Koninklijke KPN N. V. (OTCPK:KKPNF) Third Quarter 2022 Results Conference Call October 26, 2022 7:00 AMm. ET
Participating companies
Reinout van Ierschot – Director of Investor Relations
Joost Farwerck – CEO
Chris Figee – Chief Financial Officer
Conference Call Participants
Keval Khiroya – Deutsche Bank
Georgios Ierodiaconou – Citi
Luigi Minerve – HSBC
Andrew Lee – Goldman Sachs
Joshua Mills – BNP Paribas Exane
Usman Ghazi – Berenberg
Jakob Bluestone – Credit Suisse
Steve Malcolm – Redburn
Konrad Zomer – ABN AMRO, ODDO BHF
Maurice Patrick – Barclays
Polo Tang – UBS
Operator
Good morning, girls and gentlemen. Welcome to KPN’s third-quarter 2022 earnings conference call and webcast. Note that this event is logged. At this time, all participants are in listen-only mode. A Q&A inquiry will be held towards the end of the comments ready for today. [Operator Instructions]
I will now pass the convention to your host today, Reinout van Ierschot, Head of Investor Relations. You can get started.
Reinout van Ierschot
Thank you and good afternoon girls and gentlemen. Thank you for joining us. Welcome to KPN’s Q3 2022 effects webcast. With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. As before moving on to our presentation, I would like to remind you of the safe harbor on page 2 of the slides, which also applies to any statement made in this presentation. In particular, today’s presentation would likely come with forward-looking statements, adding KPN’s expectations regarding its outlook and ambitions, which were also included in this morning’s press release. All such statements are subject to Safe Harbor.
Let me now turn to our CEO, Joost Farwerck.
Joost Farwerck
Thank you, Reinout, and welcome to all. Let me begin by introducing some of the highlights of this quarter. We continue to make smart progress towards our strategic and monetary ambitions. Group earnings rose for the fifth consecutive quarter. We have noticed a smart influx of customers in the consumer and business sectors. , especially on cell phones. Business profits increased in the current quarter, with SMBs again making a strong contribution. And we’re seeing continued expansion in customer mobile earnings, partially offsetting the competitive momentum of landline. Improved earnings trends and sequential improvement in net promoter scores across business and consumer sectors show that our commitment to visitor centricity has paid off.
ACM has declared our offer for wholesale enhanced fiber bonding. The new offer has been in effect since the end of August and is applicable for a period of 8 years. And this allows us to continue deploying fiber at an immediate speed. and we maintain our successful NetPaintings policy. With adjusted EBITDA expansion forged in the third quarter and a heavy loss of money since the start of the year, we remain confident of maintaining our recently revised full-year 2022 outlook despite the existing economic situation. Going forward, we continue to work hard to mitigate inflationary headwinds. We are now fully committed to our Accelerate to Develop strategy. We stand out as a strong company and, given the pricing mechanisms we have put in place, our fee relief program and strong CapEx coverage, we are confident that we will also achieve some expansion next year.
In the third quarter, we made great progress, installing fiber in 76,000 homes. We’re on the right track, the speed of implementation in terms of beyond housing slowed down a bit in the third quarter, partly due to the holiday season, but also due to a replacement strategy in implementation where we accelerated the implementation in the streets and we delayed a little in the connection of the families to optimize the use of the available operating capacity. With Glaspoort, our joint venture with APG, we have connected 123,000 houses to fiber and ultimately cover around 46% of the Netherlands with fiber. As we continue to roll out fiber, our developing fiber footprint will result in increased retail and wholesale penetration. And we see that all those efforts pay off in our finances. Based on our third quarter results, we have recently generated approximately €940 million in annual revenue from fiber installations. And that number is increasing thanks to a developing base and horny advanced ARPU. In general, fiber is obviously at the core of our strategy to create a long-term price for all stakeholders.
Now let’s move on to customer segments. Adjusted customer revenue decreased 0. 8% year-over-year, as continued expansion in cellular revenue was offset by a decline in consistent revenue. Consumer fiber broadband revenues showed continued expansion, while copper and legacy maintained their expected decline. it is gratifying to see our efforts in this domain rewarded with an NPS point dating back to the 18th.
Now let’s take a closer look at our Q3 KPIs. Our retail fiber base grew through 37,000 new customers, offsetting the copper churn rate, leading to 4,000 broadband net additions, which we strengthened given the competitive promotion of our main competitor in the component of the 3rd trimester. Our constant ARPU is again strong overall at €53. As you can see, the trend in consistent install revenue is slightly higher than last quarter and turns out to be bottoming out. We continue to see trends forged in mobile, with our postpaid base growing to 38,000 and our postpaid ARPU once again broadly strong. combined, this resulted in a 2. 2% expansion in cellular revenues.
Let me now turn to the B2B segment. We have noticed continued expansion in service revenue in our industry. Adjusted B2B revenue grew more than 3% year-over-year in the third quarter. SMBs are the main driving force of B2B expansion, driven by strong business momentum in broadband and The cellular portfolio and LTE revenue also remained almost flat, partly supported by a small one-off, but underlying event, the overall trend continues to move in the right direction and we expect LTE to influence next year.
Personalized responses continue to work as expected. As you can see, the activity is still related to the timing of projects and related sales, but also in the aspect of personalized responses, intelligent functionality in the third quarter. Commercial NPS returned to more than four despite the volatile economic environment, customers continue to appreciate KPN for the stability, reliability and quality of our services and network paintings. Therefore, I am satisfied both on the customer and commercial side, with the best NPS, especially when comparing KPN with our competitors.
