag.
Speaker #7: Wouter, best of luck to you. I'm within almost seven years at KPN, getting stuff done here requires blood, sweat, tears, and the occasional shutdown of common sense.
Speaker #7: But KPN will do the right thing. Has done the right thing and I'm pretty sure you will do the right thing. And if anyone would be the next CFO of KPN, it's you and I could have not wished for a better more talented successor and you'll be doing fantastic.
Speaker #7: And to my listeners on the call, thank you very much for keeping a sharp, thank you very much for your optimistic and respectful challenges and the occasional moment where I thought, how the hell did you figure that out?
Speaker #7: So well done to you. Thanks for almost seven great years, 27 fantastic quarters and I'll see you on the other side. Thank you.
Speaker #4: Thank you, Chris. And with that, we conclude today's session. Let me know in case of any questions.
