Koninklijke KPN N.V. (KPN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to KPN's First Quarter Earnings Webcast and Conference Call. Please note that this event is being recorded. [Operator Instructions] I will now turn the call over to your host for today, Matthijs Van Leijenhorst, Head of Investor Relations. You may begin.

Yes. Thank you, operator. Good afternoon, everyone. Thank you for joining us today. Welcome to KPN's Q1 2025 Results Webcast. With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. As usual, before we begin our presentation, I would like to remind you of the safe harbor on Page 2 of the slides, which applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Now let me hand over to our CEO, Joost Farwerck.

Thank you, Matthijs, and welcome, everyone. So let's start with the highlights of the first quarter of this year. On group service revenues, we increased by 3.8%, of which 0.7% is related to Youfone. And in the mix, in consumer, the service revenue trend slightly improved in the first quarter, mainly driven by mobile. Our business segment continued to show solid growth, and wholesale service revenues accelerated mainly driven by mobile. We delivered solid EBITDA growth, partly due to contributions from Youfone and Althio. And as expected, our free cash flow declined partly due to higher interest and tax payments as expected, and this is also expected to recover in the second half of the year. We further expanded our fiber footprint together with our joint venture, Glaspoort. And we received an award from Umlaut for having the best mobile network in the Netherlands with the highest score ever measured in the world. Our new tower company, Althio, began its operations in mid-February. And therefore, we upgraded our full year 2025 outlook accordingly, which we are confident in achieving. Overall, we started the year well. Of course, there is uncertainty given the current economic and geopolitical environment. But we are confident that the direct impact of U.S. trade tariff measures on us is limited and consider our business resilient with strong demand for our essential connectivity and communication services. As a reminder, our Connect, Activate & Grow strategy is supported by 3 key pillars. 1, we continue to invest in our leading networks. 2, we continue to grow and protect our customer base. And 3, we further modernize and simplify our operating model. And together, these strategic priorities support our ambition to grow our service revenues and adjusted EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years, or simply put, our 3-3-7 CAGR framework. Let me now walk you through the business details. We continue to lead the Dutch fiber markets. In the first quarter, we expanded our fiber footprint by adding 100,000 homes together with Glaspoort, now jointly covering 64% of Dutch households. Our efforts in connecting homes and activate customers have paid off, reaching 78% of total homes on our network, while 2/3 of our retail base now enjoys the benefits of fiber. Let's now have a look at the consumer segment. Consumer service revenues increased 4.6% year-on-year, of which a bit more than 3% is related to Youfone. We are satisfied with Youfone's performance, which enables us to better address the no-frill segment of the market. Our increased focus on loyalty and base management is further strengthened by the recent launch of our new household proposition, CombiVoordeel, which rewards customers for taking multiple products per household. Currently, 60% of our fixed households have adopted the fixed mobile proposition. Our consumer Net Promoter Score declined influenced by a challenging consumer sentiment, especially at the start of the year. However, customer satisfaction trends improved during the quarter, supported by the launch of the new household proposition I just mentioned. Now let's take a deeper look into our first quarter KPIs. We saw another quarter of broadband base growth despite the challenging competitive environment. We maintained a constant healthy inflow of new fiber customers, which, combined with the growing ARPU, led to continued growth in our fixed service revenues. As expected, our mobile service revenue growth improved sequentially, mainly driven by commercial improvements. And our postpaid base increased by 21,000, while the postpaid ARPU, excluding Youfone, remained relatively stable. Let's now move to B2B. B2B delivered another strong quarter with 5.1% year-on-year growth driven by SME and tailored solutions. Commercial momentum remained solid in mobile and the majority of our B2B broadband customers now utilize the fiber network of KPN and Glaspoort. And despite the volatile economic environment, our business Net Promoter Score remained stable. B2B customers appreciate KPN for stability, reliability and quality of our network and the quality of our services. In today's complex world, we help Dutch businesses to become digitally resilient, supporting them in their digital transformation to work more securely and more efficiently. And SME continues to grow driven by strong performance in cloud and workspace, broadband and ongoing momentum in model. And to protect SME customers from digital threats, KPN offers extra-safe Internet services, enhancing their digital strength against rising cyber crime. I believe more than 70% is currently already making use of this, 70% of the base. LCE service revenues remained stable with solid performance improvement, IoT and cloud workspace, offset by some price pressure in mobile. Tailored solutions delivered as planned with strong growth driven by higher project revenues. And this business always remains subject to project timing and seasonality. Then our wholesale service revenues continued to improve, mainly driven by mobile as well. Broadband service revenues increased despite the declining base, mainly driven by higher fiber service revenues. Mobile service revenues remained strong driven by ongoing growth in international sponsored roaming volumes. And furthermore, we extended the contract terms for some of our largest wholesale partners. Other service revenues in wholesale represented a slight increase, mainly due to an update in visitor roaming. Now let me hand over to Chris to give you more details on our financials.

