Good day, ladies and gentlemen. Welcome to KPN's First 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. 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 two 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. 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. 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. As expected, our free cash flow declined, partly due to higher interest and tax payment, 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 three key pillars. One, we continue to invest in our leading networks. Two, we continue to grow and protect our customer base.
We further modernize and simplify our operating model. 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 activating customers have paid off, reaching 78% of total homes on our network, while two-thirds of our retail base now enjoys the benefits of fiber. Let's now have a look at the consumer segment. The consumer service revenues increased 4.6% year- on- year, of which a bit more than three is related to Youfone.
We are satisfied with Youfone's performance, which enables us to better address the no-frills segment of the market. Our increased focus on loyalty and base management is further strengthened by the recent launch of our new household proposition, Combiv oordeel, 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 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-based growth despite a challenging competitive environment. We maintained a constant, healthy inflow of new fiber customers, which, combined with a 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. Despite the volatile economic environment, our Business Net Promoter Score remained stable. B2B customers appreciate KPN for stability, reliability, and the 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. SME continues to grow, driven by strong performance in cloud and workspace, broadband, and ongoing momentum in mobile.
To protect SME customers from digital threats, KPN offers Extra Safe Internet services, enhancing their digital strength against rising cybercrime. I believe more than 70% is currently already making use of that, 70% of the base. LCE service revenues remain stable with solid performance in broadband, IoT, and cloud workspace, offset by some price pressure in Tailored Solutions delivered as planned, with strong growth driven by higher project revenues. This business always remains subject to project timing and seasonality. Our wholesale service revenues continue 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 remain strong, driven by ongoing growth in international sponsored roaming volumes. 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 uptick 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. Let me start by summarizing some key figures. First, the adjusted revenues of KPN increased 3% year-on-year as organic service revenue growth across all segments outpaced lower non-service revenues. Second, our adjusted EBITDA after leases grew by 4.7% in the quarter, or + 3.1%, excluding all contributions from Youfone and Althio. This growth was mainly driven by higher service revenues. Our EBITDA margin increased 72 basis points to 44.7%. In the first quarter, we managed to lower our indirect cost base despite rate indexation, but it was partly due to the inter-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. 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. Within the mix, consumer service revenues increased by 1.2% year-on-year, corrected for 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 Tailored Solutions. finally, wholesale service revenues grew by 6.1% year-on-year, corrected for 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, combining operating and capital expenditures, was broadly stable. For the full year 2025, we expect high and solid single-digit growth rate in operational free cash flow, supported by Althio and Youfone, and effectively stable CapEx. Obviously, if not for the gradual normalization of tax base, 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 explained a delta in free cash flow compared to the first quarter of last year. 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 and interest payments, and we therefore reiterate our free cash flow guidance for the year. At EUR 128 million, our free cash flow margin was about 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 2.4 times, comfortably below our self-imposed ceiling of 2.5 times, 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. We successfully issued an EUR 800 million senior bond and redeemed the remaining part of our outstanding hybrids. These transactions increased the average maturity of our outstanding debt and lowered the average cost of debt. Our average cost of debt was about 3.7% and exposure to floating rates about 16%. Our liquidity of around EUR 2.5 billion remained 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, set at approximately 3%, driven by organic growth across all segments, and CapEx to remain 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 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 market with ongoing delivery of connected homes.
Currently, two-thirds 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 outlook. We are currently at approximately 25% completion of the EUR 250 million share buyback program for this year, effectively distributing all of our free cash flow to our shareholders. Overall, we think we will deliver solid results in the first quarter. As mentioned, uncertainty remains over 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 impact of global trade and economic developments on the Dutch economy, which 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 two. Operator, please proceed with the Q&A.
Thank you. 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. Thank you. We will now take our first question from Polo Tang of UBS. Your line is open. Please go ahead.
Hi, thanks for taking the questions. I have two. 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? 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. Why have you slowed down, and how should we think about the build rate from here? Thanks.
Yeah, thanks, Polo. Yeah, 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. The price rise of KPN landed well in the market because we can perfectly explain why we do this in line with CPI indexation. Of course, we invest a lot in the quality and also then hand in hand with launching the new proposition, Combiv oordeel, where we really focus on the existing base of customers. We explain that we do not want to surprise existing customers only with the price increase, but we also surprise them with free OTT services in combination. Landed quite well. 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.
