Koninklijke KPN N.V. (OTCPK:KKPNF) Q2 2022 Earnings Conference Call July 27, 2022 7:00 AM ET
Company Participants
Reinout Ierschot – Head, Investor Relations
Joost Farwerck – Chief Executive Officer
Chris Figee – Chief Financial Officer
Conference Call Participants
Luigi Minerva – HSBC
Andrew Lee – Goldman Sachs
Georgios Ierodiaconou – Citi
Keval Khiroya – Deutsche Bank
Ulrich Rathe – Jefferies
Jakob Bluestone – Credit Suisse
Polo Tang – UBS
Nawar Cristini – Morgan Stanley
Emmanuel Carlier – Kempen
Konrad Zomer – ABN AMRO
Operator
Good day, ladies and gentlemen. Welcome to KPN’s Second Quarter 2022 Earnings Webcast and Conference Call. Please note that this event is being recorded. [Operator Instructions]
I would now like to turn the call over to your host for today Mr. Reinout van Ierschot, Head of Investor Relations. You may begin, sir.
Reinout Ierschot
Thank you and good afternoon, ladies and gentlemen and thanks for joining us. Welcome to KPN’s second quarter and half year 2022 results webcast. With me here are Joost Farwerck, our CEO; and Chris Figee, our CFO. As usual before turning to our presentation, I’d 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 with respect to its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the Safe Harbor.
Let me now hand over to our CEO, Joost Farwerck.
Joost Farwerck
Thank you Reinout and good afternoon, everyone. Our accelerated growth strategy was launched in November 2020. And we are now halfway through the execution of this ambitious three year plan. And today’s results show our continued good progress on our strategy despite the changing macroeconomic environments. The key highlight for the quarter was the performance of the business segments which saw growth in service revenues for the first time in more than a decade. And this combined with solid mass market service revenue growth supported our overall group service revenues.
Within the mix, we see positive signs in wholesale in business and consumer mobile. Consumer fixed shows a bit of a dip the buyer confidence that the performance will improve going forward. We rolled out fiber 202,000 households, or if one were to include Glaspoort joint venture 150,000 households in the second quarter. Moreover, we now have more retail customers on a fiber than on the copper footprint, a milestone moment for us. Our efforts in modernizing the mobile network continue to pay off. For the fourth time in a row, we’ve been recognized as the best mobile network in the Netherlands. And while we like many organizations see an impact for rising costs due to inflation, we also see encouraging group service revenue developments in this quarter, with the mentioned B2B inflecting to growth earlier than expected.
Ultimately, this underpins our confidence in our ability to maintain healthy margins and growing free cash flow looking in the future. Driven by our solid performance and successful execution of our strategy in first half of this year, we raised our 2022 guidance to at least EUR 2.4 billion of EBITDA after leases, and free cash flow of approximately EUR 850 million. As you know, by now our compelling strategy is centered around three clear pillars to leverage and expand our superior networks, to grow and strengthen our customer footprints and to simplify and streamline the operating model. Over the last year and a half, we’ve delivered significant progress on all three pillars and remain confidence that the strategy will continue to create long-term sustainable value for all our stakeholders.
Let’s now take a look at the first pillar of strategy our best-in-class networks. In the second quarter, we’ve made solid progress and rolled out fiber to 102,000 households versus 75,000 in Q1 and together with the joint venture with APG Glaspoort, we rolled out fiber to 150,000 households and we now cover approximately 44% of the Netherlands with fiber and we expect to reach approximately 80% of Dutch households by the end of 2026. And once we reach that point, we expect CaPex to drop to a much lower, sustainable level. As we continue to rollout fiber, our growing fiber footprint will result in an improved customer base for retail and wholesale. In fact, we now have more retail customers on the fiber network than on copper, fiber service revenues and this number is growing rapidly driven by a growing base and attractive ARPU. All-in-all, fiber is clearly at the heart of our strategy to create long-term value for all stakeholders
On mobile, where we are proud that Ookla once again, and for the fourth time in a row recognized our leading mobile network. With this recognition, we retain our position as the best mobile network in the Netherlands with the highest up and download speeds, best coverage and fastest 5G in the Netherlands.
Let’s now move to the second pillar of our strategy, adjust consumer and service revenues decreased by about 1% year-on-year. On the one hand, we see consistent mobile service revenue growth and the continued success of our fixed mobile convergence strategy. On the other hand, fixed service revenues were a bit lower. Consumer fiber broadband revenue showed continued growth, while copper and legacy maintained its anticipated decline. Customer satisfaction remains one of our top priorities and it has been pleasing to see our efforts pay off in this area.
Now let’s take a deeper look into our second quarter KPIs. Our retail fiber base increased by 34,000 new customers and now exceeds the copper base. And like I said, an important milestone for us. This should provide support to start to grow our program best. Broadband net showed a temporary decline as we witnessed a brief period of increased competition following the successful launch of our Viaplay proposition. Our fixed ARPU remains broadly stable at EUR 52. The service revenue trends is weaker than seen in previous quarters. And on the one hand, this is due to an anticipated decline in legacy services fix calling lower voice traffic. On the other hand, this is due to the successful migration to Viaplay, which causes a shift from gross to net revenue reporting, but has no impact on margin. We continue to see solid trends in mobile, our postpaid base increased by 33, 000 and our postpaid ARPU was broadly stable. And combined, this led to a 1.4% growth in mobile service revenues.
