Koninklijke KPN NV

F:KPN

Earnings Call Analysis

KPN’s Strong Q2 with Revenue Growth and Promising Outlook

KPN’s Q2 saw a 4.5% year-on-year increase in adjusted revenues, driven by service revenue growth and a significant one-time gain. Adjusted EBITDA after leases grew by 5.6%, boosting the EBITDA margin by 50 basis points to 45.2%. The acquisition of Youfone and a partnership with Eneco for renewable energy marked strategic moves. KPN is on track to cover 80% of Dutch homes with fiber by 2026 and aims to grow service revenues and free cash flow by 3% and 7%, respectively, per year. With a strong balance sheet, KPN expects EBITDA growth of 3.5% for the combined Q2 and Q3 periods.

Introduction and Key Achievements

The second quarter of 2024 was eventful for KPN, marked by strategic moves and growth across various segments. Closing the Youfone acquisition and partnering with Eneco for sustainable energy were notable highlights. Moreover, KPN signed an agreement with ABP to create a leading tower company in the Netherlands and issued a green hybrid bond to back its sustainability goals. Another milestone was obtaining a favorable outcome from the 100 MHz 3.5 GHz auction .

Financial Performance

KPN reported a 3.7% increase in group service revenues, or 3.3% when adjusted for the Youfone acquisition and Q1 divestments. Consumer service revenues grew by 4.3%, driven by consistent increases in both fixed and mobile segments. The business sector also saw a 4.4% revenue growth, propelled by strong SME and data solutions performance. Despite a 2% decline in wholesale service revenues due to lower regulated tariffs, the company saw a 5.6% rise in adjusted EBITDA year-on-year, mainly attributed to revenue growth and positive impacts from projects and asset sales .

Strategic Focus and Future Outlook

KPN's 'Connect, Activate, and Grow' strategy is guided by three pillars: investing in leading networks, protecting and growing the customer base, and simplifying the operating model. This framework aims to achieve an annual growth of 3% in service revenues and adjusted EBITDA, alongside a 7% increase in free cash flow on average. The company remains steadfast in its commitment to ESG goals, focusing on reliability, security, diversity, and sustainability .

Fiber and Mobile Segments

KPN, along with its joint venture Glaspoort, added 168,000 households to its fiber network, now covering 60% of the Netherlands, with a target of 80% by 2026. The company plans a material reduction in CapEx to below EUR 1 billion after reaching this milestone. Also, KPN succeeded in adding over 50,000 broadband customers and around 500,000 mobile customers, demonstrating continued growth in these segments .

Sustainability Initiatives

KPN's commitment to sustainability is reflected in its various initiatives aimed at reducing its carbon footprint, increasing circularity, and promoting diversity. The company has significantly reduced its energy consumption and plans to source all its energy from sustainable sources by 2027. Additionally, it aims to have at least 35% female representation in senior management roles by next year .

Market Position and Competitiveness

KPN continues to hold a strong market position with a stable balance sheet, evidenced by a leverage ratio of 2.4x and a robust cash position of EUR 1.1 billion. The company expects its leverage to stay below 2.5x for the year, supported by a favorable outcome from the spectrum auction. In the competitive landscape, KPN remains focused on customer satisfaction, as showcased by outperforming competitors on the Net Promoter Score (NPS) .

Challenges and Mitigations

Despite a favorable overall performance, KPN faces challenges such as intense competition in the broadband market and lower regulated tariffs impacting wholesale revenues. The company mitigates these through strategic focus on higher-margin segments and service improvements. KPN's prudent financial management and proactive stance towards sustainability initiatives further strengthen its resilience .

Conclusion and Outlook

KPN is well-positioned to meet its 2024 guidance and long-term ambitions, driven by consistent service revenue growth and strategic acquisitions like Youfone. The company's fiber program continues to yield attractive returns, and its sustainability initiatives align with broader societal goals. As KPN progresses, it remains committed to maintaining financial health and delivering value to shareholders through a strategic blend of organic growth and targeted acquisitions .

Earnings Call Transcript 2024-Q2

[Operator]

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

[Reinout van Ierschot, executive]

Thank you operator. Good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPN's Second Quarter and Half Year 2024 results. With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. As usual, before turning to our presentation, I would like to remind you of the Safe Harbor on Page 2 of the slides, which also applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations, which we expect 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.

Let me now hand over to our CEO, Joost Farwerck.

[Joost Farwerck, executive]

Thank you, Reinout, and welcome, everyone. Second quarter was a busy quarter in which a lot of large events took place, such as one early April, the Youfone acquisition was closed and included in our financial statements. And two, we signed an agreement with Eneco for the purchase of solar energy and this combined with our previously announced wind energy deals that means that we will come from sustainable sources when it comes to our energy usage as from 2027. Three, we announced a strategic partnership with ABP to jointly create a leading tower company in the Netherlands. Four, we issued the new green hybrid bond to support our sustainability ambitions. And finally, we obtained an attractive outcome of the 100 megahertz 3.5 gigahertz auction recently.

Let's now move to the performance of our business. And first of all, let me discuss some key highlights. Our group service revenues increased by 3.7% or 3.3% underlying, which means corrected for Youfone acquisition and divestments in Q1. Within the mix, we see continued growth in consumer, driven by both fixed and mobile. We see ongoing commercial momentum in postpaid and another quarter of broadband-based growth despite challenging markets.

Business service revenues showed continued growth driven by both SME and Tailored Solutions. And as expected, our wholesale service revenues declined mainly due to the Youfone acquisition. We delivered solid EBITDA and free cash flow growth in the first half 2024. And together with our joint venture Glaspoort, we added 168, 000 households to our fiber footprint. And finally, we remain on track to deliver on all outlook guidance for 2024.

