Digi Communications N.V. (DIGI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to our Q3 2023 Results Presentation. We are very happy to have you together with us to discuss the results -- the outstanding results. And so just get start. So Q3 2023 was an outstanding quarter. Our revenues grew 12%, reaching in excess of EUR 1.25 billion for the last 9 months. RGUs increased 15% year-on-year, reaching more than 23 million units, and EBITDA, went up -- excluding IFRS 16, went up 17%, reaching almost EUR 368 million. This was helped, and I will repeat this a couple of times more during our presentation, by growth in our RGUs in Romania and Spain. So in Romania, we grew 10%, and as you can see, mobile is -- continues to be our best-performing segment, with 19% year-on-year growth, reaching 5.6 million RGUs. Pay-TV is the second largest segment, also at 5.6 million RGUs, having 5% year-on-year growth, and broadband services in Romania reaching 4.5 million users, at 10% growth. Spain had outstanding performance during the quarter, with mobile growing 24% to 4.5 million RGUs, broadband reaching 1.2 million users, at 67% growth year-on-year, and fixed telephony exceeded 400,000 users, at 61% growth year-on-year. We remain committed to our strategy, which basically implies growing across our core markets, expanding our customer base, expending the network, which lays the foundation, the basis for our customer growth, and we also continue working on new markets -- on the launches on the developments in the new markets, Portugal and Belgium. In Portugal, we are busy building our mobile network. And in Belgium, we are very excited to have signed in August the national roaming agreement with Proximus, which will allow us to launch services during next year. Just a bit in more detail. So, as I mentioned a bit before, in August, we signed a 5-year roaming agreement, which allows us, the joint venture that is run by us in partnership with Citymesh in Belgium, to offer mobile services using -- on the Proximus network, in the next 5 years. Also, as a part of the agreement, we have acquired -- we have the ability to purchase around 400 mobile sites in the next 4 years from Proximus, which will help our rollout [ of our network, ] and it will help the open of our network in that market. Based on this development, we are aiming to start our commercial services in the second half of 2024. In Spain, in October, we were happy to close the deal -- we were happy to have the first closing of the deal, which we announced with Aberdeen in the first part of the year. At this moment, we have transferred to Digi Andalusia, 1.35 million homes passed, which represents the first tranche of the total of 2.5 million homes passed that are supposed to be operated by the joint venture in the Andalusia region. The total project value is EUR 300 million, and it will be partially financed by Digi Spain, Aberdeen, but may also involve bank financing. With this, we are over half of the project build-out, and the second phase has a total of 1.15 million homes passed to be delivered over the next years. So moving on, we are discussing -- we are looking at our numbers here. And basically, we see revenues of almost EUR 260 million in Romania, EUR 166 million in Spain and almost EUR 8 million in Italy in the last 3 months of the quarter, totaling EUR 430 million and with other income it is EUR 434 million. EBITDA amounts to EUR 129 million, excluding IFRS 16 numbers, EUR 99 million of which were generated in Romania, almost EUR 32 million of which were generated in Spain. And as I mentioned, the basis of growth comes from the RGU growth, which exceeded 23 million users at the end of the quarter. Of course, Romania continued to be the largest market, with 16.6 million RGUs, Spain having also surpassing 6.1 million RGUs in the quarter. Looking into more detail at our numbers. Basically, you see total revenues and other income at EUR 434 million, up from EUR 385 million a year