I expect that to improve, and also that will be visible in the second quarter. Now, fiber, you're right, we're slowing down a bit. We focus more on connect and activate than home s passed, only to put it that way. The strength of our fiber rollout is compared to competition that we really connect most of the households while rolling out. It goes a bit in batches. I expect the second half of the year, especially much stronger on homes passed than this Q1 with 100,000 average. We still aim for 80% end of 2026. Approximately 80% could be a bit more, a bit less, but we will continue to roll out. In this pattern, I expect it to come close to that 80%. In 2027, we still foresee a material step down in our CapEx dropping to below EUR 1 billion.
That is completely locked in in our strategy.
Thanks.
Thank you. We will now take our next question from Andrew Lee of Goldman Sachs. Your line is open. Please go ahead.
Yeah, go ahead, Steve. Just adding a question, 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 you now are saying that the recovery comes in the second half. I think that's a bit of a shift. I just wondered if you could talk through what's changed. Also, how confident are you that price rises that are just in line with inflation will be enough to support that recovery? Thank you very much.
Thank you for the question, Andrew. I think it's all marginal. We see already on mobile, actually, the recovery from the fourth quarter came earlier. Actually, I think we said that mobile would recover in the second quarter, recovering Q1. I think mobile has actually done better than we planned, and we think the current growth rate in mobile in Q2 would be similar to Q1, so more or less around the 2% or 2% plus. On fixed, I think it will be similar to what it is today, around 1% growth. I think it's really on the margin. The good news is I think the mobile recovery that we predicted in Q4 came a bit earlier in Q1 and seems to continue.
With that, I think the consumer market is not going to be the growth champion of the group, but probably grows between 1%-1.5% for the full year. Do not read too much in it. I think it is just the fact that mobile recovered earlier than we anticipated. Your question on price increases, again, I think they have 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 talk by the, I think, the ACM around willingness or supporting customers to switch. Especially the Combiv oordeel that Joost described really did well and boosted our NPS. I think the price increase that we have announced is simply indexation, nothing more, nothing less. That actually feels has been absorbed pretty well by most of our customers.
Thank you. 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 VodafoneZiggo 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 the kind of the second derivative or what you're seeing, is anything changed in their behavior or nothing's 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 is abating in some way?
Certainly no canaries in the coal mine. I think when you look at price development growth today, Odido has a backward price increase for the first of January, I think around 3%. Odido, I don't know, is probably also something similar. I mean, so that price adjustment on their front book, I mean, they were more expensive than we were, something that price is now more or less in line with us. 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. Typically, the order balances go before the net adds. Early indicators into Q2 at the end of the first quarter, so early March, we saw the monthly order balances also vis-à-vis competition doing better.
I would say competitive intensity stable, price changes by competitors are within the range, within the margin, not really changing. Our Combivoordeel lands actually quite well, should lead to lower churn. We saw some encouragement around the operational KPIs into Q2 because of the order balances. Now, obviously, Q2 is still a few months ago, but I think the momentum at the end of Q1 going into Q2 was reasonably supportive.
The good step we made is really two fixed mobile converged brands in the market as the only players. KPN on one side, Youfone on the other side, both covering convergence, but the lineup completely different. Above 200 meg on 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 helpful.
Thank you. That's helpful.
Thank you. Our next question comes from Ajay Soni of JPMorgan. Your line is open. Please go ahead.
Thanks for taking my question. Mind you, 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 a 4% for Q1. You said you expect your material to step up into Q2. Do you still see that going ahead into Q2? How do you see that phasing over the other quarters to get to your 3% growth for the year? Thank you.
Yeah, good question. On the phasing, I think Q1 has actually been better than expected. I think Q2 will be similar to Q1 in terms of if I include the tower company, I would expect some of that grows north of 4%. I expect a bit of a step down in Q3 below 2% and then above 3% again in Q4-ish. One of the factors is, and as we're getting a bit wonkish around accounting, it's the way you account for your holiday provisions, and you may have seen we've changed basically the way people booked the holidays. 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 detracts a bit from Q3. It's a technical thing.