As usual, Chris will give you more details on our financials later. As a reminder, our Connect Activate and Grow strategy is supported by 3 key pillars. First, we continue to invest in our leading networks. And second, we continue to grow and protect our customer base; and third, we further normalize and simplify our operating model. And together, these strategic priorities support our ambition to grow our service revenues and adjusted EBITDA by 3% and our free cash flow by 7% per annum on average in the coming years or simply put out our 337 framework.

ESG is at the heart of what we do and is closely linked to this strategy. And we focus our efforts in 3 areas: Responsible, we prioritize reliability and security, and we support fundamental human rights across our entire supply chain; Inclusive, we will increase our commitment to diversity and inclusion in all respects both as an employer and as a service provider and Sustainable. We will, for example, continue to reduce our energy consumption even in the face of upward pressure from data volume growth. And with this, we not only deliver financial results, which enables us to continue our progressive dividend policy. We will also connect the Netherlands to a sustainable and long-lasting future.

And let me now walk you through the business details. Together with our joint venture, Glaspoort, we added 168,000 households to the fiber footprint, and we now cover 60% of the Netherlands with fiber. And we are well on track to reach roughly 80% of Dutch households by the end of 2026. And after reaching that point, we foresee a material step down in our CapEx dropping to below EUR 1 billion. That's the framework.

As highlighted at our Capital Markets Day, we are further optimizing the way we roll out, connect households and activate customers. And this approach is already delivering tangible results with an accelerations in homes connected and fiber service revenue growth. In May, the joint venture, Glaspoort announced the intended acquisition of part of the Delta Fiber network, and the transaction involves around 200,000 homes passed and is subject to approval by the ACM.

Let's now look at the Consumer segments. Consumer segment continues to perform well with consistent fixed and mobile service revenue growth. With Youfone now included, we added more than 50,000 broadband customers and around 500,000 mobile customers to our consumer base. Customer satisfaction remains one of our top priorities, and I'm happy to see that we outperform against competition on the NPS, Net Promoter Score. Now taking a deeper look into our second quarter KPIs. We saw another quarter of broadband-based growth despite a challenging competitive environment. We are able to maintain a constant healthy inflow of new fiber customers, and combined with the growing ARPU, this led to continued growth of our fixed service revenues. And we continue to see solid trends in mobile. Our postpaid base increased organically by 41,000 subscribers partly driven by the ongoing commercial success of our speed tiering proposition that we launched in the first quarter. Our postpaid ARPU grew almost 2%. And together, this led to a solid 7% growth in mobile service revenues. Now let's move to the B2B segment. B2B delivered another good quarter and a quarter with good service revenue growth. Growth was driven by continued strong growth in SME and a solid performance of our Tailored Solutions business, and driven by higher projects and service management-related revenues in Tailored Solutions. Business Net Promoter Score remains positive, although slightly down sequentially, mainly reflecting overall market sentiment.

SME continued its strong performance, driven by mobile, broadband and cloud and workspace based growth. And due to our future-proof propositions, we expect to deliver continued growth in SME going forward. though probably likely at a slower growth rate than we saw in the first half.

Underlying LCE service revenues, so excluding disposals in the first quarter, increased slightly, mainly driven by continued strong performance in IoT, partly offset by continued pressure in normal and the ongoing decline in legacy. So we are confident that we are [Technical Difficulty] and LCE still requires some work to deliver real sustainable growth. And lastly, Tailored Solutions continued to perform in line with expectations. This segment caters to large customers after with an individualized approach. Customers here are generally partners for life. And I'm pleased that we have taken important steps to improve profitability through a strong focus on standardization, value and sustainable customer relationship.

Then Wholesale. In Wholesale, service revenues decreased 10% or 2.7% adjusted for the Youfone acquisition. As expected, the underlying growth trend further leveled off compared to previous quarters, mainly due to a decrease in low-margin interconnect revenues because of lower regulated tariffs. Corrected for Youfone our broadband base declined with 6,000 customers. During the quarter, the decline moderated and with the current level of fiber rollout in our attractive Wholesale portfolio, we are confident that performance in Wholesale broadband will improve. In Mobile, we added 8,000 subscriptions to our postpaid base. . Now turning to sustainability. This slide shows our performance of carbon reduction, circularity and diversity. As shown by working more energy efficient, we have been able to significantly reduce our carbon footprint over the past years. We also attach great importance to diversity in our workforce, and we aim to have at least 35% of women across our senior management by next year from the current 29%.

Now that's it for me. Let me hand over to Chris to give you more details on our financials.

[Hans Figee, executive]

Thank you, Joost. Now let me take you through our financial performance. Let me start by summarizing some key figures for the second quarter and the first half. First, adjusted revenues increased 4.5% year-on-year in Q2, driven by continued service revenue growth and higher non-service revenues, increase and spiky more one-off type results were planned for the year but were concentrated in Q2.

Second, our adjusted EBITDA after leases grew by 5.6% year-on-year in the quarter, and has behaved fully in line with the pattern that we indicated at the beginning of the year. Strong growth driven by higher service revenues, and the timing of larger project-related revenues and estimate additions. The EBITDA margin of KPN increased 50 basis points to 45.2% despite higher costs.

So overall, we saw strong growth and are confident in our ability to reach our EBITDA target to expect for some fluctuation in this number during the quarters ahead. Net-net it's fair to assume that Q2 and 3 combined resulting in the average EBITDA growth of around 3% in line with full year guidance. Third, free cash flow increased 3% to EUR 11 million compared to the first half of the year, fully driven by higher EBITDA. We will give you more detail on underlying cash development based on this presentation.

Underlying group service revenues increased 3.3% year-on-year, mainly driven by consumer and business. Our consumer service revenues increased by 4.3% year-on-year, driven by consistent growth in fixed and mobile service revenues, especially solid base developments in mobile. Youfone start to contribute to earnings and growth. Business service revenues also grew by 4.4% year-on-year, mainly driven by the continued strong performance in SME, but also with good progress in our data solutions business even if margins in this business are lower than our classical telco connectivity. Conditions for Youfone, our wholesale service revenues declined 2% year-on-year, mainly impacted by lower regulated tariffs, which have little or no margin impact.

