Koninklijke KPN N.V.

Thank you. Good afternoon, ladies and gentlemen.

Thank you for joining us today. Welcome to KPN's Q2 and Half Year 2025 Results Webcast.

With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. As usual, before we begin our presentation, I would like to remind you of the safe harbor on Page 2 of the slide, which applies to any statements made during this presentation.

In particular, today's presentation may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor.

Now let me hand over to our CEO, Joost Farwerck.

Yes. Thank you, Matthijs, and welcome, everyone.

Let's start with the highlights of the second quarter. We delivered a strong quarter.

Our group service revenues increased by 3.7% with growth visible across all segments. And within the mix, consumers saw a quarter of good commercial momentum, both in fixed and mobile.

Business continued to perform strongly driven by all business divisions and wholesale further accelerated. As a result, we delivered strong EBITDA growth.

And alongside our operational performance, our EBITDA benefited from a favorable legal settlement related to intellectual property rights. KPN has a large portfolio of IPRs with over 300 patents, which demonstrates our commitment to innovation, and our extensive portfolio and successful defense of our IPR allows us to license our technologies to major telecom vendors, providing regular income streams and occasional settlements.

As expected, our free cash flow declined year-on-year, mainly due to working capital phasing, higher interest FX payments, but we'll recover in the second half of the year. We further expanded our fiber footprint together with our Glaspoort joint venture.

We now cover 2/3 of the Netherlands with fiber. And we raised our full-year 2025 outlook for EBITDA and free cash flow.

And the upgrade reflects the benefit from 2 IPR cases settled in June and July, combined with the solid business and financial progress we've made so far. We launched our Connect, Activate and Grow strategy in November 2023 and are now halfway through -- now almost halfway through the execution of this ambitious plan with significant progress achieved.

So we're well on track. Our strategy is built on 3 key pillars: one, we continue to invest in the leading networks; two, we continue to grow and protect our customer base; and three, we further modernize and simplify our operating model.

And together, these strategic priorities support our ambition to grow our service revenues and adjusted EBITDA by approximately 3% and our free cash flow by approximately 7% per annum on average in the coming years or simply put 337 CAGR framework. And given that we're now nearly halfway through our strategic periods, we look forward to providing you with the strategy update on November 5.

Let me now walk you through some business details. We continue to lead the Dutch fiber market.

In the second quarter, we expanded our fiber's footprint by adding 160,000 homes together with transport, now jointly covering 2/3 of Dutch households. Our efforts in connecting homes and activate customers have paid off, reaching nearly 80% of total homes connected to the fiber footprint, while more than 2/3 of our retail base now enjoys the benefits of fiber.

Let's have a look at the Consumer segment. Consumer service revenues continue to grow, driven by consistent fiber and mobile service revenue growth.

Customer satisfaction remains stable and has our full attention. Let's take a deeper look into our second quarter KPIs.

Our focus on loyalty and base management is paying off, as we recorded a healthy inflow of 13,000 broadband net adds. Fixed ARPU grew by 1.2%.

Our postpaid base increased by 37,000, which is a good improvement compared to the previous quarter. Our postpaid revenue declined, primarily due to increased promotional activity in the no-frill segment.

And as a result, mobile service revenues grew by 1.3%. However, we expect this to improve in the coming quarters.

Let's now move to the B2B segment. B2B delivered another strong quarter, achieving 5.7% year-on-year growth with good performance across all divisions.

Commercial momentum in Mobile remained solid, adding 22,000 new customers. In today's complex world, we help such businesses become digitally resilient with security delivering encouraging growth across both SME and LCE, underscoring its strategic importance.

Net promoter score is stable, which reflects the continued trust from our B2B customers for the stability, reliability and quality of our networks and services. SME remains strong, driven by cloud and workspace, broadband and ongoing momentum in Mobile.

LCE increased by 1.7% year- on-year, driven by ongoing growth in IoT, broadband, clouds and workspace, partly offset by continued price pressure in mobile. And Tailored Solutions delivered another strong quarter as planned with growth driven by higher project revenues.

And as you know, this business remains subject to project timing and seasonality. Then wholesale service revenues further improved in Q2, mainly driven by the strong performance in Mobile.

Broadband service revenues increased as well despite a declining base driven by fiber. Mobile service revenues remain strong, mainly driven by continued growth of our Travel SIM business.

And other service revenues saw a slight increase, mainly due to an uptick in visitor roaming. Now turning to ESG.

This remains a core element of our strategy with a clear focus on 3 key areas: responsible, inclusive and sustainable. And the core of our ESG strategy is to make our networks even more reliable and secure by design.

Expanding our fiber network is a key enabler for this goal, helping us to connect everyone in the Netherlands to a sustainable future. And at the same time, we continue to build a better Internet, one that offers seamless access to a responsible, inclusive, safer and greener Internet followed by fiber and 5G.

So our commitment to sustainability is evidenced by several top ratings at important independent ESG benchmarks. Our next slide shows our progress on carbon reduction, circularity and diversity.

