Earnings Call: Q1 2021

Apr 30, 2021

Good day, ladies and gentlemen. Welcome to KPN's First Quarter twenty twenty one 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. I will now turn the call over to your host for today, Reinhard van Erscho, Head of Investor Relations. You may begin. Thank you, and good afternoon, ladies and gentlemen. Thanks for joining us today. Welcome to KPN's first quarter twenty twenty one results conference call. With me on the call today are Joao Farwekh, our CEO and Chris Vige, our CFO. As usual, before turning to our presentation, I'd like to remind you of the safe harbor on Page two of the slides that also applies to any statements made during today's presentation. In particular, it may include forward looking statements, including KPN's expectations with respect to its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. I would now like to hand over to KPN CEO, Joost Farrer. Thank you, Reinhard, and good afternoon, everyone. Today's results mark the first quarter of our Accelerate to Growth strategy we presented to you back in November. And I'm pleased to report solid progress on all strategic pillars, which strengthens our confidence to deliver on our outlook and on our ambitions. The accelerated fiber rollout is well on track as we added over 100,000 households to our footprint in the first quarter. And last month, we announced a joint venture together with APG to accelerate further and create additional value for all our stakeholders. We've also successfully phased out copper in the first six pilot areas, which is an important milestone in our program to decommission copper on a large scale as of 2023. In the first quarter, the mass market service revenue trends continued to develop in the right direction. Mobile service revenues in B2C are already approaching a year on year growth trajectory. The broadband base in fixed stabilized further and wholesale continued to show solid growth. And this all adds to the confidence in our ability to grow our mass market server revenue by the end of the year. All in all, the encouraging revenue developments and strong free cash flow generating and balance sheet enable us to reiterate our 2021 outlook and our ambitions for 2023. So as a reminder, our Accelerate to Growth strategy is supported by these three pillars: one, leverage and expand our superior networks two, grow and strengthen the customer base and three, continue to simplify and streamline our operating model supporting the next wave of cost savings. We will touch upon our progress on all of these pillars in today's presentation. In the first quarter, we expanded our fiber footprint by 106,000 homes passed. The run rate was impacted by a two week frost period during which we were unable to dig. And without this, we would have exceeded our fourth quarter results. In early April, we successfully shut down our copper network at nearly 40,000 household addresses in six pilot areas. And this allowed us to test and evaluate the operational and financial impact of shutting down copper. And when we start to do this on a large scale from 2023, this will result in significant savings related to the closure of technical buildings, reduced service tickets, lower maintenance costs and lower energy consumption, etcetera. Last month, we announced the fiber joint venture with APG, which further accelerates the rollout of fiber in The Netherlands. And this deal is important for us as it strengthens our strategy to be the leading fiber operator in The Netherlands. The joint venture will bring forward the fiber rollout in areas which we were not part of our existing plans for the coming five years. So we further accelerate on that. And the attractive valuation by a strong partner clearly underlines the value of our state of the art fiber to the home network. Together, KPN and a joint venture will roll out more than 650,000 lines per year, reaching maximum rollout speed. And we have already secured the majority of the construction capacity needed to meet these targets. And considering that the total fiber rollout in The Netherlands across all participants was just over 500,000 households in 2020, this is an important step for KPM and for The Netherlands. We now expect to reach 80% of households with fiber in 2026, up from 65% by 2025 in our original plans. And this is important for two main reasons. It will speed up the copper decommissioning, leading to earlier cost savings. And this allows us to significantly bring down our CapEx level sooner, now already after 2026. This means we can settle at a much lower, longer term sustainable CapEx level in the years thereafter. Now let's move to the consumer segment. In the first quarter, the consumer service revenue trend was impacted by an €8,000,000 one off correction. And excluding this, the underlying service revenue trend improved. Mobile service revenues declined only 0.7, fully driven by prepaid as postpaid service revenues were already flat year on year. And fixed service revenues declined 1.8%. Looking at our new households focused disclosure, revenue growth in our fixed mobile portfolio was offset by lower revenues from legacy services. We've been able to stop the NPS decline and we're seeing encouraging underlying developments. Customer satisfaction remains one of our top priorities. We see that our investments in increased capacities are starting to pay off and we should be able to gradually bring these down again in the coming period. Now let's take a deeper look at our consumer KPIs. At our Capital Markets Day, we indicated that growth in consumer will come from two areas, fixed mobile and fiber. And although revenues in consumer were still lower year on year, we see encouraging KPI developments, which show that we are working according to the line of our strategy. In Q1, fixed mobile households net adds were again positive and fixed mobile ARPA improved resulting in higher revenues from these services. In our other area of growth, fiber, we also see a very positive trend in net adds. Our focused commercial strategy and upgrade for copper are resulting in better sales numbers on fiber. We're confident that the solid KPI development will fuel the growth of our consumer service revenues this year. Let's now move to the business segments. Although still declining, the overall revenue trend in business is starting to move in the right direction. Q1 service revenues were down below 4% year on year, better than the previous quarters. COVID-nineteen and customer migrations continue to impact our B2B performance. Last year, the lockdown only came into effect in the final two weeks of March. So in Q1, saw we lower roaming revenues due to travel restrictions and delayed IT projects. Business Net Promoter Score improved to plus two, mainly driven by customer migrations to our future proof target portfolios and that have much better customer satisfaction levels. In SME, we have come a long way with our customer migrations. Almost 90% of customers have been migrated away from traditional voice and legacy broadband services. KPN ONE platform is well positioned to provide additional services to customers. A quarter of the base takes three services, so there's enough room to grow this going forward. We also see a strong take up of unlimited among our SME customer base. In the first quarter, almost half of the €8,000,000 year on year revenue decline was due to loss of roaming revenue. So without this, the effect on SME revenues would be less and SME would have performed better. We see a clearly stabilizing trend on the SME service revenue level, which makes us confident in our ability to stabilize service revenues in SME by the end of the year, driven by the solid base developments both in broadband and mobile. In wholesale, service revenues continued to grow in the first quarter, mostly driven by broadband, which in turn is a result of expanding our fiber footprint. We added 22,000 