Our adjusted EBITDA grew 5.6% compared to last year, as we said, driven by continued group service revenue growth and the positive impact from projects, Tailored Solutions and asset sales, which provided a significant tailwind. The increase in cost of goods sold is mainly driven by third-party access costs, which is Glaspoort, service revenue mix effects and higher non-service revenues, such as handsets and hardware.

Our indirect cost base was mainly effect of wage indexation. Our other cost items were broadly stable compared to previous year, all in all, translating into EUR 10 million higher indirect OpEx. Our operational free cash flow increased by 3%, fully driven by EBITDA growth. Our total CapEx was EUR 38 million higher, mainly related to intra-year phasing. For the remainder of the year, we keep a strict eye on CapEx to ensure it stays the same as last year and in a narrow margin around EUR 1.2 billion.

Now let's focus on the moving part of our free cash flow. With EUR 364 million, our free cash flow was 3% higher than last year. This improvement was mainly a result of the EBITDA growth, driving the improving operating free cash flow as per our plan. and improvement in working capital. We paid more interest than last year. And so far, our tax increase was relatively muted. The cash margin of revenues remained stable at roughly 30% of revenues.

Finally, we ended the quarter with a cash position of EUR 1.1 billion, absorbing the Youfone acquisition, the final dividend over the last year and the completion of the EUR 200 million share buyback. Then on return on capital, our focus based long-term value is evidenced by a strong return on capital employed. Our ROCE improved by 75 basis points year-on-year to 14.4% mainly driven by increased operational efficiencies. We continue to run a very strong balance sheet. At the end of June, we had a leverage ratio of 2.4x, still below our self-imposed ceiling of 2.5x. Our interest rate coverage remain strong as well. For the year, we expect our leverage to stay below 2.5x, also help the relatively benign outcome of the spectrum auction.

Our exposure to floating rates less than 15% and the average cost of senior debt decreased of 3.9%. Credit rating agencies acknowledged our strong balance sheet and market position which is evidenced by solid ratings and a stable to even a recently upgraded positive outlook. Total liquidity remained robust and consists of about EUR 2.1 billion in cash and short-term investments, including our undrawn revolver credit facility. This provides ample flexibility for the spectrum payment and pursue other opportunities as they may arise.

End of June, we issued a new green bond and hybrid bond and put out a tender on the outstanding euro hybrid. The successful placement in combination with the tender enabled us to protect hybrid [indiscernible] rating agencies while optimizing interest cost. So we are on track to deliver our 2024 outlook we provided to you in April. On May 31, we completed a EUR 200 million share buyback program and bought back 60 million shares of which about 58 million will be canceled. And of course, and finally, we reiterate our midterm ambitions as provided at the Capital Markets Day in November last year.

So let me wrap up with a few key takeaways. Solid progress has been made in a busy quarter with many strategic events improving our longer-term position. We see consistent group service revenue growth driven by consumer and business. and we see ongoing commercial momentum, especially in consumer postpaid with a healthy inflow of postpaid net adds. We grew our broadband base despite a challenging competitive environment.

Going forward, we see the acquisition of Youfone contributing to realizing our growth ambitions. Our fiber program remains at a solid base with an increased focus on connecting homes and has a proven attractive return profile and our return on capital employed is strong reflecting shareholder value creation.

Finally, and as expected and planned, with a relatively strong first half compared to previous year, especially in terms of EBITDA generation, and I'm confident in our ability to reach outlook, so it's clear we see some fluctuation in reported quarterly EBITDA growth in recent H2. Overall, we remain fully on track to reach our full year outlook on EBITDA and cash and also to meet our ambition in 2027 as we disclosed during the CMD. . Thanks for listening. Now let's turn to your questions.

[Joost Farwerck, executive]

Thank you, Chris. And before moving to the questions, as usual, I would like to ask you to keep your questions to 2, please. Operator, over to you to start Q&A. .

[Operator]

[Operator Instructions] We will take the first question from line of Keval Khiroya from Deutsche Bank.

[Keval Khiroya, analyst]

I've got two questions, please. So firstly, roughly half your wholesale base and your 38% of your B2C base is on copper. Could you give us a sense of to what degree this copper base sits within your current and planned fiber footprint rather than ODF and Deltas because I guess you have a quite good chance of recapturing through retail and wholesale fiber where the copper is actually within your fiber areas?

And secondly, as you mentioned, Glaspoort reached agreements by 200,000 homes from Delta's footprint. The prior deals had been smaller, do you see scope for further similar deals to the recent Delta 1 or even larger scale consolidation of fiber infrastructure?

[Joost Farwerck, executive]

Yes. So on the planned acquisition of Glaspoort, between Glaspoort and Delta, of course, that's quite an interesting opportunity. And let's first wait and see what the outcome will be and it's really something currently being taken care of by the regulator and is presented by Glaspoort to our regulator. So we, at a distance, look at this, but if [indiscernible], we always look at opportunities to see if we can buy or build fiber in the Netherlands. So we did that in the past. This is an interesting one. And looking forward, perhaps new opportunities will be in scope, but let's first wait until how this ends.

[Hans Figee, executive]

Yes. On the first question on how much of our own copper will we overbuild with fiber. Well, obviously, we have an aim to cover 80% of the country with fiber. Today, we have got 60% of the country covered with fiber, which is roughly 80% of our copper base will be covered with fiber. And today, we're at 60%. Not all of our copper customers have been moved to fiber yet, that's a gradual process. But we ultimately [indiscernible] all our copper customers that have fiber lines will move over. So think about in the end, about 80% of our business will move to -- will be -- copper lines will be covered by fiber. The remaining 20% would look other solutions. Obviously, that's something to work on beyond 2027, and these other solutions might be continuing selective fiber rollouts might be we continue to take run off the asset base for as long as we can or find other solutions. But basically that the vast majority roll the copper -- will be copper to fiber.

