Proximus PLC

Hello and welcome to the Proximus Q2 Results 2024. My name is Laura and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you will be connected to an operator. I will now hand you over to your host, Nancy Horsens, Investor Relations Lead, to begin today's conference. Thank you.

Thank you. Welcome, ladies and gentlemen, to this Proximus webcast. We have today some ground to cover. So in addition to the second quarter results, we will also spend some time on the strategic announcements of last night. We will, of course, still foresee some time for your questions. Before we get started, let me just introduce the participants on our side. Here with me today, I have the CEO, Guillaume Boutin, the CFO, Mark Reed, the Consumer Lead, Jim Castile, and the Corporate Affairs Lead, Ben Appel. Let's now start the presentation. Guillaume, the floor is yours.

Thank you, Nancy. And with the year now halfway, it's a good time to reflect a moment on some of our major achievements. Overall, I'm very pleased with our commercial achievements so far, showing a continued strong customer growth for our main product groups. Our residential unit, for example, added another 46,000 mobile cards over the past quarter in a very competitive market. For fiber, we activated an additional 40,000 customers, and we continued deploying at high speed to reach a fiber industry footprint of 38%. Our international segment grew its direct margin by 7% in Q2, benefiting from its unique position in the global digital communications market and ready for its growth trajectory. All in all, this has led to our group EBITDA growing by 5.3% for the second quarter, a strong result that fueled our announced guidance upgrade. The past months also have been very eventful. Not only did we close the root mobile acquisition, we also centralized our B2B IT activities into a dynamic new subsidiary, Proximus Next IT, to better serve professional customers in the Benelux. And then, of course, the most recent news, the signing of the Fiber MOU for collaboration in Flanders and Proximus obtaining full ownership of Fabercloud. Overall, our strategic progress is intended to safeguard a sound organic free cash regeneration. We'll do a deeper dive on this in a moment. I already said it, overall we can be very pleased on our performance, with all main results illustrated on this slide. I won't comment on each as we will have a closer look at it, but before that, let's first go to our strategic achievements. Our international segment is already delivering significant profitable growth. Remember, early May, we closed a major transaction, acquiring a majority stake in Root Mobile. We have elaborated on it extensively during our international webinar, now almost two months ago. In short, we have created a unique position whereby we deliver services across the full value chain of digital communications, from connect to engage to protect and this on a global basis. We are proud of our international brands being recognized for their expertise, underlining the leading position for Proximus in taking those great shares of those global markets. The speaking example is a recently signed strategic partnership with Microsoft. As part of this five-year agreement, Microsoft will use the best-in-class CPaaS and AI products of our international platforms and as such further solidify our leadership in the digital communication space. Turning to our domestic market, for which our fiber strategy remains a key driver of a strong commercial performance. In June, we were deploying fiber in 164 cities and municipalities, bringing the fastest internet in Belgium, as was recognized by Okla. Moreover, we continue to innovate and bring now for ultra-fiber customers the latest Wi-Fi technology to further boost the in-house experience. An increasing number of customers can benefit from our gigabit speed offers, with an additional 443,000 homes passed with fiber over the past three months. In June, we are close to the 2 million home pass bar, the milestone we have in the meantime crossed. Just to illustrate our accelerated pace, half of this coverage we achieved over the past two years, while the first million took six years to be reached. Customer traction for fiber clearly continues. Our base of activated fiber lines continue to grow solidly, now counting a total of 481,000. Business success of fiber ambitions, of course, does not stop here, which brings me to the next part of this presentation. We've been waiting for some news on this front for some time now, so I'm excited to share that after several months of constructive discussions, we achieved some major strategic steps in the deployment of fiber for Flanders. Yesterday evening, we announced the signing of two separate agreements. One, we signed an MOU and fiber collaboration with Wire and Telenet. And two, we acquired under personal fiber cloud, the Flemish fiber GV, in which we own approximately 50%. With this, we not only achieved a strategic milestone for the country and the industry, it also creates for Proximus a framework for long-term cash flow generation and competitiveness through increased network utilization, yielding additional wholesale income. These agreements are expected to result in free cash flow covering current dividend levels in 2025-2027, supported by our divestment program, which will scale to 500 million euros. From 2022-2028 onwards, we expect to return to growing annual organic feed cash flow. Let's first take a closer look at the MOU on fiber collaboration. The intended collaboration with WIRE and Telenet stretches over approximately 2.7 million homes across the Flanders region. For the 2 million homes in the medium-dense area, Wire and FiberClar would build complementary fiber networks. 