broadband lines and 30,000 postpaid SIMs in the quarter. As we've always said, we continue our open network policy, build on reasonable and non discriminatory terms. And therefore, we offer a viable alternative for our current and future wholesale partners. This month, we announced a new long term sustainability goal. KPM was already on track to reduce emissions in the chain by 50% in 02/1940. This ambition has now been scaled up to achieving zero net emissions in the chain by the same year. This relates, for example, to improving the energy settings of TV receivers, more sustainable transport of products and equipment by our suppliers, and using less materials in the production of equipment for our customers. Now, for the financial results, me hand over to Chris. Thank you, Joost. Let me now take you through our financial performance. Our financial performance was impacted by an €8,000,000 one off non cash correction in B2C fixed service revenues, which was related to the timing of revenue recognition in 2020. We exclude this one off and the trend of a number of metrics to illustrate a true and fair underlying performance. Therefore, let me highlight a few key figures for Q1. Our revenues declined by 1.2% year on year, corrected for this one off event and the sale of KPN Consulting in Q1 last year. Growth in wholesale and consumer fixed mobile was offset by lower revenues from business and consumer legacy services. We see the underlying trends in service revenues developing in the way we envisaged, and we are on track to meet our inflection target for the year. EBITDA effectively was flat year on year, corrected for the impact of the one off. Lower revenues and temporarily elevated costs related to customer support were offset by continued progress on cost savings. In the year on year comparables, we absorbed a roaming delta versus Q1 last year and a temporary cost spike in B2C. Our free cash flows increased by 53% year on year €122,000,000 Our liquidity position, including undrawn RCF, remained very strong at almost €1,900,000,000 Joost already indicated that the underlying KPIs are showing promising trends for growth in mass market service revenues soon. Wholesale growth remained strong, and B2C mobile revenue showed a step change improvement in the right direction, with postpaid already flat year on year. Net adds in B2C fixed are stabilizing and nearing positive territory, while ARPA is already growing. Already, in SME, we see ample opportunity to improve the revenue trend, which make me very confident we'll deliver against our objective for the remainder of the year. Please note that SME revenues effectively have been stable for the last three quarters already. As I said, the one off correction makes the trend somewhat hard to read. However, the year on year growth rate at the right hand side of the slide show that we are getting closer to growth in mass market service revenues. And by the way, in the business segment, we observed favorable service revenue developments in LCE and Payout Solutions, but of course our focus is on SME stabilization first. We are continuously digitalizing and simplifying the company in order to deliver a combination of improved services, better customer experience, more efficient operations, and thereby creating long term value for all stakeholders. In the first quarter of the new cost savings program, we delivered €21,000,000 of savings, which is in line with the required run rate to reach the more than €250,000,000 of savings by 2023. As this cost number includes some temporary cost spikes. For the year, we see KPN still on track to move towards the aspired cost savings, with the lion's share of the savings tilted towards the second half of the year. In Q2, in terms of cost and cost only, we'll face a tough comparison base as last year's number benefited from COVID related savings, which will lapse this year, and several digitization efforts that save costs and will kick in only in the latter part of the year. So we'll continue to move towards our cost objective with the biggest FX backloaded in the second half of the year. At our Q4 results, we explained that we improved our working capital management last year, and we have continued to do so in 2021. In Q1, we were already able to reap some of the benefits, with part of the improvement also due to intra year phasing. Normally, have higher investment in working capital in Q1, and although still negative, that is we still invest in working capital, the investments in working capital were significantly lower compared to previous years. During 2021, the rest of the year, we will explore further options to keep improving our working capital within the normal course of business. This will help us not only today, but also in future years to keep a healthy baseline of working capital. We started the year well in terms of cash generation. In Q1, we have seen a solid increase in free cash flow despite higher CapEx as a result of the accelerated cyber rollout. Free cash flow of €122,000,000 was a good 50% higher than last year, and the margin moved to 9% of revenues. This increase in cash was mainly a result of: first, different phasing of working capital importantly, lower cash interest, lower cash restructuring, partially offset by higher cash taxes. A few points are worth mentioning. First, our non fiber CapEx was fully according to plan. The higher CapEx versus last year was the result of accelerated fiber investments, while other CapEx spend was in line with expectations. It declined a bit and absorbed an increase in consumer CapEx. This provides an early proof that we can manage our non fiber CapEx levels, which will enable us to sustainably lower our CapEx levels once the fiber rollout is completed. Secondly, our free cash flow grew significantly in Q1. We are confident in our ability to reach our FCF target this year, but mathematically speaking, it's clear that we will not see a 50% growth rate every single quarter. So please expect some fluctuation of this number during the quarters, but at the same time, we remain confident with regards to our free cash flow target for the year. And we ended the quarter with a very strong cash position, despite redeeming a €361,000,000 senior bond that had a 3.5% coupon in February, giving room for further interest cost reductions this year and the next. We continue to have a strong and resilient balance sheet at the March. As a result of the bond redemption and other corporate actions we took last year, the average cost of senior debt improved by more than 30 basis points year on year. In Q1, net debt declined €111,000,000 mainly driven by the free cash flow generation during the quarter. We maintained a leverage ratio just short of 2.3 times, comfortably below our ceiling of 2.5 times, and we further enhanced our interest cover. Total liquidity remained very robust at the end of the quarter. It consists of €640,000,000 in cash and short term investments, and the undrawn revolving credit facility. The sum of this covers our debt maturities safely for the next three years. Today, as we are reassured by our performance, we confidently reiterate our 2021 outlook. As a reminder, we expect the adjusted EBITDA after lease to come in at €2,345,000,000 broadly a 1% improvement versus last year. We will ensure CapEx does not exceed €1,200,000,000 We expect free cash flow of €765,000,000 in line with last year despite higher CapEx level, and we expect to pay a regular dividend of 13.6% per share €0.36 per share over 2021. And of course, the road to our objective is never a straight line and quarterly results will surely fluctuate, but we feel confident to deliver on the objectives for the year. In addition, we also reiterate our ambitions for 2023, as provided at the strategy update last November. Having said that, we believe KPN is reaching a unique position. We are investing heavily by accelerating the fiber rollout to a maximum