Hello, and welcome to the Deutsche Bank's Depositary Receipts and Virtual Investor Conference, dbVIC. My name is Zafar Aziz from the Deutsche Bank team. I'm pleased to announce that our next presentation will be from KPN from the Netherlands. Before I introduce the speaker, a few points to note. Please submit your questions in the questions box to the right of the slides. Also, all of today's presentations will be recorded and can be accessed via the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome Annia Ballesteros Mendoza , Senior Investor Relations Officer, and Michael Schenk, Investor Relations Officer of KPN, which trades on the Euronext Amsterdam under the symbol KPN, and in the U.S. on the OTC market as KKPNY. Welcome, Annia and Michael.
Hi, everyone. My name is Annia Ballesteros , Senior Investor Relations Officer at KPN, and with me is my colleague, Michael Schenk, who will join me at the end of this presentation for the Q&A session. Thank you for joining us. Today, I will present KPN's equity story, starting walking you briefly through the macro perspective on the European telco sector and the KPN's share performance. After that, I will dive into KPN's updated strategy. To start with, in this slide, you can see KPN in green and the European telco sector in light blue, performance year to date. Here, you can see that sector dynamics have started to positively change compared to what the industry looked like in the past 10 years. But what is driving the sector performance?
First of all, is in regulation. In the past year, there has been quite some noise in this area, with a long-awaited approval of M&A in Spain, for example, which at the end, only consider mild remedies. Other relevant topic has been the new appointments in the European Commission with the profiles that, hopefully, will support a new telecom act to target a state-of-the-art infrastructure, regulatory reforms, and ways to attract more capital to fund this. And this, all with the aim to support sector consolidation. High capital intensity has been historically a drag in the sector. However, as from this year, the long-awaited promise of lowering CapEx level has become a credible story. CapEx is reaching its peak, and more and more incumbents are achieving their own fiber targets.
Such is the case as of Telefónica, who will set a precedent of the sector as soon as 2025, when they will achieve 100% of fiber coverage in Spain. In general, the sector should expect cash flow to rebound as CapEx decreases. Finally, emerging pricing power. Over the past year, most investors has been skeptical on European tech telcos having pricing power due to the historical lack of revenue growth, despite strong traffic growth over the years. During 2023, telcos began raising prices , and despite these increases, has been primarily linked to rising inflation. The increases has been mainly based on a more-for-more dynamic, resulting on an improved NPS. As shown on slide three, KPN has significantly outperformed the sector over the past year. Here, I highlight five main reasons on the back of this.
First, we establish a stable regulatory framework for fiber until 2030 , ensuring long-term clarity in the Dutch market. Secondly, unlike many other telcos, KPN is a pure Dutch play in a healthy three-player market, as consolidation in mobile already took place in the Netherlands some time ago. Thirdly, earlier this year, it was removed the overhang from América Móvil on our shares. This unfolded the KPN share price potential. Today, we are trading over 10% versus March, when the América Móvil bond reached its maturity. Next to that, we have shown consistent and solid operational performance with top-line growth for more than two years now. We are continuing delivering on our targets and outperforming competition based on the quality of our network.
Finally, as you can see in the slide, the fifth reason is KPN's strong and supportive shareholder remuneration policy, which I will present in more detail later on. Now, let me focus on these last two topics in a good bridge to the following slide, which shows the recently updated KPN strategy. In our journey as a telco, we need to evolve. We need to connect our customers to a digital future, activate those connections, and continue to drive sustainable growth. This strategy will guide KPN's journey of the next years, and it is translated into three ambitions that we'll aim to achieve by 2027 . First, we aim to reinforce our position as number one Internet company in the Netherlands, leading mobile revenue share growth, and be the preferred partner for digital services and innovations.
Second, through effective network management, modernization, and simplification, we will ensure the best digital experiences for our customers. And finally, our people-centric culture will foster sustainable growth, and our commitment to ESG will make us a force for good in the Dutch society. All of this being the backbone to achieve our financial ambitions towards 2027, which I will share in more detail also at the end of this deck. In essence, we will shape the future where KPN stands at the forefront of innovation, connectivity, and sustainability. And this is what I can say: ESG is at the heart of what we do, and it's heavily linked to our strategy. We are a proud ESG leader in the Dutch society, being a key area of our differentiation. However, of course, this imposes a heavy duty on us.
We believe that sustainable business is a better business, and we are truly committed to creating long-term sustainable value for all our stakeholders. As you can see in this slide, we focus our efforts in three areas, which are clearly linked to the seven UN SDGs. We are a responsible corporate entity. We will strengthen our commitment with diversity and inclusion in all respects, and we will continue to be a front runner in achieving net zero emissions and circularity. Now, let me give you a bit more color on where are we standing and our aspirations in terms of Connect, Activate, and Grow. To start with, Connect. Fiber is clearly at the heart of our strategy to create long-term value for all our stakeholders.