Now let’s move to B2B. I’m very pleased with the performance of our business segments which reflected to growth a bit ahead of schedule. B2B adjusted service revenues grew almost 2% year-on-year in the second quarter. SME is the main driver of growth driven by solid commercial momentum in both broadband and mobile. Alongside SME also, our tailored solution business increased. While the LTE service revenues are still in decline, the overall trend is also moving in the right direction. So this keeps us well on track to inflect LTE in the first half of next year. The NPS on business remains positive it was a bit impacted in part by the volatile economic environments. Nonetheless, we are still leading in the Dutch market as customers continue to value KPN for stability, reliability and quality of our networks and services.
As mentioned across the board, we are seeing improving revenue trends. If we would strip out tailored solutions into B2B revenues, to give a good indication of our core telco performance, our business service revenues increased by 1.3% compared to the previous year. So that’s supporting our strategy. In wholesale service revenues increased 7% in the second quarter supported by our open access policies. Year-to-date, we added 43,000 postpaid SIMS and 18,000 broadband lines. On the topic of regulation and the ACM, there’s not much new to say at the moment, as you know, we published our voluntary open access model for the future with adjusted wholesale tariffs, which was used for the consultation periods. This consultation has been concluded and we expect the final decision from the ACM to be announced this quarter.
With this, let me now hand it over to Chris to give you more details on our financials.
Chris Figee
Thank you, Joost. Let me now take you through our financial performance. And let me start by summarizing some key figures for the second quarter and for the first half of the year. Our adjusted revenues increased 1.4% over the year, driven by growth in wholesale business, consumer mobile and non-service revenues. Second, adjusted EBITDA after leases increased 1.1% year-on-year and our EBITDA margin remained broadly stable at 45.3%. In the second quarter, cost savings from further simplification and digitization of our company were partly offset by inflationary effects, such as waste indexation and rising energy costs. This all translated into EUR 30 million of net indirect OpEx savings. And third, our free cash flow increased 35% year-on-year compared to the first half of 2021. This was mainly due to higher EBITDA and lower CaPex as a result of intra-year phasing. More on the underlying case developments later in this presentation. And finally, a rosy return on capital employed continues to develop positively an increase of 170 basis points 12% driven by both increased operational efficiency and a more efficient balance sheet.
Since we’ve managed to grow our business service revenues and already deliver sustainable mass market service revenue growth through a number of quarters, we will now focus on the total group service revenues to illustrate the performance of KPN. Total group service revenues, growth accelerated and increased to 1.4% compared to last year. This was supported by solid mass market service revenue growth and the inflection of our B2B service revenues. And this is all very important proof points of our strategic progress towards achieving sustainable top line growth for the group. Wholesale continue to show solid growth with service revenues up 7% year-on-year, driven by both broadband and mobile. Business service revenues grew by about 2% driven by continued strong performance in SME and project timing and tailored solutions. While the trend in LTE is gradually improving, according to plan.
In consumer, our total service revenues declined by 1%. Within the segment, mobile service revenues continue to grow and recorded the 1.4% increase. In fixed, fiber service revenues exceeded those of copper and effectively outstripping the decline. However, the growth of total consumer’s fixture with revenues was still offset by declining legacy services. Less voice traffic and the accounting effects for content packages that we mentioned before. As a result of this, we reported a decline in fixed consumer service revenues of 2.2% negative. For the remainder of the year, we still expect to see some technical headwinds, but we are confident that the trend to consumer fixed will gradually improve, supported by our implemented price adjustments and commercial improvements. And by the end of Q1 next year, we’ll see the lapping of the accounting effects.
Overall, we’re confident that our group service revenues will continue to grow during the remainder of the year. Our adjusted EBITDA grew by 1.1% compared to last year, despite a tough comparison days. As a reminder, last year, our EBITDA was positively impacted by an intellectual property rights benefit and IPR benefit, and provided tailwind of nearly 1%. Our improved. EBITDA performance was driven by solid service revenue growth and lower indirect costs partly offset by EUR 25 million higher direct costs. Factors for this increase was the impact of higher non-service revenues as well as handsets and hardware sales, third party access costs, which is Glaspoort and a change in service revenue mix in B2B. Our personnel expenses decreased by EUR 12 million, despite the CLA increase, which was implemented in the summer of last year. This reflects a structural shift in personnel efficiencies, due to the digitization of KPN, as well as some natural attrition.
Ongoing efficiency improvements also helped lower IT/TI expenses. This was partially offset by other OpEx, which rose mostly on higher energy costs. In total, our indirect cost base reduced by EUR 30 million as our ongoing efficiency program gains, offsets — are offset by inflationary pressures on energy and labor costs that occur across the industry.