Thank you, Joost. Let me now take you through our financial performance. Now let me start by summarizing some key figures. First, the adjusted revenue of KPN increased 3% year-on-year as organic service revenue growth across all segments outpaced lower nonservice revenues. Second, our adjusted EBITDA after leases grew by 4.7% in the quarter or plus 3.1%, excluding all contributions from Youfone and Althio. This growth was mainly driven by higher service revenues. Our EBITDA margin increased 32 basis points to 44.7%. And in the first quarter, we managed to lower our indirect cost base despite rates indexation, but it was partly due to the intra-year phasing effect as well. Our plan for the full year is to have a slightly declining overall indirect cost base. So far, we had a solid start to the year and we're confident in our ability to reach this year's EBITDA target. Third, our reported net profit decreased despite EBITDA growth due to one-off costs related to the Althio transaction. Finally, our free cash flow decreased [ 70% ] or EUR 26 million compared to last year, but will pick up in the second half of this year. And I'll share a little bit more detail on underlying cash developments later in this presentation. In the first quarter, group service revenue growth sequentially improved to 3.2% on an organic basis. And within the mix, consumer service revenues increased by 1.2% year-on-year, connected to Youfone, primarily driven by the improved performance in mobile. Business service revenues recorded another strong quarter and grew by 5.1% year-on-year organically, driven by SME and tailored solutions. And finally, wholesale service revenues grew by 6.1% year-on-year connected to Youfone, mainly driven by the ongoing success of our international sponsored roaming business. Our operational free cash flow increased by 12% year-on-year, well ahead of mid-single-digit growth guidance. This growth was partly driven by the contributions from Althio and Youfone, along with slight lower CapEx due to phasing. Our total spend, so combining operating and capital expenditures, are broadly same. For the full year 2025, we expect high and solid single-digit growth rate in operational free cash flow, supported by also Youfone and effectively stable CapEx. Obviously, if not for the gradual normalization of taxes paid, the operational free cash flow would largely flow directly into our free cash flow. Now let's talk a bit more about the moving parts of the free cash flow. Our solid operational free cash flow did not yet translate into a full free cash flow growth yet due to higher interest payments, phasing of working capital and higher cash taxes. In fact, the timing increase of interest and cash tax payments explain the delta in free cash flow compared to the first quarter of last year. And as guided, our free cash flow generation will be stronger in the second half of the year driven by continued operating cash generation and normalization of tax interest payments. And we, therefore, reiterate our free cash flow guidance for the year. At EUR 128 million, free cash flow margin was 9.1% of revenues. And we ended the quarter with a robust cash position again. We continue, therefore, to have a strong balance sheet. At the end of March, our leverage ratio stood at 2.4x, comfortably below our self-imposed seating of 2.5x, even after absorbing the full effect of the Althio transaction. Our interest coverage was sequentially a tiny bit lower as we faced higher interest costs. And we successfully issued a EUR 800 million senior bond and redeemed the remaining part of an outstanding hybrid. These transactions increased the average maturity of our outstanding debt and lowered the average cost of debt. Our average cost of debt is at 3.7% and exposure to floating rates about 16%. Our liquidity of around EUR 2.5 billion remains strong, covering debt maturities until the end of 2028. Now let's turn to our outlook and midterm ambitions. Following the closing of Althio in mid-February, we upgraded our full year 2025 outlook for adjusted EBITDA after leases to more than EUR 2.6 billion and our free cash flow to about EUR 920 million. These outlooks remain fully intact. Other outlook items have also been reiterated, namely group service revenue growth, approximately 3%, driven by organic growth across all segments. And CapEx remains stable at a peak level of around EUR 1.25 billion. The updated 2025 guidance illustrates that the consolidation of Althio will have a modest positive contribution to KPN's future financial results. On top of the existing [ 3-3-7 ] financial ambitions that we presented at our Capital Markets Day in 2023. Now let me briefly wrap up with some takeaways. First, we had a solid start to the year with continued group service revenue growth across all segments, leading to a healthy EBITDA growth, fully consistent with our [ 3-3-7 ] ambitions. In fact, our first quarter underlying service revenue and EBITDA growth came in well above the 3% hurdle. We continue to lead the Dutch fiber markets with ongoing delivery of connected homes. Currently, 2/3 of our retail base and more than half of our B2B base are on fiber, which bodes well for the future. As planned, our free cash flow generation will be back-end loaded, and we are confident in our ability to reach our 2025 and midterm outlooks. We are currently at approximately 25% completion of the EUR 260 million share buyback program for this year, effectively distributing all of our free cash flow to our shareholders. Overall, we think we will have solid results in the first quarter. As mentioned, the uncertainty remains on the future direction of U.S. tariffs and the wider economic implications. We are confident that the direct impact of U.S. and reciprocal trade tariffs on our operational KPIs and financial results is limited. Any impact can be managed within our CapEx envelope. Obviously, we keep a close watch on the effect of global trade and economic developments on the Dutch economy, where we consider our business to be resilient. Thanks for listening. Now let's turn to your questions.

Yes. Thank you, Chris. As always, before we start the Q&A session, I kindly request that you limit your questions to 2. Operator, please proceed with the Q&A.

[Operator Instructions] We will now take our first question from Polo Tang of UBS.