[Keval Khiroya, analyst]

Sure. And then sorry, just to follow up on that second point. Just within your existing, I appreciate your labor build the copper with the fiber but just in terms of your existing copper customers, do you have a sense of to what degree they're going to be within the fiber areas because I guess some of these will also be within the 20% as well. I was just trying to get a sense of to what degree that copper base will actually be protected by moving to fiber.

[Hans Figee, executive]

I don't get the exact number. I think the estimate right now is around the 80%. I don't have exact figure.

[Joost Farwerck, executive]

Roughly 63% of our broadband customers is on fiber. And of course, we need to migrate all customers in fiber areas to fiber ASAP. And when we come closer to the year of 2027, currently, we're also working on a plan how to cover the rest of the Netherlands and to, of course, to serve 100% of the Netherlands. But currently, 62%, then we aim for 80% of the base on fiber in midterm.

[Hans Figee, executive]

Fiber growth is outstripping copper decline, right? And if you look at customers or service revenues, the fiber growth, both in net add terms or euro terms or percentage terms is outstripping the copper decline and we expect that dynamic to gradually improve as our fiber base basic and smaller copper base becomes -- fiber base becomes larger and the copper base becomes smaller.

[Operator]

The next question is from the line of Andrew Lee from Goldman Sachs.

[Andrew Lee, analyst]

I had a couple of questions around the EBITDA growth. So at the first quarter, you said on the call that underlying EBITDA growth will be quite strong in the second quarter with underlying growth above 3%. And obviously, we're having to strip a few things out. So Youfone clearly and also the asset monetization. And if we do that, it looks like the underlying EBITDA growth in 2Q is 2.5%, so kind of lower than the first quarter. So I guess the question is, what if anything has changed on an underlying basis versus your initial expectations? And I know, Chris, you mentioned that you'll see 3% EBITDA growth across Q2 and Q3 combined. But if we strip out all the asset monetizations Youfone and actually just look at underlying, what do you see is the -- what's the EBITDA growth in that -- on that metric? And how do you see EBITDA growth in the second half of the year?

And if you could give us just as an extra question. If you could give us just a bit more detail on what exactly the asset monetizations were in the second quarter? This quarter, i.e., that EUR 10 million, EUR 15 million? And how much we should be anticipating each year from now on?

[Hans Figee, executive]

Yes. Andrew, if you look -- you can start stripping out also elements. I think we -- the EBITDA growth is around 3% to 3.5%. And the Youfone will be there. Obviously, we'll start -- is going to be structurally part of the EBITDA growth of KPN deliveries. On the asset monetization, let me -- what we did, we sold IP addresses, IP 3, 4 addresses. We had a big portfolio of IP addresses that were on our balance sheet as a very -- they are not valued, but we have to sell those. We'll also start a chunk of those next year, that's already kind of agreed on and we also expect we can sell a chunk of it in 2026. Maybe not the same quantum, but a significant amount. So asset monetizations have always been part of our plan. It's actually kind of more or less feels like more of a wholesale type of business than anything else, you've booked in a [indiscernible] it's more like a wholesale business where you sell or give access to some of your assets to third parties. . So it was in the plan, it was a bit bigger and earlier than we anticipated, was always part of the plan, and we continue to do that next year for sure, it's in there. And it also will happen probably in 2026. So it is, to some extent, a recurring income stream. For Q3, I expect EBITDA growth to be 1% to 1.5%. So the 2 quarters together should be around 6.5% to 7% in order package together, giving you around 3.5% total EBITDA growth over those 2 quarters together.

So I think that's how we look at the business. What is underlying, what is not. As I said, some IP sales were planned -- were always planned to take place. I guess that they were all concentrated in this quarter. So I'd expect [indiscernible] underlying EBITDA growth is around 3% to 3.5% in this quarter. And if you add the 2 quarters together, you're still at that level in line with where the year aims to be.

[Andrew Lee, analyst]

If I can just clarify. So you're saying x, you think the underlying growth was 3% to 3.5% this quarter stripping out Youfone? And or is that including the benefit of Youfone and that 1% to 1.5%.

[Hans Figee, executive]

I would say 3% to 3.5%, including Youfone. Youfone is always part of the plan with last year. I would be inclined to include Youfone because it was part of the plan, it will be structural from quarter-to-quarter. So with that, you're looking at a solid 3% growth rate in the second quarter, including Youfone.

[Andrew Lee, analyst]

And the 1% to 1.5% in Q3 includes that as well, includes Youfone as well. I mean, there's this argument that that's not either that's inorganic for this year at least? .

[Hans Figee, executive]

Yes, that's the way we are looking at it. It's part of the plan and part of the plan, test get to the EUR 337 million guidance that we gave -- given you part of the ambition for 2027 as far as I'm concerned.

[Operator]

We will take the next question from the line of Polo Tang from UBS.

[Polo Tang, analyst]

I have two. The first one is, can you maybe talk through what you're seeing with competitive dynamics in terms of the consumer business. So specifically, are there any signs which means Ziggo is being more promotional and broadband ahead of getting Champions League rights in August? And can you also comment on how your recent broadband price rises have landed with customers?

Second question is really just on B2B because in your remarks, you mentioned in terms of SME has been a major growth engine for the units. But in your remarks, you highlighted that would slow in the second half, so can you just explain what's happening and what's driving this?

