Proximus Sa De Droit Pub

Welcome to the Proximus Financial Results 2024 Q1. My name is Caroline and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen-only mode. However, you'll have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. We have Guillaume Boutin, the CEO, joined by Mark Reed, the CFO. I will now hand over the call to your host, Nancy Gerson, Investor Relations Lead, to begin today's conference. Thank you.

Thank you. Welcome, everyone. So, yeah, thank you for joining us. We will start this webcast with the usual introduction by the CEO, Guillaume Boutin. He's going to use the presentation that we have. published this morning on the website, and then we will turn to the Q&A. And so indeed, for the Q&A, we also have the CFO, Mark Reed, joining us, as well as Jim Castile, the residential segment lead, as Anne-Sophie Lotgering, the business segment lead, and Ben Appel, our corporate affairs lead. So they will take your questions in a moment, but first, Guillaume, I'll turn the word to you for the introduction. Thank you.

Thank you, Nancy. Ladies and gentlemen, welcome to this Proximus webcast. And let me take you through the highlights and other financial and operational achievements of the quarter. First, the highlights of the first quarter, starting with a view on the financials. The first three months of 2024 mark an excellent start to the year for us. Let me highlight a few achievements and go in more detail later in this presentation. To start with, We are proud of our continued strong commercial achievements, this in an evolving competitive environment. In combination with sound value management, we achieved to grow our domestic revenue by 4.5%. This was combined with our ongoing cost-efficiency efforts. Turn on the slide, the positive EBITDA trend, we initiated one quarter back, accelerating the first quarter to a 4.7% growth. For our international segments, while facing some top-line headwinds, we grew direct margin by 0.6%. With OPEX coming down, the international EBITDA grew by 8.6%. This leads to our group EBITDA, which came in strong at 454 million euros and increased by 5% from the previous year. The capex in the first quarter came down from one year back. The capacity to cash out combined with in-year timing effect in working capital resulted in an adjusted free cash flow of 112 million euros negative. Turning to our major investment program, the rollout of fiber. In March, together with our partners, we were deploying fiber in a total of 159 cities and municipalities, so an additional of 12 cities over the first three months of the year. While our fiber deployment journey continues, we also continue to work hard towards achieving fiber cooperation agreements, following the supportive comments by the Belgium regulators in October 2023. I appreciate this is a topic that many would like an update on, but hope you understand that we will not make any further comments on this at this stage. Over the period January-March, we passed an edition of 92,000 homes, coming back from a seasonally high fourth quarter. The composition is, however, changing, as we anticipated, with lower owned fiber bills and the contribution of other fiber GVs increasing. We are now passing more than 1.8 million homes and businesses with fiber. In addition, we have a funnel of 320,000 living units with fiber in the street coming from our GVs. This included our fiber in the street coverage was 36% at end March. In terms of gaining active fiber customers, we closed a great quarter, adding another 44,000. This brings the total of fiber customers now to 441,000. The success of fiber is also reflected in a strong migration rate, remaining at a substantial 70% level. Turning to mobile, we were delighted to have received once more recognition for the premium quality of our mobile network. In March, the BIPT published the results of its annual testing campaign, in which the Proximus network clearly comes on top with unparalleled download speed for both 4G and 5G. Not only do we want to offer the best networks, but we also want to offer the best services. Recently, we have launched a new version of our app, turning the My Proximus app into Proximus+. This new app really brings the digital interaction to the next level, making it easier to use, and we have also added a range of new services around mobility, neighborhood life, cashback, just to name a few, in cooperation with some partners. At the last point of this section, a quick update on where we are in the acquisition process of a majority stake in Wood Mobile. Over the past few months, we have made good progress with one, having obtained all required clearance, and two, launching the MTO. In time, the MTO tendering period is completed, and we are very pleased that roughly 15.8 million shares of public shareholders were tendered. This means that the proximate holding in Wood Mobile is expected to be roughly 83%. In line with Indian regulation, we bring our shareholding back to 75% in the 12-month period post-closure and keep 25% listed on the Indian stock market. Note that the progress to determine the valid bid received is still ongoing, so the final outcome will be in May when we expect to close the transaction. Let's now move to the financial and operational results of the first quarter, starting with our domestic segment. As pointed out, At the start, we are very pleased to have achieved under three quarters in terms of customer growth, supported by our product superiority and multi-brand strategy. This is especially valid for the residential customer growth. Indeed, we grew our residential customer base by 29,000 for mobile post-paid, 11,000 for internet, and 