I have 2. The first one is on consumer broadband. Can you maybe just talk through what the customer reaction was to your 3.3% price rise? And what has been the impact of VodafoneZiggo cutting its broadband pricing by EUR 5 per month. And are you seeing any signs of consumer NPS improving in Q2? My second question is just on your fiber build rate, because it slowed down to about 100,000 homes a quarter from the peak of 168,000 in Q1, 2024. So why have you slowed down? And how should we think about the build rates from here?

Yes. Thanks, Polo. Yes. So in consumer broadband, we increased prices and most of the service providers increased prices. On the other hand, that goes hand in hand with discounts. But the price rise of KPN landed well in the market because we can perfectly explain why we do this in line with the CPI indexation. And of course, we invest a lot in the quality, and also then as with launching the new proposition, CombiVoordeel, where we really focus on the existing base of customers, and we explained that we do not want to surprise existing customers only with price increase, but we also surprise them with free OTT services in combination landed quite well. So while we started the quarter with a bit of a dip in the Net Promoter Score. But during the quarter, we already saw the Net Promoter Score climbing up. So I expect that to improve and also that will be visible in the second quarter. Now on fiber, you're right, we're slowing down a bit. We focus more on connect and activate than homes passed only, to put it that way. The strength of our fiber rollout is prepared to competition, that we really connect most of the households, while rolling out. So it goes a bit in batches. I expect the second half of the year especially much stronger on the house passed than this Q1 with 100,000 average. We still aim for 80% end of '26. Approximately 80%. Could be a bit more, a bit less. But we will continue to roll out. And in this pattern, I expect it to come close to that 80%. And in 2027, we still foresee a material step-down in our CapEx dropping to below EUR 1 billion, and that is completely locked in, in our strategy.

We will now take our next question from Andrew Lee of Goldman Sachs.

I just had a -- just one question really, on the competitive environment in the Netherlands. You I think had been saying that you felt that the consumer growth could recover in the second quarter, and saying that the recovery comes in the second half. I think that's a bit of a shift. So I just wondered if you could talk through what's changed. And also, how confident are you the price rises that are just in line with inflation will be enough to support that recovery?

I'll take the first one, Andrew. I think, in terms of margin, I think we see really on mobile actually the recovery from the fourth quarter came earlier. So actually, I think we said that mobile would recover in the second quarter; it recovered in Q1. So I think mobile initially has done better than we planned. And we think the current growth rate in mobile in Q2 will be similar to Q1, so more or less around 2% or 2% plus. And on fixed, I think will be similar to what it is today, around 1% growth. So I think it's really on the margin. The good news, I think the mobile recovery that we predicted in Q4 came a bit earlier in Q1 and it seems to continue. With that, I think consumer market is not going to be the growth champion of the group, it probably grows between 1% to 1.5% for the full year. So don't read too much in it. I think you just expect that mobile should recover earlier than we envisaged. And your question on price increases, again, I think they've landed relatively well. I mean we announced that there was no real, I think, impact on NPS. I think there was some NPS impact on top by the ACM around willingness or supporting customers to switch, but especially the CombiVoordeel that Joost described really did well and we boosted our NPS. And I think the price increase that we've announced, specifically indexation, nothing more, nothing less. So that actually feels have been absorbed pretty well by most of our customers.

I'm just trying to get a bit of an insight into -- that's helpful. I'm just trying to get an insight into the competition from -- for Ziggo and Odido. Obviously, that's been more intense over the last 6 to 12 months. But just trying to get a sense as to whether kind of the second derivative of what you're seeing, has anything changed in their behavior or nothing has changed, therefore, you don't see things getting materially worse and, therefore, you get easy comps into the second half of the year? Or are you seeing any kind of canaries in the coal mine that give you a suggestion that actually competitive intensity abating in some way?

Certainly no canaries in the coal mine. If anything, we look at price development growth in a Odido had an effect of price increase for the 1st of Jan, I think around 3%. Odido or Vodafone, I don't know, is also something similar. I mean so the price adjustment on the front book, I mean they were more expensive than we were setting. Their price is now more or less in line with us. And so I think the competitive intensity is not really changing. In fact, I think we've seen, running up into the second quarter, our order balances improve. So typically, the order balance [ go ] before the net adds. So early indicators into Q2 at the end of the first quarter, so early March, we saw the monthly order balances also vis-a-vis competition doing better. So I would say competitive intensity stable. Price changes by competitors are within the range, within the margin, not really changing. Our CombiVoordeel land actually quite well, should lead to lower churn. And we saw some encouragement around the operational KPIs into Q2 because of the order balance. Obviously, Q2 is still a 3 months to go. But I think the momentum at the end of Q1 going into Q2 was reasonably supportive. And the good step we made is really 2 fixed mobile converged brands in the market. That's the only players. So KPN on one side, Youfone on the other side, both covering convergence. But the lineup is completely different. So above 200 meg of fiber for KPN and below for Youfone. Also when it comes to mobile, Youfone, completely different price and position than KPN. But both fixed mobile together. That's really healthy.

And our next question comes from Ajay Soni of JPMorgan.

Mine is really around the EBITDA phasing for the year. I think previously you said that Q1 would grow to be around 2%, 2.5%. I think even if you strip out the towers, you still get at 4% for Q1. And you said you expect a material step-up into Q2. So do you still see that going ahead into Q2? And how do you see that phasing over the other quarters to get to your 3% growth for the year?