ago, a 13% growth. EBITDA, including IFRS 16 this time, amounted to EUR 150 million, up from EUR 126 million a year ago, 19% growth. Total CapEx in the quarter amounted to EUR 155 million, and CapEx in the first 9 months amounted to EUR 569 million, as you see on the left part of the chart. CapEx was higher in the first 9 months of 2023, and it will be higher during this year due to accelerated payments that we made for mobile infrastructure, using ECA type of financing, so Export Credit Agency financing. And the adjustment in this CapEx acceleration amounted to EUR 122 million. So without this, the CapEx would be somewhere in the area of EUR 450 million in the first 3 quarters. EBITDA -- sorry. So, revenues in Romania reached EUR 261 million in the quarter, up from EUR 252 million a year ago, a 4% growth. Revenues in Spain grew 30% to EUR 166 million from EUR 128 million a year ago. In terms of EBITDA, total EBITDA amounted to EUR 150 million, as I said before, of which EUR 129 million is EBITDA without the impact of IFRS 16, and here we have growth of 21% year-on-year from EUR 107 million. Commenting on the sales and profitability, just as we have discussion more less repetitive on our every call, this is the result of our growth, the expansion of our network, and growth in customers, both in Romania and Spain. Spain is outstanding with sales growth at 30% and Romania 6% growth including other income. Moving on. We see the RGUs which have also grown impressively by 15% to, as I said, 23.1 million -- almost 2 million units. Mobile is the fastest-growing segment, with 21% growth rate, reaching 10.5 million users both in Romania and Spain. Broadband is the second largest or quickest growing segment, at 19% growth rate, reaching 5.7 million users, from 4.8 million a year ago. And pay-TV in Romania continues its growth at 5%, surpassing 5.6 million users as of Q3 2023. All in all, these are outstanding results, and we are very grateful both to our customers and for their choice to work with us. Looking at the markets, Spain has reached 6.1 million RGUs from 4.6 million RGUs a year ago. Romania, as I mentioned, has surpassed 16.6 million from 15.1 million RGUs a year ago, and we have also a nice growth in Italy of 14%, reaching almost 410,000 users as of September. The quality of sales is represented by portability -- the number of portability. And as you see on this slide, we -- basically, we have Romania and Spain competing with the results being -- with the porting results being quite close in the first 3 quarters in the mobile segment. Romania had 700,000 to 702,000 mobile numbers ported into our network and Spain at almost 720,000 mobile numbers ported into our network. Spain is also outstanding in fixed number portability, with 135 million -- sorry, 135,000 numbers ported during the first 3 quarters. So all in all, this represents high-quality of our growth and of our customer base, and it also shows the achievement and also the trust that our customers put into our services. Just briefly looking at the slide with our financial debt. So you see the total gross debt at EUR 1.5 billion, net debt is slightly above EUR 1.3 billion, leverage being at 2.7x on a net basis in Q3 2024 (sic) [ 2023 ]. As you see -- well, as we were discussing, 2023, has a little -- hasn't had bigger maturities during the year. In 2024, we have just a bit over EUR 100 million in maturities and 2025 has higher number of maturities with -- higher amount of maturities with EUR 600 million being due, most of which comes from first tranche of the bond, EUR 450 million, that matures in February 2025. We intend to refinance the bond tranche mostly using our own sources, but also using the undrawn facilities that we have today, and we expect this referencing to take place in the second part of next year. With this, I'm done with the presentation. I hope I did not rush you all through the numbers, and you're welcome to ask questions, which we will happily address.

