Proximus PLC

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.