operating capacity, driving additional future cash flows and balance sheet flexibility. KPN is becoming a pristine and clean fiber company. Are at the point of returning to mass market service revenue growth, and we are aiming to accelerate organic cash generation in the next few years, giving rise to progressive dividends and at the same time deleveraging. We have a prudent financial policy but don't intend to run an inefficient balance sheet. So it's a combination of a fiber plan, CapEx rollout, mass market revenue growth and sufficient cash to grow our dividend and delever at the same time. And we are very much aware of the efficiency needed of our balance sheet. Our plan is only one quarter underway, but progress has been good, which makes me confident we will successfully continue to execute. So to summarize, KPN had a solid financial quarter, displaying its cash generating ability. We see encouraging signs in base and service revenues that will drive the mass market service revenue growth. This is driven by positive signs to consumer, with fixed mobile and fiber net adds, and ARPA all in positive territories. SME is seeing good broadband and mobile inflow, which is helping to stabilize revenues by the end of this year. In Wholesale, we see the ongoing success of our open network policy, leading to continued solid growth. Our fiber rollout run rate has maintained a good pace and has proven an attractive return profile. And we reiterated our outlook for this year plus the ambitions for 2023 and are strengthening our confidence when it comes to delivering on our strategy. Thanks for listening to our presentation. Now, let's turn over to your questions. Back to you, Einhard. Yes. Thanks, Chris. And as usual, before we start with the Q and A, I'd like to ask you to please limit your questions to two. Over to you, operator, to start the Q and A. Ladies and gentlemen, we will start the question and answer session now. And the first question is from Mr. Jacob Bluestone, Credit Suisse. Go ahead, please. Hi, good afternoon. Thanks for taking the questions. I have two questions, please. Firstly, can you just share your thoughts around the KKR Deutsche Tele fiber joint venture? How does that sort of impact your thinking around overbuild? And I guess, to what extent is there a land grab on building fiber? And secondly, on the fixed line side, if I I think you said it was a minus 1.8¢ underlying decline in fixed service revenues, which I think is a little bit weaker than what you reported last quarter. You mentioned in the release, more pressure from legacy. Can you maybe just expand on what's going on, within the sort of fixed line service? And why do you think you're seeing an acceleration in legacy pressure? Thank you. Yes. Thanks, Jacob, for your question. I'll take the first one. Chris, you'll take the second one. Okay. Yes, the new fiber initiative in The Netherlands, it's only a plan. So I can't say very much about this. There's a high ambition of, if I'm not mistaken, 1,000,000 households in five years. But like I said, it's a plan. We have a plan, but we are also doing it. So we're executing the rollout last quarter above 100,000, this quarter above 100,000. So we're rolling out on a level we never did before. We have our strategy. We're speeding up, and that is for us the most important thing. We anticipate on other initiatives to roll out fiber as well. That's why we say in 2026, we expect KPN to cover 80% of The Netherlands. The rest of The Netherlands will be covered by third party initiatives. That means that in 2026, we expect all households to be connected to fiber. So and I also heard Deutsche Telekom saying or T Mobile that they they try to avoid overbuild. That that's always good. That that that is what we try to do as well. When we face an initiative somewhere in area, most of the times, we can come to an agreement to cooperate. But let's first see if this all really works out. And for us, it's most important to focus on our own plans and execute and speed up what we're currently doing. Okay. Jacob, on your question on fixed, a couple of things to to point out. Our fiber revenues and copper revenues, the combination of the two is showing still a healthy combination of growth. I mean fiber added from Q1 last year to Q1 this year about €15,000,000 of revenue service revenues. Copper did the same thing if you adjust for the revenue correction. So the fiber growth, even though numbers are lower, is canceling out some of the copper declines. And indeed, legacy products was the main delta. That tends to happen mostly around first of the year, people cancel the old legacy subscriptions at the beginning of the year. And that is an important driver for the delta between Q4 and Q1. But if I look at the underlying fiber developments, the net adds we had there, the copper to fiber upgrades. If I look at the developments of ARPA and ARPU, so ARPA on fiber and ARPU on fiber stack, those tend to be quite positive. So we are still pretty confident that we will get to this revenue inflection. But it's a legacy line item that caused change and that to be something that tends to happen more in Q1 than the other quarters. Got it. Thank you. The next question is from miss Si Hai, Citi. Go ahead, please. Oh, thank you very much for taking my questions. And I have two, please. The first one is really a clarification. Is it I saw you accelerate some e fiber net adds, but the corporate decline also accelerated. So I was wondering if you can talk through the reason behind that. Is that just simply because, in the pilot areas, face out copper and you're replaced by fiber? Or actually, you see the decline and the growth coming from a different areas? And my second question is, you mentioned about the potential cost savings and the CapEx reductions after you phasing out copper and finalizing your fiber. I was wondering if you can give us some indications what kind of ballpark we should anticipate. Thank you. Siggi, let me take the first question on fiber. What we're seeing is a couple of points. On fiber, an increased activation rate. You can see the activation percentage going up. That is due to the fact that we've changed our activation processes somewhat, where operationally speaking, when you draw a fiber line, you you don't stop at someone's front door, but you connect to everybody regardless of them being customer or not. But actually, the more efficient process saves cost and time, but also accelerates the take up. So we see an increase in what we call copper to fiber upgrades, so moving clients from copper to fiber. So the numbers you see, the fiber and copper numbers, there's some transition of copper to fiber clients in there. Net of that, our fiber is still continuing to grow. It's still relatively new net adds in fiber only is a significant positive. Copper churn, if you strip out that copper to fiber move, we saw copper churn moving up from Q4 to Q1 and have stabilized. So I think at January, we moved to a higher level of churn, and then Jan, Feb and March were stable. My estimate is still more in this lower speed copper environment, that's where the copper churn is. But overall, we see numbers improving from a combination of fiber clean fiber and that adds positive copper to fiber upgrades also because of the changed connection activation processes that we have, which eventually we believe lead to ARPU uplifts and then an increase in churn up to Jan and then staying flat, so no further increase in churn in copper. Carcini, second question was about cost savings and CapEx after 2026. So we expect to be ready 2026 with the rollout of fiber. That means that after that, we will no longer invest in fixed access network unless it's new build households, so we have to connect. So that's a complete different investment schedule compared to what we do today. That means that we can step down heavily on CapEx after 2026. And that's not that's about hundreds