Good day, ladies and gentlemen, and welcome to KPN's Third Quarter Earnings Webcast and Conference Call. Please note that this event is being recorded. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks. If you would like to ask a question, you may do so by pressing star one on your telephone. I will now turn the call over to your host for today, Matthijs van Leijenhorst, Head of Investor Relations. Please go ahead.
Yes, good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPN's third quarter 2024 results webcast. With me today are Joost Farwerck, our CEO, and Chris Figee, our CFO. As usual, before turning to our presentation, I would like to remind you of the safe harbor on page two of the slides, which also applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations with respect to its outlook and ambitions, which were also included in a press release published this morning. All such statements are subject to the Safe Harbor. Let me now hand over to our CEO, Joost Farwerck.
Thank you, Matthijs, and welcome everyone. Let me walk you through some of the highlights of last quarter. We continued to deliver solid results with our Connect, Activate, and Grow strategy. Group service revenues increased 3.4% on an organic basis in the third quarter, with growth visible across all segments. Consumer was driven by another quarter of solid postpaid inflow and continued fiber revenue growth. Business continued to perform strongly, with all segments contributing, and as expected, wholesale return to growth when adjusted for Youfone. We delivered healthy EBITDA growth, and our year-to-date free cash flow was broadly stable compared to last year, and together with our joint venture, Glaspoort, we further increased our fiber footprint, and we now cover 62% of the Netherlands with our best-in-class network.
Finally, we are confident to deliver on our full year 2024 outlook and midterm ambitions. As a reminder, our Connect, Activate, and Grow strategy is supported by three key pillars. One, we continue to invest in our leading networks. Two, we continue to grow and protect our customer base. And three, we further modernize and simplify our operating model. And together, these strategic priorities support our ambition to grow our service revenue and adjusted EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years, or simply put, our 3-3-7 framework. Let me now walk you through the business details. Together with Glaspoort, our joint venture, we added 137 fiber households to our fiber footprint.
By the end of the year, we expect to cover 64% of Dutch households, and we are making good progress to reach our target of roughly 80% by the end of 2026. After reaching that point, we foresee a material step down in our CapEx, dropping to below EUR 1 billion. Within the fiber footprint, we focus on connecting households and activating customers, which is delivering good results with almost two-thirds of our retail base on fiber and strong fiber service revenue growth. Let's now have a further look at the consumer segment. Consumer service revenues continued to grow, driven by consistent fiber and mobile service revenue growth. Customer satisfaction Net Promoter Score is a priority and leading in the Dutch markets.
We have witnessed some adverse movements recently, which have our full attention, because we aim to grow Net Promoter Score. Now, let's take a deeper look into our third quarter KPIs. We saw another quarter of broadband-based growth despite the elevated churn in our copper base. We're able to maintain a constant, healthy inflow of new fiber customers, and this, combined with a broadly stable ARPU, led to continued growth of our fixed service revenues. We continue to see solid trends in mobile. Our postpaid base increased by 45,000 subscribers, driven by the ongoing success of Unlimited and a successful launch of our new kids and teens proposition in early September. Our postpaid ARPU was broadly stable, and combined, this led to a 6.7% service revenue growth. Now let's move to the B2B.
B2B delivered a strong quarter with solid growth across the board. Also, for business, the Net Promoter Score remains leading, and we aim for higher than last year and last quarter. So recently, also, we saw some pressure here on the Net Promoter Score, and this has our full attention. SME is currently the main growth engine of B2B, driven by a solid performance in both mobile and broadband, and cross-sell to ICT services on the KPN One platform. LCE continues to move in the right direction, has now reported growth for four quarters in a row. The service revenue trend is much better than seen in previous quarters. That's driven by IoT, higher roaming-related revenues, but also because last year included a small negative incidental.
As a result, we do not expect this growth trend to continue in the next quarter. Nonetheless, we are on a pretty good track here. Lastly, Tailored Solutions continues to deliver as planned. The growth in the third quarter was partly due to higher project revenues, and this business remains subject to timing. The performance is moving to a more profitable level, so that's good. Wholesale. Our wholesale service revenues have sustainably inflected when adjusted for Youfone, driven by both broadband and mobile. Broadband service revenues were supported by higher fiber service revenues. As expected, KPN's broadband base declined by nine thousand, driven by the continued competitive environment seen in the wider broadband market and the ongoing migration of our copper customers to fiber in Glaspoort areas. In mobile, service revenues growth was driven by a significant increase in international sponsored roaming.
As many MVNOs leverage KPN's existing roaming partnerships to offer seamless international roaming services to their subscribers. Other service revenues declined in wholesale, mainly driven by the lower regulated tariffs and less traffic, leading to a decrease in low margin interconnect revenues. Now, let me hand over to Chris to give you more details on our financials.