17,000 for conversion customers. Thanks to our sustained commercial performance and the support from our price indexations, we continued the strong revenue trend with total residential revenue up by 5.9% year-on-year and services revenue up by 6.5%. Summing in on the residential services revenue with a graph of the left providing some backward-looking data, the steady improving trend towards the strong 6.5% revenue growth we have announced today was achieved thanks to the significant investments that we have done over the past years. Think of the network investments, the efforts to improve overall customer satisfaction, our multi-brand strategy, and the efficient value management. The success of our value management is illustrated in this slide. We succeeded in having a sound balance between pricing and keeping strong customer growth without it meaningfully impacting our customers' churn levels. All in all, this is translating to a revenue uplift by 6.5% for the residential services in general and 10.9% for the revenue from convergence services. As for our business units, here too, we closed the first quarter with strong revenue growth, up by 3.1%. This was mainly driven by continued growth in services revenue, but product revenue too was up by 4 million euros. Taking a closer look at the business services revenue, You see the strategic progress we are making in this area. With revenue from IT services now up by 7.8%, many thanks to the success of our smart network, cloud, security, and smart mobility business lines. This allows a continued good growth in fixed data services while keeping mobile revenue roughly stable and the fixed voice revenue erosion fully contained. While we are proud of these results we have already achieved, we are further executing on our B2B strategy to strengthen our IT leadership position in the Benelux market. A major step was taken in February with our announced intention to integrate our B2B IT activities into a dedicated affiliate. Over the past months, we have engaged in dialogue with our social partners and we are pleased to confirm that we can implement this transformation as of the 1st of July. And finally, our wholesale units, for which the year-on-year revenue decline remains mainly the result of the ongoing decrease in interconnect revenue with no meaningful margin impact. This brings me to the total domestic revenue, for which we achieved a sustained strong growth, up by 4.5% for the first quarter, driven by a 4.9% increase in services revenues. Turning now to the domestic operating expenses. In line with our expectations, we still face some inflationary cost effects. Moreover, the ongoing strong commercial momentum also drives customer-related OPEX. Thanks to our ongoing cost efficiency program, we could, in part, offset the cost headwinds. Overall, first quarter OPEX was at 6%, with the year-on-year trend moderating from previous quarters, having passed the inflationary peak. This brings me to the total domestic BDA, showing a nice growth year-on-year of 4.7%, strongly supported by the increase in direct margin. Turning now a moment to the intentional part of our results. For the first quarter, through our two brands, Bix and Telesign, our international segment posted a slight increase in direct margin of 0.6% year-on-year, despite a minus 10.3% revenue decrease. Supported by good cost control, the BDA was up 8.6% to €30,000. In view of our integrated international ambitions, we aligned our international segment reporting with focus on the nature of delivered services. Let's first take a closer look at communications and data. For the product group communications and data services, the direct margin increased year-on-year by 0.9%. This resulted from growth in digital identity, mobility, and omnichannel SIPA services. in part offset by the impact of lower SMS volumes. While the industry trend from SMS to OTT channels continues, it also creates some opportunities. In response to the rising SMS cost and the escalating threat of cyber fraud, Celestine launched Verify API. It's a new omni-channel API which integrates the leading user verification channels, such as silent verification, email, OTT, on top of SMS. All this into a unified platform. The product group P2P Voice and Messaging boasted fairly stable direct margin while revenue was down. Remind that in the voice trading business, the goal is to maximize the direct margin while the revenue can be volatile. With VIX, we are keeping a strong strategic position on profitable destinations in an inherently declining voice market. This brings me to the group results. This slide sums it up for the group, with a strong performance of domestic in the first quarter, driving the group revenue and direct margin increase. Overall, the group EBITDA grew by 5% year-on-year. Turning to the group capex, with 294 million euros for the first quarter, down from the previous year by 17 million. A large part of the capex is fiber-driven, with, besides the fiber-built, also capex occurring to connect and activate our fiber customers as shown on the highlight slide the adjusted free cash flow was negative by 112 million euros compared to one year back the main moving part is a change in working cap which is very much an in-year phasing effect on the positive side we see this being partially offset by the growth in the bda and the decrease in cash capex to conclude we started the year strongly And therefore, it's with great confidence we can reiterate the guidance we set for 2024 in spite of the anticipated changes in the domestic market structure of Praxis. With this, I have covered my introduction. We can now turn to your questions.