We have achieved success in the past three years, and together with Glaspoort, our joint venture, we jointly cover more than 60% of the Dutch households. This has also resulted in a continuously higher share of broadband fiber versus copper, as you can see in the slide. We have significantly scaled up our fiber rollout, and we have increased our production to more than 550,000 homes passed per year. With this, we continue to lead the Dutch fiber market. Commercially, we have seen an uptick in the market share growth in the fiber areas, while the fiber broadband service revenue growth is at a double-digit pace year on year. With around 2 million households remaining, according to our target, our fiber rollout has entered into the final phase.
Capacity for the next years has been already secured, and we are on track to reach our target to approximately 80% fiber homes by the end of 2026. This will deliver a sustainable and long-term competitive advantage for KPN. But the journey doesn't end up with connecting homes. Activate those households is as relevant. As shown in slide six, we aim to deliver the best digital experience to our customers over our world-leading, always-on networks. The investments we are making in our mobile network and services are really paying off. The Ookla and Umlaut benchmarks have recognized KPN as the best mobile network in the Netherlands and in the world. Alongside this, we have also been regarded as best all-in-one broadband provider by the Dutch Consumer Association and the best fixed Internet provider by Tweakers.
This is a great sign of appreciation from for all our products and services. And this goes hand in hand with our customer satisfaction, which remains one of our top priorities. We have proudly attained industry-leading Net Promoter Scores, both in consumer and enterprise segment, demonstrating our commitment to customers across all segments. Now, finally, and perhaps the most relevant part for this audience, let me talk about growth. Since 2022, we have consistently grown our group service revenues, and this is a clear proof point of success of our prior and current strategy. Within the mix, all three segments, consumer, enterprise, and wholesale, have delivered growth for five quarters in a row, despite the competitive environment. Top-line growth has been successfully translated into attractive industry margins, being KPN, for example, significantly above the incumbent average EBITDA margin of around 35%.
Going forward, we expect to continue seeing sustainable growth in group service revenues. Let's now turn to our ambitions for the coming years, where we have set clear goals. On average, our group service revenues will grow around 3% per year, where we are targeting continuous growth in consumer mobile and further improvement in consumer fixed service revenues, while B2B is expected to continue to grow with a clear focus in the large corporate enterprises and tailored solutions, while continuing solid growth performance in the small and medium enterprises segment. Our direct costs are impacted mainly by third-party access costs, such as Glaspoort, service revenue mix, and inflationary effects.
By modernizing our operating model, which will enhance our customer experience, accelerate KPN's time to market, and contribute to the next wave of cost efficiencies, we will be able to deliver a lower indirect cost at the end of the strategic period. It is important to mention that some of these savings will be back-end loaded, but will sure support our EBITDA growth. With this plan, we aim to achieve an acceleration in adjusted EBITDA growth towards approximately 3% CAGR until 2027 , supported by sustainable service revenue growth and continued cost control. Our return on capital is solid, and it's industry-leading. We intend to keep improving our ROCE, underpinned by our investments, cost savings, and expanding growth profile. We foresee to achieve a ROCE of around 15%, by 2027.
All in all, KPN is a healthy company with a strong balance sheet and generating strong margins, with a track record of consistently delivering operationally and creating value. In terms of CapEx, this is unexpected to remain broadly stable at EUR 1.2 billion until 2026, despite the upward inflationary effects. In 2027, after we have finalized our fiber rollout program, we foresee a material step down in our CapEx, dropping below EUR 1 billion , as you can see in the slide. Within our CapEx envelope, we see a stable mix between fiber CapEx and non-fiber CapEx in the period of 2024 till 2026.
After the fiber program is ended, we plan to return our business at a CapEx to sales ratio of around 15%-16%, which will enable us to materially increase our free cash flow margins whilst staying fully invested. On the free cash flow front, we estimate it will gradually grow in line with EBITDA, with another tax step up to absorb in 2026 , which implies a low single-digit CAGR until that year. When the fiber project is finalized, our capital intensity will drop back to normal levels. As from 2027 , we expect a material inflection in our free cash flow, which then will increase to above EUR 1 billion, representing a CAGR of around 7% over the entire period, 2024 till 2027 . Let me talk now about the shareholder return policy.
As I have mentioned a few times today, our financial framework is aimed at long-term value creation for all stakeholders. Therefore, we are committed to returning excess cash to our shareholders. Going forward, our cash margins and strong financial position will enable us to continue delivering attractive shareholder returns, with growing dividends supplemented by share buybacks. For 2024 , we have communicated an uplift of 13% to EUR 0.17 dividend per share and a 7% dividend per share CAGR thereafter. The remainder of our free cash flow will be paid out via share buybacks, meaning that over the entire strategic period, we expect to deliver cumulative buybacks up to EUR 1 billion. This means we will effectively distribute 100% of our free cash flow that we generate to our shareholders.
Cumulatively, our growing dividends and planned buybacks will allow us to return around EUR 3.8 billion in total, or about 30% of our current market cap to our shareholders till 2027. In a nutshell, we will focus on a 3-3-7 model to reach a return on capital employed of 15% by the end of the strategic period in 2027, and this will support our long-term value creation story. To round up, KPN's purpose is clear: We will continue to go out to connect the Netherlands to a sustainable future. Over the coming years, we will focus on execution to secure our long-term competitiveness. And how? We will continue to connect our customers to the digital future.