Thank you Joost. Let me now take you through our financial performance and start by summarizing some key figures for the third quarter. First, adjusted revenues for Q3 increased 4.2% year on year, driven by continued service revenue growth and higher non-service revenues. Second, our adjusted EBITDA after leases grew by 2.3% year on year or 1%, 1.9% excluding Youfone. So far, our quarterly EBITDA delivery has behaved truly in line with the pattern that we indicated at the beginning of the year. EBITDA margin in the quarter stayed north of 45%, but decreased a slightly bit to the previous year to 45.3%, to be precise, as higher service revenues were offset by higher operating costs, mainly related to third party access costs, mix effects and wage indexation.
Finally, our free cash flow remained broadly stable in the first nine months of the year compared to 2023, as higher EBITDA was offset by higher CapEx, timing of interest payments, and higher cash taxes paid. I will share some more details on the underlying cash developments later in this presentation. In the third quarter, group service revenues increased 3.7% year on year, or 3.4% organically when we adjust for Youfone and divestment in LCE. Within the mix, in consumer, mobile service revenues especially continued to grow strongly, driven by solid commercial momentum. In fixed, the growth trends leveled off a bit compared to previous quarters, as expected. Business service revenues grew strongly, underpinned by growth in all segments.
And finally, wholesale returned to growth, driven by both broadband and mobile, and it's now inflected sustainably or re-inflected, I should say. We are pleased to report that all segments are reporting positive service revenue growth in Q3 and are expected to continue to show growth from here. For Q4, specifically, we expect year-on-year service revenue growth to gradually decelerate as we have less tailwind from price increase this year and face some tougher comps in the quarter, especially B2B, but we'll make our full year service revenue objectives as planned. Our year-to-date operational free cash flow increased by 6% compared to previous year, fully driven by EBITDA growth, in line with our CMD guidance of mid-single digit growth. We have generated EUR 542 million in free cash flow so far this year, with a cash margin of 30% revenues.
The small decline of EUR 9 million from previous year, despite higher EBITDA, is mainly explained by different timing of coupon payments compared to last year and higher cash taxes paid. Without this timing effect of coupon payments, our free cash flow would have increased versus Q3 last year. In line with our outlook of more than EUR 890 million, free cash flow growth will be weighted and tilted towards Q4, reflecting EBITDA growth and asset, the timing of interest payments compared to last year. Finally, we ended the quarter with a cash position of EUR 590 million, and we continue to have a strong balance sheet. At the end of September, with a leverage ratio of two and a half times net debt to EBITDA, in line with our debt ceiling.
Our leverage ratio increased a bit during the quarter, mainly driven by the spectrum payment in July and the interim dividend payment in August. We expect a leverage ratio of 2.4 times by the end of the year. Our interest coverage ratio was sequentially lower, mainly again, due to timing of coupon payments, and the average cost of senior debt decreased 30 basis points year on year to 3.9%, due to lower interest rates and the Sterling bond tender executed in the first quarter of this year. Our exposure to floating rates remains fixed at 15%. Total liquidity of KPN remains very robust and consists of about 1.6 billion EUR, covering our debt maturities until 2027. Now, let's turn to our outlook and midterm ambitions.
We are confident to deliver on the 2024 outlook that we provided to you in April for the metrics you see on screen. We will make the plan. On August 1, we paid out an interim dividend in respect of 2024 of EUR 0.068 per share, and on May 31, we completed our 200 million share buyback program, and the cancellation of about 58 million shares previously held in Treasury was completed in September, and finally, we reiterate midterm financial ambitions as provided at the Capital Markets Day. As outlined back then, both service revenues and EBITDA are expected to grow by 3% per year on average, and our free cash flow by 7% per annum on average, with growth back end loaded due to the CapEx development.
Until 2026, our free cash flow growth is expected to be low to single digits, since we face higher cash taxes and higher interest payments. As usual, we'll give more detailed guidance in 2025 at the presentation of our full year figures for 2024. So let me briefly wrap up with our key takeaways. We generated solid financial results in Q3. We see consistent organic group service revenue growth with all segments contributing. And another quarter with strong commercial momentum in mobile. Our fiber rollout program remains at a solid pace and has a proven and attractive return profile. As planned, our EBITDA and free cash flow generation will be back-end loaded, and we are confident in our ability to reach our 2024 midterm outlook.
Finally, since it's already been three years since we presented our ESG strategy, we look forward to providing you an update on our upcoming webinar on the twenty-sixth of November on ESG or CSR. Thank you for listening. Now, let's turn to your questions.
Thank you, Chris. Before we move to the Q&A, I would like to remind you that please, to keep your questions limited to two, please. Operator, to you to start the Q&A.
Ladies and gentlemen, we will start the question and answer session now. If you would like to ask a question, you may do so by pressing star one on your telephone. Your first question is from Andrew Lee at Goldman Sachs. Please go ahead.
Good afternoon, everyone. I just two questions. The first was on your comments around the free cash flow cadence over the next couple of years, which aren't dissimilar to what you said in the past, but obviously it looks like you're making the point about the back-end loaded nature of free cash flow generation, given the cadence that consensus models have higher growth in 2025 for free cash flow, meaningfully higher than 2024, and higher than 2026 as well. I wonder if you could just talk about how we should think about that low single digit, low to mid single digit free cash flow growth.