We continue to reduce our current footprint across the value chain. Earlier this year, we began sourcing solar energy from a solar farm in partnership with Eneco, advancing our green electricity goals.

Scope 2 emissions decreased by 13% year-on-year, while Scope 3 emissions slightly increased due to an expanded scope. And next to this, we made further improvements on our diversity target, reaching 32% of women in our senior management.

Now, let me hand this over to Chris to give you more details, not specifically on diversity, but on our financials.

Thank you very much, Joost. Now, let me take you through our financial performance.

Our financial performance benefited from a favorable settlement in June related to 2 intellectual property rights. While these IPR revenue and related costs are normal courses of business for KPN, due to the specific nature of these settlements this year, we exclude this one-off benefit and a few metrics to illustrate our underlying business performance.

To that point, let me start by highlighting some key figures for the second quarter and also for the first half of the year. First, adjusted revenues grew by 5.8% year-on-year in Q2, driven by continued service revenue growth across all segments and higher non-service revenues, including Althio and the IPR benefits.

Second, our adjusted EBITDA grew by 6.4% compared to last year, driven by higher revenues, the IPR settlement, and of course, contributions from newly acquired set of Althio. Note that we sold the same amount of value of IP addresses as we did in Q2 last year.

Third, our net profit declined by 8% despite strong EBITDA growth due to one-off costs related to hedge accounting. And finally, as anticipated, our free cash flow declined by 15% or just over EUR 50 million compared to the first half of last year, mainly due to working capital fee.

I will share more detail on the underlying cash development later in the presentation, and obviously, in your Q&A. In the second quarter, our underlying revenues, excluding one-off items in Althio, showed healthy growth, increasing 3.4% year- on-year, fully driven by growth in service revenues.

Group service revenues grew by 3.7%, supported by all segments. And in the mix, we saw consumer service revenues increased by 1.3% year-on-year, driven by both fixed and mobile, with solid commercial momentum in both postpaid and broadband net adds.

Recent service revenue growth continued to perform well growing by 5.7% year-on-year with all divisions contributing. And finally, wholesale service revenues grew by more than 8% year-on-year, mainly by the ongoing success of our profitable and good margin international sponsored roaming business.

On a like-for-like basis, the adjusted EBITDA of KPN grew by 4% year-on-year, well above the 3% CMD hurdle. Our underlying EBITDA margin was 30 basis points higher compared to last year at 45.5%.

The increase in our direct cost or cost of goods sold was mainly driven by service revenue mix in B2B and higher third-party access costs such as transport. Our indirect cost base was broadly stable.

The savings from digitization and less staff were offset by inflationary effects, such as wage indexation. In the quarter, we further scaled down our workforce to about 70 FTEs.

And over the last 12 months, we reduced our total workforce by almost 300 FTEs. In the first half of the year, our operational free cash flow increased by 18% on an underlying basis, driven by both EBITDA growth and lower CapEx.

CapEx was EUR 50 million lower compared to previous year, but mostly related to timing of fiber payments. For the remainder of the year, CapEx is expected to step up, fully in line and staying in line with our full-year guidance of EUR 1.25 billion.

For the full year 2025, and excluding IPR benefits, we expect high single-digit growth rate in the operational free cash flow. Now let's focus on the moving parts of our full free cash flow.

We generated EUR 309 million in free cash flow so far this year, representing a cash margin of about 11% of revenues. The anticipated year-on-year decline in the first half free cash flow was mainly caused by a temporary negative impact from changes in working capital related to timing, such as the timing of bill runs, the actual cash settlement of the IPR benefits, lower CapEx, which translated into a temporary drag on working capital, timing of inventory buildup and some other small effects, such as pension contributions.

We expect these negative effects to reverse fully in the second half of the year. In addition to working capital, we also faced higher interest payments and increased cash taxes as per the plan.

Consistent with our guidance, our free cash flow generation will be stronger in the second half of this year. The improvement is supported by: one, continued operating cash generation; second, the normalization of tax interest payments throughout the year; and three, the unwinding of the drag on working capital.

Finally, we ended the quarter with a cash position of EUR 331 million, absorbing the impact of the final dividend payment over '24, share buyback payments and our bond redemption in April. Let's discuss return on capital.

KPN remains focused on creating long-term value, which is evidenced by a strong return on capital employed. Our ROCE improved by 20 basis points year-on-year to 14.6% due to operational efficiency improvements and including Althio as well on a fully consolidated basis.

Excluding the IPR effect, our ROCE return on capital is 14.5%. For the coming years, we see scope to further enhance ROCE, reaching our 2027 financial ambition of 15%, consistent with continuous creation of shareholder and stakeholder value.

We continue to have a strong balance sheet. At the end of June, we had a leverage ratio of 2.5x.

Our ratio slightly increased during the quarter, mainly driven by dividend and share buyback payments, partly offset by our free cash flow generation and higher EBITDA. Similar to 2024, we expect the leverage to return to 2.4x by the end of the year, supported by increased free cash generation in the second half of the year.