At EUR 408 million, our free cash flow in H1 was substantially higher than last year, and our cash margin over revenues improved to almost 16%. These improvements was mainly a result of a few factors namely EBITDA growth, lower CaPex due to intra-year phasing, and lower cash interest rate. These were partly offset by smaller effects around the face of working capital and some higher cash taxes. All-in-all, we start the year very well in terms of cash generation. Though of course, we will not see a 35% growth rate for the remainder of the year. If we strip out the CaPex delta, which we see as temporary, we are still see solid underlying growth and free cash flow and solid improvement in margins.
And finally, we ended the quarter with a strong cash position, absorbing the final dividend payment over 2021 and part of our share buyback program. On slide 19, we report our return on capital. KPN is focused to create long-term value is evidenced by a strong return on capital employed. ROCE improved to 170 basis points year-on-year to 12% and has moved up continuously due to both increased operational efficiencies and a more efficient balance sheet. For the coming years, we scope to further optimize our return on capital as part of a continuous pursuit to deliver long-term shareholder value creation. We continue to have a strong and resilient balance sheet at the end of June. As a result of our bond redemptions and other corporate actions we took last year, the average cost of senior debt improved by 26 basis points over the year. In Q2, our net debt increased by EUR 238 million euros compared to the previous quarter. Driven by the final dividend payment in April, and our ongoing share buyback program. This is partly offset by the free cash flow we generated during the quarter. Our leverage ratio now stands comfortably at 2.3x EBITDA, will be lower ceiling of 2.5. And we further enhanced our interest cover. The acceleration of growth of our cash margins structurally and organically increase our flexibility on capital deployment.
Total liquidity remained robust at the end of the quarter. It now consists of EUR 1.6 billion in cash and short term investments and a fully undrawn revolving credit facility. This all covers debt maturities for next two and a half years. Reassured by our current financial performance and good strategic progress, we raise our ‘22 guidance to at least EUR 2.4 billion of EBITDA, and the free cash flow of approximately EUR 850 million, with CaPex remaining stable at EUR 1.2 billion. As of the 22nd of July, KPN had bought back 37 million shares for an amount of EUR 122 million and completed 41% of our EUR 300 million share buyback program.
So to summarize, solid progress has been made in achieving the strategic objectives first formulated in November 2022. In spite of the increased challenges brought about by the economic environment. We see sustainable trend for group service revenue growth with positive signs in wholesale, business and consumer mobile. Consumer fixed showed a dip, but we are confident that the performance and trends will improve going forward. Our EBITDA and cash margins continue to develop favorably and we feel confident about the cash generating ability of our group. To me, KPN demonstrates healthy margin, earnings and cash flow resilience in this struggling times. Our fiber rollout rate has maintained a good pace and has proven an attractive return profile. With this KPN has now put itself on the path towards sustainably growing revenues, EBITDA and free cash flow and a corresponding growth in shareholder returns.
In summary, we’re strategically on track, remain soundly financed and delivery on our objectives. As such, driven by our solid H1 performance and good execution of our strategy, we raise our ‘22 guidance. Thank you for listening. Let’s turn to your questions. And back to Reinout.
Reinout Ierschot
Thanks, Chris. We will start with the Q&A session. Right now as usual, please be reminded to stick two questions each and operator over to you please.
Question-and-Answer Session
Operator
[Operator Instructions]
First question comes from Luigi Minerva from HSBC.
Luigi Minerva
Yes, good morning, and thanks for taking my questions. The first question is about the free cash flow 2022 upgrade. I was wondering if you can help us to segregate the upgrade between what happened –what’s happening above the EBITDA and what’s happening below the EBITDA. So the drivers of the free cash flow upgrade essentially. And then, you mentioned improving trends in B2C in the second half of the year. If you can perhaps go more deeply and elaborate on that. Particularly on the on the fixed line side. Thank you.
Chris Figee
Yes, Luigi, let me take the first question on free cash flow. The reasons behind the upgrade, well obviously we’re ahead of track in terms of our cash flow growth. In the first half of the year, we delivered about EUR 100 million more free cash flow. Again, we won’t grow at this pace going forward. But if you peel the onion, you can see our EBITDA is growing. I think even the cash portion of EBITDA is growing. So the Delta provisions technically speaking is less than last year were favorable. So the amount of cash earnings is going up. That’s one. Secondly, there wasn’t a first half year and slight drag on working capital. I think that we see that fade away in the second half of the year. And thirdly, on restructuring charges. We had some restructuring charges in the first half of the year, which really were the echo and result of the restructurings that were done in last year. So last year through restructurings cause a payout in this year. And in this year, we see more FTE reductions from natural attrition. So cheaper, there’s no restructuring charges. So to me, it’s a combination of cash earnings going up, EBITDA going up, but the higher cash proportion of EBITDA, you’ll see some more support from working capital in the second half of the year, combined with low restricting charges, and I think also an interest rate. I’ve seen some smaller opportunities, so that together drives a good development of our free cash flow in terms of euros but also in terms of margins.
