Proximus PLC

Hello and welcome to the Proximus Q4 2024 results conference. My name is Sergey 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 the 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. Welcome, everyone. Thank you for joining us on this Proximus Results webcast. We're keeping our usual format, starting the webcast by an introduction by the CEO, Hugh Moutin, after which we will open the line for your questions. Before handing over to Guillaume, let me introduce you to the other participants for this call on our site. Today we are joined by the Secretary-General Dirk Liebaert and from the leadership squad we have the CFO Mark Wheat, the residential lead Jim Castelen, the IT business lead Anne-Sophie Lotgering 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. And hello, everyone. Thank you for joining us today, and welcome to our results presentation. We have a comprehensive agenda, so let's begin. Over the past year, we continued executing on our bold 2025 strategy, which delivered some great achievements. We are particularly proud of our commercial performance. As you will see, we outperformed our competitors in Beijing, and we delivered best-in-class results among our European peers. These fantastic results translate in solid financial performance, but let's go into more details directly. Domestic segment reported another strong revenue quarter, leading to a 3.4% revenue growth for the full year of 2024, exceeding our expectations. Domestic BDA was stable in Q4, and we closed the year with a total growth of 2.8%, achieving the bold 2025 target one year earlier than foreseen. For the global segment, the fourth quarter showed strong performance in communications and data with high direct margin growth, contributing to an overall increase in EBITDA, which amounts to 6.2% for the full year on a pro forma basis. This resulted in an annual group EBITDA growth of 3.1%. Capital expenditures, CAPEX, were in line with our expectations. and the year concluded with adjusted free cash flow of 58 million euros. In summary, Proximus is in great shape. Throughout 2024, there has been consistent strong commercial performance that we succeeded in maintaining in Q4, despite the launch of Digi mid-December. The year-over-year growth of our internet and mobile base, up by respectively 2% and 2.5%, along a continued adoption of convergent offers, continue to be a significant revenue driver. Focusing on the residential market, the growth of our primary customer basis reveals to be a consistent trend for several years. This indicates that our strategy has been effective. We are proud to report that, once again in 2024, we have captured a significant portion of the net market growth. On the residential mobile and postage market, the share of net ads captured by the Proximus Brands was 56%, and for the fixed internet market, even 66%. Even better, we managed to increase our customer base and the satisfaction of our customers in parallel. Our customers love our brands and products, as demonstrated by sustained strong Net Promoter Score results. This despite an avoidable impact from inflation-related price increases. Proximus' strategy to delight our customers relies on offering access to the best networks. Our 5G indoor coverage now reaches 68%, driving high customer satisfaction with an NPS of 69 for heavy 5G users. The future quality of our mobile services is ensured by the significant spectrum we secured, giving us a competitive edge. Our network partnerships through MWinx will further benefit our mobile network as we consolidate our sites with the ones of orange. Today, we have already consolidated more than 3,000 sites, and we expect to complete this program by end of 2026. In parallel, we have also dismantled 580 of our own sites that were redundant in the consolidation. On the fixed site in 2024, we significantly expanded our fiber coverage. Currently, fiber deployment projects are ongoing in 171 cities and municipalities. By the end of 2024, we passed over 2.2 million homes and businesses with fiber, covering more than 37% of the population. The coverage rate for fiber industry stands at 42%. Fiber remains a significant contributor to our commercial success. By the end of 2024, We have activated 564,000 customers on fibre, reflecting a growth of 45,000 in the last quarter of 2024. In the densely populated areas of the country, such as city centres, we have now reached a fibre coverage of more than 80%. Moreover, we have achieved more than 75% coverage in Brussels' regions. In Midlands and rural regions, we are continuing efforts to finalize fiber collaboration negotiations. In Flanders, we still foresee a conclusion by the end of Q2, while negotiations in Wallonia are ongoing. Our strategic execution has positioned us well to compete, including against the new entrant. While we acknowledge the challenges posed by the new market structure, we are well equipped to compete thanks to our investments in networks, brands, conversion offers, and customer