I know you don't necessarily want to provide 2025 guidance today, but just giving us a little bit of extra color in terms of the phasing of the puts and takes, given the consensus, you know, obviously has struggled, and everyone's struggled to reflect that. Second question was just on fixed, consumer fixed. So broadband net adds were around, you know, flat, given the high degree of competition. I wonder if you could just comment on how fixed service revenue growth is playing out versus your expectations at the back end of last year. Has the competitive intensity been meaningfully worse than you expected? And does it undermine your kind of 2%-3% service revenue midterm CAGR expectations? Thank you.
Right, Andrew, let me take the first question on free cash flow. I'll also use the opportunity to explain a bit about the dynamics in Q3 and Q4 this year to make sure that we're all on the same page. With the timing of interest rate payments, it's slightly technical, but we had a bond, a five to six rate bond maturing in September this year, which obviously pay interest. Last year, the interest payment date was the last weekend of September, and due to the modified following convention, the interest payment shifted then to the next Monday, which happened to be the first day of the next quarter. The bond was redeemed, replaced by another bond, which was obviously had a coupon in September.
So basically, we paid off a bond where the interest payment was shifted to Q4 simply because of the weekend, and by a bond, where the interest payment happened in this quarter. So that shifts actually relative to last year, interest payments, more towards Q3 and less towards Q4. Now, to make life easier, this bond was swapped to floating, re-swapped to fixed again. So the net effect of about EUR 15 million. So in this third quarter, we had relatively last year, EUR 15 million headwinds that will reflect back in, you know, turn back in Q4. So basically, cash flow year to date was actually flat. Certainly, if you adjust for this, you know, very specific phenomenon of the interest payment last year. So you're not asking it, but I'm still giving you the answer on this very specific point.
Thank you.
To make sure we're totally clear to everybody on how to interpret this free cash flow in the quarter. Then multi-year free cash flow. Look, we have a solid growth, what I call operating cash flow, EBITDA minus CapEx, right? This year, we go up to, we'll be up probably north of EUR 80 million in terms of EBITDA minus CapEx. If you follow the guidance of the year, that mathematically comes out of it. And yet we'll be paying about EUR 50 million more in interest and taxes this year, some slightly higher REO spend, and some slightly higher spend in leases. With that, we will make the free cash flow for the year, but the dynamic is that we will have a continued solid growth in EBITDA minus CapEx.
We need to say what next year will be like, but it's gonna be, you know, double digits in euro terms, millions of growth in EBITDA minus CapEx. And yet we have every year an increase in tax and interest. As you know, we are gradually burning through our net operating losses. So taxes are moving to about EUR 300 million-ish in 2027, when we have fully used our net operating losses. So expect the sum of interest and taxes to go up by about 50-odd million, 50-60 million every year. So this year will go up by EUR 50 million, next year also by the same amount. So basically, you're growing your operational cash flow, EBITDA minus CapEx.
We'll be spending possibly slightly more in REO restructurings because we are taking out costs and we have to absorb the, you know, tax and interest, and that gives, I would say, low single digits growth rate in free cash flow, as we outlined in the, in the CMD. But it's mainly driven by the fact that our operating cash flow is growing by, you know, 6% or 7% a year, EBITDA minus CapEx, but we have to absorb annually about a EUR 50 million increase in interest and taxes.
Yeah, then you're, Andrew, on, consumer fixed. And we operate in a competitive market, on the consumer fixed side, mobile is relatively better with competition, mainly in the low end, no frills part of the market.
And on fixed, we witness an increase of competition, aggressive promotional activities from our main competitors, but that's now already ongoing for two, three years. We focus, and it's also what we announced on the CMD, on more on base management, so it's really for us a shift from acquisition only to really focus on the base and reward existing customers, loyal customers, so only selectively we use targeted promotions to acquire and retain high-value customers and combine this with a two-year contract, so in fiber, our service revenue growth is super strong. Most of the customers are now on fiber, but still we also have a copper broadband base. There we see pressure on service revenues.
All in all, I think, the mix of fixed service revenues is more or less in line with what we expected. Will not explode next year, so, we will, we increased our price points around to 3.8%. So we expect growth in the coming quarters as well. And, in the blend of everything, mobile is doing a bit better than we planned for. So all in all, on the consumer side, I'm well, happy is a bit of too much, but, satisfied with the developments today. And indeed, fixed stays competitive. Competitive environment, but, for us, very important to stay calm while rolling out fiber as fast as we can to a level of 80%, because that's where our strength is.
Thank you. That's very clear from both answers. Thank you.
The next question, it comes from the line of Dhruva Shah from UBS. Please go ahead.