[Hans Figee, executive]

Yes. Polo, the Dutch market stays competitive, although it is 3 main player market with 2 new console fiber on the site, but fixed, especially is similar to previous quarters and remains challenging. There's a lot of aggressive promotional activity from Odido, Ziggo and Delta. Odido continues to position itself as a challenger on our network mainly when it comes to broadband, for Ziggo preparing an update on content strategy, that's obvious. We decided to only follow selectively with promotions, and we really make a shift to focus on base management. More and more fiber is becoming a large proportion of our base. So for us, we play a different ball game, and we're in the transition to that new ball game that is really focused on lower churn to create the highest value. . And on the mobile side, which is still a relatively healthy market. I must say, competition mainly in the low end and no-frills part of the market, but now we consolidated Youfone, we also there have a good position. So all in all, more or less the same as previous quarters, and it needs us playing asset-heavy game via the fiber rollout and Ziggo a bit under pressure, trying to position itself as a content player.

Having said that, there's not that much difference to the Koninklijke KPN and Ziggo, Eneco when you mentioned European football, yes, we were able to distribute it to our customers as well. In a worst case, we also resell Ziggo Sport.

Price increases were accepted in the Netherlands by our customers in a pretty okay way. We increased 3.8%, which was well explainable. Consumer Association made some remarks but having said that, our regulator, ACM investigated the whole market 6 or 7 months ago. And the outcome was that there's no reason to interfere there that it's a healthy market, and there's a lot of propositions out there against the different price points and even also when you look at the 1 gig price compared to other countries, it's pretty fair what we have in the market. So I think, well received by our customers and we were not negatively impacted by that.

[Joost Farwerck, executive]

And on B2B, yes, SME is doing good, and will continue to do so. On the mid- long term, I expect 10% double-digit growth to slow down a bit, just to be a bit on the sales side, meanwhile, I see LCE doing better and especially corrected for the divestment, we're more or less flat a bit on the positive side on LCE. So of course, we want to uplift the whole thing when it comes to B2B to a higher number and better revenue growth. And I think we're on a good track there. and it's our attention not only to be supported by SME, but by the whole thing. So that's why we anticipate on SME going to do a bit less, but LCE compensating more than that on that, put it that way. .

[Operator]

We will take the next question from the line of Nuno Vaz from Bernstein.

[Nuno Gontardo Vaz, analyst]

Also 2 questions from my side. First one, focus on the wholesale side, which this quarter was a bit weaker. Just to understand a little bit better on the broadband side. In terms of net adds, you were similar to Q1, but the growth rate was much -- quite a bit weaker. So trying to understand if potentially, there's a one-off there we should be aware of? And then on the mobile side as well, also curious organic, why it was weaker versus Q1?

Then second question, probably a bit simpler, but I just want to understand the integration of Youfone because we didn't see much of a dilution in terms of postpaid ARPU after Youfone. But when I try to sort of back of the envelope, calculate the ARPUs of Youfone quite significantly lower. So just trying to understand why there was no dilution in ARPU -- postpaid ARPU this quarter.

[Hans Figee, executive]

Yes. Let me take on wholesale. I'll give you a broader view of what's happening in the wholesale business. Hopefully, there is a bit more wholesale competition before with Delta and with fiber also offering wholesale broadband solutions. Would that -- with a decline a bit in the context? I mean the euro impact underlying actually flow is about EUR 4.5 million year-on-year. So it exactly something that is manageable. The decline was about 6,000 in the quarter out of a 1.1 million base. So that's relatively manageable.

We do not see any active migrations away from us. It's a matter of copper churn. So what you see is that fiber at wholesale still growing. Fiber is growing nicely. Our fiber wholesale business is growing by 15% year-on-year, also growing quarter-on-quarter. When you look at our client base, our largest client is still growing. We've got some smaller fiber clients are also growing in these 8 months. There's one of the clients who are more in runoff mode, especially in the current competitive market and they shrink. And you've got copper churn. So in the broadband balance is the clients that are committed to broadband into fiber, the larger ones and the smaller ones are growing. And then the ones who are more in the like asset milking strategy are declining. I mean you've got the copper switch when it's that balance that actually changes a bit as it's a little bit more wholesale competition. I mean the service revenue is broadband, service revenue growth is still 1% plus.

The decline is taking place in mobile and in other, which is affected by interconnect tariffs, which is regulated and very low-margin business. And the discount that we've given to some of our MVNOs in exchange for a multiyear extension of their contracts, and those feed into the numbers. But given the fact that we'll see at least next year improving pricing environment with CPI going up that we're seeing underlying growth in mobile, so net adds to mobiles are positive, even if you strip out Youfone, given the fact that broadband trends are kind of stable, we hopefully expect at some point to return.

I would expect also to go back to service revenue growth in Q3 and Q4, that kind of the wholesale background. When you look at your question on ARPU, Youfone obviously has a lower ARPU. The KPN ARPU, excluding Youfone, actually, it would have been around EUR 17.3 is my estimate if I strip out the Youfone ARPU. So that's kind of a small decline for the year, but fully in line with the plan. So KPN ex Youfone, which at some point will stop disclosing that. But on a like-for-like basis, mobile ARPU at EUR 17.3 in the quarter, which is a small decline, which is more a function of noncommitted ARPU. So top-ups et cetera, roaming revenues, the committed part of the ARPU is growing nicely, is growing north of 5% fully in line with the price increase and improvement in our bundle mix. So on ARPU side, it's mostly a noncommitted side, which is the top-ups, other bundle calls, roamings that we've seen, it declined a bit. The committed part is going up.

[Operator]

We will take the next question from the line of Luigi Minerva from HSBC.

[Luigi Minerva, analyst]

The first one is, Reinout, on getting your feedback on your experience after introducing the speed tier tariffs in mobile. So how is that working? And then if you think medium term, how will speed tiers lead to upselling opportunities. I guess my thinking is that the Netherlands is quite advanced market with early technology adopters. So people will -- if the quality of network is good, will naturally go towards the highest speed tiers and then once they are there, how will you manage the upselling over the medium term?