Our interest coverage ratio remained sequentially stable at 9.6x. And as a result of the bond redemptions in April, we increased the average maturity and lowered the average cost of our outstanding debt, which is now reduced by 11 basis points sequentially to 3.6%.

In addition to the bond redemption, we also benefited from lower interest rates and from a swap restructuring that was executed in Q2. Our exposure to floating rates remains limited at 14%, and our total liquidity of around EUR 1.4 billion remains strong, covering debt maturities until the end of 2028.

Now let's turn to our outlook for 2025, midterm ambitions. Given the reported results in the first half of the year, we feel confident in raising our full-year guidance for EBITDA and cash flow.

We now expect an adjusted EBITDA after leases of more than EUR 2.630 billion and a free cash flow of more than EUR 940 million. The EUR 30 million increase in EBITDA and EUR 20 million increase in free cash flow guidance are primarily due to the 2 IPR cases that we settled in June and early July.

The total full-year contributions from these 2 settlements is estimated around EUR 25 million EBITDA pretax with EUR 9 million already recognized in Q2 and the remainder in Q3. In addition to the IPR-related uplift, we also see some upside in the underlying business performance.

It is clear that excluding these IPR settlements, we would have confidently reiterated our financial guidance for the year. And the difference between the increase in adjusted EBITDA and free cash flow upgrades is mainly due to taxes on settlements and some small working capital effects.

Other outlook items have been reiterated. Group service revenue growth set at about 3%, driven by growth across all segments.

And CapEx will remain stable at the peak level, around EUR 1.25 billion. And as of the 23rd of July of this year, KPN has bought back 58 million shares of about EUR 233 million and completed 93% of our EUR 250 million share buyback program.

And finally, we reiterate our midterm or 337 ambitions as provided at the Capital Markets Day. Let me briefly wrap up with the key takeaways.

We simply delivered a strong quarter with good business results, augmented by one- off IPR benefits. Group service revenues continue to grow across all segments, leading to healthy underlying EBITDA growth, fully consistent with our 337 ambition.

In fact, for the second quarter in a row, underlying service revenue and EBITDA growth came in above 3% hurdle. We continue to lead the Dutch fiber market, now covering 2/3 of the Netherlands, while steadily progressing with connecting homes.

Currently, more than 2/3 of our retail base are on fiber, which bodes well for the future. We see healthy customer inflow across both consumer and business despite a competitive market.

As planned, our free cash flow generation will be back-end loaded and will come out as planned for the full year. Overall, we are well on track this year and continue to make good progress towards our annual and midterm targets.

Obviously, our financial performance this year benefited from the IPR settlements, but also the underlying EBITDA growth supports the update of the guidance, and we feel confident in the cash generation for the remainder of the year. And of course, next year, we will again distribute all of our free cash to shareholders.

And it's important again to highlight that if we had not achieved the IPR settlements, we would have fully happily and cheerfully reiterated our outlook. Finally, as we approach the halfway point of our strategy, we look forward to providing you with an update of our strategy on November 5.

Thanks for listening. Let's turn to your questions.

Yes. Thank you, Chris.

And as always, before we start the Q&A session, I kindly request that you limit your questions to 2, please. Operator, please proceed with the Q&A.

I have 2. First one is just on consumer broadband net adds.

Can you comment on what has driven the step-up in broadband net adds in Q2? And has the broadband market become more promotional in Q3?

Second question is, when can we expect an update on the ACM review of the Glaspoort-DELTA Fiber deal? And can you comment on how you think about use of cash and whether you would look to buy fiber assets rather than build fiber?

Well, Polo, thanks for your questions. Consumer broadband net adds in Q2 were much better than in Q1.

Promotional activities in the Dutch market are pretty well intensive, I should say. So I think that our main competitor moved a bit to a more reasonable environment recently.

So that would be good. But we especially see us benefiting from our own CombiVoordeel and our fiber footprint supporting this inflow.

On the promotional activities for the near future, I don't think much will change. However, I think it's important that we all realize that we want to create value on broadband, and that is the most important thing for us and I think for our competitors as well.

On ACM, yes, that's a good question, we're waiting. And in the process, I think after summer, they will give their vision on the situation, and then we can react.

So we're in the middle of a process around this deal between Glaspoort and DELTA. And let's see what will come out of it.

We think we have a strong position. And for us, it's always buy or build.

I mean, per area, we can decide to buy or to build an asset if the opportunity is there. And in this case, it's for us best to buy.

But if it's not doable, then we have to find an alternative.

If I could just ask a little bit more about the broadband competition, just keen to understand if you are seeing a change in competitive intensity after VodafoneZiggo has changed its pricing? They obviously made a material adjustment to their EBITDA guidance for the year, I think signaled a desire to stabilize that base.

And just linked to that, there's been some noise around the fixed wireless access propositions, some of your competition and how that might stimulate their growth. I'm just curious to understand if you've seen any impact from that on the total broadband market, and in fact, your net adds?