Hi, thanks for taking the question. Just continuing on the track of competitive dynamics, and particularly on fixed. Odido recently launched a fixed wireless access product at an aggressive price of, I think, EUR 20 a month for existing customers or EUR 25 otherwise. So have you seen any impact from this so far, in terms of the product launch, or are you factoring in any impact going forward? So that's on fixed. And then just on postpaid, again, with Odido, I think their rebranding and the closing of the Tele2 brand has been somewhat of a tailwind for the other operators. And you obviously saw very strong net adds in Q3. But going into Q4 or latter quarters, will Odido's weakness and their inflection in terms of postpaid net adds be a headwind for KPN going forward? Thanks.
Yeah. So like I said, competitive dynamics and indeed, Odido launched a fixed wireless access proposition. Quite logical, by the way, because they only have mobile assets. Our strength is that we have a very good mobile network and the fiber network. It recently launched, so not much to say on numbers here. But it's a proposition mainly targeting for the more rural areas where they can't cover with fiber, I would say. We already for years have a proposition like that for rural areas where we do not operate on fixed wireless access, but a combination of a copper line supported by mobile in a blended gateway. It's called Faster Internet for Rural Areas, but then in Dutch.
I think we serve 60,000 customers on that. So there is a segment for these kind of services. Having said that, it's incomparable to fiber, of course. I mean, this is mobile only. So it's very difficult to serve a customer on TV, on the interface, on content like we do to all our households. So I would say interesting to follow. Of course, we will. And for sure, in some areas, they could serve customers on these kind of services, but incomparable with what we do in the fiber footprint. And then your second question was about Tele2 fading out.
Yeah, well, also there, I do not expect some headwinds on both the retail or the wholesale side because of effects on Tele2. I think that's already under the bridge for a while, and so, no. In short, I don't think that we see headwinds for KPN coming up related to that topic.
Perfect. Thanks very much.
The next question is from Maurice Patrick at Barclays. Please go ahead.
Yeah, thank you so much indeed for taking the question. If I could just dive a little bit into your NPS comments. I mean, it seems to be quite clear from the call that you wanted to make the point that there was some pressure on the Net Promoter Score. I'm curious to understand what's driving that, whether it's the macro side, like you said, on the B2B side. I was intrigued that I was listening to Tele2 recently, and they were saying they saw a huge consumer surplus still around pricing, so they could see significant scope for, you know, price up in the coming years because the consumer was underpaying. I wondered how importantly price sits in that wider NPS comment. So, thoughts about NPS would be super helpful. Thanks very much.
Yeah. Yeah, so, indeed, we mentioned it in the call, and I think it's important to flag it because we flag it internally. We differentiate in the Dutch market on quality. We're seen as the best brand with the highest Net Promoter Score in the country. And we reward the whole company on that. So what Chris and myself, what we did is that we flagged it internally to the 10,000 employees working at KPN, that we expect more performance on the quality side because that's how we differentiate, and that's why we also flagged it now today a bit. Having said that, the net promoter score is also in consumer market, especially, related to the rising cost of living impacting customer sentiment.
That we can't change that easily, but we can change it on the end-to-end fiber steering and customer service, the way we treat our customers. In B2B, it's also related to overall macro environment. That is true. We think it's important that we organize ourselves in a way to get that, the Net Promoter Score, up. The target for the company is up. In consumer, it's flat year-on-year and one down Q-to-Q, and then in B2B, it's the other way around. I think a bit down year-on-year and then flat Q-on-Q. Not that bad by the way, but I think for a company like KPN, it's important to push it up.
So, just a quick follow-up. So, we shouldn't expect any major changes to your strategy in terms of how to address it? There's more just pushing fiber more and subtle shifts, just to understand the-
I mean, we made it the target for the company. We reward people on the things, and that's why we also think it's important to signal it. Every now and then, we also use our external communications to also activate our own people. So, and the quality is a main differentiator for KPN, and that's why we always take Net Promoter Score a serious topic.
Thank you so much.
The next question comes from the line of Joshua Mills from BNP Paribas Exane. Please go ahead.
Hi, guys. Thanks for the questions. A couple from my side. One was on the wholesale business. So you talk about a sustainable improvement or inflection back to revenue growth. I mean, could you maybe give similar color on how you expect the line losses in broadband to trend over the next few quarters? I understand that this quarter you had a you know slightly easier comp, and then also revenues coming in from Glaspoort. But is your expectation that you will be growing your broadband lines on in the medium term? That's the first question. And then secondly, and sorry for being so granular on this, but I think last quarter, Chris, you talked about an EBITDA growth rate in Q4 of north of 3.5%.
Now that you've come in ahead of your expectations for Q3, should we still expect that Q4 EBITDA growth to be in that region, or will it be slightly lower? Thanks very much.