As you can see from this slide, we’re seeing an improvement in earnings trends across the board. And that, combined with the sequential improvement in promoter score, bodes well for the future.
In wholesale trade, facility revenue increased about 1% in the 3rd quarter. And the rate of expansion stabilized compared to other quarters, but this was basically due to a tougher comparison base. Adjusted for positive single pieces in the 3rd quarter of last year, underlying expansion was still hovering around 4%.
In the third quarter we added 18,000 postpaid SIM cards and 10,000 broadband lines.
Now, with that, let me finish with Chris to give you more important points about our finances. Chris?
Chris frozen
Thanks Joost. Let me now give you our monetary performance.
Let me start by summarizing some key figures for the third quarter. First, adjusted revenue increased 1. 9% year-over-year, likely driven by expansion in customers’ business and cellular revenue and superior non-service revenue. Let me highlight the 92,000 cumulative net additions to customer mobile that we have earned since the beginning of the year.
Second, post-lease adjusted EBITDA increased by 1. 8% year-on-year. In this inflationary environment, we were able to achieve a strong EBITDA margin of 46. 2%, as the cost savings resulting from more simplified digitalisation were partially offset through inflationary effects such as waste indexation and higher energy charges. All this translated into €30 in net oblique operating savings in the third quarter or €34 million so far this year. Note that of these 30 million euros, we absorbed 3 million euros of higher energy charges.
Third, the loss of money so far this year increased by 26% over last year. This is basically due to higher EBITDA and a decrease in CapEx, due to the end of the year.
Our loose cash flow margin has increased this year, more data on underlying money flow movement later in this presentation.
The group’s profit increased by 1. 1% compared to the previous year. This is basically due to a strong expansion in our business segment, while customer profits also continue to grow.
Business gains increased by more than 3%, driven by continued strong functionality from SMEs. While the LCE trend is gradually improving, the unknown reduction is narrowing as expected, but it has also increased by about 1% year-on-year despite a complicated comparable share compared to last year. In Consumption, our service earnings decreased by approximately 1%. The trend advanced a bit compared to last quarter, it was still negative. Within this number, mobile earnings continued to grow, with an increase of 2. 2%. In Fixed, we recorded a 2% decrease in service profits, with fiber expansion still offset. through the decrease of legacyArray, decrease voice traffic and the accounting effect of content packets.
For the rest of the year, we still expect to see technical headwinds, but the customer correction trend is obviously bottoming out, supported by implemented value changes and industry improvements. And, of course, during the first quarter of next year, we’ll see the overlap of the accounting effect.
Overall, we pride ourselves on all definitions, whether it’s a mass-market or organizational benefit, a service benefit, or an overall benefit from any perspective, our profit increased in the third quarter.
Adjusted EBITDA increased to 1. 8% year-on-year, driven by the expansion of facility profit and lower oblique prices, partially offset by a €27 million increase in direct prices. The accrual in charge of goods sold would have an effect on top non-service earnings, such as sales of phones and PC hardware. Third-party access pricing is cross-cutting and replaces the profit mix of B2B facilities.
Our private expenses were reduced by €13 million despite one-time purchase benefits of approximately €5 million paid in July. This reflects a structural upgrade in private performance, due to the digitization of KPN, as well as some herbal attrition.
Other operating expenses increased by almost 6%, mainly due to higher energy prices. By 2022, we expect the energy load to be around €10 million higher than last year. As stated earlier, since the beginning of the year, we have accumulated 34 million euros in oblique prices after absorbing this increase in energy expenditure.
Compared to 2023 next year, we expect energy consumption to be reduced by around 5% through various measures. We have now covered around 75% of our projected energy consumption by 2023 at an average price, which is sadly almost double this year’s level. As for energy costs and taking into account the 25% of energy consumption we are about to buy on the spot market, we expect an accumulation of energy costs of around 50-60 million euros next year.
In 2022, we were able to offset industry-wide inflationary pressures on energy and labor costs and of course we are not absolutely immune to this and the coming year will be more challenging. To control the effect of inflation on our EBITDA, we have higher charges and implemented a number of additional fee relief measures.
This year, we’ve noticed solid underlying money generation. At €673 million, our loose money to date is particularly higher than last year and our profit margin is over 70%. An improvement would likely result from EBITDA growth, lower capital expenditures due to the end of the year and lower interest on money paid.
Therefore, we continue to have a solid and resilient balance sheet at the end of September. Due to higher interest rates on floating debt and other corporate stocks, the average senior debt charge increased through 46 foundation issuances year over year. In early September, we issued a new hybrid bond and introduced a tfinisher for the March 2023 dollar hybrid. The successful investment, combined with the tfinisher, has allowed us to protect our hybrid equity credits from falling rates [ph] while restricting interest prices as much as possible. to adjust to the existing interest rate for new and old bonds. Our next bond swap won’t take place until 2024, giving us plenty of time and flexibility in today’s volatile markets.
In the third quarter, net debt increased by €184 million compared to the previous quarter, driven by the dividend balance payment in August and our percentage buyback program. This, of course, was partially offset by the loose cash flow we generated. the fourth.
Our leverage ratio is now 2. 3 times EBITDA, well below our ceiling of 2. 5 times. Accelerating the expansion of our monetary margin increases our flexibility in capital deployment.
KPN’s overall liquidity remained physically powerful at the end of the quarter. It consists of €1. 4 billion of money and short-term investments and our unused revolving credit facility. And this money, this liquidity comfortably covers the maturities of the debt for the next two years.