Yes, Maurice, let me take some of those questions. On broadband, on the main competitive price actions, they've changed the line pricing, but it is still very close to KPN.

I think if you look at details, maybe EUR 1 or EUR 2 cheaper on 100 megabit and a few euros more expensive on 1 gig, so it's very much -- still very close. What I think what we've seen notably in broadband in the last quarter is improvement in churn and company migrations.

If you look at Page 8 in our document, the graph on the top left-hand side, you can infer that actually churn has gotten down, both on copper and on fiber. We've seen less migrations front book to back book.

So that's actually supported. So we've seen stable growth in gross adds.

Fiber continues to do well, but have some notable reduction in churn. I relate that to our loyalty programs that we've installed a higher proportion of clients in contract that supports a lot.

I think the copper to fiber mix is gradually improving in KPN, obviously. And the fourth one is possibly there might be some fatigue in the market with regards to these commercial activities, but that's more speculation.

Actually, we see the loan program, the in-contract base, the copper to fiber mix also supporting churn. So I think that's good.

Also reasonable into Q3 as well. I mean, obviously, we're only in July, but so far so good in terms of broadband commercial intensity as such.

I would say it's relatively stable, has not deteriorated further. And on fixed wireless, we don't see a lot of outflow to fixed wireless customers.

When we check, there are some, but not a whole lot. I feel that fixed wireless is really addressing a different market segment, but not a real combination of fiber, but other customers that, otherwise, would have gone for a different solution.

It's a bit of a niche segment, we think, first of all, because of all households in the Netherlands are connected to a fixed network or 2 net fixed networks. And we also use fixed wireless access, but that's always in combination with a copper line in super rural areas.

So that's what we do already for a very long time. So for us, fixed wireless network is always in convergence with a fixed connection as a total service in super rural areas.

But so far, not really a change in the market.

I've got 2 questions. So firstly, you saw strong revenue trends in wholesale.

Can you comment on how we should think about the revenue growth going forward? And to what degree you expect sponsored roaming revenues to fall off in H2?

And secondly, you're now getting close to the end point on the fiber rollout and less than the EUR 1 billion of CapEx. I appreciate you have the November strategy update.

But at this stage, would you be able to share any broad thoughts on whether you think structurally there's room for CapEx to continue to fall beyond '27? Some of your peers have obviously targeted lower post-fiber CapEx.

Yes, Keval, on your first question on wholesale, I mean, wholesale probably is doing really well. That will continue to grow.

Whether we keep this pace, I don't know, but I think it's going to be north of 5%. I feel reasonably comfortable.

And there's a fair pipeline of new customers waiting to be signed up for these type of solutions. So this, I see growth in the second half of the year, possibly be spilling over also into next year on those specific points.

There is some whisper that there's concern about margins on this product. We're not concerned on margins on this.

I mean, this is a -- we don't really detail these margins out, but it's not far off from what KPN's EBITDA margins are as a whole. So it actually is a profitable business certainly on the marginal return on capital.

It's a very profitable business. And as I said, maybe not full 8% that we saw in the first half of the year, but this is a significant -- it's a growth option for H2 and possibly into next year as well.

Yes. And on your fiber rollout question, I mean, we've built a bold plan to move up to 80% fiber footprint in the Netherlands somewhere end of '26.

And so often, we get the question, do we get to 80%? Or what after the 80%?

Are you going to roll out to 100%? I think 80% is a good target since it is a lot.

I don't -- I'm not familiar with many incumbents trying to cover really that much of the country as we do, taking into account that 80% of that is homes connected as well. So on that Capital Markets Day, we don't want to, of course, spoil the day itself by telling you what we're all working on.

But, of course, we will give insights on the step down in CapEx now to get there, the full fiber footprint and how to move further to 2030. And these are all relevant questions.

If it's going to be 75% or 85%, I think, for us, it's also important to really, at the end of that building program, make a step down in CapEx, and of course, give you also an idea how we will run the free cash flow after '27.

I just had one question, which is around wholesale, and I guess, follows on from the questions on competition earlier. Your wholesale broadband net adds stepped down more than they have in quite some time, down, I think, 21,000 in the quarter.

Could you just talk through what's driving that? Just give us a bit more color around the competitive intensity you're facing.

And how you see that playing out over the coming quarters and if there's anything you can do to alleviate that pressure?

Sure. So wholesale -- I mean, first and foremost, wholesale top line continues to grow and EBITDA continues to grow.

We expect the wholesale business to be a growth business well into next year. The mix of growth appears to be shifting away from broadband towards alternative mobile type solutions with sufficiently healthy margin.

On this particular point, I think what we're seeing is there's growth on fiber. We see a little bit more wholesale competition for fiber growth.

There's growth on fiber, and there's some then churn on copper. We think it's churn towards competing networks and overbuild areas.