Good question. On the phasing, I think Q1 is actually better than we expected. I think Q2 will be similar to Q1 in terms of -- if I include the tower company, I would expect EBITDA growth north of 4%. I expect a bit of step down in Q3, below 2%, and then about 3% beginning in Q4-ish. One of the factors is -- I was getting a bit wonkish around accounting is -- we do account for your holiday provisions and you may have seen we've changed basically the way people book their holidays. So the classical pattern, where you donate to your holiday provision in Q1, Q2 and Q4 and you release in Q3. That is changing for the year. That supports a bit the EBITDA growth in Q1, Q2 and Q4 and the attractiveness from Q3. It's a technical thing, basically is distribution of earnings across the year. So that means I would see Q1 was a 4.7%, including Althio. I'm pretty bullish on Q2, certainly north of 3%, could be starting again with a 4% handle in Q2 including the tower company. Q3 will then be a bit less with the year-on-year comes around this holiday effects. Historically, you always had a relief from your holiday provision in Q3. You don't have it right now. So Q3 will be around less than 2%, and Q4 getting back to 3%. So full year guidance fully intact. But distribution is quite high in the first 2 quarters, a bit lower in Q3, and a back at Q4, and the technical accounting around all the provisions, like working through it on the intra-year phasing. But that's kind of the outlook for the year and we feel pretty confident with that. And also I'm pretty cool looking at this full year guidance for the year, if you add up all the quarters.

Okay. And just a quick follow-up on that because the numbers you've given there would kind of give us a sense that you would beat your 3% target for 2025. Obviously, I know you haven't changed guidance. But is that the right way to think about it? Unless Q3 is significantly lower than your guidance of 3%, it feels like you're going to be comfortably above that 3% mark...

Q3 will be low 2%, right? Q3 will be low 2%. So I think you can do the math in full for the Q3 number now. But look, we started the year pretty well. I think we're confident on the year, but it's kind of -- it would be all to see in March or April with volatility across the globe to be increasing your guidance for the year. Let's put it this way, we feel pretty okay with how we're trading and we're confident in reiterating our guidance for the year. It's just that the Q3 will be below 2% and the other quarters will be again above 3%.

And our next question comes from Siyi He of Citi.

I'll have 2, please. The first one is I wonder if you could comment on the competition on your infrastructure side. It seems that the broadband wholesale has apparent growth because of the inflation and also because of the contribution from Glaspoort. Just wondering whether you think this low single-digit growth could be sustainable going forward. And the second question is on the cost cutting. Chris, I think you mentioned that you expect OpEx to only moderately down for this year. But looking at your FTE reduction, especially in your own FTE, it seems has picked up, since Q4 last year. I was just wondering why don't we -- why shouldn't we expect higher OpEx reductions given the FTE changes?

Well, let's start on the fixed -- on your infrastructure question. So on the infrastructure side, we cover more or less a clean footprint of 64%, not that much overbuild compared to the OpCos in other areas. So moving forward, we will face more overbuild, but we have Delta and ODF running a bit more than 1 million households in different footprints. Yes, in our lineup and in our strategic approach, we differentiate by focusing on base management instead of acquisition. I think that's a very important step we made there. And that's where we expect growth to come from. So like I just said, rewarding loyal customers, offering speed upgrades, free security services, things like that. We have a strong base. Currently, 35% or more is in contract, and we expect that to improve looking forward. On the fiber footprint 2/3 of the total KPN base is already on fiber. So that's an important one because fiber customers are happier customers and they churn slower than other customers. And besides that, we positioned Youfone. So yes, we see a growth of north -- yes, a bit more than 1% on broadband. And the way we position ourselves now with the growth income through KPN both and Youfone, we expect it to continue because we also will -- well, probably, it's not totally fully already decided on. But usually, we give another price increase middle of the year. But that decision is up for, yes, somewhere coming month for us to take, or 2 months from now. So all in all, following run rate, I expect the broadband to continue.

Yes. Siyi, on your cost question, I think you're right, we are now running about 200 FTEs below last year, dropped, I think, 56 FTEs in this quarter. The plan for the year is to reduce FTEs by at least 300 towards 400. That would be very supportive. And again, the lowering spend on energy with guidance for minus 15, that also comes in the back. I think the 2 caveats. 1 is if you reduce your cost right now, you have [ ebates ] right now, it really starts to impact full year '26 more than full year '25. So basically, the full year effect will be felt more next year than this year. So that's 1. The second thing is the competitive intensity in the market and our own actions, say, the CombiVoordeel, also drives more customer interactions. The number of service tickets or pools are quite high, that requires us to keep our support staff a little bit elevated levels, higher than we initially thought and planned. So in the 200 step-down is already an increase in your support staff to keep your customers happy. That also -- and that evolves. So we have a plan and ambition to reduce FTEs in that part of the business considerably. But then you also need to have the activity level to come down, and that has not happened yet. So I think all in all, FTEs are down 300 to 400. If you end up at the higher end of the range, that's a function of how good we're managing back customer interaction, moving our customers through the app, to digital interaction, et cetera. That should help us. But then again, it will be more '26 impact run rate thing than at '25 thing if you reduce your FTEs. But overall, the statement of flat to slightly declining cost base that we guided for, that seems also reasonably secure from where we sit today.