In the third quarter, we made very smart strategic progress and delivered strong monetary results. We therefore reiterate and verify our recently updated 2022 guidance of at least €2. 4 billion of EBITDA and loose cash flow of approximately €850 million. Remain solid at €1. 2 billion in 2022, but also, let me think about 2033. With this, KPN is showing resilience in the current economic climate.
However, in the future, there is a certain degree of obvious uncertainty about the impact and duration of inflation, mainly in energy. We continue to paint mitigation measures to help offset those headwinds. Connectivity and communications facilities remain strong and we have a strong liquidity position.
We continue to manage our business and closely monitor various business drivers, adding our consumers’ payment habit and the quality of our revolving credit. So far, we have noticed a limited effect on this front, but we remain vigilant. Even so, our past EBITDA and loose cash flow ambitions for 2023 are unlikely to fully materialize.
KPN’s positioning remains strong and defensive in a dynamic environment. With existing inflation levels, we expect EBITDA expansion to grow slightly next year. As some say, we are not immune, but we are quite solid, resilient and, as usual, explain our outlook for the full year 2023 in the results of the fourth quarter of 2023.
So, to summarize, KPN delivered strong effects in the third quarter and is trading well. Sustainable expansion in revenues from the Group’s facilities With a positive signal in all segments, our EBITDA and monetary margins continue to grow and with confidence in our group’s money-making capacity. For me, KPN demonstrates a healthy margin, earnings and monetary resilience in turbulent times.
Our fiber deployment program has maintained a stable speed and has shown a return profile. As such, thanks to our robust year-to-date functionality and the successful execution of our strategy to repeat our forecast for 2022, there are obvious headwinds. , that is, around inflation, and we are implementing measures to mitigate this from having as much an effect as possible. Stay on track to see it work well and continue to see a slight expansion next year.
Thanks for listening. Let’s get to your questions.
Reinout van Ierschot
Thanks Chris. Now we’ll move on to the questions and answers and, as usual, restrict your questions to two each. Operator, please.
Q&A session
Operator
Thank you, girls and gentlemen, we will now begin the response session. [Operator Instructions] Now we will answer the first one from Keval Khiroya of Deutsche Bank. Continue.
Keval Kiroya
Thank you for answering the questions and I have two questions, please. So, first of all, Chris, you discussed that you don’t expect 2023 EBITDA to fall below 2022. Can you give more details about the money lost and if we will still be Do we expect the loose money in 2023 to be higher than in 2022?And second, in the past it has described buybacks as part of the additional structural recovery of capital. Should we expect it to make an acquisition in 2023? Keep in mind what context exists and, if so, do they still deserve to mean that you distribute about one hundred percent of the loose money in the form of dividends and rebates?Thank you.
Chris frozen
Yes, Kéval. Et in EBITDA, I said that we have given an indication, obviously we will give you a more detailed figure if you wish, around our fourth quarter results. What we’re still doing is that it looks like a slight expansion but not in the first place. pointing to the April level. When it comes to loose money flow, we are looking for a similar story, in loose money flow, there are several moving parts. If you peel, peel the onion, the EBITDA will accumulate slightly. CapEx will be solid around 1. 2. Notoriously we will pay more taxes next year. We note that before the government addresses our net operating loss, our taxes will add up significantly. You’ll save anything on interest charges. I believe that on this issue, Delta’s supplies will improve. So I think the percentage of money from our source of income will accumulate.
The restructurings are solid and pensions, I think there is a small opportunity. So if you take all the moving portions with it, a slight EBITDA expansion, but tax increases. I think our loose money will show a similar pattern, an expansion profile similar to our EBITDA. So flat or slightly up, in fact not below this year, we see some opportunities for a modest loose money expansion. But again, we’ll give you formal guidance through the fourth quarter and your next return on capital update. Look, our balance is healthy. We continue to operate with a net EBITDA of 2. 3x, which will most likely fall to around 2. 2x until the end of the year like last quarter, we are generating money but have limited money outflows, which means we have vital room for manoeuvre. And for all intents and purposes, I still assume that we will return our lost money to our shareholders in the form of a combination of buybacks and buybacks. So at this point, I don’t see any explanation for why replace that.
Keval Kiroya
it is very clear Thank you.
Operator
The next one comes from Citi’s Georgios Ierodiaconou. Continue.
Georgios Ierodiaconou
Good afternoon. Two questions of mine too. The first is just a little more clarity about the cost of energy. I think Chris on the last convention call discussed an impact of about 1. 5%. Now it looks like it may be around €20 million more than in the quarter at the time. Can you give us any indication of how you reach those customers for next year?Are you a little more conservative because of the way the charges changed in September or is it just money that you use right now?
And my query at the moment is about fibre deployment, and I appreciate you discussing the €1. 2 billion for next year as far as CapEx is concerned. I was wondering, you also discussed the substance you are facing next year now in terms of implementation and the fact that you prioritize connections. Should we assume a slower implementation than planned in the past given some of the inflationary pressures in terms of hard labor costs?Or are you still assembling past implementation goals?Thank you.
Chris frozen
It is ok. Georgios, on power, I think we have noticed an unhappy state that we are all energy specialists in those days. So, we’ll give you a full answer on how we think about power, us?First, on overall energy consumption, we decrease our consumption. Think 2020. We had an overall power consumption of 460 gigawatt hours. We’ll reduce it to 435 next year and maybe to less than 420, 425 next year. The first step is therefore to decrease energy consumption.