of millions. On the cost savings side, decommissioning copper is very important. All incumbents talk about that and some of them are starting to do it. It will save us on maintenance costs, on the cost of technical buildings. We're going to phase out most of our technical buildings. This is by the way an old dream to come true for KPN. We save on reconstruction costs, on power usage. So that's also very important. And that will start to kick in as from 2023, and it will continue we will continue to benefit from that savings program after 2026 as well. Thank you very much. The next question is from Mr. Michael Bishop, Goldman Sachs. Go ahead please. Thanks and good afternoon. Just two questions, please. Firstly, just picking up on the stronger performance in B2C mobile. I know in prior quarters, you've mentioned three or four factors coming through such as like better low end pricing, lapping the back book repricing from 2019. But I was just wondering if you could give us a quick recap on what's happening there sort of within the mix and why you've seen that nice improvement? And then my second question, Chris, you mentioned that I think a couple of times towards the end of the presentation about not intending to run an inefficient balance sheet. And given you seem to have quite a lot of visibility over the business, particularly around the big ticket items like fiber CapEx, have you had any more thoughts about sort of what is a medium, long term efficient balance sheet and what that looks like? Thanks very much. Yes, Michael. In consumer market, we see mobile postpaid moving in the right direction. If I'm not mistaken, we're more or less flat year on year. So that is really moving in the right direction. That's mainly because of how we positioned unlimited in the market. That's doing quite well. We see a strong inflow on the higher ARPU propositions. And indeed, we corrected pricing on the no frills side. Of course, as you know, we eliminated Telfort in the past, but we also repositioned our mobile proposition a bit in the market. So we really try to move our customers to the higher ARPU, a more unlimited kind of propositions. And that's on the right track, I would say. We're not there yet, but I expect more to come from this in the coming quarters. So we're pretty satisfied on the mobile performance in consumer markets. Yeah. Michael, allow allow me to give you a quick marketing scan then. We're investing heavily in fiber, as we said, driving future cash flow with the point of return to mass market service revenues and that we can do with a progressive dividend and organic deleveraging. Currently, with 2.3 times leverage, that will drop because also in next quarter, you see the proceeds from the transaction with ABB. So that means that leverage number will come down. Our ceiling is 2.5. I think the floor that we announced or the it's not a formal, but effective floor is around 2x below that becomes inefficient. And within that two to 2.5, management has some room to maneuver. I mean, our strategy is good. We're only one quarter underway now. Let's see if our strategy continues, will give us more visibility on performance, especially on the returning to mass market revenue growth, on the return increased contribution of fiber, very sticky fiber revenues. If that continues and we continue to delever and the cash flow keeps coming in, I think we should be able to return to our shareholders somewhat more than just the annual dividend increase. So that option is definitely there. And in terms of inefficient balance sheet, I think the lower bound is like two times. We've set a ceiling of 2.5. But if we get to organic revenue growth, more share of fiber, I think it's not inconceivable that we should aim to be or the upper end of the leverage and the lower end of leverage because simply our balance sheet could sustain that. So to me, it's a function of getting the business to deliver on revenue growth, fiber client base, sticky fiber revenues, that would give us the anchor at which to move our leverage up a bit towards the upper end of the range, and that also gives opportunities for additional shareholder returns. Great. Thanks for the detail. The next question is from Mr. Matthijs from Lionelworth, Kepler Cheuvreux. Go ahead please. Yes. Good afternoon, gentlemen. The first question is a follow-up on an earlier question. Could you give us the capital to CapEx to sales ratio after 2026? Could you give a number? And the second question is on this Chinese vendor, Huawei, because the Dutch regulator is currently investigating access to your network. What is the risk of a full ban? And in case that would happen, if we would see a full ban, what could be the cost for you? Okay. Well, Matthijs, your first question is about CapEx after 2026 and sales after 2026, so that's that's a very difficult one. I'll hand over that one to Chris, but let me first take the Huawei question. Yeah. Like other telcos in Europe or or like most of them, ten, fifteen years ago, we decided to to select Huawei in certain domains of our network, not only because of the price, but because of they were much further than the other two main suppliers. But of course, we have a multi vendor policy. So we use lots of different vendors for all kind of networks. For instance, on the fixed side, we're fully Nokia. The investigation that this week started is all about an article in the newspaper, which was about a report drafted eleven years ago on behalf of KPN. And KPN in those days was looking at the opportunity to source out the mobile network maintenance to Huawei and to do a risk analysis. And as a result of that report, KPN decided not to source out maintenance of the mobile network to Huawei, so we do that ourselves. And second is that some vulnerabilities were identified and fixed eleven years ago. Every year, we audit our mobile core network. We audit the way we work with vendors, so also with Huawei. And, that's also done by external parties. And every now and then, Achenfraud Telecom from the ministry comes into audit as well. So I'm happy with that audit that started this week because then we can talk about the facts in the that will come up instead of hearsay stories in the newspaper. So we're not naive. We are talking about this topic for a long time already with our government, and we completely follow the guidelines of our government. So, as far as I'm concerned, I'm pretty confident that we are fully aligned with our government and we strictly follow their rulings. So Matthijs, on your first question on CapEx over sales, and of course, yeah, it's a bit reading tea leaves on what our CapEx over sales ratio in 2026 will be. So let me give you a few, you know, components of that. Today, CapEx is, say, 1,200,000,000.0. Out of that is 450,000,000 in fiber. Well, up 02/1926, that will only be new build and, you know, maybe some small, you know, remaining portions of it to be done and some maintenance. But that will mean that a significant chunk out of that spend will be going off going away. Secondly, it means that non fiber, today, non fiber CapEx to sales around 14%. I don't think we'll end at 14%, but I would be surprised if we hired an 18%. If pruned, I would say somewhere between 1418%. And depending on how you look at the amount of new build spends, the amount of new maintenance, somewhere in there. But I I would I would pick a number in that range, and then you know what I model with. Is that without giving you a hard coded number, because, you know, 2026 is still a couple of years away, but I think it's up will be somewhere in that range, and I guess you you will able pick a number in there. Yes. Thank you very much. Much appreciated. Just just just as a follow on on the on the first question, what if the government decides for a full ban? Could you give any indication what it could cost? Yes. We always I mean, currently, we run our radio access network on both