And we'll now move on to our next question from Keval Khiroya of Deutsche Bank.

I've got 2 questions, please. So first, the Glaspoort Delta deal is still under review. What's your latest view on when we should get the final ruling? And do you still think the initial regulatory concerns can be overcome? And secondly, as you mentioned, 2/3 of your B2C base is now in fiber and churn should be low. Can you give some color on just how the fiber churn compares to the copper customers?

Yes. So Glaspoort is working on that deal with Delta. I think it's encouraging to -- especially that Delta is willing to sell off potential overbuild households to Glaspoort. So that is a positive signal for us. And we're still waiting for our regulator to come up with the final decision. Regulators in the Netherlands, they like regulating and -- but they especially take a lot of time on everything they do. But I'm very confident that one way or the other, that will be, at the end, successful deal, since I do not see any serious ways to block this from a legal standpoint. But yes, we have to wait and follow the procedure. We expect a decision before summer.

And your churn question, you're right, 2/3 is now on fiber, 1/3 on copper. What does it mean for churn? We've seen -- if you look at the underlying churn trend, we've seen copper churn gradually moving up in [ fairness ] and fiber churn also moving up a bit, but substantially below copper. Copper is north of 10%. Fiber substantially below. So that should -- that mix should gradually help us. But then again, the -- if you look at demand of clients on copper and there certain demand that's still something you feel. I think the movement of -- the 2 effects. 1 is getting more and more customers from copper to fiber. And then the CombiVoordeel thing, which really is all about convergence and having multiple products of KPN, fixed mobile and entertainment, that should over time drive churn down. So in the long run, when your copper base declines relative to fiber and the impact of the CombiVoordeel kicks in, we should see a material reduction on churn. But for reference, copper churn is north of 10% and fiber churn is well below 10%. I think the fiber churn, call like 60% or so of fiber churn -- or sorry, copper churn.

And our next question comes from David Vagman of ING.

The first one is on the cost. Could you give us more insights on the direct cost year-on-year evolution. So -- and for instance, on the path between, let's say, to split between the wholesale cost from Glaspoort and the change in mix that might be at play. And secondly, on the indirect cost evolution, can you discuss the drop in IT expense?

I think on the direct costs, look, on Glaspoort, for full year, the total cost charge was like EUR 25 million higher, EUR 6 million a quarter up from last year. So it's about EUR 25 million a year going through your direct costs. There's more direct costs going in as the product is roaming. The roaming costs are going up. To some extent, we've got more sponsored roaming business for which we also procure roaming services. Net-net, it's still a very good margin business, but there's still more direct costs coming through. And then the third element is the cost around your spend to acquire broadband customers. That is, I think, notoriously high in this market. So product plus actions and spend is quite high to, say, win broadband customers. So the direct cost increase for the full year, about EUR 25 million of that, is plus EUR 4 million to EUR 6 million in a quarter. And roaming is EUR 4 million to EUR 5 million a quarter in terms of extra spend. And the remainder is combination -- is cost around B2B and B2C customer acquisition cost. On IT expenses, there is a bit of timing, but it's something, but that's because we're renegotiating our total lease costs or licenses costs are getting better. So we've made a considerable effort on reducing them of licenses, renegotiating licenses over time. But still, there is underlying upward pressure on IT costs in general. The way to battle this is to limit licenses, renegotiate for longer terms and we limited legacy systems. So that will fluctuate a bit during the year.

And we'll now take our next question from Steve Malcolm of Redburn Atlantic.

Yes. 2 questions, please. First, just following up on your comments, Chris, on the consumer revenue outlook. I guess, when we look into the second half of the year, it's pretty obvious, you lap Youfone and you've got a lower price rise this year than last, I think, it's sort of plus 3% versus plus 4%. So I guess we should -- as you said, we should be thinking kind of the underlying 1% to 1.2% that we saw in Q4 and Q1, it feels like a reasonable run rate. Looking beyond '25, I mean, is there any reason to think that consumer revenue -- service revenue growth rate will improve? It seems like sort of 1% to 1.5% is going to be hard to break out of. And if that is the case, just to be clear, where we should be looking sort of 4.5% to 5% in the rest of the business, i.e., wholesale and B2B, and you're kind of broadly comfortable with that. Is that kind of the shape of the 3 divisions? And then just a quick sort of detail one on tailored solutions this quarter. That was obviously a pretty big driver of the revenue upfront in B2B. Could you just give us a bit more color on that and how we should think about tailored solutions for the rest of the year? Because we don't normally see plus 15%. That would be very helpful.