By 2023, we now have 77% coverage, so 77% of our consumed power has been purchased. Fourth, the rest will be bought on the spot market. Detail that the average value is around € 145,000 according to the gigawatt hour, which is a combination of other purchase times, right?The rest will be purchased on the spot market and the spot market will be traded according to whether your maximum load or base load is approximately [indistinguishable] consistent with the gigawatt hour, which will buy the remaining 23%.
With this, you get about $50-60 million more in the commodity for next year. And it’s basically according to the hedges we take the investment or the energy we buy the summer. Now it’s going back a bit. Let’s see where it is, we feel comfortable facing money purchases from now on.
But the service so far has an average of 145,000, the rest will probably be above 300, at least if you look at where the existing exchanges are and that will give it a power value of 50 to 60 million euros. The volatility surrounding it is limited in the sense that if you look at our target of reducing energy expenditure, the remaining 23% and the moderate volatility of industry values, I think the diversity around is probably about €8 million to €8. 10 million. Correct?
It may only be 8 million EUR better, it may only be 8 million EUR less. So, to some extent, we have moderate visibility into the energy expended since we bought 77%. And I said 8 million EUR or so is the diversity we can see around that for next year. Then, to a certain extent, it crashed. And then, the bigger question is where the spot market will come from.
Interestingly, if you take a look at spot energy, today’s spot market is still well below the futures market. Therefore, the way cash and future energy costs converge will lead to a bandwidth of 8 million euros. I hope this reassures you a bit about the main control points of our energy expenditure.
As far as fibre is concerned, our CapEx will be EUR 1200 million next year. In terms of our deployment strategy, the two things at stake, one is that KPN deployed 76,000, and more importantly, the entire KPN, KPN and Glaspoort ecosystem combined did 120,000 for fiber deployment. So he’s still on the right track.
KPN and Glaspoort will have a record year together in terms of the amount of fibre we will exclude. Therefore, we do not have the goal of slowing down. I think we’re looking to see if we can increase the speed a little bit. How will that have compatibility with the CapEx envelope through optimizing the implementation strategy, but optimizing the percentage of our homes connected, as Joost said when looking at how we combine and manage the home connection strategy and how you balance going out and connecting houses. So I don’t see it slowing down in fibers that will be strategically unattractive. It will be a matter of maintaining speed. It probably does a bit more on the KPN side, but optimizing how we’re going to add.
Georgios Ierodiaconou
Very clear. Thank you.
Operator
Next comes from HSBC’s Luigi Minerva.
Luigi Minerva
Yes. Good afternoon. Thank you for answering my questions. The first is the broadband promotions we saw in September. So, I mean, in general, it’s a consultation on the competitive environment going forward. Now I wonder what your opinion is on what drove your competitor. to launch those promotions? That’s notoriously what you followed.
So what was the cause there? And, above all, how to prevent this from fitting into a kind of recurring trend in the market because, I mean, the design of the market is really, really constructive, I think. And therefore, it deserves to be imaginable to avoid those recurring promotions. The current consultation is the debt charge. Now it is expanding because 36% of its debt is variable rate. And I wonder, Chris, what do you think about that and how does the threat of the rate decrease in the future?Thank you.
Joost Farwerck
In broadband promotions, in the third quarter, we saw a fairly competitive reduction in costs from competitors. I think it was on the market for almost two months. So, to be honest, it’s a bit of a classic technique. I think, and also anything we deserve to check to avoid. In general, I see the place of the market: the price of the market place in general is accumulating, ARPU accumulates infrequently in the Netherlands, mobile phones accumulate on all sites of service providers. So in broadband, I think there’s a lot of messes that everyone needs to protect. But every once in a while, people, I don’t know, get nervous. And there’s a lot of tension. I mean, we grew last quarter through another 4000 players in our network faster. So there is a bit of tension on the other side.
For us it is very vital to get away from that and differentiate ourselves in another way. Not in the costs, but in the facilities we provide, in the quality we provide. There are things that can be done with fiber that cannot be copied with [indistinguishable] I mean we can move into both houses with 10 gigabytes. We can move on to both rooms with 10 concerts. We can be offering 3 or 4 connections to a family to burn budget, a fiber connection. So, in the long run, it’s sure that this is one of our strategic goals, to make sure we differentiate ourselves in the facilities and not just in the rates. So far, we’ve done pretty well. We grew 4000, even though that crusade was over. So, I think, in general, it’s very important that we don’t control all kinds of costs in the market. Game of being market leader in quality and other people pay for it. And Chris?
Chris frozen
About the debt charge. Is this good? So our ebook is now floating at 36%. This year, our interest expense will be more or less stable. We are a bit ahead of last year when it comes to savings, however, there will be coupon bills the rest of the year. Therefore, this year, interest bills will be stable. I think next year there are some things at stake. Of course, we issued senior bond buybacks this year. We have issued an offer on the hybrid in US dollars. It will drop to about $10 million next year. Assuming, as in the scenario, that the short-term rates of the six-month Euribor move towards 3%, which, I also think, what is the consent, where the ECB and that is the piracy rate process.
Therefore, short-term rates are supposed to rise to around 3%. Our declared interest will be minimized to EUR 10 million next year. Now, this is not an absolutely fair comparison because a new hybrid will no longer be in our loose cash flow. It is a tool accredited with own funds. If he is right, the underlying disbursement rate will reach EUR 10 million next year, so I think it is a manageable amount. Of course, if we refinance the old one or replace our 2024 bond refinance, that replaces. 10 million less just because of the reclassification of the hybrid.