Joost Farwerck
Yes, and on the developments in consumer, in consumer, we show service revenue development of minus 1.1% in this quarter. First, briefly, mobile service revenues are developing well for the fifth quarter in a row, strong growth 1.4% growth on revenue, but also the base is growing. So that’s all well, the B2B, the broadband, sorry, the broadband developments are good, the informal fiber is strong. And that’s very important for us that now our fiber base is larger than our copper base. Revenues total on broadband kind of flat, a minus 3,000 in the base, which is of course not good, we like to grow not to the client base. But that’s more or less a temporary dip as a result of commercial performance. And also competition was aggressive on a discount following our Viaplay proposition in the first quarter. In first quarter, we showed the growth of plus 7,000. And as a result of that, we now do a minus 3,000 but with our current strategy, the price increase, the first of July, the new lineup we introduced in October, I’m confident we will improve that trend looking forward. Fixed client service revenues is minus 2%, which is a result of accounting, shifts in accounting for content packages, the Viaplay I just mentioned, that’s something we introduced, but we only account for that net. And Viaplay is the equivalent for Ziggo Sports. So for customers interested in Formula One, in the past, we had to offer Ziggo Sport, resales Ziggo Sports. Now we have our own package with Viaplay and that we account for in a different way. So that is all anticipated on, we also see customers doing less on fixed voice which is a result of the package we introduced and also unlimited mobile. So also that we anticipated on. So all-in-all, a temporary dip I would say looking forward, I’m confident that we will improve the trends.
Operator
The next question comes from Mr. Andrew Lee from Goldman Sachs.
Andrew Lee
Good afternoon, guys. I think we had really expected it five years ago that you’ve been delivering B2B growth faster than consumer, so feel guilty about pressing on with questions about consumer given you’ve achieved that growth now, but I just wanted to dig a little bit deeper. And your answer to the previous question from Luigi around the improvements in consumer service revenue growth. Clearly, there’s an inflation boost that you’re going to get both in terms of your fixed line price rises in July and then mobile in October. But if we were to strip out the inflation level and try and think about the structural growth outlook in your consumer business, it was a bit slower this quarter. What are your ambitions or beliefs in the structural growth of your consumer business, and not just next quarter, but over the next year or two? What’s driving that improvement if you do see an improvement?
Second question was just on the fiber over build of your network. What progress are you seeing from those over builders? As you’ve accelerated your fiber rollout, are you seeing other fiber builders accelerate too or are they slowing? Any kind of color of what you’re seeing will be helpful? Thank you.
Joost Farwerck
Well, I’ll start with the second question. Overbuilt is something we tried to avoid. Although having said that, in a small country, like the Netherlands, if more parties start to rollout fiber, so every now and then we meet each other in a certain region. It’s especially KPN scaling up and together with our joint venture, will do more than 0.5 million households per year in a market of 8.5 million households in total. So it is mainly KPN accelerating, of course, we also see our initiatives, and the largest one is Delta, rolling out fiber. First of all, in their own footprints. And secondly, every now and then they pop up in our areas. Yes, we move into an area with a market share of average 38%. So for us, we start immediately to sell and to build at the same time. Our initiatives, try to first aggregate customers because they started on the market share of zero sometimes. So we have a bit of a benefit there. So of course, we look at competition. But for us the most important thing, and the target we have is to speed up our own rollouts as efficiently as we can. And I’m therefore happy with the results. And until today, not that much of overbuilt in the Netherlands, I must say, that’s on the fiber parts. Yes, B2C, I understand where you’re coming from, of course, that is very important segment for us, and especially the broadband part. I think to be honest, that we have a very good strategy, and we’re making progress, the move to fiber is doing good, the ARPU fiber is much better than on copper. So, of course, we don’t like a minus in our revenue trends. And I’m confident that we will improve that. We anticipated on it bit by introduction of Viaplay. We also see a bit of a faster decline on the traditional voice, which is fixed telephony. But that’s a logical result of everything we’re doing ourselves. So I see it as a temporary thing. And I’m really positive on the future of our broadband consumer business with everything we’re doing at this time.
Chris Figee
Yes, maybe I should add a few things on, Andrew, if you look at our fixed business, right, we’ve got a decline in legacy that costs about EUR 1 million to EUR 1.5 million per quarter that will be there that we have to absorb. But when you look at the broadband business, as said before, fiber is now bigger than copper, that creates a positive better churn that add dynamics that adds in the previous quarter were down because of commercial intensity in the market and our access for all migrations. As far as we can see, they have normalized by now. So if you look at the last two to three quarters, on average, we did about 3k net adds per quarter in Q4, Q1 and Q2, if you look through the fluctuations. And we should certainly be able to do that, again, without disrupting the market or being overly aggressive, we should be able to get to positive net add developments because of the fading of these headwinds, the fact that fiber is bigger than copper. I think our TV proposition is now stronger. We’ve got certainly equal to or the upper hand when it comes to content.
And finally, we look at fiber sales, as good to know that about a third of our new sales in fiber is now at 1 gig. So customers are actually buying higher speeds, which would support the revenue per customer. So that next two price increases we see upgrades of clients due to higher packages. And on a revenue per address, fiber household tends to pay about EUR 5 to EUR 6 a month more than a copper household. So all those dynamics together will point to improving trend. That will not be there next quarter, but the trend will start to gradually improve. That gives us some more confidence. As to the first part, we rolling out KPN plus put together about 600,000 fiber connections in the year, which is I think more than all our competitors together and that should also alleviate any overbuilt pressure and secondary support our fiber revenues.