Thank you. If you would like to ask a question, please signal by pressing the Star 1 on your telephone keypad. We will take the first question from line Roshan Ranjit from Deutsche Bank. The line is open now. Please go ahead.

Oh, great. Afternoon, everyone. Thank you for the questions. I've got three, please. Firstly, Graham, you mentioned the strong EBITDA performance this quarter. I guess we have the support of the two price increases, which I think will continue into Q2. If we then look at your full year guidance for up to 1% growth, again, I appreciate that we do have this new entry launch in the second half of the year. Do you feel that there is an element of conservatism in that guidance? And what have you kind of baked in for DIGI? You know, we know that it's a H2 launch, but is that, you know, beginning or later in the year. Any details you could give around there would be useful, please. You mentioned the working capital and the charts are very useful. How should we think about that for the rest of the year? Do you highlight phasing? So shall we expect that to reverse come the end of the year? And finally, I know you're not saying anything on the details around the co-investment, but are we still working towards this May timeframe to hear anything from the regulator on that front? Thank you.

So I'll start with your first question on the strong start of the year. So indeed, we are extremely pleased with Q1. It's a great start into the year. We even exceeded our expectations that are already high for Q1, but It's still the start of the year. It's still only three months into the year, so it's a bit too early to revise anything. But as I say, I think momentum is there. We are going on all fronts. Commercial momentum has never been as good as since a few quarters. Now it's continuing. So we are pleased with the momentum we are having, but still, you know, too early, only three months into the year. So we see how it does evolve and see, you know, how we will continue the year. But indeed, it's a very good and strong start into 2024. And we are extremely confident, you know, to meet our guidance. That's what I can say at the moment. But we see how it evolves going forward.

Hey, Rochelle, thank you for the careful question. So, yeah, clearly the Q1 is a timing effect. So we effectively had an AR build-up, three elements there, timing of holidays in terms of the consumer billing cycle affected that slightly. The revenue growth on both consumer and enterprise being positive also led to AR build-up. We had some simple accounts payable timing phasing in Q1, And then I think I talked last year about the inventory build-up. So we had a very, very good inventory trend last year. Again, with the success of the top line, we had slightly heavier inventory in Q1. So I think it's all time-related. And as you can expect, this will get better through the rest of the year for adjusted free cash flow.

On the FIBA collaboration, I think it's difficult for me to further comment. I think we are still – working, discussing, but it's difficult for me to say more than that at that moment. Great.

Okay. Thank you. Thanks for the answers. Just to follow up, can I confirm that Q2, you also benefit from the price increases that impacts Q1. So you increased prices in July last year and January this year. So that will be a further tailwind through Q2, yes?

As we say, I think we have a great momentum, very good start into the year. Let's see how it evolves, and we'll come back to you.

Okay. Thank you very much.

Thank you. We will take the next question from David Bergman from ING. The line is open now. Please go ahead.

Yes, thanks very much for taking my question, and good afternoon, everyone. First, on the international segment, can you explain the sort of merger, and probably it's not appropriate, but between Dix and Telesign, and you say you're mentioning that you're using two brands, so Dix and Telesign, if you can come back on the government's evolution there, what it means, and a very quick follow-up on this first question on international, You mentioned that in P2P voice and messaging, some telecom operator supplements that supported the margin, if you could quantify them, please. Then second question, on the net debt on EBITDA guidance for this year, the 2.7, to which extent are you dependent on these products that I think you mentioned during this D&D? And last question, a bit more anecdotical. I do, I'm aware. I see quite, let's say, dynamic outdoor advertising in Brussels, and also digital. On your own discount, full year discount, you know, €300 for Fiverr, and then sort of on the Proximus brand, and then Orange Badgium also reciprocating with €299 discount. We also saw DG rolling out some more Fiverr retails. Could you explain how you view the commercial situation in Brussels? Thank you.