Can we do anything about it, in the sense that we can return some of our floating rates at constant rates?We are looking for opportunities. It’s based a bit, frankly on the slope of the curve, the appearance of the yield curve. We take a look at some unethical movements. But overall, I think floating rate exposure is manageable given that it’s a replacement of €10 million in the year, which deserves to be manageable given our overall flow of loose money.
Luigi Minerva
Super. Thank you so much.
Operator
Next is from Andrew Lee of Goldman Sachs.
Andres Lee
Yes. Good afternoon, everyone. I just had a query about your 2023 address just to get back to it. And the downward EBITDA forecast it gave today. Could you explain whether this is just a time factor of a delay that has an effect on increases in its value in 2023 that won’t fully offset charge inflation until late 2023. And therefore, shouldn’t there be an update of 2024 expectations?Or has it replaced your structural view of your ability to offset charge inflation through price increases?So is this a time factor? or a structural change in your view of your ability to mitigate charge inflation?Thank you.
Joost Farwerck
Good question. It is too early to say what will happen in 2024, because what the value of power will be in 2024. I think we have been able to reflect all the constructions of value, a construction in positions, the construction of value. We went up, right, and we’ve been pretty moderate. But our estimate is that our value building will bring us more than a hundred million euros in profits next year. If you simply multiply the delta value by the basethen be absorbed through the energy process, the cost of hard work and the cost of rent. I believe, if I am not mistaken, that the total value of construction taking into account energy is slightly higher than what we can rate to customers. The difference is that compared to last year, value increases can’t be used now to increase your margins, right?You use your increase in value to offset costs, not to increase your margins.
Therefore, margin expansion will have to come from an accumulation in sales volume or a reduction in unit costs. Is it an accumulation in time? Look, if the energy value is the right rate later and the energy expended in 2024 is minimized, everything looks rosy, because then you will see a significant accumulation in the values, an accumulation in the EBITDA.
I mean, look, if you look at next year’s EBITDA as EBITDA x power, even though there would be significant accumulation. So I think my answer is this: worthwhile accumulations at this level are very close to offsetting chargebacks, but building margins. By 2024, it is based on the evolution of energy. If the energy value is correct and normalized, then we can talk about what is normal. But unfortunately I can’t promise it.
Andres Lee
Thank you. Very useful.
Operator
Next comes from Joshua Mills of BNP Paribas Exane.
Joshua Mills
Hello everyone. Thank you for any of the queries. The first, which is similar to fee savings, I think you’ve said in the past that your overall ambition to reach $250 million in fee savings is renewed. It could take longer to deliver and design it through the headwinds you’ve mentioned. So far the call. It looks like its delivery by charge next year will be one of the main drivers to get that positive EBITDA again. So my inquiry about the charge is based on the run rate you see today, what kind of scale Do you expect to save next year and will it be higher than in 2022?That was the first consultation.
And then, the consultation of the moment with Chris returning to his comments on the option of loose money expansion in line with next year’s EBITDA. Do you mean KPN to buy loose money or real loose money after hybrid coupon interest, which, as you say?, will be greater? Thanks a lot.
Joost Farwerck
So, in terms of cost savings, of course, we’ve established a track record of cost savings over the past two years, we’ve moved to the preference of driving our earnings expansion, and for the fifth quarter in a row I’m pleased with the expansion we’re developing. It’s vital for a company like KPN to move from undeniable fee relief to expansion. That said, and given the effects of inflation on charges, we are implementing an additional fee reduction program to ensure you get more savings. The last quarter was higher than the previous quarters in OpEx. And we think it’s very important to make sure that wherever we can, we’re driving the business to more power than before.
That said, it is also vital that we decrease the correct oblique operating charge and ensure that we do not make the mistakes that KPN has made in the past, which is that we go so far in reducing prices and also in directly reducing operating expenses, the right prices that benefit growth. So it’s very, very vital. That said, we will in fact concentrate very strictly on cost savings for the coming quarters.
Chris frozen
Yes, only in our Loose MoneyArray, I mean KPN’s Loose MoneyArray, which is a loose money report that will provide similar functionality to EBITDA. Of course, if you fit into the reclassification of hybrid interest expenses, there are more things to do. Our goal is to make it grow as well. In fact, we are executing it, but we would like to give up on KPI’s loose money commitment.
Joshua Mills
Heard. Thank you.
Operator
The following one comes from Usman Ghazi from Berenberg. Please continue.
Ousman Ghazi
Hi, thank you for answering the question. I have two, please. The first question, Chris, was about the cast iron bridge he built by 2023. I mean, it’s attractive that you said that for pensions, it may only be a small opportunity given the obvious decline. in asset values and KPN has an explained advantage-making plan. Could you see this as a prospective tailwind rather than a headwind?And then, on current capital, there were also comments from peers that they might have to help SMEs and others, so it’s fair – I mean, if you can assure us that those two spaces can be tailwinds by 2023, that would help.
And then my consultation at the moment about the closure of copper that will begin in the first quarter of 2023, I mean 2. 3 million premises. Is it planned? This is rarely the case, because I know wholesalers are opposed. But is there a threat?And if, assuming it happens, only from the outside, it would seem that it can have a rather transformative effect on its charging base, given that it is a giant portion of houses that pass or houses that can close. So how do you think about it? Thank you.
Chris frozen
Yes, Usman in the flow of loose money, in pensions, in fact, we generally pay a loose flow of DC money or a DC pension plan. We don’t really care if we pay a steady portion of the premiums. However, we still have an old pension budget in the UK and the US. That are explained as benefit. So, there is about $70 million BOD on our balance sheets.