It basically is distribution of earnings across the year. That means I would see Q1 was EUR 4.7, including Althio. I'm pretty bullish on Q2. Certainly, north of three could be starting again with a four handle in Q2, including a tower company. Q3 will then be a bit less with the year-on-year comps around this holiday effect. Historically, you always had a release from your holiday provision in Q3. You don't have it right now. Q3 will be around less than two, and Q4 again back to three. Full year guidance, full intact. Distribution is quite high in the first two quarters, a bit lower in Q3, and then back again to Q4. This is the technical accounting around holiday provision is working through it on the inter-year phasing. That's kind of the outlook for the year. We feel pretty confident with that.
I'm pretty cool looking at the full year guidance for the year if you add up all the quarters.
Okay, thanks. Just a quick follow-up on that, because the numbers you've given there would kind of give us the sense that you would beat your 3% target for 2025. I would say 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 too, right? Q3 will be low too. I think you can do the math and solve for the Q3 number now. I think we started the year pretty well. I think we're confident on the year, but it would be odd 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 Q3 will be below two, and the other quarters will be again below about three.
That's great. Thank you very much.
Thank you. Our next question comes from Siyi He of Citi . Your line is open. Please go ahead.
Hello, and good afternoon. Thank you very much for taking my questions. I'll have two, 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 returned 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. The second question is on the cost cutting. Chris, I think you mentioned that you expect OPEX to only moderately down for this year. Looking at your FTE reduction, especially in your own FTE, it seems has picked up since Q4 last year. I'm just wondering, why shouldn't we expect higher OPEX reductions given the FTE changes? Thank you.
Let's start on the fixed on your infrastructure question. On the infrastructure side, we cover more or less a clean footprint of 64%, not that much overbuilt compared to the OpCos in other areas. Moving forward, we will face more overbuilt, but we have DELTA and ODF running a bit more than 1 million households in different footprints. 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. That's where we expect growth to come from. 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 the contract, and we expect that to improve looking forward.
Already on the fiber footprint, two-thirds of the total KPN base is already on fiber. That's an important draw on because fiber customers are heavier customers, and they churn slower than other customers. Besides that, we positioned Youfone. Yes, we see a growth of north, yeah, a bit more than 1% on broadband. The way we position ourselves now with the growth income to KPN, both and Youfone, we expect it to continue because we also will, probably it's not totally fully already decided on, but usually we do another price increase mid of the year. That decision is up for, yeah, somewhere coming month for us to take or two months from now. All in all, following the runway, I expect broadband to continue.
Yeah, on your cost question, I think you're right.
We are now running about 200 FTEs below last year, dropped in our, 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. Again, the lowering spend on energy was guided from minus 15%. That is also kind of in the back. I think the two caveats, one is if you reduce your cost right now, you have the EBITDA right now, it really starts to impact full year 2026 more than full year 2025. Basically, the full year effect will be felt more next year than this year. That is one. The second thing is the competitive intensity in the market and our own actions, say the Combivoordeel, also drives more customer interaction.
The number of service tickets or calls are quite high, but it requires us to keep our support staff at elevated levels, higher than we initially thought and planned. In the 200 step down is already an increase in your support staff to keep your customers happy. It depends also a bit on how that evolves. We have a plan and a mission to reduce FTEs in that part of the business considerably, but then you also need to have the activity level come down, and that has not happened yet. I think all in all, FTE step down 300-400 . 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 to the app, to digital interaction, etc. That should help us.
Then again, it's probably more a 2026 impact run rate thing than a 2025 thing if you reduce your FTEs further. Overall, the statement of flat to slightly declining cost base that we guided for, that seems also reasonably secured from where we sit today.
Thank you very much.
Thank you. We will now move on to our next question from Keval Khiroya of Deutsche Bank. Your line is open. Please go ahead.
Thank you. I've got two questions, please. First, the Glaspoort DELTA deal is still under review. What's your latest view on when we should get the final ruling? Do you still think the initial regulatory concerns can be overcome? Secondly, as you mentioned, two-thirds of your B2C base is now on fiber, and churn should be low. Can you give some color on just how the fiber churn compares to the copper customers? Thank you.