So it is actually churn on lower ARPU copper lines that are one of our main broadband clients. I think it is shifting them to the overbuild situations in alternative networks, which has accelerated.

I don't think it will stop at the end. But in the end, there is a limit because some point, there's only so much overbuild we have.

So I would expect this to continue into Q3, possibly into Q4. But then at some point, the overbuild is actually gone on copper.

So it's copper lines in overbuild areas where I think they will shift to other areas. That is a bit of a drag on earnings.

At the same time, this is lower-margin business, lower ARPU business, and there's a price increase that we generally put through on fiber on broadband, and there's still growth on high-margin fiber. So revenue-wise, the impact is manageable.

Base-wise, you can see it. And I think that will continue for some time until the overbuild situation -- until the copper lines and overbuild situation have been reduced to a smaller amount.

I think that's what's happening. But then again, also, we've been fairly agile in our strategy trying to find new revenue sources, which is then mobile related.

It's actually Steve here. I'll go for 3, but the 2 are very, very short, hopefully.

First of all, sorry, just on minority dividends, you had a EUR 28 million minority dividend come through in the second quarter. Is that related to the Althio deal?

And just remind us how we should think about that kind of going forward and whether we should be including that in free cash flow? Secondly, just coming back to Glaspoort, can you -- the associate losses kind of picked up a little bit in the quarter.

I mean, they're small numbers. I would have expected it to be kind of moving into profit at this stage as your network loading improves.

Can you just sort of maybe cast a little bit of a light on that and maybe remind us how they kind of put in co-works with ABP? Because I think it needs to be profitable or free cash flow positive before they could put the stakes.

I can't remember, maybe you could just help us on that. And finally, just on the IPR settlement, what are the costs associated with that?

And should we expect any more IPR settlements or things of that ilk going forward to help EBITDA and cash flow?

Yes. Steve, on the Althio question on the momentum, it's a one-off dividend from Althio.

It's a one-off. So I wouldn't plan on EUR 28 million of dividends from Althio going forward.

I mean, at the end, it is a good deal because the -- if you look through the numbers, you can see the cash payment -- utilization payment that we did, but then we also received a dividend as part of the potential restructuring of that business. So the net cash out for keeping was actually relatively small, around EUR 70 million, which also explains -- I would say I think it's -- without pumping our chest, it's a better deal than people expected or envisaged.

It also explains why our return on capital employed to KPN is up, including the consolidation of this business. So it's a one-off.

There will be dividends to KPN going forward, but not of this magnitude. This was a one-off like restructuring of the balance sheet.

But again, it means the cash out for this deal was probably around -- net-net about EUR 70-odd-so million. So it underlines the high return on capital of this transaction.

On Glaspoort, well, Glaspoort is actually EBITDA and EBIT positive at this point in time. There's this interest cost and some financial derivative accounting issues moving from EBIT and full net profit.

Also, it has to do that Glaspoort went through a refinancing as well. So I think those 2 elements feed in.

Actually, as I said, Glaspoort is performing above plan financially. It's just the interest charges and hedge accounting that affect the bridge from EBIT to net profit, but EBIT and EBITDA are positive.

In terms of consolidation, basically, the only 2 formal conditions are it happens between '26 and 2030, and the number of HPs, homes passed, delivered should reach a certain threshold. I think we're nearly at that threshold.

So the consolidation trigger is almost at our discretion. And, of course, it's important [indiscernible] once the tool is free cash flow positive, that should be '28, '29.

I keep hoping for '28, might be '29 around that date, and then, we'll consolidate. But there's no further limitations as part.

There's no requirement to be free cash flow positive. It just makes sense to do it.

But my core summary is financially, Glaspoort is performing actually better than planned at EBIT positive. It's just the interest cost that they need to make.

Joost, on the IPR settlements.

Steve, on the IPR settlements, yes, so it's not that we have these settlements every quarter, right? IPR revenues are normal course of business.

We have a large portfolio of IPR with over 300 million patents, and that demonstrates a bit the innovation power of KPN and usually providing financial benefits between EUR 8 million to EUR 10 million per year. Every now and then, we have a discussion with a large worldwide telecom vendor.

And sometimes that leads to a real lawsuit. But this time, we were able to come to reasonable settlements.

Indeed, the costs related to that are relatively high, but that's also because this is a very specific job done by 6 people in our own organization. And for this, we hire international lawyers, and we pay them a fee for the outcome of the settlement.

So it could be that we have another settlement perhaps somewhere next year. But usually, what I like more is that they just pay for what we ask them and that we have a continuous flow of income.

And that these settlements are not only good for a onetime effect, but also means that in the future, they will pay for the IPR they use.

But, Steve, the IPR cash settlement and the cash flow increase is net of any cost of any lawyer fees associated. So this is a net benefit to KPN.

Sure. Sure.

Once again, the lawyers have done fairly well.

Yes. It's a good business.

The first on LCE growth, which was very good, actually better than what you had guided for. So you got back to growth faster than expected.

So could you comment on what has been driving this? And what you would expect going forward?