And, oddly enough, it’s actuarial magic, but because interest rates are surging and the yield curve has changed, BOD is falling, so there may be opportunities to close pension funds, make raises, redeem, etc. , and reduce pension bills there. So it’s a matter of seizing the opportunities provided by the U. S. interest rate environment. U. S. -U. S.
And our current capital, we see opportunities, we haven’t used phone financing, with a little financing from the seller, but not much instead. And that doesn’t mean you really need to massively get out of passive investing in phones because we have to look at the rates of that. But there are definitely opportunities there. The fact is, for example, we see opportunities to invoice earlier to optimize the bill before managing our stock securities a little smarter. 30 days. Us: that’s what it will take next year. We have already implemented it this year.
Therefore, we look to lessen the monetary threat as much as possible for the coming year and move forward as much as possible in terms of payment, billing deadlines and then see if we can optimize some of our investment in phones and carriers without going too far. engineering or paying too many interest rates.
Joost Farwerck
Yes, about copper prevention. You can say we’re on the right track, but maybe we can also say that we started with the final safe spaces a few years ago. We had long discussions with our regulator about how to talk about the prevention zone and this rule. that we are now following. That’s why we’ve announced a lot of spaces to start in 2023, where in full preparation for this, of course, some of the players in our network are complaining about it. Also recently, court cases have been won and T-Mobile also filed a lawsuit against KPN to get us to close copper zones where they are still active in the passive layer, but have lost it. Or, in my own words, we won that, that’s all, because we just follow what we agreed with our regulator years ago.
Therefore, we actively migrate consumers in all spaces, from copper to fiber in a portfolio of copiers. And after that, we’re well placed to sell to those consumers. So, I expect that we will start in early 2023 with the closure of the first copper zones. Of course, at first, on the savings side, this will not be so noticeable. But moving forward in time, it will be significant, because everything similar to the use of energy, maintenance in the network, maintenance in genuine real estate, and especially in the service tickets of the copper network.
Therefore, in general, the fiber network is much more effective than a copper network. So let’s get started. And in the end, the whole concept is that we build a cofiber, longer, on top of the road, KPN, yes, it will be a total one hundred percent fiber co with all our consumers in fiber, and then it’s an end End business is much more effective to manage than where we are today. Therefore, I see the migration of copper from copper to fiber as something more vital than a strategic step for us.
Ousman Ghazi
Just to keep your last point, I mean, can you learn the maximum from those savings when all the last copper houses have been closed or can they start coming?
Joost Farwerck
Oh, no. The maximum vital component is maintenance and service prices in a copper network in general. So the more consumers we have on a fiber network in an area, the more effective we will be with service tickets, meaning consumers call our corporate with a problem. , a cash engineer comes out to solve it. And then, in a copper network, we have a lot more to fix than in the fiber network. Fiber, can run remotely on copper. We have to do all kinds of things in street cabinets, number exchanges and in the client’s home. So I think it’s about pricing, how to make this network work.
Ousman Ghazi
Fine thank you.
Operator
Next comes from Jakob Bluestone of Credit Suisse.
Blue stone Jakob
Hi, thank you for answering the questions. We have two short questions. First, let’s get back to the charge inflation factor. Can you tell us when you will have your next wage negotiation circular?I don’t know if you will be able to comment on the kind of parameters of those discussions, however, I think the Dutch minimum wage is 10% higher.
And secondly, can you comment on how its most recent value increased and landed on the phone?I think he imposed a 6% increase in value in October. Just a little curiosity if we’re seeing a higher churn rate on the back of, I guess, what are the biggest advances in recent years?Thank you.
Joost Farwerck
Yes. As far as wages are concerned, we expect our formal meetings with unions to begin in early November. So, of course, we are also preparing for this with the unions. Therefore, we do not talk about this topic. First we have to go down in combination and see where we can place a moderate result. And yes, I hope later in the year we can talk about that.
Moving values are going up, I think they landed pretty well. We made a more powerful increase in value than in previous years, almost 6%. We also communicate that we have kept it at two euros, so we do not accumulate more than two euros per month. So, it landed pretty well on the market. Therefore, I would say that, in general, our value construction in the cellular aspect has landed smoothly in the Dutch market.
Blue stone Jakob
Fine thank you.
Operator
The next one comes from Steve Malcolm of Redburn.
Steve Malcom
Yes, hello. It’s Steve Malcolm. Je I’m sure you’ve probably learned that. Yes, good afternoon, guys. And some quick questions, if you agree. First of all, just wholesale, could I perhaps, I mean, I know the underlying expansion is about 4% this quarter?You have to make some changes to get there. But considering the kind of recently modified wholesale deal you have with the Dutch regulator, can you tell us if you think you can sustain some sort of low-to-medium single-digit expansion in the fourth quarter and enter 2023 as we look?in WBA with ODF blends.
I guess increase the sale of fiber and all those other moving parts. That would be very helpful. And then, just on saving charges, as you mentioned, I guess in the past, KPN has been a little bit of a blame for reducing muscle, fat. And as a company, I think we all recognize that, it’s very efficient, you’re very light. So perhaps you can give us a little help locating where the opportunities lie to save more on charges, while trying to offset the apparent risk of inflation in 2023?Thanks a lot.