Sure, Joshua. Two questions for me, one on wholesale. Let me give you a bit of color on what's happening on the wholesale service revenue, so what happened in Q3 was two things. One is, obviously, there's some migrations of lines to Glaspoort, so basically, customers are leaving, but at the same time, KPN sales provides the active layer to Glaspoort, so Glaspoort basically gets the ODF access. We provide the active layer, which we get rewarded, so that's about one-third of the line loss. Our customers migrate to Glaspoort. There's a bit of business going towards the JV, which we don't show up in EBITDA, but then we get rewarded those active layers we provide to them.
Secondly, there's one large customer, not the largest, but a larger customer, which is effectively in run-off mode and gradually runs off the business, pushed through a hefty price increase in the summer, which led to some line losses on their side. So a couple of perspectives or nuances on the broadband development. So what do we expect for broadband? In terms of total base, I reckon with stable to a small decline next year, simply because some of the copper churn we see at KPN retail also will affect the broadband copper base. But we'll also have indexation going on. This year we have zero indexation. Next year there will be some indexation. With that, the broadband service revenues and wholesale are probably be around stable.
And on top of that, we see good growth in mobile, both from our MVNO customers, who have all been extended in terms of contracts. So all our MVNO customers have extended their contracts now for quite some time. We see more growth on their side. We see solid growth on sponsored roaming revenues. And we see solid growth in what I call newer products. So basically, when you look at wholesale this quarter, a particularly, say, funny quarter because of this one single client, and there's a Glaspoort movement underlying stable. I reckon with possibly a small decline in number of lines, but that's mostly copper, not fiber. And a combination of indexation price effects lead to stable-ish broadband service revenues, and you can see growth from the mobile and sponsored roaming side.
So with that, we think organically, if you adjust for the Youfone transaction, wholesale is growing a bit and will be growing towards north of 2% towards 3% next year organically. Then on Q4, look, we tend to look at the quarterly growth rates, and that's why this quarter you see very high service revenue growth and somewhat lower, EBITDA growth, which is a function of what happened last year. So my prediction of Q4 is you'll see it reversed. You'll see slightly lower service revenue growth, but slight, somewhat higher, EBITDA growth. So EBITDA growth in Q4 will be safely north of 3%. Those are mathematically, if you take the year-to-date EBITDA, and you believe our statement, we're going to make at least 2,500, then you can infer what the EBITDA in Q4 will be and the implied growth rate.
So all I'm saying is the year-on-year growth rate in every quarter is often affected by what happened last year. Well, we stick to the full year guidance, we stick to the full year plan, which means that the Q4 EBITDA growth will be safely north of 3%. But also be somewhat lower service revenue growth due to year-over-year comparison. You've got these quarterly fluctuations. I tend to look more at the underlying run rates. And if I look at, for example, the run rate of earnings in Q3, and I just then take it to Q4, it's safe to say that Q4 EBITDA growth will be north of 3%.
Got it. Thanks very much.
The next question comes from the line of Siyi He from Citi. Please go ahead.
Hello, hi. Thank you for taking my questions. I have two, please. My first question is really following up on the comment on wholesale service revenue and on B2B on broadband. I think you talk about, you see some contribution now starting from Glaspoort. I'm wondering if you can quantify it and maybe help us to think to understand how to think about this contribution going forward. And my second question is on your comment on the cost-cutting program, and also maybe help us to understand how it contributes to your operating sales or free cash flow guidance. Because I think when I look at your OpEx, it hasn't really.
It's actually gone up for two years, and so maybe you can help us with how we should think about the cost cutting from this year onwards for next year and the year after. Following up on that, because I think you mentioned that we should see more reorganization cash outflow for next year, and I just want to quantify if that includes the EUR 50 million step up that you talked included in the EUR 50 million step up you talk about in interest and tax. Thank you.
Siyi , you sneakily bundled a bunch of questions into two.
Yeah.
I counted four. In terms of the cost, I don't have the number by heart. It's not massive, but it contributes to the overall broadband service revenue. So think about a 2% indexation we're gonna push through in line with the regulatory framework that we have. And internet regulatory framework are the regulated part of the business will be indexed by 2%. The other part will be more in line with our retail broadband price increase. And Glaspoort contracting will be part of it. I don't have the number by heart. It's not changing the needle as much, but it contributes. When it comes to your second question on cost cutting, indeed, our costs have gone up, mostly driven by energy and inflation. That should gradually decelerate.
Obviously, we're still working on the plan for next year, but it should look better next year. I mean, energy costs will be a tailwind next year. Our CLA increase will be much more muted next year. And if you look at the FTE count, the total count of internal and external staff, in Q3, we dropped by another 60 or so, and I think by the end of the year, we'll have another, you know, 100 or so down. So the last six months of two thousand and twenty-four, I think our total labor base, total staffing base, will be dropping between 150 and 200, helping us to, you know, limit the impact of CLA. So the cost-cutting programs will be taking place, but they're also needed to make the EBITDA target.
I mean, in the capital markets, they, the guidance we give, the three three seven guidance, that is, you know, requires a certain, you know, prudence when it comes to cost. So those cost savings will be required to make the 3% EBITDA target. It's in the plan, and we're executing against it. And the reorg is out. You know, the EUR 50 million is really interest and taxes on restructuring. I don't have the full number yet because, I mean, it's only October. There will be some more restructuring spend, I expect, given all this. Joost, you gonna add?