Ericsson and Huawei. So we know how to run a network on two suppliers. So that's one. Second is that we, don't expect a full ban because we are aligning, like I said, with the government. And they know what we do, and we know what they want us to do, and that's what we're currently doing. We already announced that we will move non Western vendors out of all critical systems. That was our own decision before the government started to talk to us, and that's what we are doing. For instance, the mobile core network will be migrated to Ericsson. That's a decision that we took before the summer. It will take some time, but we started it. There were other domains where we will migrate to Western vendors. We're in the same situation as a lot of other telecom operators on this topic, so it would really surprise me if suddenly that ban would be there and certainly not within a sure short notice or a time frame of one or two years. So if you look at The UK, for instance, there was a ruling there, to migrate, non Western vendors out of critical systems in seven years. So, that kind of ruling I, anticipate on, but not, anything else. Thank you, very much. The next question is from mister Cheval Kiroia, Deutsche Bank. Go ahead, please. Thank you. Two questions, please. So firstly, you mentioned the impact of COVID on OpEx last year, but how should we think about the benefit to revenues from COVID impacts annualizing in Q2? I guess last year you saw a negative impact from roaming and delayed projects, but also benefits from higher national traffic as well. And then secondly, think last year, were also quite pleasantly surprised about how well the market took the fixed line price increase. And could you share your thoughts on how you just think about the scope and maybe size of fixed price moves going forward? Thank you. Shall I, Pavel, shall I take the COVID question? So what we're seeing in the first quarter on COVID is that we lost about €6,000,000 roaming revenues in the first quarter year on year. But last year, of course, two months were still roaming revenues. We lost assets in B2B mostly. There was about €2,000,000 in B2C, we estimate, combination of roaming, a little bit lower handset sales and lower unlimited because of shop closure. Shop closure has an impact on handset sales and handset sales has an impact unlimited bundles. And we saw about €6,000,000 higher interconnect revenues, people calling 900 COVID numbers. So the net revenue delta was about €2,000,000 where, of course, interconnect is much lower margin business than roaming. So I think the net impact on our, what I say, contribution margin was about €4,000,000 in the first quarter, and we compensated some of that by cost measures. Think so the overall impact on EBITDA has been neutral, probably slightly negative depending a bit how you look at the cost impact. But again, it was like high margin revenues replaced by lower margin revenues, which you counter by cost savings. When it comes to roaming, when I look at data and voice traffic right now, it has, of course, come off. Last year, it fell completely off a cliff in q two. That, I think, will not happen. It it will continue at a slightly higher pace than last year, although, of course, travel is mostly within Europe, so it don't give much roaming benefits. So the real roaming uplift of the roaming potential for the year is in Q4 on a year on year comps, because in Q4 last year, remember, we all went back to lockdown, if the vaccination program succeeds, the world might be coming back to normalcy in Q4, and then you can see year on year roaming benefits. So to me, first quarter, four million hit on contribution margin, countered to a large extent by cost savings. Roaming for the rest of the year, I could see a tiny support year on year in Q2 and Q3, but mostly in Europe, within Europe travel, and we've got good hopes for Q4. We don't plan for it. It's not an EBITDA outlook number, but if there's any upside, that will be in Q4. And then in Q2 last year, we had a significant cost savings due to the COVID shock. So when it comes to Q2 comparison, I think that we have a little bit better outlook into the revenue growth versus last year and slightly more challenged year on year comps and costs because last year in the second quarter, our costs really went down massively in that quarter, as you'll remember. That would be the point I'd love to make on COVID. Hope that helps to you. Yes, that's very clear. Thank you. And on your question on the fixed line price increase, yes, usually we do that yearly around the start of summer to be announced in May. Last year, we did, if I'm not mistaken, 1.5 increase on the broadband pricing. So it wouldn't surprise me if we move in the same line this year. But the first, we will communicate this to our customers before we disclose it further. But I expect us to announce something in the coming weeks. Okay. Thank you. The next question is from Mr. Usman Ghazi, Berenberg. Go ahead, please. Hi, gentlemen. Thank you for the opportunity. Just two questions, please. Firstly, on on the the five g auction, I believe there's some litigation now or some further delays. So if you could just provide an update on on on the 3.5 gigahertz, you know, option of the whether you see it still happening next year or whether it could be delayed further. And then the the second question was which is going back to the the balance sheet and, you know, looking at it a bit differently. I mean, if I look at the capital employed, you know, there is no you know, from the outside, there there is no way for us to understand how much of your capital employed is actually related to the fixed infrastructure, you know, all in all in fiber. And, you know, you're spending 450,000,000 in CapEx every year on fiber. So it'd be just helpful to know, you know, how how much of your capital employed now is either related to your fixed infrastructure or or or fiber? Any indications or, you know, any idea of how to get there would be quite helpful. Thank you. No. So on the auction of 3.5 gigahertz, yeah, the Ministry of Economic Affairs is preparing for an auction in the first quarter of next year. I think it's an ambitious timeline, but it's they aim for the first or the second quarter coming year. 300 megahertz is becoming available for exclusive national licenses for five gs from end of the year, September 2022. That's the plan. So they moved out the Ministry of Defense using the spectrum in the northern part of The Netherlands, which is helpful. But there's still, Imarsoft, another company making use of the spectrum for, services at sea, and they are starting a process to delay to delay the auction. I don't think that will happen. I'm not sure how it will be solved. The usage of that IMRSAT is about much less spectrum usage than Ministry of Defense is doing currently. But I'm not completely sure how they will solve this, but that auction will happen next year. I'm convinced of that. Yeah. And to your other question, Usman, let me take it up offline that with the ER to see how we can help you or, you know, improve our disclosure. I don't have the exact number on how much capital employed we have on Fiverr on top of my head. I do know that the ROCE of the group has continued to improve, because that to me is an important factor. Exactly what you'll be looking for, while we take it offline and see if it helps us or we can help you with, enhanced disclosure on this part. Thank you. The next question is from Mr. Luigi Minerva, HSBC. Go ahead please. You're probably on mute. Sorry for that. Good afternoon. Hello. The first first question is on the APG JV. I wanted to understand, you know, of the 910,000 lines, you know, what's the extent of the overlap? So currently, those lines, are they all on ADSL or some of them are on fiber to the to the cabinet, for example? And and and what's also the overlap with the VodafoneZiggo footprint? And secondly, perhaps an