Operator
The next question comes from Mr. Georgios Ierodiaconou from Citi.
Georgios Ierodiaconou
Thank you for taking my questions. I have two both on OpEx. On slide 17, I just wanted to first go through the direct cost drivers, you highlight higher non service revenues and B2B services revenue mix, which I guess are not structural. But the Glaspoort access costs are a bit structural. So it will be great if you give some visibility on how the second half, but also 2023 is expected to develop in terms of the headwinds from that. And also, when it comes to the indirect cost as my second question, it will be very useful if you can perhaps give us some color on how both the labor and energy costs are expected to develop over the next year. I’m guessing there could be some tougher comps there but I’d be interested to hear your take. Thank you.
Chris Figee
Yes, Georgios, on direct cost you need EUR 25 million Delta. Not all of this is concerning as part of is non-service revenues. Part of is roaming costs that are flowing in so you see some roaming revenues going up, especially on the wholesale side, not so much I think consumer and business, but on the wholesale and on data business, we see higher roaming costs. So that are roaming revenues that shows in direct cost. I think the Glaspoort component of in this EUR 25 million is about EUR 5 million order of magnitude, the traditional Glaspoort costs that will be — could be doubling next year. I don’t worry too much about those costs. But of course, these are clients that move to fiber that actually increase our sales, increase our revenues, and increase our revenue per month. So that’s good. And also, of course, in Glaspoort, we have a stake in a joint venture. So what we pay more than cost, 50% we own back, it just below the line. So economically, I’m not that worried about it. Although of course, it’s our challenge to try to compensate those direct costs by higher revenues, but also by increasing or decreasing other costs, I mean, that’s a challenge we give to ourselves. When it comes to indirect OpEx on energy, of course, it’s an important factor. It’s important thing that we will look at. In the first half, we spent about EUR 4 million more energy from last year, I think full year, you’ve probably doubled that amount, get to about EUR 10 million more for the full year. We do have locked-in most of our spend for this year. I think we’re like 90%, 95% done on locking in our energy spent for this year, also, because we’re reducing our energy demand. So for this year, we’ve got pretty good visibility.
For next year, the equivalent number is about 65%. So we’ve procured about 65% of our energy costs for next year. Of course, that will lead to an increase in prices, will of course wait to see where the energy price lands. But if you look at today’s energy prices, that would be the norm for the rest of the year. You’d look at about from next — from ‘23 on ’22 about 1.5% of EBITDA headwinds, in terms of the additional energy costs, now that’s a fair amount of money. And it’s on us to make up for that by reducing energy demand and reducing cost elsewhere. So the task on us is to compensate for that energy cost increase to compensate for the Glaspoort’s access cost. And we do it through combination of price increases efficiency in the group, as I said, we running with about 700, less FTEs in last year, and that number, the underscore of FTE is actually growing. And we need to increase our energy efficiency. So for this year EUR 4 million in H1 will be about EUR 10 million for the year, next year, we count with current prices around 1.5% of EBITDA worth of headwind that we shoot and will be able to compensate so that’s why we left our guidance for next year unchanged and confirmed. But that’s kind of the order of magnitude that you need to think about.
Georgios Ierodiaconou
And maybe as a follow up, some of your competitors are trying to sign long-term purchase price agreements. In your case, there’s obviously a change in technology moving on to fiber. Is that something that hinders perhaps taking a long-term view on some of these contracts? Or is it something you are looking to add over time just to give you more visibility?
Chris Figee
Oh, definitely, of course, as we are reducing using our energy consumption as such, I mean, moving to fiber is one thing moving to modern radio access network is something so definitely, we’re looking at reducing our energy consumption as such. Next to that, yes, indeed, we are in continuous dialogue and negotiation discussions with some energy companies on long term PPA contracts, especially to get access to, for example, to wind to Dutch Wind. Just takes time to build a wind farm. You don’t have one overnight. So yes, we are looking into longer term PPA contracts and we are focusing really on the generation of Dutch Wind, it just takes time for these plots to be assigned by the government and then you need to build them. And that’s unfortunately not done overnight.
Joost Farwerck
But on the fiber thing, fiber network is far more efficient to run than a copper network. So also important in this part is that we move to fiber and switch off the copper network, which is like I said, far more efficient network also from an energy point of view.
Operator
Next question comes from Mr. Keval Khiroya from Deutsche Bank.
Keval Khiroya
Thank you very much. I’ve got two questions, please. Just firstly, going back on the inflationary impacts on the price. You just talked about being able to compensate for this elsewhere? Can you elaborate a bit more on what — where you think there may be more headroom to cut and paste more than you planned originally? And obviously, for this, you’re very helpfully guided towards the under EUR 50 million and cuts in indirect OpEx, I don’t know if you’re able to kind of give a broad view on how we should think about next year.
And then secondly, you’ve had a very impressive performance in wholesale mobile for the past few quarters, and growing 16% in Q2 and accounting for roughly half the wholesale revenue growth. Can you talk a bit more about what’s driving that and also how we should expect that to trend going forward? Thank you.