Yeah, Glaspoort is working on that deal with DELTA. I think it's encouraging, especially that DELTA is willing to sell off potential overbuilt households to Glaspoort, so that is a positive signal for us. We're still waiting for our regulator to come up with the final decision. Regulators in the Netherlands, they like regulating, but they especially take a lot of time on everything they do. I'm very confident that one way or the other, that will be at the end a successful deal since I do not see any serious ways to block this from a legal standpoint. We have to wait and follow the procedure. We expect a decision before summer.
On your churn question, you're right. Two-thirds is now on fiber, one-third 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 comparisons, and fiber churn also moving up a bit, but substantially below copper. Copper is north of 10% per year, fiber substantially below. That makes it gradually help us. If you look at the amount of clients on copper and the churn amount, that's still something you feel. I think the movement of the two effects, one 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, so fixed, mobile, and entertainment, that should over time drive churn down. In the long run, when your copper base declines, relative to fiber, and the impact of the Combivoordeel kicks in, we should see material reduction on churn.
For reference, copper churn is north of 10%, and fiber churn is well below 10%. I think the fiber churn is like 60% or so of the copper churn.
Okay, thank you for that.
Thank you. Our next question comes from David Vagman of ING . Your line is open. Please go ahead.
Yes, good afternoon, everyone, and thanks for taking my question. The first one is on the cost. Could you give us more insights on the direct cost, your evolution? For instance, on the path between, let's say, to a split between the wholesale cost from Glaspoort and the change in mix that might be at play. Secondly, on the indirect cost evolution, can you discuss the drop in IT expense? Thank you.
I think on the direct cost, look on Glaspoort for full year, the total cost charged by Glaspoort is about EUR 25 million higher, about EUR 6 million a quarter up from last year. There is about EUR 25 million a year going through your direct cost. There is more direct cost going in. There is a part of it is roaming. Roaming costs are going up. To some extent, we have got more sponsored roaming business, which you also procure roaming services. Net-net is still a very good margin business, but there is still more direct costs coming through. The third element is the cost around the spend to acquire broadband customers. That is, I think, notoriously high in this market. Product plus actions and spend is quite high to, I would say, win broadband customers.
The direct cost increase for the full year, about EUR 25 million of that is Glaspoort, EUR 6 million in a quarter. I think roaming is probably EUR 4 million-EUR 5 million in a quarter in terms of extra spend. The remainder is a combination of cost around B2B and B2C customer acquisition cost. On IT expenses, there's a bit of timing, but that's something that we're renegotiating. Our total lease costs, our licenses costs are getting better. We have made a considerable effort on reducing the number of licenses, renegotiated licenses over time. There is still underlying upward pressure on IT costs in general. The way to battle this is to limit licenses, renegotiate for longer terms, and eliminate legacy systems. That will fluctuate a bit during the year.
Okay, fantastic. Thanks.
Thank you. We will now take our next question from Steve Malcolm of Redburn Atlantic. Your line is open. Please go ahead.
Yeah, thanks. Thanks for taking the question. Two 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're lapping Youfone, and you've got a lower price rise this year than last. I think it's sort of + 3% versus + 4%. I guess, as you said, we should be thinking kind of the underlying 1%- 1.2% that we saw in Q4 and Q1. It feels like a reasonable run rate. Looking beyond 2025, I mean, is there any reason to think that that consumer revenue, service revenue, growth rate will improve? It seems like sort of 1%- 1.5% is going to be hard to break out of.
If that is the case, just to be clear, we should be looking for sort of 4.5%-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 three divisions? Just a quick sort of detail one Tailored Solutions this quarter. That was obviously a pretty big driver of the revenue upfront in B2B. Can you just give us a bit more color on that and how we should think Tailored Solutions for the rest of the year? Because we do not normally see + 15%. That would be very helpful. Thank you.
Yeah, should I jump on this one? You're complimenting. Yeah, on consumer, I think you're right. This year, 1%-1.2%, up to 1.5% for the year, but say 1.2% is probably the right number. I think mobile better than fixed. Youfone will come in. 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 a deliberate part of the strategy. That will start to contribute. I think on mobile, you'll see for the rest of the year, growth around two-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. That leaves you with between 1% and 1.5% for the year. Is it hard to break out of? Yes. What will be the drivers? I think if churn goes down, right, that would be the key driver for the sink is then you get more of your fiber. I think mobile will probably be around 2% is actually feasible in the long run. The strategy is to bring up fixed, but that is a function of the amount of churn in the market and ease in the market. In order to get to the 3%, indeed, you have to have higher growth rates in business and wholesale, but we feel pretty confident on that.