satisfaction. As planned, we rolled out a multi-brand response with stable headline pricing to maintain market value. For the premium brand Proximus, we are enhancing our differentiators. Furthermore, while we are mitigating in the short term the impact on our retail business, we have protection through the wholesale agreement. As demonstrated in the bottom left chart, we have observed a slowdown and stabilization in customer mobile ports to Digi. They are now below one-third of the peak seen at the launch, despite the increased advertising presence during the same period. We are now two months in the first quarter, and we anticipate to close Q1 with a growing mobile post-paid customer base. In the mid-term, we anticipate that the competitive environment will return to more stable conditions, as has been observed in other markets. In the B2B market, business under the Proximus Next brand performed very well in 2024, thanks to our conversion telco IT value propositions. We secured several significant deals, with a selection shown on the left, and adding recently the largest public cybersecurity contract in Belgium. which we signed with the Belgian federal government. CCAS II is a seven-year contract worth over 100 million euros, offering 75 managed cybersecurity services to improve cyber resilience and support NIS2 compliance. The contract underscores the government's confidence in Proxima's next expertise and commitment to enhancing cybersecurity for critical operations. In terms of efficiency, the domestic savings will benefit from the continuation of our cost efficiency program. For 2025, we project an additional savings of €70 million on top of the €150 million already achieved in 2023 and 2024. These savings will help mitigate anticipated cost pressures, such as inflation, customer-related expenses, and transformation costs. Looking ahead, the forthcoming increase in retirement's presence and opportunity for further efficiency improvements. Current projections indicate approximately 2,500 retirements over the next decade. Enhancing efficiency through further digitization, AI and automation will enable the company to operate in a leaner way. Moving to our international segment, our strategy with the establishment of Proximus Global marks the beginning of a new growth phase. The fourth quarter of 2024 Proximus Global achieved a 16% increase in direct margin growth for communications and data surpassing listed peers. For P2P voice and messaging, we managed to reduce the decline in a market that is inherently decreasing. The strength of Proximus Global lies in its diverse product range, providing opportunities to leverage combined capabilities on a larger scale. We remain confident in achieving our synergy commitment of over 100 million users at EBITDA level by focusing on revenue opportunities through strategic partnerships, as well as cross-selling, upselling, and of course, optimizing efficiencies. As a final point on the strategic achievements before discussing the results, we continued our active management of non-core assets. This initiative is projected to generate over 500 million euros by the end of 2027, thereby supporting the group's free cash flow during the elevated investment phase for fiber build-out. At the end of 2024, we signed two agreements, one concerning data centers and another regarding mobile towers in Luxembourg. We expected total proceeds of €238 million over the next two months. Additionally, the sale of our headquarters is now in its final stage before signing. Let's now review the results, and assuming you have seen the earnings release, I will proceed quickly on this part. Beginning with the domestic revenue, which demonstrated a substantial growth of 3.2% in the last quarter of 2024, including a notable increase in our services revenue. We reported a 3.2% increase in revenue from for our residential units in the last quarter, resulting in 4.3% growth for the full year of 2024. A significant portion of this growth is attributed to services revenue, as illustrated on the next slide. And the services portion of the residential revenue increased by 4.1% for the last quarter of 2024, driven by a 7.8% increase in conversion revenue. The significant and increasing portion of revenue generated by conversion customers gives the residential services revenue a stable profile, which is even more beneficial during periods of increased competition. A B2B unique increased fourth quarter revenue by 2.1%, with broadly stable revenue from services, while revenue from products was up just over 12%. Revenue from business services saw a notable increase in IT services and a modest rise in fixed data revenue. This growth more than offsets the adverse effects of a 4.4% decline in mobile services revenue and the continued decrease in fixed voice revenue, which dropped by 7%. Overall, the termination of the contract with the Flemish government resulted in the loss of 44,000 mobile cards, albeit at a lower ARPU. However, we experienced growth with an