Yes. So I'll jump on this one. Joost, and you can -- yes, on consumer, I think you're right, this year, 1% to 1.2%, up to 1.5% for the year, but say, 1.2-ish is probably the right number. I think mobile better than fixed. Youfone growth will come in, right? So we've now excluded all Youfone business, including the growth of Youfone. So you might say we've not done ourselves justice because the growth of Youfone is the delivery part of the strategy. That will start to contribute. I think on mobile, you see for the rest of the year, growth around 2-ish, right, fluctuating around 2%, and possibly higher in Q4 when the price typical indexation kicks in. On fixed, it's a bit lower. I think around 1% and some chance of flattening off in the second half of the year, depending a bit on how competitive intensity evolves. But that leaves you with between 1% and 1.5% for the year. Is it hard to break out of? Yes. What may be the drivers? So I think if churn goes down, right, that would be the key driver for this thing, is that you get more of your fiber -- because I think mobile probably around 2% is actually feasible in the long run. And then the strategy to bring out fixed, but that's a function of the amount of churn in the market and ease in the market. So that in order to get to the 3%, indeed, you have to have higher growth rate in business and wholesale, we feel pretty confident on that. We also are doing quite well. Obviously, on the mobile side, both the national carriers and sponsored roaming. And there is no reduction in growth there. I mean that's still -- we see new wholesale customers signed up as well as a good pipeline of also clients waiting to be signed up on this type of business. And in business markets, I would say, continuing -- the risk is, of course, a massive recession and bankruptcies, but that's not in the cards. If not, we will see LCE gradually, during the quarter, gradually inflecting in the second half of the year. As for the plan, SME growing about 5%. And indeed, Data Solutions is quite lumpy. It was very high in the first quarter. I predict it's going to be very high in the second quarter and gradually taper off. It's a function of when projects come on stream. So expect for the second quarter to be tailored solutions could be with a 10% handle as well in the second quarter, and then gradually going down in the second half due to year-on-year comps and the timing of projects coming on to stream. So basically, I think, very long story short, [indiscernible] Steve, as always, as you go 1% to 1.5%, the rest combine with 4% to 5%. Confident on that, for that to break out, fixed grow to 2%, 2.5%. And for that to happen, need to have lower churn.

I mean we were a base company, right? And so price increase is very important. And you mentioned looking beyond 2025. So the steps we are doing is really accepting we're a base company. Usually telcos hunt for acquisition and report in net adds. We consider that for us not the game to play. The steps we make we think is really reducing churn should make the base grow, but that is the question mark. It's going to work. We invest now in existing customers, to reward existing customers and try to lower the churn. And for a company like KPN, it's the most efficient way to make the base growth. So there's a lot of customers, we think, in the Dutch market looking for a discount. And every year they rotate for a new Samsung TV or a discount of EUR 400 on the Ziggo side. And we're not looking for these kind of customers. That is a mistake. So we want to create value out of the base we have and make that base grow by adding more valuable customers. So that's why we are, of course, keeping an eye on everything that's happening on discounts and on the acquisition side, but also that's why we focus so much on that churn reduction as well.

Just a quick follow-up. I mean, do you think you can get the churn down without pulling back on the price rise just by having more fiber customers? Because I guess that does play a big role. Just on that tailored solutions business, Chris, is it good margin business?

Yes. So I mean on price rises, we understand the discussion as we now and then in the market. But the real problem in the Netherlands is not Internet prices, but the energy prices. That's, by the way, done by our own government. So I think we should to have that discussion better on the table. But to our customers, we're perfectly able to explain why we increase prices and to be honest, it's quite not. We only follow our CPI. Well, we invest a lot in fiber. We get to all the consumer customers away a free security package. Only 10% use it today, but we expect to lock in a lot of customers via the security. We're the only one providing that security solution to the consumer base. And we do the same in SME, 70% is in that base already, and it's for free. So we're not only getting -- communicating price increases to our customers, we're also communicating about the increase of quality and the additional services we give them and where we really differentiate from competition. On tailored solutions, that's a completely different ball game, of course. We cleaned it up in the way that we are not hunting for revenues only, but for -- yes, revenue streams where we really can create margins as well. They're doing a great job there, especially through the government and the Ministry of Defense. The Dutch Army is one of our most important customers. We run large projects, and every now and then such a project kicks in -- in the revenue. So it's not that we're going to do this number every quarter, but it's busy cycles. But we expect a decent performance from tailored solutions, not on the level as Q1, but much better than we did like a couple of years ago.

The margin, Steve, Joost and I, we've been through the clean of the business. So we walk out with a massive like margin paranoia when it comes to tailored solutions. So we do every deal looking at margins. And this is also a business that's CapEx-light, right? It's network service management. So when we look at the free cash flow margin, and EBITDA margin is less than typical telco, but there's hardly any CapEx at all. So the free cash flow margin of this business is not that far off of the free cash flow margin of the group. But rest assured that the first thing that Joost and I ask when a tailored solutions deal comes for a signature, before we sign, can we please walk through the margins in all details to make sure we're writing good business?

And we will now take our next question from Luigi Minerva of HSBC.

The first one is on the Net Promoter Score for consumer. Now I noticed from the annual report that in 2024, the NPS was the metric where management STI compensation was not paid, because you missed on it. And then now in Q1, we see a further step-down. So I guess the question is what kind of measures you've taken to invert the trend. I appreciate the color you gave earlier on, that Q2 looks a bit better, but it would be keen to understand better what measures have you taken. And then the other question is on, yes, following up on the B2B question from Steve earlier. When it comes to LCEs, do you still expect to deliver positive growth in 2025? This quarter, it's marginally down. And I was wondering if it's kind of early sign of macro uncertainty.