No, I think these cost-cutting programs on our side are more big transformation programs. So it's not only focusing on cost cutting, but also on the operating model of KPN and portfolio simplification. We leverage the power of data and AI to improve customer processes. We are automating our operational processes. We're digitalizing the customer journeys through all channels, rationalizing IT. So it's three, four programs we centrally manage and steer, and indeed it's all. There's a lot of cost cutting related to it, but it's also an improvement of the health of the organization.
That's very clear. Thank you.
The next question, it comes from the line of Ajay Soni from J.P. Morgan. Please go ahead.
Hi there. Thank you for taking my questions. Just got a couple. First one, just to follow up on the EBITDA trends. So I think at Q2, you said you were guided to 3.5% growth year over year. I know you kind of already answered this in an earlier question, but on my calculations, that gets your EBITDA for the year to around two five ten. So just wondering why you maybe haven't upgraded your guidance for EBITDA for the full year? So that's the first one. And then the second one is just around your slightly softer, maybe ARPU growth in Q3. Is this being driven by the competitive environment? You know, are you seeing customers trade down or not willing to pay the slightly higher prices for the premium service of KPN?
Any coloring, that would be useful. Thank you.
Yeah, on the first question, your calculator is pretty spot on. I think, you know, we said our EBITDA will be at least EUR 2,500 million, so I think your number is consistent with that. Let's see how the world what the world looks like at Q4. But again, we, I think we'll meet the target of at least EUR 2,500 million, and if it's EUR 5 million-EUR 10 million more, that's not really something officially upgrade your guidance for it. As prudent and conservative as we are, we hold it consistent with at least EUR 2,500 million, and our Q3, my view is, look, it's more of a mixed effect. The KPN branded sales are actually doing quite well.
Our KPN brand has the record sales of SIMs in the third quarter, and ARPU with KPN is also developing very favorably. You have some mixed effects in Simyo and Youfone. I believe we've got a larger share of, like, no-frills brands in ARPU, and if they grow faster, you see a slightly more diluted effect on the blended ARPU for KPN as a whole. And secondly, you see some volatility on the non-committed side. So if you get more customers into unlimited data bundles, they use less top ups. So there's a bit of a non-committed decline, which is a, you know, function of what's happening in the committed side of things. But it's mostly a mix effect between the Youfone, Simyo, and KPN.
That's great. Thank you very much.
The next question comes from the line of Keval Khiroya from Deutsche Bank. Please go ahead.
Thank you. I've got two questions, please. So you talked about 2025 free cash from the context of the midterm guidance. I appreciate you will guide with the full years, but how do you think about 2025 revenue growth in the context of the service revenue CAGR of 3% as we shift to lower price rises? And secondly, Netherlands is now moving closer to 100% FTTH coverage. Your plans would imply you would likely overbuild the alternate areas in some of their footprints over the coming two years. Do you think that's likely, or do you think we get another end game to avoid overbuild? Thank you.
Perhaps I'll take the second question first. Yeah, so our first 60% of fiber in the Netherlands is pretty clean, so not that much of overbuild in the footprint. There's a good reason why we build a strategy around 80% and not 100%, and that is because also others like Delta are investing in fiber. So we think that the optimum volume for KPN is in the footprint of 80%. Now we're looking at the quarters to come and the fiber plans we have, it is realistic to assume that we will face more overbuild in the final 15% than we did in the past. Of course, we try to avoid it.
Also what we see is if we roll out other initiatives, withdraw themselves. Glaspoort is trying to work on a deal with Delta to take over 200,000 households. So at the end, I think we all in the Netherlands try to create value. It's not that we can avoid overbuild through the Netherlands, but every now and then, when doable, we try to avoid it.
Yeah, and when it comes to free cash and revenues, as I said, yeah, for next year, free cash flow, low to single digit growth, as at mostly due to the increase in interest and taxes. When it comes to service revenue growth, if you look at where we are today, year to date, we report about 3.7% growth, organically around 3.4, 3.5. I would reckon that next year to 3%, we're gonna be at 3% or very close to 3% for next year. And as I peel the onion and go segment by segment, look, organically, I think the consumer side of things will be around 2, 2-ish growth and mobile. I think business will be north of 3.5. Still solid revenue growth development in business segment.
On an organic basis, excluding any, you know, the Youfone effect, which will still happen in Q1, of course, also should be close to 3%. If you blend it in the mix, I think the total service revenue growth next year, with today, is gonna be at or at least very close to the 3% that we guided for.
That's clear. Thank you.
The next question comes from the line of Titus Krahn from Bank of America. Please go ahead.
