Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Proximus SA (BGAOY, Financial) reported a 5.3% growth in group EBITDA for Q2 2024, driven by strong commercial achievements and customer growth.
- The residential unit added 46,000 mobile cards and activated 40,000 fiber customers, reaching a fiber industry footprint of 38%.
- The international segment grew its direct margin by 7% in Q2, benefiting from its unique position in the global digital communications market.
- Proximus SA (BGAOY) closed the Route Mobile acquisition and centralized B2B IT activities into Proximus NXT IT, enhancing service to professional customers.
- The company signed strategic agreements, including a partnership with Microsoft, and obtained full ownership of Fiberklaar, enhancing its fiber rollout efficiency and quality.
Negative Points
- Free cash flow for the first half of 2024 stood at minus EUR114 million, impacted by timing effects in working capital needs.
- The funding of the Fiberklaar transaction will temporarily increase the net debt-to-EBITDA ratio to around 3.1 times in 2024.
- Proximus SA (BGAOY) faces competitive pressures in the domestic market, particularly from Telenet and Digi, which could impact future growth.
- The company anticipates a decline in EBITDA for the second half of the year due to the lapping of price rises and potential market conditions.
- The regulatory and antitrust approvals for the fiber collaboration with Wyre and Telenet are still pending, which could impact the finalization of the agreement.
Q & A Highlights
Q: The first is on the free cash flow outlook beyond 2027. I'm a bit surprised by the ballpark figure to be slightly above EUR300 million despite the significant step-up in CapEx and then your deal, a very nice deal, Fiberklaar with Telenet, Telenet getting on your network. So is this free cash flow of EUR300 million and maybe a bit more, is it supposed to move up significantly after 2030? Or could you explain basically why is this on you being cautious because of Digi arriving in Belgium? Is it because you deduct minorities in international? Or is it simply reflecting high wholesale costs and maybe not that high wholesale revenues, or still high CapEx, so basically.
A: David, let me take those. So first of all, on the free cash flow, '28 and beyond, I think, again, on the presentation, we clearly stated it's an average. And I think we also have a point in there that we expected to be growing post that period because of the economics of the fiber collaboration. So I think that's where we are. I think, hopefully, it's appreciated that we've given you that visibility. Clearly, we are in a position right now we're super happy with the agreement we've come with the regulators in Liberty. And so again, it's hopefully giving you the directional element of where our free cash flow will be. And again, I think maybe point you to that we'll be fully organic by that point. I think in terms of the international, I think again, you can use that. I think there's no difference in terms of what we're thinking on the international business, as Guillaume pointed out. And results are very positive on direct margin EBITDA perspective for Q2, and we continue to see a great trajectory to hitting our guidance for '24 and beyond on international. And then on CapEx, and again, I don't think we'll -- we're not disclosing exactly the years. But again, I think you can think of something around EUR900 million in terms of the period between now and 2028 in terms of the introduction of Fiberklaar. So I think that's what be.
Q: Maybe a quick follow-up on the wholesale costs you were mentioning concerning so you have this HFC deal with Wyre in rural areas in Flanders. Is it correct to assume how to extrapolate that there will be a similar solution in, Wallonia? And is it included in your 2028 to 2030 free cash flow outlook?
A: I think we are not going to comment on the discussions on going on Wallonia. I think there are two different situations. Digital Proximus in Flanders is super different from the Digital Proximus in Wallonia. So it might be that there is some also different outcomes on those discussions. So I'm not sure you can really extrapolate what's happened in the north for what could happen in the south.
Q: I have a few, please. I was going to focus on the Fiberklaar transaction because I think that's the one which is probably getting the risk pushback today. So the first question related to this is what was the rationale of reconsolidating this business now just two years after you set up an off-balance sheet joint venture? And then related to that, how do you justify the EUR160 million premium being paid for EQT based on the buyout price versus what they're putting with equity? And finally, if we look forward, you still have a number of other joint ventures related to fiber in other parts of the country. Is this the kind of template which you would be adopting when you look to reconsolidate those? Or is there a reason why in this circumstance, there was such a high premium being paid?
A: Joshua, let me start. So I think I'll try and put the rationale and the value on the EQT. So look, I think we've talked about this before. I think ownership is super important to us. And I think the ownership economics of a fully utilized network. I'm sure you can understand that. I think the other element is, again, as we've we're now very, very sure in terms of the alignment of incentives between ourselves, Liberty and the regulator. And I think that really gives us confidence in terms of the next period in terms of getting to the long form. I think that also helps by the fact that it's three of us. I think if you look from a valuation perspective, again, I think if you take comparable across Europe, there's very few that will be able to networks that we'll be able to have this kind of utilization rate, surety on overbuild risk that this network will have once we get to the long form and so therefore, again, we feel economic value is worth it at this point. And then we add on top of that the synergies that we announced today on the acquisition of the additional share. Again, those will accrue early to us. So I think that's how we think about it. But I mean, Guillaume, I don't know if you want to add anything to that on that first part.
Q: And second question, just more of an operational one. On the wholesale co-investment with Telenet, have you already identified the 60% or 40% specific areas? And does the mechanism simply mean that where you build, they pay you where they build, you pay them on equal terms.
A: And then, Josh, again, on the terms of the MOU, again, I think we've been very explicit in terms of the details we've shared with you in terms of the allocation of the footprint and how we're going to use each other's technology. We're not going to divest. We're not going to divulge any further details on the terms at this point because clearly, we're still in a long form-type negotiation. But that's a little bit where we are on that. So hopefully, as I think we've provided a lot of detail today in terms of you to be able to work out. This is going to work.
Q: And then finally, just coming back to the CEO contract extension. It looks like there's now a much bigger focus in terms of fixed compensation on the international business, which is clearly quite small in the scope of Proximus today. I just wondered if you could comment on how that may affect your strategy? And also if you can give us any color on how remuneration targets have played out in the 2023 annual report might have been changed as well.
A: Yes, on the new contract, obviously, no effect or no impact on the strategy of the group with the new remuneration framework.
Q: Two questions, please. First is, could you provide an update on the competitive dynamics in the domestic business across Belgium? And I'm just interested to hear, in particular, if you're seeing any impact from Telenet entering Wallonia at a lower price point than Proximus? And also if you're seeing anything from Digi?
AFor the complete transcript of the earnings call, please refer to the full earnings call transcript.