Yes. So Luigi, thank you. Our Net Promoter Score, we made -- it's very important in the company, especially for consumer or mass market, I should say. And it's also a financial target for management in the company. Yes, so minus 14 -- or 14 instead of 16, which is more or less our target for this year. We're still the leading telco, when it comes to Net Promoter Score, but every now and then we face dips. We're doing a lot of work outside on rolling out fiber and that, every now and then, it creates a lot of customer traffic. But the main thing really was media and its questions around how expensive is the Internet, and especially exactly around, yes, that period of time, we did the Net Promoter Score measurement cycle. And also in the customer interface, every now and then when we have -- when we face an outage of customer systems and then have in the first quarter as well, it immediately impacts your Net Promoter Score. But I mean we've been in ups and downs on the Net Promoter Score and we know how to run it. So I'm pretty confident that we will lift it up in the coming quarters to a decent level and that we still can outperform our main competitors in this market. And on Youfone and SME we do plus 40. We're not reporting on that. So that also means that indeed, especially in Netherlands, price is an important part of how customers experience the service. But besides that, KPN is targeting for around level of 60, yes.

And on LCE [indiscernible] yes, we are still expecting and planning and hoping for -- hopeful for positive service revenue growth for the second half. You'll see a decline in Q2, I think. And then we turn in Q3 and Q4. And if you open that business up, you look under the hood in that business, obviously, there is a pressure on mobile where, obviously, there's price competition. We are able to sustain our base, but there is ARPU pressure on mobile, which is countered by all the other businesses in LCE, where there's growth, and there's actually quite some demand by Dutch businesses for supporting digitization of their operations. The demand is actually quite good in all this. There's quite good development in IoT and machine-to-machine solutions. So I think with that, I would expect for the full year of LCE when we're looking back on the year 2025, a small positive net growth, single -- below 1%, but small positive net growth on LCEs service revenues for the year, having turned the corner then in the second half of the year. And that means that LCE really is about 2026, right? If you -- if we've been able, as we plan, as we expect, to turn this thing around in the second half of the year and make it sustainable, then LCE it will be a contributor to growth next year. I mean, that's the whole plan. It's about the run rate '26. But when you look at the numbers, expect some decline in Q2 and then the turnaround in the corner for Q3, Q4 for a net-net full positive growth for the year and a more -- a better run rate into 2026.

And we will now take our next question from Joshua Mills of BNP Paribas.

First one on B2B and then the second on wholesale. On the B2B side, you sound very confident about the medium-term resilience of those revenue streams despite the macro backdrop. And I guess KPN suffered more -- more than most on the B2B side over the last 15 years. So the question is what makes you more confident that you can be so much more resilient now versus in the past? Is it that the pricing is just a lot lower having B2B based or the business mix has changed and that in that longer-term contracts to gives you that visibility? And perhaps some -- a really detailed breakdown of where you expect the individual B2B revenue lines to go over the next 12 months. But in order of conviction and where you have more visibility, is it fair to say that you maybe have more confidence in the LTA than the SME and the tailored solutions segments in that order? Slightly longer, but first question on the B2B side for you guys. And then the second question just around wholesale. The line losses were a bit better than last quarter. And previously, you've given some indication of the impact you see from the old nets and also your wholesale partners. So hoping that you could give a bit more of an indication around the dynamics you're seeing in the wholesale net adds and old net markets as well today?

Yes, Joshua, on B2B, if you compare KPN, I would say, with others in other markets, the difference is that we started on the cleanup probably a decade ago. So where we faced super high tariffs on legacy business, we really had to do the migration, not only to IP-based kind of services, but also too much lower tariffs. So usually, when you start fixing your telco B2B business, then you take a hit by starting the migration. And that's why a lot of other telcos waited for that because you -- in the first wave you start eating up your own revenue, to put it that way. And that's what we did in past. So we know, where we are because we've done the migrations. And we know where we are on LCE because we're not completely done with the migration. But on SME to take an example, we migrated full base to our [indiscernible] platform. And by doing that, lost a lot of customers because -- or a lot of connections, I should say. Because during the migration, customers find out, hey, we can optimize. Well, we do not need 10 connections. We can only do with 1 fiber line and Wi-Fi, et cetera, et cetera. But that is behind us. So now we have a base of pretty good customers. We try to lock-in free security services, we try to add mobile or fiber. But a pretty good clean base with decently-priced services. And the tailored solutions, like Chris described, we clean it up -- well, that was also a trip of probably 8 years. So all kind of cleaners really focus on the top line instead of on the valuable things. We've been through all the contracts, through all the large customers. And of course, there's a huge price pressure on mobile. And of course, with every tender, price is lower. But we also decided on that part to use it -- to approach it more like a wholesale customer approach. So we're interested in creating value by adding more volumes on the network and not in ARPUs, when it comes to large -- super large customers. So I think there, we are in a pretty good shape. And then [ LCE ] We're somewhere that we passed the midpoint there, so ending the pace of migrations and fixing the portfolio. And then you know where you are. So in short, the difference between us and other players, as we said, we've done -- I mean, you look at KPN over the last 10 years, it was always like EUR 100 million down on B2B, and we had to cover up in other segments. And that improves over the last 5, 6 years. So I do not expect big spikes. That's also why we think that LTA will lift up. But we will not surprise you, it's only 5% to 10% or something. And SME, 10%, and we already announced it's more likely that it will move back to 5% growth, but still that's a decent growth. So all in all, looking under the hood, that will be different, a lot, like Chris said. And I think that it's all about fixing the base, fixing the pricing and move everything to IP new platforms. So all in all, we did a lot over the last 8 years, and that's why we are more confident probably, I would say, than others to predict our business.