Good afternoon, all. Thanks so much for taking my questions. Just two kind of follow-up questions. If I may, the first one would be just on your earlier commentary around NPS in B2B. Is there any way you could provide more color on kind of which segment is that coming from? Is it in any way related to your SME growth slowing a little bit, or is that basically coincidental? And then secondly, just a follow-up question on your earlier comments on the mix shift in the B2C segment.
Out of your net adds right now, how many are coming from Simyo, Youfone, from your second brand, and how many are actually on your KPN main brand, and how is that evolving over the last couple of quarters, maybe excluding the Youfone acquisition?
Net Promoter Score, B2B. Yeah, that's really a LCE thing. So, also there, it's a bit different compared to consumer markets, how we measure Net Promoter Score, because we test like five to 10 customers in a quarter. And that is really related to what I already mentioned, overall macro environment sentiment. So, the B2B, to be honest, it goes up and down in a different way than the consumer, because that's a broader base, what we use for the measurement of Net Promoter Score, but this is really a large enterprise thing. And your second question was mix of yeah, inflow on mobile customers. Yeah, so we acquired Youfone. We have a brand called Simyo.
That's more the no-frills segment. KPN is doing good on unlimited.
I would roughly say 50% coming from our low-frills brands and 50% is moving into KPN. And so the strategy of the combination of these brands works quite well.
Super. Thank you.
The next question comes from the line of Luigi Minerva from HSBC. Please go ahead.
Yes, good afternoon. Thanks for taking my question. The first one is on the adjusted EBITDA after lease margin that decreases in this quarter to 45.3%, so that's 0.8 below last year. And I just wanted to understand better what is driving it, and if I read well your comments in the release, it may be driven by other OpEx increasing by 12% due to higher marketing and sales. So, yeah, I just wanted really to make sure that's the reason, and how temporary or structural it may be. And secondly, the second question is on CapEx and the implications for free cash flow. Now, so your guidance is for 1.2.
In 2023, you did EUR 1.25 billion, so 50 million above 1.2 billion. Year to date on CapEx, you are running 15 million ahead of your pace from previous year. So I'm just wondering whether this is like inflation, so the deployment is costing more just because of inflation, or you are adopting a higher pace than you were thinking, or whether eventually you have that kind of 50-60 million of CapEx flexibility to still make your CapEx outlook and support free cash flow in the short and medium term. Thank you.
Yeah, on the EBITDA margin, it is 45.3%, down a bit. I think there are two things. You see some margin dilution, but it's relatively, you know, manageable. On the gross margin or contribution margin, mostly around either discounts and costing to acquire broadband customers. I mean, as you also said, the market is very competitive. Some of our peers are going quite deep in terms of acquisition spending. So it's the cost per acquisition in the consumer side in broadband has gone up, so mostly it's more product actions and discounts, and there is a little more inflation affecting your total cost base, your basically labor cost base. That, again, drives a small dilution in your EBITDA margin.
I feel pretty okay we can keep the margin above 45%, which I think we're still probably, you know, best in class in Europe. Also note that it includes the IT solutions systems integrator business that we have, right? Which has a different margin profile, and so if you look at the telco-only business, I think our margin would be, you know, close to in the high forties. So the 45% is a blend of our KPN telco business and the system integrator business, but I think we should be able to run it above 45% on a digital basis, and you know, the broadband market is competitive, so that will be costly, I think, for the foreseeable future, to keep your base stable.
When it comes to CapEx, EUR 1.125 billion, I think we're probably aiming towards that level for this year. It has gone up a bit. It's mostly inflation. Inflation when it comes to capitalized hours, but also inflation through licenses and products you buy from third parties, and inflation that has to come with, for example, the fiber rollout. So it's mostly dealing with inflation. But that's all, Luigi, embedded in our free cash flow guidance. So basically, free cash flow guidance for the year and for the coming years includes this, this CapEx number. If need be, we can always try to, you know, pull the handbrake, but given the fact that the fiber rollout is still very much value creating, we don't want to push it back too much.
It's around that level, driven by inflation, but all included, embedded, and absorbed in the free cash flow guidance for the year.
Thank you so much.
The next question that comes from the line of Steve Malcolm from Redburn Atlantic. Please go ahead.
Yeah, thanks very much for taking the question. I'll go for two, Chris, and try and not wrap them up into ten. I'll do my best. Just on wholesale, it looks to me like the sort of revenue recovery was tilted towards the mobile business. You mentioned sponsored roaming. I saw the prepaid net adds were up to 120,000 in the quarter. I guess that's it. I haven't heard the expression sponsored roaming before. Can you give us an idea of what that is? And it sounds sort of suspiciously low margin to me, but maybe you can kind of alleviate any fears I might have there. And then just on the B2B growth, you mentioned north of 3.5%, which is obviously brilliant for an enterprise-facing telco.
How sensitive is that to the economic outlook in the Netherlands? Is that sort of, you know, under any imaginable scenario as far as you're concerned? I mean, I know not every scenario is imaginable, but just sort of give us a sense of, you know, how important it is that economic growth doesn't disappoint to get to that 3.5% number. Thanks a lot.