I mean, wholesale is doing quite well, mostly on the mobile side, both the national carriers and sponsored roaming. There's no reduction in growth there. I mean, we still see new wholesale customers signed up as well. It's a good pipeline of wholesale clients waiting to be signed up on this type of business. In business markets, I would say continuing, the risk is, of course, a massive recession and bankruptcies, but that's not written in the card. If not, we will see LCE gradually during the quarter, gradually inflecting in the second half of the year as per the plan. SME growing about 5%. Tailored 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 steam.
Expect for the second quarter to be Tailored Solutions could be with a 10% handle as well in the second quarter. Then gradually going down in the second half due to year-on-year comps and the timing of projects coming onto steam. Basically, I think very long story short, brilliant assessment, Steve, as always. Consumer 1%- 1.5%, the rest combined with 4%-5%. Confident on that. For that to break out, fixed go to 2%-2.5%. For that to happen, you need to have lower churn.
Perhaps adding to that, I mean, we're a base company, right? Price increase is very important. You mentioned looking beyond 2025. The step we are doing is really accepting we're a base company. Usually, telcos hunt for acquisition and report on that edge. We consider that for us not the game to play. That's the step we made. We think that really reducing churn should make the base grow. That is the big question mark. Is it going to work? We invest now in existing customers, reward existing customers, and try to lower the churn. For a company like KPN, that's the most efficient way to make the base grow. There are a lot of customers, we think, in the Dutch market looking for a discount.
Every year, they rotate for a new Samsung TV or a discount of EUR 400 on the Ziggo side. We're not looking for these kinds of customers. That is a mistake. We want to create value out of the base we have and make that base grow by adding more valuable customers. That is why we are, of course, keeping an eye on everything that's happening on discounts and on the acquisition side. Also, that is why we focus so much on that churn reduction and that should fit us well.
Just quick follow-up. I mean, do you think you can get the churn down without pulling back on the price rises just by having more fiber customers? Because I guess that does play a big role. Just on that Tailored Solution business, Chris, is it good margin business to sort of?
I mean, on price rises, we understand the discussion every now and then in the markets. The real problem in the Netherlands is not internet prices, but the energy prices. That is, by the way, done by our own government. I think we should have that discussion better on the table. To our customers, we're perfectly able to explain why we increase prices. To be honest, it's quite low. We only follow CPI. While we invest a lot in fiber, we give to all the consumer customers 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. We do the same in SME. 70% is in that base already. It is for free.
We're not only 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 Tailored Solutions, that's a completely different ballgame, of course. We cleaned it up in the way that we are not hunting for revenues only, but for, yeah, revenue streams where you really can create margins as well. They're doing a great job there, especially to the government and the Ministry of Defense. The Dutch Army is one of our most important customers. We run large projects. Every now and then, such a project kicks in in the revenue. It's not that we're going to do this number every quarter, but it's a bit in cycles.
We expect a decent performance Tailored Solutions, not on the level as Q1, but much better than we did like a couple of years ago.
On the margins, Steve, I mean, Joost and I, we've been through the cleanup of this business. We walk around with a massive margin paranoia when it comes Tailored Solutions. talking about every deal, looking at margins. Obviously, this is also a business that's CapEx light, right? It's network service management. When you look at the free cash flow margin, I mean, EBITDA margin is less than typical telco, but there's hardly any CapEx involved. The free cash flow margin of this business is not that far off of the free cash flow margin of the group. Rest assured that the first thing that Joost and I ask when a Tailored Solution deal comes for a signature is, before we sign, can we please walk through the margins in all details to make sure we're writing good business?
Yeah. Right. Thanks.
Hold on to that paranoia, Chris. That's great. Thank you very much.
Thank you. We will now take our next question from Luigi Minerva of HSBC. The line is open. Please go ahead.
Yes. Hello. Thanks for the presentation and for taking my questions. 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. Now in Q1, we see a further step down. 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 I would be keen to understand better what measures have you taken. The other question is on, yeah, 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.