So I think you mentioned IoT, broadband, also CPaaS. And then secondly, on consumer, so you delivered quite a nice performance on net adds indeed, especially in fixed.

But then the sales growth was a bit lower and a little bit lower than what you guided for mobile. So could you comment on what we should expect for the coming quarters, especially in the brand mix, let's say, and also your strategy?

I've read recently that your phone would stop essentially for instance, if this is correct or not?

Yes. So to start on your LCE question, I mean, B2B is doing great.

It's growing above 5%, which is compared to other telcos, I think, outstanding job. Having said that, LCE is our focus item to get it up above the current growth rate.

It goes a bit up and down. And that is because there this large enterprise segment, we were finalizing the movement from old to new portfolio.

So still, we had to migrate some legacy portfolio to the new environment. Having said that, I'm okay with the current results.

We always focused on real inflection to happen in the second quarter. In reality, we report growth now for a couple of quarters in a row.

But it's the parts of B2B that we are really focused on to get it faster growing. On mobile, we see a strong inflow of net adds, but there's pressure on pricing, of course, that's a competitive market.

And on connectivity, we are doing better and better. We're also rolling out fiber in business areas.

So when we report homes passed, it's not about the business areas in the Netherlands, but we also have a program to roll out fiber there, and that's really speeding up and improving. So yes, all in all, that's one of our intention points to get LCE to the average of B2B growth in our domain.

And consumer, yes, mobile service revenue is a bit weak, you could say, in total. I'm positive on the KPN development.

I mean, we report blended service revenues and ARPUs, but KPN brand is really doing good with high ARPUs on unlimited. Of course, we added Youfone in the game, and that's a big base.

So it's difficult to compare KPN with KPN and Youfone compared to 2 years ago, for instance, and in the no-frills segment, that's where the competition is heating up, I would say. So there, we have to be careful.

I mean, we show strong growth of net adds. But for us, it's all about the balance between net add growth and value creation.

And on, yes, the quarter-by-quarter development, I would say, usually, we expect a better quarter in Q3 because of development seasonality. We're going to increase the prices.

So looking at the current situation, I would say that we largely improved Q3 and Q4 compared to Q2. Chris?

Yes, I agree. I think, David, when you look back at Q1, and this date is a bit lagging that we did increase service revenue market share in the Netherlands.

We're gaining a bit of share across all the group. As Joost said, activity is most pronounced in the no-frill segment, but not spilling over into the premium segment.

So I think at KPN level, we're gaining net adds, especially in unlimited. We're introducing a bunch of new unlimited proposition as well over the summer, including growing roaming bundles.

I think it's doing well. And that competitive intensity is at this point, quite contained, but contained to the no-frills areas.

And as Joost said, for the second half of the year, I expect gradual bottoming out with a higher number in Q4 when the price increase is being pushed through. So I would say without looking for too much on a quarter-to-quarter-to-quarter basis because this is a long- term business, but I would expect over the second half of the year, H2 as a whole, in consumer to be around 2% service revenue growth on an average basis.

That should be feasible, but more towards the end. But then again, does not fall through the step of managing this thing on a quarterly basis.

We're in the long-term path, and I think the second half will look better than the first half.

I have 2, please. The first one is just around the comments you made there about the no-frills mix versus KPN.

Could you give us a bit more color, both on where the sub-brand penetration is today on your postpaid mobile and your broadband base? And then maybe just an example in the last quarter of the 37,000 postpaid net adds you added, what was the split there between KPN and Youfone?

Because it looks like there is some ARPU dilution from the mix shift as well, trying to get a feel there. And the second question was around the recent deal signed between VodafoneZiggo and DELTA Fiber, where VodafoneZiggo is going to be wholesaling from DELTA in about 600,000 new homes from next year.

How do you think that will impact your retail broadband net adds, your wholesale broadband net adds? And perhaps if you could give us an idea of what your market share -- your retail market share in those 600,000 homes is today?

That would be very helpful.

Yes, Joshua, in your second -- to start on your second question, we don't believe that the VodafoneZiggo wholesale deal on DELTA is a structural change in the strategy more than, yes, opportunistic move. They clearly have a -- at least that's what we read because it's not really clear, but they stick to a network strategy, of course.

That's their business model. I think they can do with DOCSIS upgrade in main parts of the Netherlands.

And this deal is really centered around the areas where they don't have a network in the first place because that's a DELTA network and that's in limited households, and our market share is lower than compared to the average of the Netherlands. So not that really impactful on KPN developments, I would say.

We follow our strategy, and we do not think this is a big paradigm shift in the part of our own strategy. And your question on no-frills, yes, I think the main part of the base is KPN, right?

So that's roughly 75%. And so the rest of that is essentially on Youfone.

So -- yes, so that's why it's so important for us to really focus on the KPN strategy, the unlimited part and keep it separated from that no-frill game.

Let me on the first -- on the DELTA assuming there's 600,000 HP. I don't know how much connect they have, but as Joost said confirm the market share of KPN in broadband is less than average.