Look, on the wholesale side, sponsored roaming, basically, KPN has a unique network of roaming contracts with, you know, many other, you know, telcos across the world. We have a unique network of roaming solutions that we use, for example, for international IoT services, et cetera. We can use it for travel SIM solutions. So the 220,000 really is a more a travel SIM solution that we provide to one specific customer. It's suspiciously low margin. Look, it's not the margin that you make on a broadband line, but the marginal cost of this business is relatively low. So it is actually quite profitable business. It's low capital intensity. So it is actually profitable business, and there's high growth. Building on that, you know, sort of global roaming contracts that we have at KPN.
So which you can provide travel SIM solutions, IoT solutions for customers across the globe. So that's in it. And again, it's the marginal cost of that is relatively low, so it's an attractive business to us. The second one, on the 3.5%, any economic scenario, obviously, Steve, there's always a world in which the whole thing collapses and nothing works anymore. But in general, I would say this feels like reasonably well sustained. In the absence of a massive wave of bankruptcies, this should work. We see today that high growth that we saw this year within cloud and workspace, that's fading off a bit. But expect at some point there's a certain degree of saturation of your customers in the cloud and workspace business.
But overall, it feels this is pretty robust, yeah, in a reasonable economic climate. If the economy falls off a cliff, and you get massive increase in bankruptcies, yeah, then the world's different, so that's not in the assumption. But it should be reasonably robust also against, you know, some sort of economic deceleration.
Okay, great. Thank you very much.
The next question comes from the line of Nuno Vaz from Bernstein. Please go ahead.
Hi, good afternoon. Thank you also for the opportunity to ask questions. So two topics from my side. One on fixed B2C. I've noticed if I track the number of units per household quarterly, this quarter saw a bit of a decline on fixed. So that would suggest you churn more TV and voice subscribers versus previous quarters. Just wondering what's happening there, if that's true, and if that may be related to VodafoneZiggo's UEFA rights and promos. Second question, a bit of a funny one. I've noticed that your EBITDA growth adjusted for Youfone, so the delta between the growth reported and the growth adjusted for Youfone sort of halved. Second quarter was one percentage point, this quarter is about point five percentage points. So that would suggest the EBITDA contribution from Youfone sort of halved.
It's not a big amount, but I'm just curious what, what's happening there. Thank you.
Yeah, so in the B2C fixed environment, yeah, like we described, competitive market, one player losing a lot of household customers. Us, more or less, stable. Within that base, we migrate, I believe, 37,000 customers to fiber last quarter. And we see the base on copper declining, and that's also related to the migration from copper to fiber, of course. And in that base, we still do a strong combination of TV and connectivity. Of course, there's a trend to more internet only, especially among youngsters, but for us, that's more an opportunity than a threat because that's a segment we really can improve our position in.
Yeah, that is a bit of the trend I guess you were asking for.
On your second question, congratulations , you found the Easter egg in the numbers now. The profit contribution from Youfone in Q3 was lesser than Q2, which has to do with the fact mostly it's roaming, right? If you have a no-frills mobile operator, and these customers travel in Europe and start to dial or make calls from the holiday addresses, they get charged with roaming tariffs. So we find that for no-frills operator, the summer tends to be lower margin than for typical KPN, simply because, you know, roaming charges as a percentage of, you know, the ARPU are relatively high during the summer. So it's typical for no-frills operators to have a relatively higher share of roaming charges as these customers travel into Europe. And obviously, also, no-frills customers don't travel abroad.
They travel inside Europe, so you don't charge them extra, so the Roam Like Home hits in a bit more. That's actually the explanation why the mobile profit in Q3 typically is lower than other quarters. This is completely as planned, but it shows up in the delta. But well spotted, Nuno.
Yeah. Thank you very much for the explanation. Thank you.
The final question comes from the line of Usman Ghazi from Berenberg. Please go ahead.
Hello, gentlemen. Thank you very much. I just have one question, please, on the Huawei situation. I know last time we spoke, you had mentioned you were going to approach the Dutch government with the German kind of compromise, and I was just wondering if there was any update on that. Thank you very much.
Yeah, we're in close contact with our government on non-Western vendors. We agreed on the plans on how to move further, so pretty good on track there. We update our government every quarter. I think in Germany we saw a solution KPN is already working on as well. All in all, I would say if there's any update to give, then it's that we're on track updating our government every quarter and fulfilling the obligations we have there. Yeah, I'm pretty confident that we are fully aligned with the government and that we are on track with the programs.
Right.
Of course, we made announcements on the replacements of Huawei in the core networks for fixed and mobile, replaced by Nokia and Ericsson, and that we still keep them in the radio access network with all kind of measurements. KPN is fully running our networks ourselves. We do everything ourselves. I think we are in a pretty good situation there.
Okay. Thank you, Joost. Everyone, that concludes the call for today. Thank you all very much. And, as you obviously know, in case of any questions, you can reach out to the investor relations team. Bye.