I was wondering if it's a kind of early sign of macro uncertainty. Thank you.
Yeah. Luigi, thank you. Net Promoter Score, we made it very important in the company, especially for consumer mass market, or mass market, I should say. It is also a financial target for management in the company. Minus 14 or 14 instead of 16, which is more or less our target for this year. We are still the leading telco when it comes to Net Promoter Score, but every now and then, we face dips. We are doing a lot of work outside on rolling out fiber. Every now and then, it creates a lot of customer traffic. The main thing really was media discussions around how expensive is the internet. Especially exactly around that period of time, we did the Net Promoter Score measurement cycle.
Also in the customer interface, every now and then, when we face an outage of a customer system, and that happened in this first quarter as well, it immediately impacts your Net Promoter Score. I mean, we've been in ups and downs on Net Promoter Score, and we know how to run it. 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. Yeah, on Youfone and Simyo, we do + 40. We're not reporting on that. That also means that indeed, especially in the Netherlands, price is an important part of how customers experience the service. Besides that, KPN is targeting for around the level of 16. Yeah.
On LCE, Luigi, yeah, we are still expecting and planning and hoping for or hopeful for positive service revenue growth in the second half. You will see a decline in Q2, I think. We turn according to Q4. If you open that business up, you look under the hood in that business, obviously, there is a pressure on mobile where obviously there is price competition. We are able to sustain our base, but there is argued pressure on mobile, which is countered by all the other businesses in LCE where there is growth. There is actually quite some demand by Dutch businesses for support and digitization of their operations. The demand is actually quite good in all this. There is quite good development in IoT and machine-to-machine solutions.
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, below 1%, but small positive net growth on LCE service revenues for the year, having turned the corner then in the second half of the year. That means that LCE to me is really about 2026, right? If we're indeed 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 will be a contributor to growth next year. I mean, that's the whole plan. It's about the run rate 26.
When you look at the numbers, expect some decline in Q2 and then a turnaround in the corner for Q3 and Q4 for a net- net small positive growth for the year and then a better run rate into 2026.
That's great. Thank you so much.
Thank you. We will now take our next question from Joshua Mills of BNP Paribas Exane. The line is open. Please go ahead.
Hi guys. Thanks for the questions. 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. I guess KPN suffered more than most on the B2B side over the last 15 years. 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 been rebased, or the business mix has changed enough and there are longer-term contracts that give you that visibility? Perhaps some really detailed breakdown of where you expect the individual B2B revenue lines to go over the next 12 months.
In order of conviction and where you have more visibility, is it fair to say that you maybe have more confidence in the LCE than the SME and Tailored Solutions segments in that order? That would be slightly longer, but first question on the B2B side for you guys. The second question, just around wholesale, the line losses were a bit better than last quarter. Previously, you've given some indication of the impact you see from the altnets and also your wholesale partners. I was hoping that you could give a bit more of an indication around the dynamics you're seeing in the wholesale net adds and altnet markets as well today. Thanks.
Yeah, Joshua, on B2B, if you compare KPN, I would say with others in other markets, then the difference is that we started on the cleanup probably a decade ago. Where we faced super high tariffs on legacy business, and we really had to do the migration not only to IP-based kind of services, but also to much lower tariffs. Usually, when you start fixing your telco B2B business, you take a hit by starting the migration. That is why a lot of other telcos waited for that because in the first wave, you start eating up your own revenues, to put it that way. That is what we did in the past. We know where we are because we've done the migrations. We know where we are on LCE because we're not completely done with the migration.
On SME, to take an example, we migrated full base to our KPN One platform. By doing that, lost a lot of customers or a lot of connections, I should say, because during the migration, customers find out, "Hey, we can optimize a lot. We do not need 10 connections. We can only do with one fiber line and good Wi-Fi, etc., etc. That is behind us. Now we have a base of pretty good customers. We try to lock in via free security services. We try to add mobile or fiber. A pretty good clean base with decently priced services. The Tailored Solution, like Chris described, we cleaned it up. That was also a trip of probably eight years. All kinds of bleeders, really focused on the top line instead of on the valuable things.