Joost Farwerck
In the wholesale market, service earnings expansion in the third quarter was weak, but it was literally new compared to last year. If you take a look at the numbers, you’ll see an expansion in broadband, which is really smart. Mobile expansion is smart, however, the other category was minor, which has to do with last year’s one-time benefits in the other category. If I look at the underlying factors, we noticed a fairly small broadband optics in the summer, but in September a very smart number went in, but my gut tells me that broadband expansion and we’re seeing a postpaid expansion forged.
So I don’t think wholesale expansion is 7% to 8% like we did last year. But we may offset some of the single-digit service revenue expansion that can also be achieved next year. And then, especially in the backup on the new big ATM deal where it is, I would say that it is still interesting for a third party to sell the KPN line.
So the broadband trend, I suppose, will be pretty good. ODF, perhaps VULA. VULA ARPU will be wholesale. And postpaid is still strong. So, I would say that low-to-mid-digit expansion and wholesale profits aren’t really a strange idea.
Chris frozen
Yes, in the aspect of the reduction of positions, one of the pillars of our strategy of accelerated growth, simplification and digitalization of everything we do. And there we have a lot to do. So we are super convinced that we can do much more than today. KPN, we have about 10,000 more people applying for KPN, and we probably rent around 2,000, which is another 12,000 people who apply for the company on a daily basis. expecting it to be much less in the future. It’s a matter of end-to-end control and simplification of visitor processes that we can benefit from.
But we’ve also added systems like looking at overhead. So, yes, there is a difference between the other people running on the visitor interface on a daily basis that we simplify and then can reduce on FTE, however, we are also looking outside at a relief in FTE on the overhead site. How can we simplify the way we paint in offices and we will also do that next year?So while I know we shouldn’t focus on direct prices that increase profits.
I am convinced that we can do a great deal there. And we also have definitive dispatches. So, our old headquarters in the eighth. We will close on the first of January to cut costs, and there are more buildings that we will also close as other people are operating differently today, the way we paint is different from post-COVID or before COVIDArray. So, there are a lot of opportunities that we’ve been able to take advantage of besides simplification and digitization to make sure we can increase operating expense relief a little bit for the coming quarters.
Steve Malcom
Can I ask you for a quick follow-up just on your fiber build?I mean, he discussed the kind of resource constraint. I mean, do you see your competition having to reign over your ambitions?Do you see a slowdown for KKR or anything you’ve seen so far?
Joost Farwerck
No, I think others have more problems than we do. We have blocked a lot of capacity, but it is fair to say that the mechanics on the floor are others to locate those days, since there is a lot to do in the structure. Anyway. So, we work a lot with foreign groups to deploy on the streets. We work more with Dutch groups to join the houses and the combination of that is different than it was before. Therefore, staff is the sensible thing on our list and we are having extensive conversations with contractors about how to reinvent ourselves in the long term.
So, the way we connected space warehouses was absolutely different 3 years ago. I mean, we moved to a space to reconnect, now we’re doing it from the outside, which is an innovation we’ve done with entrepreneurs. Therefore, it is with the available manpower capacity that we seek to be more effective than in the past. And I think in combination and compared to others, we have the greatest capacity by far. But overall, the ability to paint is a scar and a challenge for yourself, for the entire industry.
Steve Malcom
It is ok. Thank you so much.
Operator
The next one comes from Konrad Zomer of ABN AMRO, ODDO BHF. Continue.
Konrad Zömer
Good morning, good afternoon. I would like to ask you a few questions about CapEx. Since the beginning of the year, its fiber deployment has been slightly below expectations in each quarter for the reasons you just explained. And as a result, its CapEx has also been at a rate, shall we say, less than the $1. 2 billion it targets by the end of this year. Do you think it’s going to end? I think it’s something like €385 million in the last quarter of the year, given the shortage of fiber hard work will it still be difficult?
And does that mean you’re going to end up with something other than fiber?And to deliver on that, let’s say you end the year with CapEx below €1. 2 billion, does that make it less difficult for you to take a look at your Did you lose money and the fact that you did a very smart job by proposing perhaps a slightly higher buyback percentage in February next year?Thank you.
Joost Farwerck
Well, before I pass the word to Chris for a complicated component of this, I would say I think the fourth quarter in fiber deployment will be bigger than the third quarter, however, the way we organize our CapEx control is that there is no communication between the fiber CapEx Cubes and other things we do where we invest. So, if we perform under the aircraft on fiber, it will be visual in our CapEx.
Chris frozen
Yes. That’s pretty clear. CapEx with fiber and without fiber CapEx are two other compartments, and there is no communication between the two. In fact, look at our CapEx spending since the beginning of the year, fiber spends less, but also without fiber spends a little less than last year. I think we will still have EUR 1 200 million given the law, we are threatening to be a little below EUR 1 200 million.
Let’s see what we finished. There is still a room left. What does this do for pocket money? I think we’re still sticking to our loose money forecast. I mean, it will also give us enough opportunity to manage our working capital smoothly for years to come. So do we get to a higher buyback percentage that won’t be a prelude to what we’ll announce in January?
In January, we will announce our lost money and our final IT EBITDA guidance and corresponding dating strategy where our precept is that we return our loose money to shareholders, and we also take a long-term view on this. But I think the most important thing for us as a control team is that there is no fiber and non-fiber between CapEx. So, you won’t spend more on one bucket because you’re spending less than the other, that’s very vital. I precept for myself in how we lead this group.
Konrad Zömer
It is ok. And then, just as a quick query about their forecasts, several investors I spoke to today still refer to their old EBITDA forecast for 2023 as a slight improvement over 2022; that is, the 2450 opposite to 2400. It’s like a 2% increase. Obviously, you’re not contemplating a 2% increase. 100 is light. Is this the correct assessment?