First question. I did not get the first question. Can you repeat your first question, please?

Yes, sure. Rational for the new reporting on international, what it means, actually, to have DICS and TeleSign sort of merged. You're mentioning that there are no branches. Can you extend the governance, how it's evolving?

Okay. So I think this is the way we look at the business now. I think it's important to understand that there is a lot of positive externalities in between the different business lines of our infrastructure activities. There is a lot of things that you can bring together when you consider the different business sides of VIX and Telesight. and tomorrow when after closing with mobile. So we want to have, you know, one team, one culture, one ambition, one product, one go-to-market approach that are combining all the strengths of the group. That's the way we want to deal with the steering of those activities going forward. So we will focus on business side indeed. As I said, when we announce the transaction between Roots and TeleSign, we say Rajdeep is going to be in charge of CPaaS and Christophe will be in charge of DI. And then we are not talking about legal entities anymore. We are talking about business line and the way we can maximize the value creation of those different business lines. And that's the way I want the management to look at our businesses and to run the company. So way more, so that we can, you know, maximize the synergies and the positive externalities in the different activities of the proximal group going forward. So that's the main reason why we also adopted the reporting, the way we do report on numbers going forward.

Same question. On the PTP voice, David, that's, again, an ongoing issue. reconciliation that always goes on between the P2P voice and the operators throughout the world, something that happens constantly through the quarters. The number is a low single-digit million, so it's not a good perspective. Yeah, and that's it. That's all there is. Thanks. Thanks, Paul.

Thank you. We will take the next question from Nick.

Also, sorry, there's a debt question as well. Again, in terms of the overall tax on the disposals on the net debt, it's not significantly zero on the net debt number.

And then on the Brussels competitive situation, so it's good that you noticed that we have a nice marketing campaign, so thank you for having noticed that, but I'll let Jim answer to your question.

So, David, indeed, thanks for the question. So what we typically do is we vary a bit the way that we are explaining our promotions to our customers, so sometimes We mentioned the discounted pack price as a monthly fee. Sometimes we mention the discount you get per month on the pack price. And then sometimes we mention how much the value is over the period of the promotion. And we play with that to make sure that we have maximum impact on the campaignings that we're doing. And the fact that you have noticed this shows that this is actually working. But this is not a change in promo strategy. We're not being more aggressive than before. or promo strategy varies quarter per quarter, but we're not being more aggressive than we normally are.

I think we can turn to the next question now. Hello. Hello? Can you hear me?

Hello? Can we turn to the next question?

Hello? Hello, hello?

Hi, we have opened up the line for a new call. Yes. Are you able to hear?

Yes, can you hear now?

Nicolas, I think we can hear you now.

Okay, thank you. Look, I've got a few questions on the international segment and Roots Mobile. Maybe starting with Roots Mobile, can you just confirm where we are in the different steps? I understand the mandatory offer is done, but has the transfer of the 57-something percent of Roots Mobile from the founders has been achieved? So that's my first one. Secondly, on the governance, back to the governance, I think you have now a new executive committee. If you can tell us a bit more how it is formed, who is in there, and I'm not sure you can easily answer that one, but if you can explain what happened at the big tele-sign with all the management changes and departures, what was the underlying issue? And the very last one, still on the international segments, I can see a delta between the new revenue compared to the BIX plus telesigns . Is the lower revenue just a function of intercompany revenue being eliminated?

On the executive committee, I'm not sure how you came to that conclusion, but there has been no change at all for the executive committee of the company, so... Can you be more precise?

Yes, I can. It's more the executive committee for the international segment, which I understand is a new thing, which is part of the new governance. Or I got it wrong.

The small personal committee. Yeah, yeah, yeah. Absolutely. Okay, okay. Sorry. Just for the... Oh, because I said governance. Go ahead. No change in the... in the executive committee of the company, so that is clear. And we have two more personal committees that will be created, one for domestic operations with an extended, you know, numbers of persons joining that committee, and the same for international activities. It will be DMC, Domestic Management Committee, and IMC, International Management Committee, where you're going to have also Rajiv, Christophe, and the director that will be joining that committee so that we can steer and all domestic operations and international operations the right way so that the changes that we have made and that's what we'll put in place as soon as Route Mobile closes.