We've been through all the contracts, through all the large customers. Of course, there's a huge price pressure on mobile. Of course, every tender price is lower. We also decided on that part to use it to approach it more like a wholesale customer approach. 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. I think there we are in a pretty good shape. In LCE, we're somewhere we passed the midpoint, ending the phase of migrations and fixing the portfolio. Then you know where you are. In short, the difference between us and other players is that we've done, I mean, 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. That improved over the last five, six years. I do not expect big spikes. That is also why we think that LCE will lift up, but we will not surprise you with suddenly 5%-10% or something. SME did 10%, and we already announced it is more likely that it will move back to 5% growth, but still, that is a decent growth. All in all, looking under the hood, that is what we did for a lot, like they said. I think that it is all about fixing the base, fixing the pricing, and moving everything to IP, new platforms.
All in all, we did a lot over the last eight years, and that's why we are more confident, probably, I would say, than others to predict our business on B2B.
Just a quick question, Joshua, wholesale online loss is a little bit less. There's some support from customers that move from B2B to wholesale. That distorts the picture a bit. I think underlying, it's similar trends as last year. I would say wholesale competition is as it was around Q4, Q3 last year. That's kind of continuing. We are, however, in conversation with most of our wholesale customers. Actually, in pretty good spirits, obviously, we tried to protect our base. We tried to protect the revenue per line as well. We also tried to help them achieve growth in wholesale markets.
I think 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 we see more willingness among most of our customers to work with us to grow and to find a back-to-back growth on the KPN base. Obviously, that has to settle into real numbers. Numbers are what they are. Underlying trends, it's all a bit better, but expect the intensity to continue for the coming quarters. There are some underlying improvements in our ability to talk to our customers, work with them to see what we can do to grow with them.
Great. Thanks very much.
Thank you. The final question is from Michiel Declercq of KBC Securities. Your line is open. Please go ahead.
Yes, hi. Thanks for taking my question. The question would be on the FTE reduction that you touched upon earlier between 300-400 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. Maybe also looking a bit forward, what do you think that the potential is beyond 2025, let's say going into 2026 as we see, of course, the chatbot and AI capabilities improving, which should be a bit of a tailwind for you. 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 improvement in 2026 following the transition. Yeah, given the competitive pressure in mobile, is it maybe fair to assume that the original conversion that you assumed during the capital market day, that it will be maybe a bit less than originally planned? Those would be my questions, please.
Okay. On FTE, 300-400, Chris mentioned. I think good news is that we're already below, yeah, 200. So 200 less than end of last year. One important thing there is indeed customer interaction. If you compare KPN to others, I think we still have a lot of people working on the customer interface. It all has to do more or less with the fiber thing. I think we're good on track to make the 300-400 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, yeah, portfolio. The big one there is, of course, mass market broadband. Also in B2B, we're looking at how we run more end-to-end.
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. That all has to do with less people working in a far more efficient and, yeah, way and improving productivity. It's not only on customer interface, but we expect that to continue, especially when we slow down the fiber rollout. It will be easier to get this thing more efficient and more under control. It's also about staff reduction in general. We're not only looking at the customer interface. It's also the indirect FTE, as you call it. People that are not daily working in the customer interface but are, yeah, working in an office behind a laptop, there we can optimize as well.
We're pretty confident 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. Yeah.
Your second question on the convergence, I love the word convergence, on growth in B2C and B2B, obviously, compared to the capital markets, I think the overall growth of the two together is in line with the plan. 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 in comparison, right? Some of the two, the growth is the same.
I think 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 markets and the fact that we, as Joost said, we're a base company. In this market, you need to behave like a base company not to pursue growth at the expense of everything. In B2B, as Joost said, there is underlying strength, I think, in a distribution scheme, strength in still employment in the Dutch markets. I mean, the labor market is still very tight. Most of our SME and mid-corp customers will not let go of staff because you can't rehire them. As long as they keep their staff, they keep all their devices, subscriptions, and whatever you have you.
I think we see also more growth in what we call mission-critical business coming towards us, driven by security concerns, data concerns, etc. I think compared to the capital markets, your observation is right. The sum of the growth, the sum too, is actually where we want it to be, but a bit more tilted towards B2B than to B2C.
Good. Thank you.
All right. Thank you all for your attention. That wraps up 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 line. Have a nice day.