Chris Figee
Yes, on all this cost, Keval, we’re running with about 700, less FTE than before and natural attrition is quite high. I think about 50 odd people per month leaving the firm. Now two years ago, there was about 20. So that’s doubling. So and we’re, yes, so I’d say happily riding that wave of allowing ourselves to become more productive, more efficient without spending too much restricting charges. So that’s an important point. Secondly is continued rationalization of our network. We’ve migrated our customers’ access for all to KPN in last quarter. So that is an offset of cost. We’ve shut down our 3G network, we’ve kept our 2G; we shut down 3G. So there’s a bunch of network and IT changes that we do on the back of simplifications. And then there is a continuous making a way to make our company more efficient by reducing our fees. Joost, if you want to add.
Joost Farwerck
Yes, so customer process, we have thousands of people in the front line of the company outside and inside to serve customers. At the end, a company like KPN doesn’t need in the future operations for 1000s FTE, to run the customer processes. So we’re moving to a far more digital process. One time, right, zero touch fiber network. So it’s very important that we simplify customer process not only to improve net promoter score, but also to reach a far more efficient OpEx level in the front side of the company.
Chris Figee
Yes, on this page was showing you of course, on page 17, the cost reduction, and of course, if it hadn’t been fully energy would have been saving about EUR 17 million of cost, so when we make the EUR 50 million we’re going to get close, we accept they make the 15 to 50 not sure, the energy might be messing it up a bit, but for sure make the EBITDA. So what you see for this year and next year that we stick to and confirm our guidance, we see some upside in EBITDA this year, but the mix will be different simply because you’ve got some higher cost and some more pricing upsides.
On to wholesale. Why is mobile doing so good? I would say we’ve got a fantastic mobile network that sells really well also — in also mobile. We were awarded the Best Mobile network in the world it shows. So what we’re seeing is I think three things, or two things. Our mobile MVNO clients in wholesale do very well. Also because I think the mobile market in the lower end to no frill segment is improving quite rapidly. I mean prices have developed attractively there. And we see some of our MVNO clients do quite well. And secondly is roaming mean as a roaming revenues mostly to international data services that come in also in wholesale mobile.
Operator
The next question comes from Mr. Ulrich Rathe from Jefferies.
Ulrich Rathe
Yes, thank you. And two questions that would be the first one on the NPS. On the slide, you showed a bit of a spike in the first quarter on the consumer NPS sort of step back a little bit in the second quarter. Is there a particular reason for that? And how would that evolve from here? And the second question is you are discussing inflation impact, in particular vis-à-vis on your cost base, but how about customer behavior? There was a survey published, I think in June, suggesting that about a third of respondents, so these were consumer respondents, I believe, expressed an intent to cut spending due to inflation. Do you see any signs of that coming through and what are your expectations for that happening in the remainder of the year? Thank you.
Joost Farwerck
Yes, on NPS. So we, in consumer show NPS of 17. And in B2B, we show an NPS of one, which is for a second quarter, to be honest, not that bad. Last year, we did like 14 in consumer market, because the second quarter is always the quarter where we announced the price increase on the first of July. So that’s not always followed by applause to put it that way. And Q1 was very good 19, we want to get back to 19 and above that, so it’s an important target for the whole company. Also, when it comes to the bonus scheme of all people in KPN. So we’re really focused on that. So all-in-all, taking into account where the market is where we are also, compared to competition, we improved our position on net promoter score, both on the consumer and B2B. I’m not that worried about NPS. But of course, we just had a call with our own management internally in the company. And we said, it’s super important that we get back to the level of 19 or above that. But all-in-all, where we are today, I understand the 17 and the plus one, the market is much lower, and there’s opportunities for us to grow there. Of customer behavior, yes, in consumer market, I think it is super clear that broadband is a primary surfer. So we all benefit from so no one considers to scale down on that connection. In the Netherlands, 80% of the people still work from home. So it’s super important to have good connection, we improve there, also on Wi Fi. So we do not see really cutting on our services, perhaps a bit on fixed calling, which went down a bit faster at this quarter than usual, it’s not that big of part of our service revenue anymore. So it’s quite logical people make less use of fixed calling nowadays, but all- in-all, I would say that we do pretty good on the ARPU on households so.
Chris Figee
Yes, no, I don’t want to be — we need to be very vigilant on this. But also point I think, if you look at our customers, we tend to have relatively speaking a higher income customers at KPN compared to other players, our customers tend to be a little bit more disposable income than another. So I think that will provide a first new potential shield, if anything, as you said, will be probably fixed lines, rather anything else. The other component we look at is payment behaviors. And at this point, there’s no change in that we look carefully every month, for example, payment terms on our handset financing, and there’s no change there. So it’s something that we need to be very focused on and very much keep a close eye on this. But next, beyond cutting down on fixed lines, I think the fact that we tend to have relatively speaking higher income customers should support our business, at least on a relative basis.
Operator
The next question comes from Mr. Jakob Bluestone from Credit Suisse.
