Proximus PLC

Hello and welcome to the Proximus Q3 2024 Results Analyst Conference Call. My name is Laura 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. 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 Gosens, Investor Relations Lead, to begin today's conference. Thank you.

Thank you and welcome everyone for joining us today. We are keeping our usual format, starting the webcast with an introduction by the CEO, Hume Boutin, after which we will open the line for your questions. Before handing over to Guillaume, let me introduce to you the other members of the leadership squad that have joined us for the Q&A, starting with the CFO, Mark Waid, the residential lead, Jim Castele, our two business leads, Anne-Sophie Lotgering for the IT part and Renaud Tilbans for the Talco part, and the corporate affairs lead, Ben Appel. They will be taking your questions in a moment, but first Guillaume will take us through the highlights of today. Guillaume, please go ahead.

Thank you, Nancy. Good afternoon, everyone, and welcome to our webcast covering the third quarter results of the Proximus Group. And before diving into the detailed results, I would like to start this presentation by highlighting some of our key achievements from the past few months. Let me start with our financial and operational results for Q3 2024. We'll take a closer look in a few minutes, but in summary, we have closed another strong quarter, keeping up very good operational trends which support our financials for the quarter, and by extension, our outlook for the remainder of the year. We therefore are comfortable in further raising our guidance, expecting to end 2024 with a group EBITDA growth of up to 3%. Our results are reflecting the successful execution of our strategy as we progress in laying the foundation of our company's transformation, both domestically and internationally. Our top-tier networks remain a cornerstone of our domestic strategy, with focus on further scaling our fiber footprint in parallel to the ongoing fiber collaboration negotiations. For B2B unit, we have carved out the IT activities under the brand Proximus Next, which we are now also expanding in the Luxembourg and Dutch B2B market. Regarding our asset sales ambitions, we are making good progress and I'm very pleased we have signed an agreement to sell our data center business as announced publicly this morning. We are also advancing on our headquarters for which we launch a new RFP and we expect bids to come before end of this week. Internationally, we have now fully closed the transaction with Root Mobile, having successfully sold 8% of the shares to comply with the Indian minimum public holding requirements. We are very pleased with the strong interest of large long-only investors and the side premium we obtained versus our entry price. Let's now have a close look into our operational results for Q3. And starting with our fiber built, which remains a key driver of our strong commercial performance. In September, we were deploying fiber in 167 cities and municipalities in Belgium. And over the past year, we have increased our fiber footprint by about 500,000 home paths, including almost 100,000 in the last quarter. We have now passed the 2 million milestone, the vast majority of it being 100% Proximus owned. Then, the customer traction for fiber sustains. Our base of activated fiber lines continue to grow solidly, with the park now counting a total of 519,000 active lines. Moving now to a different achievement and still hot of the press, we are pleased, as I said, to have signed an agreement with Bayesian-based Data Center United for the sale of our data center business. Given our long-term ambition to move to public and sovereign cloud, we consider the data centers no longer as core. and we do not intend to compete with Apple scalers on that field. And as part of this agreement, we secure the necessary capacity for our own needs and keep the freedom to continue selling cloud solutions to external customers with the data stored in Belgium and managed by an expert partner. The transaction will bring close to €130 million of proceeds and fits our overall asset divestment plan. Anticipate the closing of the transaction by Q1 2025. Regarding our international activities, we have closed a new long-term strategic partnership with Infosys. In this agreement, root mobile, CPaaS solutions, tele-science, DI services, and BICS offerings will be combined with Infosys digital services. This new agreement adds to the previously announced partnership with Microsoft. both strongly validating our increasing relevance in the global digital communications market. In parallel, progress was made on the synergies between TeleSign and RouteMobile, with initial benefits starting to materialize. Cross-selling efforts are well underway, and we anticipate this to deliver revenue momentum shortly. We have also launched our Shared Services Initiative, which will support the ambitious OPEX synergies. Let's move to the next part and take