Okay, David, sorry, let me take the process point. You're correct, MTO concluded a few days ago. In terms of the transfer of the shares from the owners, we expect that to happen in mid-May, and that's effectively just an administration process of the funding and various steps to make that happen. So that's a clear, we have a clear path now to ownership. And then on your question on the big selling sign, you're correct, it's just the eliminations is the difference.

Okay, and if I may follow up, so okay for the 57%, I understand that, and the reinvestment of the Woodmobile proceeds, into the holding is also part of this mid-May process?

So the process is technically a two-step process. So three-step MTO is closed. We go through the various pre-closing conditions. The acquisition of the shares, the funding and acquisition of the 58% will happen before mid-May. And then there's a funding period in terms of the cash coming back. But again, it will come back within weeks in terms of closing the full transaction with the reinvestment back into Opal by the

Okay, so that's very clear. And if you allow me just an extra one, which is more housekeeping on my side. Just at the group level, the leases charge has increased in Q1, closer to 28 than the 24 used to have. Is it something, what has changed? Should we assume now 28, 30 million per quarter?

It's just various operational changes in terms of fleet and equipment leases. I think it's probably on some of our IT infrastructure. So, yeah, I think that's a reasonable forward-looking number.

Okay, I'm done. Thank you very much.

So on the – sorry, I have not answered the last question you asked, Nicolas. I think this is on the management changes. Oh, yes.

I wasn't sure you wanted to answer, so.

You know, I can't really, you know, with pleasure. No, no, the first, they are not, you know, they are not related. There is two events that are not related. Some members of the telecom agency that decided to leave, you know, for various reasons. And also the change at the big... side, which, you know, for incompatibility on study conditions, we decided to change there. But there is, you know, first it's not related events, and then we, now we, as I said, now we want to have one team, one leadership team, one vision, one approach, and sometimes it creates some different viewpoints in between teams, so that's why we want now to have a way more integrated approach to the way we are carrying on our international activities. And that we will explain also to you in a few weeks after the closing of the of the Root Mobile data science transaction. We will organize a capital market update on our vision, ambition, and the way we will govern those activities within the Proximus environment.

Okay, that would be great. Looking forward to the excitement of building a new model again. Thank you.

As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We'll take the next question from line Chris Creeper from Deagle Speed Account. The line is open now. Please go ahead.

Yes, good afternoon. Thank you for taking my questions. First one, on the guidance, I'm just wondering, coming back on the initial question a little bit, Is it not raised yet due to one, because it's early in the year, or two, the uncertainty surrounding DG when they launch, or three, are you citing tough comps in the second half? And then my second question would be on the free cash flow, just to make sure the capex that is down in Q1, could you share with us a bit of the phasing throughout the year? And then a third small question, if you look at the decrease in the workforce given the aging of the personnel in Belgium, what would be the percentage that could be leading the company in a natural way over 24, 26 periods, for example. Thank you.

So on your first question, I think it's more number one, but as I said, we are super happy with the start of the year. Momentum is great. Networks, superiority, best brands, commercial momentum, both on consumer and B2B. So, moment is great, but, you know, we still only three months into the year. So, I would rather, you know, choose our number one.

Okay.

Chris, on free cash flow again, look, we don't, you know, we don't guide, but I think, you know, as I said, you know, Q1 was impacted by the buildup of AR, a little bit of inventory AP. So, again, it's going to get better from here on in. So I think that's, you know, that's what you can model. Again, trying to pick free cash flow by quarters is a difficult thing to do, which I understand, you know, you guys try to do. On workforce, again, between here and 2026, again, you know, we haven't given guidance, but, you know, there is a, as Guillaume has said in several calls, you know, we have a pension rate that is going to increase over that period of time. I think, again, you know, 10% to 12%, maybe that's something you could think about as a number over that period. Okay.

Thank you.

Thank you. There appears no further question in the queue.

Thank you all very much for your questions, and should you have any follow-up calls, you can reach out to Adrian or myself. Thank you.

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