A chunk of that is in fiber. So I would not be too worried about that discussion already on fiber.

There is some copper base, but these are copper clients that have been already exposed to competing fiber for some time. So I don't expect an immediate shift also because if -- obviously, we're not privy to the details of the transaction.

But our understanding of the typical DELTA wholesale agreement is very much in line with our ACM commitment. So I don't think this may lead to a price fight or so.

So if you look at all that, there will be impact, but it's probably going to be manageable and not really affecting the total result of KPN. And as -- on the question on no-frills, and KPN is probably about 3/4 of mobile business, KPN, and 1/4 is [indiscernible].

So that affects the reported ARPU.

Yes, on the fixed side, almost everything is KPN, right? So there's only a limited part, probably around 5% is no-frills.

Maybe just one follow-up on that commentary around your market share in the areas where there's no cable being lower than nationally. It seems quite surprising given VodafoneZiggo's national market share is around 40%.

So in those areas today, is it the case that DELTA Fiber already has quite a lot of market share on the retail side or that your ISP partners over-indexed to those rural areas rather than KPN? It just seems like usually you would expect in the non-cable area you'd be higher.

I would think in those areas, it was DELTA's relatively high market share already. So -- I mean, we -- let's see what the outcome is, but I wouldn't rule out that some of the real gains would come at the expense of DELTA, yes, because I mean that's where they have a relatively large share.

And then we -- I mean, we give you averages of market shares. You mentioned 40% is lower nowadays.

Ours is a bit stronger than -- but all in all, it's different per region, right? So the original DELTA region is where DELTA is super strong, but it's limited to 1 million households or less.

The largest cities, as before, signal is strong. And us, we are strong in more or less the rest of the country.

So it depends a bit on the area what our market position is, and that's how we also took the decisions on fiber rollout.

I have 2, please. The first question is really on the consumer service revenue growth.

Chris, I think you mentioned at Q1 result call, you're talking about you don't expect consumer to be the main contributor to your service revenue this year. But now you're looking -- now you're having accelerated fiber penetration in the consumer broadband base, and you expect mobile service revenue to improve as well.

And just looking out for the next coming quarters or maybe 1 or 2 years, do you see there could be a possibility that consumer service revenue growth could be more in line with the group service revenue trend, which is around 3% going forward? And my second question is on the indirect cost.

I think also you talked about some potential reductions in your indirect costs, but still this quarter, we haven't seen too much move going forward. I'm just wondering if you can help us understand how to think about those lines going forward.

Yes. I think the consumer service revenue growth in all, I don't think, will be 3% level for this year, probably also not for next.

Obviously, in the long run, I see that opportunity with fiber coming in and copper churn becoming less simply because we have less copper customers. It's going to take some time to get there.

I think also because we have a CombiVoordeel products, which Joost explained, one of the payment discount products, where some of the charges of that are added and booked in the fixed ARPU. So there's a reporting element to this as well.

So I would say the growth of KPN in the coming years will be driven by business and wholesale and consumer in the top line lagging somewhat. I think bottom line it could be better.

This is a high-margin business, but top line growth in consumable will probably be not the leading part of business, and wholesale will continue to drive this growth going forward. That is a fair outlook.

On indirect costs, I think the cost base KPN, we stayed effectively flat over the quarter in the first half year. And if you strip out all one-offs' incidentals, I think also underlying, effectively we had a flat cost base with, I would say, about 300 FTEs decline, that's actually going quite well.

That supports EBITDA growth going forward. And in this business, you have positive service revenue growth, positive gross profit growth with a flat cost base that it trickles down to your bottom line.

So on the cost side, I would say, flattish for the year. FTE declined by 300 in the last 12 months, and we aim to certainly continue at this pace of reducing FTEs and reducing labor costs going forward.

So that should help us in the mid- to long-term. I hope it gives you some color how we look at the business in the mid- to long-term.

My first is actually just on the FTE reductions, which you referenced there. So it feels like you're reducing around 70 FTEs per quarter.

Just want to know where these reductions are coming from and you're expecting these for the rest of '25 and into '26. And then my second question is just around the EBITDA growth.

I think previously, you highlighted Q3 will be slightly softer on an underlying basis and then stepping up again in Q4, if I could just confirm that, please.

Yes. So on the FTE reduction, there's -- well, we have a workforce of around 10,000, 1/3 roughly is working in the customer interface.

There's technical people in there, and there's a lot of people working in support. And we have programs in place to make the company more digital and to make the end-to-end processes far more first time right, especially focused on customer quality, but also relate to simplification, and yes, at the end, FTE reduction.

So it's not an FTE reduction program, but it's leading to FTE reduction. I think in the future, we will benefit from this more than we do today, but still, we see a step down in FTE already in a run rate, and that is good because the benefits really kick in next year.

So for us, this will be an important focus point. And I think there's lots of opportunities here.