a closer look at the third quarter results. And I start with our domestic segment. And as I already pointed out, domestically, we maintain excellent customer growth despite an intense competitive market. We added no less than 47,000 mobile post-bid cards over the past three months. This in a heated market with big brands adjusting the mobile pricing in anticipation of the arrival of digits. We also further grew our internet base in a seasonally slower quarter, adding 9,000 internet subscriptions while the erosion in TV and fixed voice kept a steady pace. Our strong commercial performance, along with our effective pricing strategy, drove notable revenue growth for our residential unit, up by 3.1% in total, with revenue from services increasing year over year by 3%. The growth has been more moderate because of the annualization of the July 2023 price indexation. The revenue from residential services was supported by the price indexation of 1st of Jan 2024, as well as by the ongoing customer growth, especially in our conversions base. For business units, the total revenue was impacted by lower IT product revenues, while revenue from services were also slightly down by 0.5%. Presuming the services revenue, we see here again the effect of the annualization of the July 2023 price indexation, as well as the impact of the loss of a large contract with the Vlaamse overheat, the Flemish government, which has mainly impacted our mobile services revenue. At the same time, we sustained growth for IT services up by plus 4.4%, and for fixed data, up by 1.3%. Wholesale revenue showed good growth, driven by wholesale services revenue, which were positively impacted by higher roaming volumes. This more than offset the ongoing decline in low-margin interconnect revenues. This brings me to the total domestic revenue, for which we achieved a growth of 1.5% for the third quarter, driven by a 2.2% increase in services revenue. Turning now to the domestic operating expenses, which were up year-over-year by 2.2% from last year. Thanks to our ongoing cost efficiencies, we are further moderating the overall OPEX increase, despite the remaining impact from two wage indexations. Bringing it all together, our domestic EBITDA showed a 1.3% growth year-over-year, driven by the increase in our direct margin. And turning now to the international part of our results, through our three global brands, Biggs, Telesign, and RootMobile, we grew our international direct margin by 2.3% on a pro forma basis. 3.5% when leaving out currency effects. The direct margin was up in spite of a 0.9% revenue decline on the same basis. This is due to the revenue loss being mainly caused by low margin legacy voice. Moreover, the industry-wide CPaaS transition from SMS to OTT solutions continued, though we could recapture part of the CPaaS traffic through our omnichannel solutions. Lastly, the third quarter proved also a strong quarter for mobility services thanks to high roaming volumes, especially for Asia, and a nice uptake in IoT solutions. With direct margin growing and OPEX benefiting from some initial synergies, combined with a favorable currency effect, the international segment, the BDA, grew by 4.2% from a high comparable base. This brings me to the group results. Our traditional slide brings it all together, with the group EBITDA up by 1.6% on a pro-pharma basis, with both the domestic and international segments contributing. The capex over the first nine months of 2024 totaled 874 million euros, coming down year-over-year by about 3%. This mainly reflects the lower capex needed for our own fiber build in the dense areas where the fiber deployment in median dense areas is picking up. We reiterate our expectation of 1.36 billion euros for the end of the year, implying a step up for the last quarter of the year. Our free cash flow for the third quarter was 161 million euros on adjusted basis and brings a nine-month free cash flow at 48 million euros. This compares to a negative 35 million euros adjusted free cash flow for the same period in 2023. As shown on the graph, the year-over-year improvement mainly reflects a higher EBITDA, lower equity injections, and lower cash-out related to investments over the first nine months, partially offset by year-to-date higher business working cap needs. In conclusion, we close the third quarter ahead of our expectations with strong operational results and no meaningful effect from market structure changes expected in the remainder of this year. Therefore, we further raise our growth outlook for the full year, expecting our domestic revenue and EBITDA, as well as our group EBITDA, to grow up to 3%. This despite the consolidation of FiberCloud, having a limited negative EBITDA impact for 2024. For our international segment, we expect the direct margin to grow mid-second digit, reflecting some longer sales cycles for Omnichannel and timing of some outstanding cost-of-growth sales synergies. With this, I've covered my presentation, so we can now turn to your questions.