Jakob Bluestone
Hi, good afternoon. And thanks for taking the question. I have two questions. And firstly, just can you give us an update on your buyback, please? I think over the six months since you announced that you’ve got — you’ve executed about 40% of the buyback. You’ve got about two weeks left. So what sort of happens if the buyback hadn’t been completed by 17th of August? And then just secondly, just to follow on from your comments, on sort of changes in consumer behavior in the B2B segment, could you give us just a similar color around B2B as well? Are there any signs of sort of weaker economy leading to delays in project or anything? Appreciate you’ve obviously just reported a very good B2B performance, but any sort of early indicators we should be aware of? Thank you.
Chris Figee
Yes. Jacob. On the buyback, I’d say it’s kind of out of our hands. This happens we normally mandate an investment bank to continue to procurement without us being involved. So we know the buyback has to be completed by 17th of August. So I guess there’s a couple of ECM bankers who have just kept the holidays. That’s kind of how I look at it. It can and will be completed by the 17th. And we made a pretty clear arrangement with the bank and for rest, we’re looking at the same numbers as you do. On consumer business, again, no early signs of distress there. I think most corporate balance sheets these days are quite healthy, whether it’s in SME, whether it’s in large corporates, so that’s good. We do see some more price pressure in mobile. So and if you look at the business segments, mobile volumes are healthy, there’s some price pressure, especially in the larger corporate segments. So I would expect it not so much to come down to cutting these costs, but probably more price pressure on new sales. At the same time, we see employment still healthy. And as long as businesses add new people to their staff, they need more phones. So I see on the business segment, no payment issues yet. Pretty strong balance sheets. If anything, there will be more price pressure. But again, my crystal ball is good as yours. So we need to be very focused on this.
Joost Farwerck
Adding on B2B, we’ve talked a lot about B2B, how we’re going to reflect that part of our service revenues. I think the way we did it on the SME, and now we’re doing it on LTE and we did it on tailored solutions is migrating our customers to the Future Proof platform and a future proof technology. And by doing that B2B customers rationalized our portfolio. So part of the pressure in the past — over the past 10 years on our top line and B2B. That was the rationalization B2B customers started to do when we started to migrate in hardware in connections like whatever, you don’t need, like 20 ISDN lines, you just need one good fiber connection. So there has been a lot rationalized in SME and LTE today. So therefore, I think there’s less opportunity for our business customers to rationalize.
Operator
The next question comes from Mr. Polo Tang from UBS.
Polo Tang
Hi, thanks for taking the questions. So I have two questions. The first one is really just clarification around the accounting headwind and consumer, if I’m not mistaken, that was minus EUR 6 million euro drag in Q and minus EUR 3 million drag in Q1. That kind of standard, but can I understand the quantum of this drag will grow over the coming quarters as more people take up the Viaplay offer.
And my second question is really just about business. How specifically, how should we think about growth in tailored solutions going forward? Because I think you called out the benefit in terms of timing of project work and equipment sales. But is this temporary? And should we expect tailored solutions to be back in terms of negative growth territory in the coming quarters? Also I think from memory within tailored solutions, you had one or two large accounts that were lost making in this segments? And you’re in the process of phasing out these revenues. Is this drag from phasing out these loss making accounts now over? Thanks.
Chris Figee
Yes, Polo, the first question your numbers are completely correct. It was the kind of EUR 6 million drag on the accounting change from the shift from Ziggo Sport to Viaplay. On a side note, if you take the copper and fiber revenues and add back the EUR 6 million you see, effectively stable broadband revenues. We’ve seen this number to be stable from here. I mean, the thing is, we launched our Viaplay offer early in Q1. So customers signed up in Q1 so you see the first full effect for a full quarter in Q2. And we don’t see massive further growth in Viaplay. If you’re not watching Formula One by now, probably you won’t do it anymore. So we think this the EUR 6 million will be what it is in the coming quarter. So think about the EUR 6 million constant for the coming quarters until it lapses into the next Q1 next year.
Joost Farwerck
Yes, Polo and also on tailored solutions, you’re well informed. We mentioned projects and hardware as a driver above that is because tailored solutions is all about projects and hardware for large customers. So for us, the most important part is how to run these projects. As you know, we used to serve large customer in such a way that they came out as bleeders for the whole company. That is not the situation anymore. We fixed all that. And we only make these large project deals for large customers when it’s supporting our core business connectivity or mobile and otherwise we won’t. And so it’s all in a better and in healthy shape. And I expect that to stay positive. I am not sure if it’s always will show strong growth like at this quarter plus 5% but we’re doing quite well. We have a good portfolio and also the coming quarters I expect grow from there.
Operator
The next question comes from Ms. Nawar Cristini from Morgan Stanley.
Nawar Cristini
Thank you very much. I have one question please in terms of inflation risk on [Inaudible]. So we see a number of headlines on a global shortage of fiber cable, which is seem to be impacting both prices and lead time. And when we speak to contractors as well, we understand that margin for fiber deployments are quite stretched. And there is an appetite to negotiate contracts would be good if you could discuss what you see as well on your end. And give us a bit of color and some visibility you have on your cyber CaPex envelop. Thank you.