And the second question is more a clarification on network operations and IT revenues, which were stronger in H1 '24 compared to last year. I think EUR 34 million this year and EUR 11 million last year. So how should we think about it in the second half of the year?

[Joost Farwerck, executive]

Yes. So we invested a lot in our mobile network. And by the way, we will do in Netherlands. We're a small flat country, and it's easier to roll out the mobile network in the Netherlands than, for instance, in Switzerland. So we build the best mobile network in the world, followed by one of the best mobile networks. And so we're all in the top, what is it, 5 or top 10. So in the Netherlands, 100 meg download speed is not unusual. And it's difficult to differentiate yourself only on the quality of the network. We really try to differentiate ourselves on the quality of the service end-to-end. and introduce speed tiering has been an important one. And we're moving more and more high-speed mobile limited to the fiber broadband proposition which is you pay for the download speed and the speed and the capacity is unlimited. And that works quite well in the Netherlands because we have such a great network. So it's us doing it, but also Odido is playing this game carefully.

So what we see is that we introduce speed tiering on an average download speed and now customers pay for higher download speeds just as they do at home on fiber. And that's leading to more customers on limited and at the end, also in that base upselling to higher download speeds. So that's what we try to play very carefully and also introducing the new spectrum we just acquired in the auction 3.5 gigahertz, enabling us to really activate superfast Internet. In some areas, we now have 1.4 gig download speed on mobile and that, of course, is very interesting hand-in-hand with the whole speed tiering thing. So the more and more customers choose for fast download speeds and are willing to pay EUR 10 or something like that more for it. So that will be an important one also in the coming years for us.

[Hans Figee, executive]

And your second question on the revenues and network and IP, which effectively [indiscernible] sales. It's a wholesale type of business, but it lands in the network because that network actually owns these assets. So the Delta that you see are mostly those asset monetizations we do. I don't expect them to recur. We actually planned these things to happen more gradually over time during the year. and they all concentrated in the first -- especially in the second quarter of the year. So it's more of a concentration of these things than anything else. So it was part of the plan, probably effort, but they will happen in the first and especially the second quarter.

[Operator]

We will take the next question from Joshua Mills from BNP Paribas.

[Joshua Mills, analyst]

I think most of my questions have been answered. But maybe just a couple of quick follow-ups on the Wholesale question. So the first is, if I look at Slide 13, where you break down the different business areas, broadband mobile, other with the growth rates quarter on -- as year-on-year. Could you just give us a sense of what the underlying broadband and underlying mobile growth was adjusted for the Youfone transaction? That would just be helpful on one side?

And then secondly, if I go back to the CMD last year, when you were talking about Wholesale expectations for 2024, you were discussing a 1% to 1.5% revenue growth. Now even if you adjust for Youfone acquisition, the run rate for the first half is negative and well below that. And I take the point about an improvement coming in Q3 and Q4, but it looks like you're going to miss that target. My question is, what was -- what's changed in the Wholesale business outlook or things simply got worse than expected versus the message which you gave at the CMD? And if so, what has changed?

[Hans Figee, executive]

Yes. Look on the underlying growth rates in mobile, in ex Youfone, I'm talking service revenue terms is minus 2.8% on broadband is plus 3%. So in terms of service revenues, is mostly on mobile side, it's the cost for the extension of the MVNO and then it's got to be other where the interconnect revenues are landed. So ex Youfone, there's still growth in Wholesale as a whole ex Youfone is a 1.8% decline, right? So if you reflect back to what we expect in the CMD, what has changed? Obviously, I think it's mostly more broadband competition and has less broadband new inflow. So copper churn was still relatively high, and we saw a bit less broadband inflow compared to the expectations.

So in the plan, the mobile decline is taking place almost according to plan. We knew this was going to happen in terms of interconnect revenues. We knew it's going to happen in terms of cost to one-off cost of extending MVNOs. We expected more growth than inflow. The inflow is there. It's still positive on fiber. There's no migrations in -- of active migration of copper, but it's less inflow in broadband. At the same time, compared to initial plan, the consumer side is doing better than plan even ex Youfone. This is doing better than plan ex Youfone. So I think KPN as a whole is on track, but obviously, you launch a plan and in practice things are different from reality. 2 businesses are better and 1 is a bit worse. That means and also, we have to focus on supporting the existing customers. signing up additional customers and that's what we're doing. But the all-time Wholesale competition is, I think, what's changed. But then again, as I said, you've got winners and losers every year. And this year, consumer and business are beating the plan also a bit less, but we've also seen years where it was the opposite.

[Joshua Mills, analyst]

That's very clear. And I mean, in the introductory comments, you made the point that broadband trends have been improving through the course of the quarter and should improve through the end of this year. I mean just thinking about the net add numbers. Do you think it's fair to assume you can get back to stability at some point in 2024 or are we likely continue to see declines in Wholesale broadband specifically, net adds.

[Hans Figee, executive]

As I talked -- what I see is different clients, so different behavior. So the ones who are clearly committed to broadband are back to growth, a bit lower growth than we used to have, but they are still growing, whether it's the larger or largest customer or whether it's smaller customers, you see 1 or 2 customers that are more as a run-off mode and they declined and is that balance.

So I think the portfolio is healthy enough. I think probably on fairness Q3, we'll probably still see a small decline in broadband and in wholesale. And Q4 is hard to see what happens. And I think it's fair to assume that in Q3, we'll give you probably a similar number as now. Let's take a conservative view. And from there, we can only get better.

[Operator]

We will take the next question from the line of David Vagman from ING Belgium.