update on the regulatory situation for the wholesale access terms. Can you can you tell us where where where the regulator stands and if they plan to make further progress? Thank you. Well, on the joint venture with APG, listen, we we more or less have the same footprint as VodafoneZiggo. We cover 98% of The Netherlands, 95% with a copper network, VodafoneZiggo a bit less. But you can assume that almost all households in The Netherlands have both a wireline from KPN or a cable moving into that household from Ziggo. The scope of the joint venture is the planning we have as from 2026. So we announced a rollout plan to rollout 500,000 connections per year ourselves, adding up to 2,500,000 on top of almost 3,000,000 we already did. And after that, in 2026, we would start in the more smaller villages, semi rural areas. And with this joint venture with APG, we'll start with these areas not after 2026, but in the second half of this year. So that means an acceleration of the especially focused on the long tail of our own planning. Most of our it's all about fiberizing our copper networks. So there's no fiber networks there yet. It's about copper areas. And most of the areas are all on VDSL. So that means that we already rolled out the back hole fiber to the cabinet in most of these areas. Well, comes your question on on regulation. Look, Two things at hand, of course, have been the new EECC. I think the ACM is still working through how to apply, how to have a normative framework to actually apply that that European regulation in The Netherlands. And we got the request by T Mobile. Well, this request to our extent are are both premature and and inappropriate premature because, you know, you can only file a request when you have a conflict, which we don't. We're still discussing and negotiating with them. And secondly, if you look at our open wholesale access model, which is contained to be open, which is contained to be nondiscriminatory, we in our analysis, it's very viable for anyone to have you know, even if you are an attacker or someone new to the market, you can run a viable business case in a very capital light model being on KPN's network. So we're very confident in our position. At the same time, we do not expect any news in this thing before the summer. I think it's quite premature both where we stand in our discussions and when it comes to where the clarity of the new regulation, I do not expect we would be surprised if there would be any major news from ACM before the summer. Okay. Thank you very much. Can I have a quick follow-up on the first question? So as you as you upgrade as the JV upgrades the VDSL lines to fiber, you you will obviously lose some VDSL wholesale revenue. Have you have you can you give us an an indication of how much of the wholesale revenues will be lost to the to the JV? Yeah. Well, it's our plan to usually, when we move from copper to fiber in an area, we go to penetration grades of 50% to 60%. So that's both retail and wholesale together. So we improved both on the retail and the wholesale side. We can still sell wholesale also on the network from the JV because we have the wholesale interface with the most of the service providers in The Netherlands, and we deliver that on the active layer. The JV can do the same because it's an independent company. But I expect because of these are specific areas with us on a lower market penetration rate than in the areas we choose for the first five years, I expect in total our position to improve there. Okay. Thank you. The next question is from Mr. Ulrich Rasse, Jefferies. Go ahead please, sir. Yes. Thank you. First of all, I would like to come back to this big jump in the fiber activation, which is very good to see. Could you comment a bit you did already comment on some of the drivers, but I was specifically interested. Are you giving temporary discounts for people outside of the areas where it's a switchover? And what is the ARPU in the transition from copper to fiber in general, if that's possible to answer? And my second question is a clarification on the one off. So you're saying the 1Q item is was an overstatement that you're correcting in the quarter. I was wondering, the historical overstatement, where was that? Was it a particular quarter where it was a big item or was it essentially just something you're correcting that was spread out over the quarters of 2020? Thank you. Yes. On the fiber activations, I think the most important change we built in our company is that we organized really one organization being fully responsible for fiber and rollouts, commercial activities, regional approach. So there's far more and far better focus on the activation of fiber in all different every area is different, every area has a different strategy. Sometimes we have to defend our position there, sometimes we're more a challenger. But that's now done with a far better focus. And the commercial people in Elite traditionally, we had operations in Elite, first roll out the network and then try to sell. That's difficult because when we started to roll out fiber, then ZIGO could activate all their customers, locking them in for twelve months. But now we first sell and then roll out. What we also do is that we migrate customers more actively from copper to fiber and after that sell up. So the churn on fiber is low, around 7%, if I'm not mistaken. So it's always good to also migrate customers more to fiber to create stickiness. So it's commercial performance, but the focus on the different areas, the way we first sell fiber before we roll out and the way we migrate customers more actively and in a more sufficient and one time right way. Yeah. And when it comes to to being commercially active, we, of course, have a policy that you're the same speed for copper and fiber at the same price. So if you had 100 megabits of copper and you moved to 100 megabits fiber, you get of course the same price. That helps migrate customers. But then we have a plan or action initiative in place where customers can temporarily experience the higher speed that we have, so the highest speed you can have in that area for the same price for a couple of months. And then after that period, that you may go back to the old speed or you may stick to the higher speed. So that customers experience the full fiber benefit that I just started to see how sticky that is. But our plan is when you get fiber, same speed, same price, but you get the opportunity to experience the highest speed you have around and the real benefits of fiber for a short period of time at no additional cost. And after some points, your client actually choose, do I go back to my old speed or stick with the new speed? On your question with regards to the one offs, it somewhat accrued during the year, but the focal point in the second half of the year, the most important, it has to do actually with the Telfort migration that was the driving factor, And it has to do with the physical migration of that. So it mostly affected the second half of the year, Q3 and Q4. Thank you very much. Can I just follow-up? Just for clarification, on that changed go to market strategy, when would you say when did that start really in the market? Was that something that started late last year or was it started earlier? Yes. Well, started that end of last year, and we're scaling up now. It's all it's it's for us very important to change the way KPN is working and to reinvent ourselves. This is one of the very important focus areas we were, after summer last year, really working on, and we're now seeing the first good results. But we're not done yet. Quarter after quarter, we will have to improve on our operational execution. Brilliant. Thank you very much. Thank you. The next question is from Mr. Joshua Mills, Exane. Go ahead, please. Hi there. Thank you for the questions. Just a couple from me. The first was just related to the consumer net promoter score. And I think