addition of 12,000 mobile cards from other customers. The wholesale unit saw continued growth in services revenue driven by roaming and services to GVs. However, this growth was fully offset by a decline in interconnect revenue, which does not affect the margin. Regarding operating expenses, about one third of the increase is due to consolidating FiberClar since August 2024 and higher cross-charging of mobile pylons from the joint operations with Orange Belgium and Winx, which is a BDA notary. Another significant impact was higher performance related HR provisions. The remainder relates to customer-related OPEX linked to a strong quarter for business IT services and ongoing customer migration to the Fiber network. Lastly, Wages and inflationary effects impacted year-over-year OPEX, but were offset by the cost efficiency program. Higher revenue drove an increase in direct margin, which fully offset the higher operating expenses in the fourth quarter, resulting in a stable Q4 EBITDA. For the full year, we ended 2.8% above the previous year, and with an EBITDA of 1.3%. 1,682 million euros. We also surpassed the 2022 EBITDA of 1,665 million euros, thereby achieving our bold 2025 target ahead of schedule. Turning now to Proximus Global, given the structural shift in the CPaaS industry and the changing market dynamics, Proximus Global is uniquely positioned to turn these changes into opportunities. By leveraging its extensive reach with telecom companies worldwide, Proximus Global stands as a trusted partner for businesses across the globe. The diversified portfolio across the group provided a total revenue increase of 1.9% in Q4 2024 at constant currency. With growth especially coming from higher margin revenue, the direct margin increased by 9.3% on constant currency. This was driven by the communications and data product group, with direct margin rising by 16.1%. Strong growth in CPaaS services came along a strong performance from mobility services like signaling, roaming, and IoT solutions. The Proximus Global EBITDA increased by 6.6% year-over-year, with direct margin growth exceeding the rise in OPEX. For the last quarter of 2024, OPEX increased year-over-year, with an increase mainly attributed to currency impacts. Additionally, the rise in OPEX reflects wages indexations and provisions related to incentive schemes for Proximus Global. As a reminder, Proximus Global is an asset-light operation. The cash conversion is high, with for 2024 a total of €90 million of free cash flow, overachieving the expectation we had set at the international level. Capital Markets Day of June 2024. At group level, the capital expenditure for 2024 was $1,355 million, consistent with our provided guidance. Fiber coverage in dense areas is largely complete, resulting in a decrease in fiber constructions in these areas when it increases in medium-dense areas. Overall, we consider the 2024 booked CapEx to be at its peak level. Adjusted for MLA transactions, the free cash flow was 58 million euros for 2024, which is slightly lower than in 2023. The increase in group underlying EBITDA and the reduction in equity injections due to the consolidation of FiberClark were counterbalanced by a decrease in working cap and an increase in interest payments, higher income tax payments, and increased cash capex. In summary for 2024, we have met our guidance, supported by consistent strong commercial performance, successful price indexations, and an effective cost control. For 2025, the focus will be on several key elements. maintaining a strong position in a more competitive domestic market by leveraging our multi-brand approach, reinforcing Proximus as a premium brand, and maintaining market value. Secondly, finalizing and operationalizing the fixed network collaboration agreements. Thirdly, strengthening the position in B2B, telco, and IT, and improving profitability. Lastly, enhancing global digital communications leadership and continuing to grow at the top of the market. All this will be underlined by a very strong cost control. This brings me to the final slide on our outlook for 2025. Despite the new and challenging market structure, we expect to keep the domestic revenue and EBITDA broadly stable year over year. Proximus Global, we expect a strong EBITDA growth of around 20% compared to 2024 on a pro forma basis, reflecting a continued organic growth while synergies will accelerate. The Proximus Group EBITDA, therefore, is expected to grow around 2% year-over-year. Regarding the booked capex excluding football and spectrum rights, we expect for 2025 to be close to 1.3 billion euros. On an organic basis, meaning excluding any proceeds from the ongoing sale of assets, we expect that adjusted group free cash flow for 2025 to remain broadly stable to 2024. The debt ratio is expected to be around three times. Furthermore, in line with the three-year dividend policy, we expect to return a stable gross dividend of 0.6 euros per share over the result of 2025. With this, we can move to your questions.