40% of these 2 million would be allocated to FiberClar, meaning about 800,000 homes passed, with part of that already completed today. The other 60% would be allocated to Wire. And of course, both companies would have reciprocal wholesale access. For the 7,000 homes in the more rural areas of the Flanders region, Proximus would start offering services using the HFC network of wire. This would allow us to offer gigabit speed throughout Flanders. Outside of this MOU are the dense areas representing about 900,000 homes, with most of them already covered by Proximus fiber today. The MOU is a step forward towards an optimized fiber rollout in Flanders, providing a path to maximize the utilization while ensuring broader fiber coverage at an accelerated pace. All this would be achieved with a significantly reduced overall investment. Separately, we announced that we are increasing our ownership in FiberClar, going from about 50% to fully ownership now, and this for a total consideration of 246 million euros. Becoming the sole shareholder of FiberClar will allow us to work more closely together and further increase the efficiency and quality of the fiber rollout in Flanders. At the same time, we capture the value generated by synergies. Integration in the group will especially allow for optimized funding costs, and in addition, will create operational synergies. Expect both to total up to an NPV of 100 million euros. While collaboration will for sure bring benefits for Flinders and the industry, it also would secure strong incremental cash generating fundamentals for Proximus from 2028 onwards. While it's clearly too early to share any details, there are some key components inherently driving value. Top of the list will have a massive capex avoidance thanks to an optimized footprint for FiberClar. Moreover, as just mentioned, pouring full ownership in FiberClar would gain both operational and financial synergies, particularly regarding debt management. The high utilization of the FiberClar network would bring additional wholesale revenue from wire, partially balancing out the costs going the other way. A higher and faster fiber coverage will also allow for a faster decommissioning of a copper network, which is, as you know, costly to maintain. The intended collaboration would provide us access to the HFC and fiber networks of wire, which will sustain and enhance our retail commercial fiber momentum. The charts of this slide illustrate our expected free cash flow trajectory. we make the distinction between two main timeframes, the investment period, running until 2027, and the timeframe beyond. Starting with this year, 2024, on the left-hand side, the work illustrates how we go from the estimated adjusted free cash flow, which is the ballpark of our company-compiled consensus, to the full-year free cash flow estimate, including the effect of the acquisitions. Following the under-percent ownership of FiberCloud, will consolidate the capex on our balance sheet. This leads to an estimated total group capex for 2024 of around 1.36 billion euros. The capex increase replaces the expected equity injections in FiberCloud, therefore limiting the free cash flow impact. Expected average annual free cash flow over the period 2025-2027 is already growing significantly reaching a level that covers the current dividend supported by our divestment program. The CAPEX relief offered by collaboration will kick in, and we expect to return to growing annual organic free cash flow. Besides our expectation to continue to grow domestic EBITDA, we also we see support from our international segment, while our capex levels will be coming back to normalized levels. This transaction, therefore, allows us to provide significantly longer-term visibility and de-risking as we will enjoy gigabit network coverage with no additional capex required by then. The funding of the FibroClark transaction will have a limited and temporary impact on the net debt to EBITDA ratio. For 2024, we expect this to be around 3.1 times and should stabilize around three times as of next year. A strong deleverage is expected to start from 2029 onwards. In terms of process, you can expect the FiberClar transaction to be closed shortly. As for the intended Fiber collaboration, reaching a final agreement is subject to regulatory and antitrust approvals. The formal investigation by the Belgium Competition Authority has just started with involvement of the BIPT and the outcome could be expected somewhere towards the end of this year. Moving to the next and final part of this