at the end of last year, said you recognize we've had some friction points. We're going to invest and fix it, which has happened and you stabilized. So the question is, can you give us some specific, detail on what initiatives you've taken and then maybe an indication as to how much extra investment there was in the quarter to do that? And then the second question, is just related to the copper shutdown, trial period. And you mentioned as well that a few operators who tried to do this, it takes some time. What kind of issues do you face or have you found when you started this? And how long do you think it real realistically take from identifying an area where you've built fiber, you no longer need copper to actually fully removing the legacy equipment, etcetera, and realizing the saving? Thanks very much. Yes, Joshua, on the first question on the NPS, the NPS was stable. Actually, we see an underlying improvement. The NPS was stable. Mechanically speaking. We reweigh all these different customer groups every year again. And due to the reweighing, actually, had a negative impact on the NPS. The underlying improvement is about two to three points. But officially we reported it is 11 points. The underlying improvement actually is there. So what did we do? I think we spent a lot of money and time stabilizing our ITV platform. Remember at that time our ITV platform was new and our clients had to get to know it and we had to stabilize it. Secondly, we equipped many of our DSLAMs with more batteries to deal with some energy fluctuations, which actually caused, as we understood, more fluctuation in the network quality than we have visited so far. So it's re equipping our DSLAMs with batteries, stabilizing the proof on our ITV platform. We scaled up our consumer support and mechanics team, and it took time for these people to work. I mean, before you can have an experienced, well effective support staff employee, it takes a bit of time before it's fully effective. So that is a combination where we took more money and trained them to be more effective and more efficient, and a few network changes. My estimated cost is around 5,000,000 to $6,000,000 this quarter. Q4 some similar number. And when I now look at the simple drivers of those costs, call volume service tickets, we were flat for Q4 in terms of call number service tickets. And at the end of this quarter, early April, we saw the volumes coming down. So bear with us, but it all points towards a normalization and reduction of spend at the end of Q2, beginning of Q3 if the current trend of reducing call volume service tickets actually continue. So what we did is that we it's all about end to end steering. So Chris mentioned all kind of components and financial effects. But what we did is end to end steering on a Wednesday morning. Every now and then, we joined that those sessions. And it's the the network people, the platform people, the customer process people, the salespeople. They fully have to understand what's happening when you change something in the back end of the company, then it's affecting the quality on the front end of the company. And that is now fully under control, and that's how this business should be run-in the first place. So that's very important. And then we ended up in all these kind of components Chris mentioned, like TV, but it's really to have a good overview of what's happening in the total value chain of our business. On the copper shutdown, people always talk about the consumer market, but that's the easy part, to be honest. So what we see in the six areas we just did is it's important to follow the S curve, the first and the second wave of customers migrating from copper to fiber. And then there's a third wave, and that's what we call the complementary upgrade. Like Chris just mentioned, we migrate the final batch from copper to fiber against the same price on the copied broadband connection. So if you are on a 50 megabit on copper, we move you to a 50 megabit on fiber. And after that, we approach these kind of customers to upgrade the service and the ARPU, of course. The more complicated part is ISDN two and ISDN 30 for b2b customers and all kind of exotic individual services via copper done for b to b customers. So for ISDN two and ISDN 30, we created a solution. So everything has been migrated. All our SME customers have been migrated away from ISDN. So that's all also good to understand because in the first quarter last year, there were still SME customers on ISDN against a higher price. But these kind of services are more complicated. And at the end, what we saw is that the main distribution frame is almost empty, but there's always one or two working lines. And at the end, you just have to disconnect them, because otherwise you can't empty the network. But in short, the consumer is more about straight direct migration. And in B2B area, we really had to invest in complementary services to facilitate the migration. And that's all done now, so that's why we're ready. Thanks, Ernst and Cyclei. Thanks. The next question is from Mr. Konrad Zaumar, ABN AMRO. Go ahead, please. Hi, good afternoon, everybody. Two questions, please. The first one on your CapEx guidance. It was up 15% in the first quarter, obviously, because of the fiber acceleration, 43,000,000. It doesn't look like that acceleration will come down in the next three quarters. So is there any chance you will prefer to not meet your 1,200,000,000 CapEx guidance for the year but accelerate fiber even faster? Or do you think you have enough leeway to reduce your non fiber CapEx in the remaining three quarters? Because there is clearly the risk, in my opinion, that your full year CapEx guidance might not be fully met? And my second question is a bit shorter. Can you indicate what proportion of your cost savings target of €250,000,000 is specifically related to the copper decommissioning? You. Conor, on your second question, a very small amount. I think you're looking at tens, 20,000,000, that order of magnitude. I mean, the copper decommissioning will really kick up in 2023. Yes. As from so As of 2023. So that's you know, there may be some small savings, but think about a double digit number, maybe 20,000,030 million euros But the most of it really is kicking in after the completion of this cost saving program. Okay. And CapEx? On CapEx, well, I think you are completely right. Mean, look, we stick to our €1,200,000,000 CapEx guidance. It's very clear. Of course, fiber spend has been significant. Non fiber spend is coming down a little bit, even if you see some increase in consumer CapEx. It's just a bunch of programs that we were running last year that you gradually have to scale down. You can't just turn up the tap. So we had a plan and have a plan to get non fiber spend down significantly, and that requires scaling down some of the programs. Notably in the first quarter, did spend some more money on mobile site swaps. I think our mobile site swaps is now well over half of total. And if you do it traffic weighted, it's even more. So on mobile, some of the other programs, it takes a bit of time to scale them down, but we do stick to the €1,200,000,000 CapEx guidance. Okay. That's clear. Thank you very much. The next question is from Mr. Steven Malcolm, Redburn. Go ahead, please. Yeah. Good afternoon, guys. I'll go for the two questions. That's all I know. Just coming back to the corporate decommissioning, can you just outline any regulatory requirements you need to meet? You may have touched on Josh's question. If you did, missed it. I apologize. And what protections do your wholesale customers have here? Can you force them to migrate their existing BDSL customers to fiber? Or does that go through some sort of regulatory arbitration? And then just sort of looking at the sort of twenty twenty twenty twenty six, you know, post fiber CapEx point you've talked about, this being the telecom sector, we penalize you