[David Vagman, analyst]

Maybe first on the IP and the assets that you plan to sell and that you're selling. Could you give us a ballpark figure on what you think is the market value. You've said that there is whole book value. So that's my first question. And then second, on the copper broadband base of customer that you have and your [indiscernible] performance, to which extent and I think you've partly answered my question, but to which extent are you seeing regional difference in this performance. So by that, I mean, in particular, for the Delta footprint area, do you see more losses of copper clients in data given that you face Delta with fiber and then probably also VodafoneZiggo with HFC network.

[Joost Farwerck, executive]

Well, first of all, on the IP version for asset sale . I mean we know what's going to happen next year because we more or less make deals like Chris said. So that's locked in. And for the years after, we're a bit cautious by giving you numbers on market value because this is a new market and the market value is changing overnight before you know. It was intended to phase out IP first 4 addresses and all move to IP version 6, something KPN did like more than the 5 or 10 years ago or something like that. But comes out, it's still needed in the market, and therefore, we can use this position, but others woke up as well. So I think for the coming year, like Chris said, we will do a transaction more or less in line with what we did this year and also working on '26 already. That's I think, Chris, what we can say about this.

[Hans Figee, executive]

We've now effectively committed to sell 1 million out of this year and next year, and we used to own 8. So we still have a big chunk of relative value that we hold. So that's you can argue some unlocked in value. It is hard to add in number too because these prices are volatile. But in any case, value material is also, again, very conservative and would only get better from here on the upside. So we still have a significant chunk of these services left that are not really valued again, it's difficult because price do fluctuate. So the bulk is still in our portfolio. . On your question on regionals. Look, I think when you look at the order balance that we have, I mean, I estimate the order balance for us, our main cable customers are still positive despite their commercial actions, we still are a net winner from them in terms of approvals of apps. I think you're right there, where we have copper and someone else has fiber are our most challenging areas.

[Joost Farwerck, executive]

Yes. For us, we play the game more and more really in a regional way. So we play it area -- per area. And we differentiate on tariffs, and we differentiate on services. And sometimes we defend and sometimes we attack when we see ourselves rolling out fiber, even in the areas where others strive to roll out fiber as well. It's clearly that KPN is attracting most of the customers. And like Chris said, when we face fiber against copper, then we differentiate on other levels or we use the combination of fixed and mobile to counter and more and more for us, the challenge is to really play this game on a regional on a local level to strengthen our position.

[David Vagman, analyst]

Very quick follow-up on this very point. You mentioned that you might take decision as from 2027. So does it mean that for the Delta footprint, we shouldn't expect a big strategic move before that time.

[Joost Farwerck, executive]

Well, yes, Now we have a rollout plan, and that's leading to 80%. Around that plan, every now and then, we see an opportunity popping up, and we're always happy to look at projects to improve the value of KPN and accelerate our strategy. But the way I look at things is that the most powerful weapon we have in our hands is to continue to roll out. And then but not for nothing, we aim for 80%, not for 100%.

[Hans Figee, executive]

When the opportunity came up with Glaspoort acquired 200,000 from Delta as a parent company, we're obviously keen to support that acquisition, right? So you need to be opportunistic and is driven, but it's a case by case. As Joost said, the plan A to be organic and roll out -- strength the organic and roll out fiber and actually be very competitive. And as in this situation, that actually also triggered an interesting response to which Glaspoort reacted and we will look into support them.

[Operator]

We will take the next question from the line of Maurice Patrick from Barclays.

[Maurice Patrick, analyst]

I mean just building on the last one, please, on the Fiber acquisition, the Glaspoort Fiber acquisition of 200,000 homes. Is it possible that some of the -- if you look at these acquisitions opportunistically, this will take it beyond the 80% target of coverage. I see obviously you target 80% is your organic target. I'm wondering if these bolt-ons sort of adding to that as opposed to replacing existing build. I guess related to it, just philosophically, in buying homes from Delta Fiber, you're probably avoiding overbuild, whereas if you plan to go at otherwise, you'd have been the second network. So how you think about the economics of if it be buying someone who's there rather than being a second person to build the fiber there.

[Joost Farwerck, executive]

Well, yes, first of all, yes, every now and then, such an opportunity is about we can do in the plant, 80% and sometimes it could also be that we can go beyond the 80%. So that depends a bit on the infrastructure we're talking about. So it could be that we are accelerating our rollout and could be that we are expanding our footprint. That depends. And well, with respect to that last quarter 200,000 with Delta. Yes. Delta appears to steer away from overbuild and that supports healthy market developments. That's their decision. And of course, yes, that's -- we encourage that. But if needed, we can also roll out fiber in areas where they are already present and then overbuild. But in this respect, avoiding overbuild is a positive effect.

[Maurice Patrick, analyst]

We -- just as a quick follow-up. Were you planning to roll out in those 200,000 homes that you've acquired? .

[Joost Farwerck, executive]

We are planning to roll out.

[Maurice Patrick, analyst]

Was that the 200,000 homes sitting inside your 80% number, is it like they were part of the planned KPN fiber build?

[Hans Figee, executive]

I put it this way. There were homes that were on our list, but not -- so we didn't have any contractors committed or contracted that it will be homes that probably at something we roll out, but they were not only immediate rollout corner and we did not have any construction companies, contractors for that. .

[Operator]

We will take the next call from the line of Siyi He from Citi .

[Siyi He, analyst]

I have two, please. The first one, I just want to go back to the fiber deployments. I think in the previous quarters, you always mentioned that you encountered Delta and ODF fiber deployments in the past, but now it seems that -- well, that's from the press, it seems like the deployment by your competitors have slowed down. Just wondering if that's the case or do you expect that since the landgrab is finishing and they could put more focus on increased penetration, which could mean that competition could step up further for your wholesale business?

And my second question is on the EBITDA growth. I think you suggest that 3% to 3.5% growth this year include Youfone just looking into next year, given that the price increases could come down, a little bit, and you're still expecting 3% growth. And just wondering if you can elaborate on what could be the driver to make up the difference?