presentation with a quick overview of the second quarter results. Starting with our domestic segment. As I already pointed it out at the start, our second quarter domestic operations demonstrated once more solid growth, supported by our attractive product offerings and effective multi-brand strategy. Our strong commercial results combined with our pricing strategy led to another strong revenue growth for our residential unit, up by 5.3% in total, with revenue from services increasing year-over-year by plus 6.3%. The revenue from residential services was still supported by two price indexations, as well as by the ongoing customer growth, especially in the conversion base. For business unique, revenue was growing by 4.8%, with revenue from business services continuing the growth trajectory up by plus 2.2% for the second quarter. The growth in business services revenue was driven by a sustained positive revenue trajectory for fixed data and IT services. Our wholesale revenue followed a similar trend as before, with a revenue decline fully related to low-margin interconnect revenue, while our fixed and mobile wholesale services were up just over 9%. This brings me to the total domestic revenue, for which we achieved a sustained strong growth, up by 4.6% for the second quarter, driven by an equal 4.6% increase in services revenues. Turning now to the domestic operating expenses, which were up 3.8% from last year and continuing the improving trend following the further moderation of the inflationary cost effects. Bringing it all together, our domestic EBITDA showed a strong growth year-over-year by 5.1%, driven by the increase in direct margin. Turning now a moment to the international part of our results, our international segment closed the second quarter with a solid growth in its direct margin. Before getting into detailed results, let me first frame some of the key drivers that are supportive of this. With WootMobile, we now have a unique exposure to the fast-growing APAC region for our CPaaS services, which more than compensate for the currently more difficult US and EU markets. Two, we have omni-channel solutions that allow us to recapture some of the disappearing SMS traffic, with omni-channel typically coming at higher margins. Three, the loss of SMS volumes is to a great extent related to A2P, so application-to-person traffic, for which the impact and margin is limited. Four, besides CPaaS, digital identity and mobility services are also growing revenue and direct margin. And as a last point, although P2P voice and messaging is typically a declining market, we achieved to limit the direct margin impact of this. Turning now to the numbers. Two or three global brands, PIX, Telesign, and RootMobile, We achieved to grow our international direct margin by 7.0% on pro forma basis, driven by communications and data services. Driven by the DM growth, the international EBITDA increased year-over-year by 6.5%, again on a pro forma basis. Zooming in for a moment on communications and data services, which is a product group including CPaaS, DI, and mobility services. Here, we posted a 9.5% growth in direct margin on a pro-farmer basis. Besides omni-channel recapturing part of the SMS transition, especially in the APAC region, the margin also benefited from new customers and large contracts going live. Digital identity experienced robust growth with a net retention rate at 116%. And mobility services did good as well, driven by higher travel volumes. In contrast, over the same period, the revenue was down by 6.2% on a pro-pharma basis, demonstrating that this concerns especially low-margin CPaaS messages. For second international product group, P2P voice and messaging, direct margin was down slightly, all due to lower voice volumes. in an inherently declining market. This brings me to the group results. Our traditional slide brings it all together, with the group EBITDA up by 5.3% on a profound basis, with both the domestic and international segments contributing. The capex over the first half of 2024 totalled 585 million euros, which is a decline for last year, in line with the pace of the Proximus-owned fiber build. Our free cash flow for the first half of 2024 stood at minus 114 million euros on adjusted basis, with the variance from last year mainly being timing effects in working capital needs, partially compensated by a higher underlying EBITDA and lower cash for CAPEX. In conclusion, we have closed the first half of 2024 on a high note, with strong growth realized for domestic revenue and EBITDA, as well as for the group EBITDA. We therefore can, with confidence, raise our 2024 guidance for this matrix, as shown on the slide. Following the full ownership in Faber-Clar and the resulting consolidation on the balance sheet, we are reviewing our expectation for the group capex to around 1.36%. billion euros for 2024. The funding of the transaction will have a limited and temporary impact on the net debt to EBITDA ratio for 2024, expected to be around 3.1 times. Our three-year dividend policy we set for 2023 to 2025 remains unchanged. With this, I have covered my presentation, but we can turn now to your questions.