when you generate too much cash, and we worry when you are generating too sorry, when you generate too little. And then when you start to generate too much, you worry it's gonna get taken away. Have you had any discussions at all with the regulator about what the world looks like, you know, in your post fiber world and be able to sort of get any sense of future regulatory protection for the investments you're making today? And do you think that the presence of APG as a co investor could help you on that front? Thanks. Well, on the decommissioning, one of the reasons we really kick off as from 2023 is because of regulation. So we cover one third of The Netherlands on fiber. And in most of the areas, we announced the decommissioning of the copper network. But we agreed with our regulator on an announcement period of two or three years. So after that, our wholesale customers have to be migrated to fiber just as we ourselves have had to do that. It works quite well, by the way, because of the success on fiber, we see other players on our network being super successful on fiber, 22,000 connections added last quarter, so strong growth there. And that's also because they migrate from copper to fiber in these areas, and they know they have to do it. So we follow that. We follow our own migrations, and we follow the migrations of our wholesale partners because they all have to be there at the same time. And that is and that's why we announced it a couple of years upfront, we started the real decommissioning. And you said, did you give a number in terms of penetration or reach that you've got a hit to decommission copper rather than cash down? Or is there is it at your your discretion? Well, it's at our discretion, but the most efficient way is, of course, to move to as low as possible penetration grade on copper before we start to decommission. Otherwise, we face a lot of customers to migrate. And that's why we currently, in that new fiber approach, move our customers faster to fiber for two reasons: to sell off in the commercial flow works better, but also to, in the first two waves of the S curve, as I call it, make sure that most of the customers of KPN are migrated to fiber. And we see wholesale partners doing the same thing. So we learned a lot on how to manage fiber, how to migrate customers to fiber since 02/2008. But I think we're doing it in a much smarter and a more efficient way today than we did ten years ago. And the whole regulatory framework is followed by us. So that's why we take 2023 as as the real year to to really kick it off on a large scale. Okay. That's very helpful. Thanks. And on your second question on the future regulatory framework of 2026, well, I mean, your crystal ball is as good as mine. I'll guide that, Chris. We're not regulated today, right? And the current regulatory framework, the ECC that's about to be in place that I think has a horizon that's supposed to extend for a few years, explicitly talks about protecting digital infrastructure investments. And secondly, says, you have to provide open wholesale access and have to give someone else a viable business case, viable economic case. We believe we do. And as far as I can see, I don't have a reason why that would not be the case in 2026. Of course, it depends on a number of variables, but there is no deal or agreement at this point on what the world looks like post fiber rollout. But when I look at the current regulatory framework and the horizon it's supposed to cover, I don't see the immediate threat on the horizon. And then to add on that, of course, we discuss our fiber strategy with the government frequently because what we are doing is super important for the digitalization of The Netherlands and also very helpful for Dutch economy. So for us, it's very important that we are supported by the government to make this possible and make it happen. And, when we discussed this at the ministry, they're very supportive. It's it's it's it's not only important for KPM, but it's important for Dutch economy and The Netherlands as well. Okay. That's pretty clear. Thanks, guys. The next question is from mister Simon Gold, Barclays. Go ahead, please. Hi, guys. Thanks for taking the question. It's just on mass market service revenue guidance, I mean, we have pretty good visibility on consumer and wholesale is going well. So I was just wondering, give a bit more color on SME because I think in your comments, Chris, you gave something around, it's been stable for the last three quarters on an underlying basis. Could you give us some more color on sort of the moving parts? There's obviously a roaming impact this quarter, but then you're saying broadband looks strong and there's some interesting developments. So any more color around SME would be very useful. Thank you. Yes, sure. On the SME, if you look at the presentation on the business page, you can see the quarterly SME revenue numbers. And you see last year around 140 something revenues in this Q1, Q2, stepping down to 133,000,000 to $135 in the subsequent quarters. That step down was due to the PSTNICN migration shutoff. There was a specific self induced, self inflicted markdown in service revenues. So with that, you see the numbers on SME to be quite stable for the last three quarters, Q3, Q4 and Q1. That's one thing. Second element is it's mostly mobile. In our SME business, the mobile revenues weigh relatively heavily compared to large corporate clients. So the share of mobile and SME is relatively significant. So that means that the roaming step down compared to the first two months of last year is particularly visible in SME, the LCE simply because the share of revenues. It's over 40 share of revenues in SME and about 20% in LCE. So you can see that that roaming thing hits SME mid corporate more than than LTE. So the point I'd want to make is roaming and mobile is going down. Your mobile is going down or has some headwinds because of roaming. And also, you know, there is price competition. Let's be clear, RPU is under pressure in mobile. That affects your SME. Broadband network service, IT service is doing quite well in SME. Base okay, but pricing good. That altogether leads to a step down in SME. But again, that really has been almost offsetting into the service revenues for the last three quarters. So when you look at that, would say Q2 to Q2 will still be challenging because we're in today at 135 versus 133 is service revenues in the quarter. Last year, Q2, you were at 140, 142, 143, I believe. But in the second half of the last year, the year on year comps will become much more friendly, much more supportive, also because of roaming. So it's a comp issue. It's an issue of the shutoff of ISTN, PSTN migration last year and the fact that mobile service revenues and the roaming delta and competition just weigh more heavily on SME than LCE. That's very clear. Thanks. And on the competition, though, it's still tough in mobile, but you're not seeing any issues in in the broadband side by the sound of it? Well, I mean, it's life is not life stuff out there, but we're seeing more fierce price competition in mobile than in broadband at this point. That's great. And I think our strategy also is to increase cross sell. You know, KPN one is now at, you know, 25% of our customers have triple play services. That will and also needs to increase. So one of the critical factors for us is to increase that that cross sell ratio. Critical factors to increase the amount of unlimited to counter mobile competition. But as I said, price competition is more heavy, more prevalent in mobile than in broadband at this stage. That's very clear. Thank you. Okay. Thanks. With that, we will conclude today's webcast. So thanks for your attention. If there's any further questions, as usual, please contact the Investor Relations team. Thank you. Thank you. Thank you. Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect your lines. Have a nice day.