Joost Farwerck
Cris, first of all, my reaction would be most parts of the fiber CaPex is really related to construction. There’s only a tiny part related to the costs on the real fiber. And, of course, it’s super important that we see the wages will go up. But on the fiber itself, I don’t expect that much. But so for us, it’s mainly the long-term contracts we do with construction companies, on the wages of people, and the more, the longer term we make these contracts, the better and the cheaper it will be. And on the other hand, it’s far more important maybe that we optimize the fiber rollout to every quarter. So we innovate in our fiber rollout strategy, anticipating on higher costs on people to make the fiber rollout far more efficient to grow faster and do the connectivity in a households in a more simplified way. So of course, it’s a challenge, but it’s a bit of a balancing act, how to cover for an increase mainly in people cost.
Operator
The next question comes from Mr. Emmanuel Carlier from Kempen.
Emmanuel Carlier
Yes. Hi. Good afternoon. Two questions. First of all, on wholesale. I noticed that the growth in broadband net adds was a bit softer in Q2 versus previous quarters. What is the main reason for that? Is that just the market being a little bit slower, after the corona boost period? And then secondly, on free cash flow. If I look at your guidance for 2023, it looks like you expect only a limited free cash flow growth, which may be run us through the key free cash flow drivers moving from 2020 incentives to towards the 2023. Thank you.
Chris Figee
Yes, Emmanuel, on the wholesale, there is little bit slackening off of broadband growth due to a very increased competitive intensity in the market, there were a few very intense actions by one of our competitors that affected our net adds and also those of our broadband partners. These competitive actions have been terminated have stopped. And since then we see like a recovery of the normal pace. So to us, it feels like a one off for way basically one and a half months, five to six weeks, and then recovered to the normal sales. So that’s a temporary thing. On free cash for 2023, well, Emmanuel bear with us, we’ll give you the guidance for next year when the next year starts. But in terms of components, good to know that, of course, EBITDA will need to grow. We will pay somewhat higher taxes next year, simply because the way our net operating losses evolve and the use of that evolves. So we’ll have some headwind from higher taxes next year. But again, we’ll try to optimize with their lower interest costs, with EBITDA growth working capital optimization. So those are the moving parts, but for the final number, you have to wait for next year that will give you a fully informed and comprehensive guidance for 2023. But then, again, we saw no reason to — there’s no reason to reduce it, let’s put it that way, certainly no reason to reduce it, to confirm it. And the exact number you have to wait for a few months.
Emmanuel Carlier
Yes, okay. Maybe one follow up on the broadband growth in some other countries. They have spoken about slower broadband net adds because of the corona boost period. Is that something you’re seeing an imminent as well or is it difficult to isolate the Vodafone giga promotions and then the Corona broadband boost care as well?
Joost Farwerck
I think at the beginning of Corona, we saw a bit of a slowdown in general in the markets. But currently I don’t think Corona plays any role in broadband developments.
Operator
The last question comes from Mr. Konrad Zomer from ABN.
Konrad Zomer
Hi, good afternoon. My first question is on the fiber rollout. I think that this is the second consecutive quarter where the rollout was slightly hampered by a lack of available people. And that is unlikely to ease in the second half. Are you still comfortable with throwing out fiber to approximately 450,000 homes for the year? And my second question is on the B2B segment, now that growth has returned, is it likely to see an ongoing decline in number of FTE because you reduced FTE in the quarter? And I think that in the B2B segment that was the division with the steepest decline in FTE, is that likely to reverse going forward? Thank you.
Joost Farwerck
Well, on fiber, yes, listen, okay. 450,000 is the KPN target. On top of that, we do like 100, 000 to 150,000 with the joint venture Glaspoort. Part of this capacity is also handed over by us to Glaspoort. I’m okay with the 100,000 this quarter. And of course, we have to scale up 120, 000 which we did in Q3 and Q4 last year. So it’s doable for 450, 000. But it’s not for us. The most important thing is that we do within the super-efficient and high quality way. So together with Glaspoort, we will reach between 500,000 and 600,000 households this year. And especially we also take a look at competition. Our day scaling up until now, they are a bit but we go much, much faster. So all-in-all, I was not that satisfied with the first quarter to be honest, this quarter, we do much better and expect the company to further push it. I’m not sure if we’re going to make the 450.
But I prefer to do it in a decent way then go out to meet homes past targets. In B2B, yes. Well, so first of all, I am very happy with the growth, of course. Yes, it’s first quarter that we report growth of B2B as a standalone segment. But we aim to continue that, of course, being a growth company is much different than being a company focused on cost cutting only. So that is what we communicate to the people and the management as well. But now being in that growth, it’s important that we do both because still, the margins are much lower in the LTE and the integration part than anywhere else in a company, we’re asset heavy company, we do high margins, 47%, something like that. So it’s important to improve margin in B2B. So now we are in the growth part, I think we will always keep on working on the efficiency of the company, and that’s also related to FTE reduction following the simplification, so also this year in the coming years, we will keep an eye on the simplification of the company and the FTE reduction.
Operator
Thanks Joost and Chris. That concludes today’s call. If there’s any further questions, please contact the investor relations team. Bye-bye.
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