I mean, KPN has done a lot in optimizing the operating model. But since there's a lot of opportunities on these big transformation programs, supported by AI platforms, we think we can go further.

So that's for us an important focus point. And like Chris described, the first steps down in FTE are in the run rate.

Yes. And the second question on Q3, look, obviously, I'm most to blame because I tend to guide feeling for how the quarterly distribution looks like.

But in the end, it's all about the long-term view, right? It is about getting us towards 2027 and the anticipated and promised CapEx step down.

We should try to look through quarterly fluctuations. But then again, as you're asking, Q3 will be a bit softer.

But obviously, I'd like to tell you we can see what roughly the pattern is so that you can place and position and know the context in which these things happen. The Q3 will be a bit softer.

I think actually mostly due to accounting for holiday provisions. Now, let's not dwell on this too long.

Feeling is Q3 will indeed be a bit softer than Q2, although I felt that the initial hint that we give is probably the floor, it could be a bit better than what we initially guided for in terms of Q3. Without going overboard on the quarterly guidance, there is a pattern in the year, which is affected by these holiday provision schemes.

But I think Q3 will look a bit better than what we initially guided for if I look at it, also including but also excluding the IPR benefit that will land in Q3. I would like EBITDA-wise it will be fine.

So with that in mind, in the end, we'll pursue EUR 20.63 million this year -- [ EUR 2.603 ] billion for the year. That's the plan for the year, and there will be some distribution.

But I think in light of that, I would say, financially trading-wise, Q3 looks -- it's going to be less in Q2, obviously, but it's going to be a bit better what we initially pointed at. But then again, that's only 1 quarter.

It's about the long-term story.

I also had 2 questions, please. Firstly, a question for Chris.

You've upgraded free cash flow guidance twice this year already. Most of that is mechanical, but there's some organic upgrades in there.

You're clearly guiding for falling CapEx in 2027. I'm not wanting to preempt any message at the strategic update in November, but are your thoughts around capital allocation changing?

Will excess free cash flow continue to be used for shareholder remuneration? Are there any caps on the level of buybacks you can do fiber rollout more than 80%, potentially any acquisitions you could do that perhaps weren't possible a few years ago?

And secondly, you've clearly articulated the 7% free cash flow CAGR out to 2027. But how do you expect return on capital to evolve over the next few years?

Could this get close to 20% over time in your opinion?

Well, first of all, thanks for noting that we increased our free cash flow price in the year. I wouldn't expect the flowers and cheers in this call, but I'll get them from Joost.

For sure. For sure.

I think that we're on track to meet our free cash flow guidance, right? And the increase, number one, was due to the acquisitions.

We want to be fair that what we buy, we add to our free cash flow guidance. And the second increase was, yes, it's an IPR benefit.

It's a one-off, but we want to make sure that we do not use the one-offs to meet the underlying business. The one-offs are really on top of, and as we share our free cash flow to shareholders, basically, they're yours.

And that's the result of this, so we distribute them to shareholders. Plan A is still to distribute all our free cash flow to shareholders.

I mean that's what we typically do. We can do that with investing EUR 1.2 billion -- EUR 1.25 billion in CapEx.

And if you make a step down to EUR 1 billion, we'll still be investing about 70% of revenue. So we'll then stay fully invested and investing fully and able to distribute all our free cash to shareholders.

That is the plan that's what we stick to. I would say, over time, you'll see the portion of dividends going up.

I think in the long run, it would be fair to almost like an 80% payout ratio of free cash flow and the remainder in buybacks. I mean, let's not cast in stone, but I think that's probably a good long- term anchor point for your dividend.

So basically, it means that whilst our free cash flow is ratcheting up, our dividends will be going in line with, and I think in the end it was something like order of magnitude 80% of free cash flow in dividends and the remainder in buybacks. The specific distribution, we'll decide on that when we get to '27.

Perhaps you can say a little bit more in the Capital Markets update in the second half of the year. But I think that's the end game for us.

Your question on return on capital employed, we're moving towards 15%. Could we go to 20%?

I'd love to have that problem. First, I think 15% is a good level.

I think that's consistent with a significant amount of value creation. I think if we run this business at 15%, we'll be doing very well.

And I mean that's the point, if you run your business at 15%, I think the marginal investment is probably better to allocate towards growth than more return, if you're running at 15%, right? So I'd love to get to 20%.

We'll do everything we can to get to up, of course, our return on capital employed to a higher level. But I think at this point, it's fair to assume that 15% is what we're going to and that's fully consistent with shareholder value creation and a fairly decent spread over our cost of capital.

And I think with that, we probably also stand out in Europe. And we won't hesitate to do more.

But at some point, investing in growth at this level of profitability might create more value for you guys. And obviously, in line of staying disciplined to make sure we generate sufficient cash in anything that we do.

Okay. Thank you all for your attention and questions.

That wraps up the webcast. In case you have any further questions, please feel free to reach out to the IR team.

If you go on holiday, please enjoy the holidays. Goodbye.

Bye.

Goodbye.