Obviously, and then your second question just on wholesale online losses, a little bit less. There's some support from customers that move from B2B to wholesale. So that distorts the picture a bit. I think underlying, it's similar trends with last year. So I would say wholesale competition is as it was around Q4, Q3 last year, that's kind of continuing. We are in conversation with most of our wholesale customers and actually in pretty good spirits. Obviously, we try to protect our base, we try to protect the revenue per line as well. We also try to help them achieve growth in the wholesale market. So I think what's -- so line -- the competitive intensity in wholesale is similar to what it was last year, even if the numbers show a bit of better outcome. I think the difference is that we see more willingness on most of our customers to work with us to grow, and to find that growth on the KPN base. Obviously, that has to settle to real numbers. So numbers are what they are. Underlying trends, it's all a bit better, but expect the intensity to continue for the coming quarters. But there is some underlying improvements in our data to talk to a customer, to work with them to see what we can do to grow with them.

And the final question is from Michiel Declercq of KBC Securities.

Question would be on the FTE reduction that you touched upon earlier, between 300 to 400 potentially this year. I was just wondering, can you give a bit of a breakdown, where or in which departments these reductions will take place? I assume it's mainly customer interactions. And maybe also looking a bit forward, yes, what do you think that the potential is beyond '25 or let's say, going into '26 as we see, of course, the chat bot and AI capabilities improving, which should be a bit of a tailwind for you? And then also a small follow-up again on the B2B. I recall that during the Capital Markets Day, you assumed that the revenue growth or the service revenue growth between B2C and B2B would converge, let's say, or get a bit narrower. I understand, of course, the improvements in '26 following the transition. But yes, given the competitive pressure in mobile, is it may be fair to assume that the original conversion that you assumed in -- during the Capital Market Day, that it will be maybe a bit less than originally planned? Those will be my questions, please.

Okay. Well, Michiel, 300 to 400, Chris mentioned, I think good news is that we're already below 200, so 200 less than end of last year. And the one important thing there is indeed customer comes customer interaction. If you compare KPN to others, I think we still have a lot of people working on the customer interface, all has to do more or less with the fiber thing. So I think we're good on track to make the 300 to 400 step-down happening. More important is that we have a couple of transformation programs in place, which is really about how we run the company end-to-end on the main portfolio. And the big one there is, of course, mass market broadband. But also in B2B, we're looking at how we run more end-to-end. And so this all has to do with the implementation of AI tools, how we run data. We're having a program in place, which is called autonomous operations. And that all has to do with less people working in a far more efficient and, yes, way of improving productivity. So it's not only on customer interface, but we expect there to continue, especially when we slow down the fiber rollout, it will be easier to get this thing more efficient and more under control. But it's also about staff reduction in general. So we're not only looking at the customer interface. It's also the indirect FTE, as you call it, so people that are not daily working in the customer interface, but are working in an office behind a laptop. There we can optimize as well. So we're pretty confident that also in the years to come that we can benefit from these transformation programs to simplify the company further when it comes to people, but also improving the output of the company hand in hand by that.

Yes. And your second question on the convergence, I like the word convergence, on the growth in B2C and B2B. Obviously, compared to the Capital Markets Day, I think the overall growth of the 2 together is in line with the plan. But you're right, the mix is a bit different. I mean we find it -- B2C finds it tougher to go up and B2B finds it easier to stay high, so in comparison, right? So we do not -- some of the 2, the growth is the same. I think it's -- we find it more difficult than what we originally planned for to have our B2C growth go up due to I think competitive intensity in the market and the fact that we, as Joost said, we're a base company and [indiscernible] the market needs to behave like a base company, not to pursue growth at the expense of everything. And in B2B, as Joost said, there is underlying strength in our distribution scheme, strength in still employment in the Dutch market. I mean, the labor market is still very tight. So most of our SME and mid-corp customers will not let go of staffs, because you can't rehire them. And as long as they keep their staff, they keep their -- all their devices, subscriptions and what-have-you. And I think we see also more growth, what we call mission-critical business coming towards us, driven by security concerns, data concerns, et cetera. So I think compared to the Capital Markets Day your observation is, right some of the growth, the sum is actually where we want it to be, a bit more tilted towards B2B than to B2C.

All right. Thank you all for your attention. That wraps up for today's webcast. If you have any further questions, just reach out to the Investor Relations team. Thanks again.

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