We will continue, and we will strengthen our focus on activate those connections, customers, and our own organization, and we will continue driving sustainable growth. The evolution towards Connect, Activate, and Grow also underlines a shift in focus from rolling out fiber to connecting customers on this network and activating them to unlock the value potential of our networks.... Overall, KPN is a high-quality telco, operating in a very attractive market structure with below-average leverage and a shareholder-friendly approach. So that is it for me now. Thank you very much for listening, and now, let's turn to your questions. I will invite my colleague, Michael Schenk, to take your questions. So I will. I see some questions incoming, so I will start reading them. Can you explain the key drivers behind your free cash flow generation and how you plan to sustain it? Now, Michael.
Yeah, to answer this question, so on the short- term, looking at the free cash flow generation, actually, the growth in sales and EBITDA is a big driver here. So what we said is the 3-3-7 framework, holding 3% revenue and EBITDA growth and 7% free cash flow growth over the next few years. And the main driver on the free cash flow growth, actually, on the short- term, is just simply the EBITDA growth. Then looking at the long- term, and as Annia also discussed, into 2027, our CapEx will materially step down. So the fiber rollout will be completed for 80% of Holland, the Netherlands, and this will impact our free cash flow quite significantly on a positive way. Yeah.
Thank you, Michael. We have another question stating: What are your growth catalysts for 2025? Well, as we have mentioned, and we describe our strategic plan, we have not gone out publicly with the exact drivers. However, we are committed to a CAGR of 3% growth in the full period. So we are continuing to push the three segments to grow. We are going to have a strong focus on cost savings as well, in order to achieve also bottom line growth of 3%, as we see in the full plan. We are continuing innovating to support volume growth.
We also see that inflation is going down, so price increases are not going to drive the main bulk of the top line, but volume will compensate with that. Another question that we have: How did you account for the financial impact of your investments in 5G and other emerging technologies?
Yeah. In Holland, actually, we had recently a 3.5 GHz or 5G spectrum auction. The financial impact of this, actually, we don't take it into account in our free cash flow, just in our cash position. Looking at our leverage and our cash position, KPN is quite in a healthy state, so this was quite easy to absorb for us. Then the investments in 5G, for instance, upgrading our mobile tower network, is just absorbed within our CapEx envelope of EUR 1.2 billion currently and EUR 1 billion afterwards. This perfectly fits in the current investment envelope.
Mm. Thank you. Another question we have is: Can you discuss your strategies for managing working capital, particularly in terms of inventory and receivables? Well, working capital is a key driver for, to deliver our free cash flow , and as you, and as I mentioned before, and free cash flow target is quite aggressive, but it's also back-end loaded. We have a special team taking care of the variables that implies working capital, and we have seen recently, and also starting from last year, that improvements in this area has been done. So, yeah, that is the plan that we are continuing to see improvements in receivables.
So we are not concerned about any credit issues with the customers, and it is already embedded in our strategic plan that it will continue to improve in order to provide or to allow us to reach the full free cash flow target. And finally, we have last question saying: Can you speak to your market share in the Netherlands and how you acquire new clients?
Yeah. So to answer this question, first, let's take a look at the consumer side of our business. If you look at our broadband market in Holland, there's two large parties, so it's KPN and VodafoneZiggo, equally having, like, 35%-40% market share, so in the broadband consumer market. In mobile, I think there's three large MNOs: Odido, VodafoneZiggo, and KPN, having quite similar market shares, so roughly similar. In consumer, KPN's strategy to acquire new clients is mostly also offering superior service, right? So we are really focused on keeping our current customer base happy. We also tend to do the two-year contracts in broadband instead of the previously issued one-year contracts, and sometimes we proactively provide some promotions to our current base. We think this is the superior strategy compared to just-...
purely front group promotions in the markets, and in this way, we try to not only acquire new customers with this proposition, but also keep our current base happy. I think that's important to stress. Then turning to our business customers. So looking at the business market, actually, we restructured the whole way we offer our business B2B portfolio. It is actually looking at our SME department, so small and medium enterprises. We did the whole restructuring there to make it more modular and to migrate all customers to really future-proof portfolios here, where they can just pick the amount of services they want and just easily can click it in or out of their current services they take from us.
This you can actually see back in the current growth in, in our SMEs, so like 10% growth year on year, each quarter, doing quite healthy, and the market shares there are, actually in, I think, in favor of KPN, both in, in mobile and in, in fixed, and actually growing at our side. Then the large corporate enterprises. So the mobile market is quite competitive there. Odido as a, sort of a young company, the challenger brand there is really trying to gain market share. While on the fixed or the broadband side of the business, KPN and also VodafoneZiggo, like traditionally, has quite a, a large share there, and those are quite stable.
Thank you. Thank you very much, everybody, to join us today. And, yeah, if you have further questions, please reach out to the IR KPN team. Have a nice day!