[Hans Figee, executive]

Look, let me see the question. We see the fact that the others -- indeed, what we've seen certainly on Delta retreating from some of their commitments with drawing in some areas, stopping building streams, obviously, doing a transaction with Glaspoort. I think it's a positive, a positive for us in essence. So I don't see that as another -- as a bigger threat to wholesale competition. I think actually it's supportive to KPN. The fact that we have less areas where we'll have immediate Delta Fiber competing with our fiber leading with our copper. So I think the areas of competition will be less. I think they're retreating to their core areas where they have already met quite a significant penetration level. So I will see it actually as a positive towards this and less of a wholesale because of less areas which are present.

[Joost Farwerck, executive]

Yes. And adding to that, they originally announced both a rollout of roughly 2 million households. And now they clearly stated in the market that they moved back to a footprint of between 1 million and 1.3 million households. So that's a big difference between what they promised the market earlier.

[Hans Figee, executive]

So we see this definitely as a positive and actually reduce also competition from them, the bigger threat because it means it will be less new areas when they focus on areas where the penetration is already very high. On your question on growth rates, maybe it's good to take a little bit step back on -- also respond to Andrew's questions. I'm merging Andrew's question with yours into 1, what's happening in Q3, Q4 next year. I mean Q3 will be a bit less and maybe I should have been a little bit more clear. That also has to do with the year-on-year comps and timing of CLA increasing prime time of price increases. So last year, if you recall well, we moved from Q2 to Q3 from a flat EBITDA to some -- I jumped to 1.8% last year in Q3. There are a little bit more one-offs in last year's Q3 numbers. So that challenges that comes a bit -- and secondly, we have in the second quarter -- or then this quarter, our CLA increase.

The second chunk of the CLA increase kicking in. And the mobile price increase only kicks in, in Q4. So in Q3 of this year, you have slightly more difficult comps. You have a labor cost increase affecting your CLA base and the mobile price increase only kicks in Q4. So I mean Q3 will be a bit more muted in growth. Q4 will be well north of 3%, I expect. Also, you have to be there to gradually get to EUR 2.5 billion of EBITDA, so Q4 EBITDA growth will be back north of 3.5%. And that's then provide us the right run rate into next year. This year, obviously, we also included Youfone into our guidance. Yes, we increased the guidance for the year. to EUR 2.5 billion, including Youfone. So all the quarterly numbers and the full year numbers are in line including Youfone.

So as I said, including Youfone, we increased our guidance for the year. The number for next year, obviously, we'll give it around the full year results as we always do. But we've got a pretty strong commitment to stay in line with the EUR 337 million framework that we communicated. including Youfone. But as again, Youfone acquisition has been added and included in the earnings [indiscernible] for the year. So at gives us a bit of color on Q3 and Q4.

[Joost Farwerck, executive]

And we also know that next year, the cost of labor, the CLA part will be less than this year. This year, we have an increase of again, 5.8, and we already noted next year will be less. But more on that Q1 next year. .

[Operator]

We will take the final question from the line of Usman Ghazi from Berenberg.

[Usman Ghazi, analyst]

I just had a quick one on -- sorry, on wholesale again and one on Huawei. So on wholesale, I mean, you've given out the step between copper and fiber, both on revenues and customers for the first time. I was just trying to calculate the ARPU for a wholesale and fiber customer. And I guess, surprisingly for me, both the ARPU for copper and fiber turns up at around EUR 23, whereas I was thinking that fiber would be higher because there is this move from ODF to VULA, which is obviously priced at a much higher level. So could you perhaps give some color on why the 2 ARPUs would be similar?

And then on Huawei, I guess this is more of an opportunity, I guess, for you to address some kind of investor concerns, I guess, with the changes in the Dutch government and some of the background of the politicians that are there? There's some concern that there will be a push on stripping Huawei out or renewed push to strip Huawei out of the networks. And I was just wondering if you could give your kind of view on that, that would be helpful.

[Hans Figee, executive]

Yes. The first question on the wholesale pricing, fiber versus copper. I think the main difference is that in the copper portfolio, you see a relatively large share of VULA WA-integrated solutions and less on passive only, and fiber we see a little bit higher share of ODF access. So that explains the similarity in pricing going forward. However, probably all the new build-out of fiber that we do will only be accessible on the VULA term. So you expect, over time, the price [indiscernible] Verizon's fiber to outperform the ARPU of copper as a bigger chunk of new fiber growth should be there.

[Joost Farwerck, executive]

Usman, on Huawei, yes, we already for years now, we are closely aligned with our government on how we deal with non-western vendors. We have a dual vendor or yes, multi-vendor approach. We announced that Ericsson will build a new 5G core network and there we're in the middle of that as we speak. We selected Nokia for an important part of our domains. And we mainly keep Huawei in our radio access network. And we report to our government. I think we're fully aligned and also when it comes to the new government, even our Prime Minister, we know quite well, and he was in the middle of this whole discussions with me. We also look at what's happening in Germany, which is for us an interesting development because we think we can introduce that in our approach as well voluntarily and without impacting our plans.

So I think on Huawei, I mean there's always important to keep a close eye on that, but as we speak, we're always aligning with our government on this part.

[Usman Ghazi, analyst]

Got it. And are you saying that you would look to proactively take the German approach in the Netherlands? Or would you rather wait for the government to kind of revisit this?

[Joost Farwerck, executive]

Well, our approach has been and is that we approach our -- we prefer to approach our government proactively on the plans on how we do the things instead of waiting until they come to us. So also in this respect, we're very interested on what's the latest development in Germany. And we will have meetings with our government soon to update them on our approach. But like I said, we're in pretty good alliance with our government. .

[Operator]

There are no further questions.

[Reinout van Ierschot, executive]

Thank you all very much. That concludes the call for today. If there are any further questions, please reach out to the investor relations team. Thank you.

[Operator]

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