Joost Farwerck
Well, listen, we’re actually saying the recommendation or ambition we gave on Capital Markets Day in 2020, when the world was pink, the sky was blue. year. And we’ve set the updated rules given that everything that’s going down is bigger than this year, so it’s above 0, but less than 2. Well, and then I would make a link to bring it to your models to find out what number to draw, what is the intermediate number, however, it is and is soft is a little less than 2, so I think our EBITDA expansion will be between 0 and 2. I leave it to you to see what number you can find.
Konrad Zömer
It is ok. Is that clear. Thank you so much.
Operator
The next one comes from Maurice Patrick of Barclays.
Mauricepatrick
Hi, guys. Thank you for answering the question. Two very fast for me. The first talked about an ELCE that reflects that next year will be a kind of decline [indistinguishable] this year. I’m just curious about why his confidence will accumulate next year. I mean, it’s going to be a tough macro climate. What do you know we don’t know about the drivers of this?
And the moment is, if I understood correctly, he talked about a 5% relief in energy consumption next year, so a 5% decrease. useful?
Joost Farwerck
So, at LCE, I mean we’re following a long roadmap. Therefore, it is not that we hope for the best. By the way, we’ve almost changed this quarter, but it’s too early to ask for a win because there were a few million, but I think organically the race rate is improving a little bit more than expected. But what we’re doing there is migrating the entire visitor base to a new platform like we did in SMBs, but then another platform. And so it goes a little slower. It’s harder to manage because they’re big consumers and don’t need to change curtains on their site. But now we are at more than 80%, 85% of migrations and the last 5% never do.
So as we learn what we’ve done with SMEs and stick to the plan and roadmaps, I think by the middle of next year we’ll be inflectioned on this. the speed of execution and keep executing the plan, and then it will double down and EMS is a smart point of evidence that it works that way. That’s what we do at LCE. Although it is a challenging market, we are migrating those consumers into the future. It’s cheaper, everything is IP, it’s much better, it’s simpler. In the end, this doesn’t explain why you log out of KPN once you’re on the new platform.
And this is also why SMEs are emerging as they are today. So I’m sure we will. And I am, to be honest; Did I miss your question of the moment?
Mauricepatrick
The moment the five coincides with the penny relief in the outlet you mentioned.
Chris frozen
Yes, in energy relief controllers, if you think about very large numbers in our energy expenditure, it is about 60% of our energy expenditure in our network, which are all the central locations, the fiber and copper network 25 to 30 is in the cellular network. So, the network of towers and roofs that we have, 10% more, is the rest, that is, offices, buildings, cars, etc. Then it will be a saving and, of course, we will move from copper to fiber. Therefore, the closure of the copper network component will lead us to a much more energy-efficient fiber network.
We try to optimize heating and cooling, especially in our giant locations. So experiment with just the right temperature degrees and optimize our cooling there. Then, when we take a look at the cellular network, there are now more and more service software available that optimizes the energy expended and the application of certain spectra at other cellular sites.
So, take a look at your individual sites, watch for traffic, check to forecast traffic, and you can close individual sites or remove local spectra at local sites that will consume energy and, as Joost said, we actually think about our desktop footprint to see if we can close our offices. This is a possible saving. And finally, I think it’s the banal retail outlets where we say, let’s close the door more to use less fluorescent advertising at the point of sale, all the little things together. Therefore, it is a large component of our core network and fiber optic network to be dedicated to optimizing power and congestion or power and traffic at your cell sites. And then there are the offices and decay shops where you can also do things.
Mauricepatrick
gracias.
Operator
The latest comes from UBS’s Polo Tang. Please continue.
Thong polo
Hello, thank you for answering queries. I have two, the first is fair in terms of cell phone prices. You discussed that your recent increases in the price of cell phones have gone well, but given that the CPI is now double digits, do you think Dutch consumers can absorb double-digit price increases in mobile in the future?And my query at the moment is to just go back to CapEx fiber because if you look at Delta fiber, it seems like they build faster than KPN and spend more than KPN in terms of fiber deployment. So, does it make sense for KPN to push fiber deployment to lessen the threat of overproduction through competitors?Thank you.
Joost Farwerck
Polo on, first in mobile phone prices for a mobile visitor, the lifecycles of mobile phone visitors are about two and a half years, the life cycles of broadband visitors for 10 years. Therefore, it is very important that we have the courage to build contracts on the mobile side. What do we have. So in our formula we can do more or less the complete correction of the CPI on the cell phone every year, of course, if so, for next year we will see what we have to do. But it is also communication. And that’s why I said we did a big, from our point of view, a pretty big value increase of about 6%, so on October 1st. But he communicated in such a way that other people accepted him positively. And that’s because we installed the value hole at €2, in total, and the developer’s net score went up 3 points.
Therefore, it can go hand in hand if administered well, I would say. We select spaces when we show ourselves, they are removed. ODF is that KPI also implements fiber in the Netherlands, so in our opinion it’s a bit crowded. That’s why I also said that we’re changing the implementation strategy a little bit. We pass faster on the streets, reclaim zones and take more time to unite homes. So this is a transient difference in deployment. But overall, I think we have a plan in position that makes us move fast. We can accelerate, we will.
Thong polo
gracias.
Reinout van Ierschot
Great. Thank you very much for this call. If you have further questions, please contact KPN’s investor relations team. Thanks a lot.
Operator
Thank you girls and gentlemen, this concludes today’s presentation. Thank you for your participation. You can now log out. Have a day.