Well, thank you very much. And just maybe a couple of 20 seconds, 30 seconds for the questions to start to show up and we'll start. We have -- sorry, we have a first set of questions from Joshua Mills. So one, can you give us update on the remedy progress associated with the Orange/MasMovil deal in Spain? You have said publicly that you are interested in remedies. Can you say how far you are in the process? And what kind of commitments you are willing to make in terms of investments, network coverage, and pricing? When should we expect to get update on this? So thank you for the question. Indeed, we have said earlier that in the light of the possible Orange/MasMovil merger, we are -- we would be interested to take part in remedies. I think at this stage, we can't comment more on this topic. This is how much we can say. But certainly, in the future, whenever the situation changes, we will address this issue and we will communicate to the market more. In any case, with or without remedies, with or without the merger, we are very committed to Spain, we are very committed to continue growing our presence there and to growing in this market. So thank you very much. Second question, when do you expect to launch mobile services in Belgium? And do you have an agreement in place to offer fixed-line, broadband services? How do you think Xavier Niel taking a stake in Proximus could change your relationship with the operator? So it's a long question. Also with having today's news in it. Basically, I did mention a bit earlier in the presentation that it was -- we are very happy to have signed the national roaming agreement with Proximus earlier in August. It will help us to speed up our market launch. And we do expect this -- we are working on it, as we speak. We do expect to launch these services in the second part of next year. I'm not sure I can address the other part of the question. And, yes, I mean, I don't know if Xavier Niel's investment will change anything and I sincerely hope is that what we have is a good deal for both Digi-Citymesh JV in Belgium and also for Proximus, and that nothing should be changed. How many FTTH lines do we have in Spain currently? And are you planning to sell this infrastructure to fund the acquisition of the remedies? I'm not sure if I understand the word a line, what it means. Maybe if it means customers, we have over 1.2 million customers in Spain. Our network has a footprint of over 7.3 million homes passed in Spain. And basically, we -- and I think the main or the most important part of the question is whether this network is for sale. It is not for sale. But once again, we are open to opportunities, and we will consider this question or this topic at an appropriate time. As of today, as you know, we don't have any remedies, and we just execute our strategy as it goes forward. The fourth question is, how much do you pay Telefonica each year in wholesale fees? We are not disclosing this number as part of our reporting, so I would keep this number confidential for now. Okay. So yes, so I hope I did address Joshua's questions. Next question comes from anonymous. How will you find -- sorry, how will you finance the remedies from MasMovil/Orange deal? Well, sorry, so I see that the whole discussion gets turned towards Spain and especially towards remedies. As we mentioned, we can't comment on this stage, and I think making such, let's say, early-stage prognosis is a bit premature. So it is difficult to answer this question, but thank you. A question from Nora Nagy. I have 2 questions. Can you please tell us what resulted in a very low OpEx increase year-on-year in Romania? Is this still due to the energy prices cap as in previous quarter? I think it's a broader question, and thank you. All in all, so a very simple version is, it's our continuous focus to manage the costs and to make sure that we maintain OpEx within limits, which also helps us to provide high-value services but at prices that are affordable. So I'm just repeating broadly our strategy, but this is what we do. And on a more particular level, I don't think it's only energy. So energy was relatively constant. And it's also -- so it's not energy. It's a mixture of costs including salaries, including other costs that we just manage and try to keep as stable as possible. Is the Belgium business launch in second half of 2024 earlier than you expected? If so, what were the reasons behind? So yes, you can say so. With the help of Proximus national roaming agreement, we will be more confident to launch earlier than we previously expected. So yes, the simple answer is yes. Question from Mollie Witcombe. I have 2 questions, please. Do you see the sale of Vodafone Spain as having the potential impact on your business? No. We do not -- I mean, just speaking very broadly, and from a very high level, the Vodafone Spain does not involve any concentration of the market. So from this point of view, we do not expect just the sale itself to have any impact on us and our operations going forward. And the second question, are you still looking to launch in Portugal in the first half of 2024? Yes, we are. So as we mentioned -- as I mentioned during the presentation, we are aiming to start in Portugal in the second quarter of 2024. So next question comes from [ Andrew Webb ]. Regarding Portugal, are there any updates on the roaming agreement or plans for broader fixed-line access? Any update on the timing of the commercial launch? As we speak, we do not have any roaming partnership or agreement in place. We are open to such opportunity. However, it would involve also the existing operators to be open and willing to grant an affordable roaming service, which has not happened yet. And the timing of the commercial launch is just a repeat Q2 2024. Also a question from Mollie, so coming back. There has been some front November promotion activity in Romania, with some very low prices. Could you comment on the promotional pricing environment in Romania? I am not so sure. So I think for us, at Digi, November but also the year 2023 is more or less business as usual. We run our usual pricing promotions and promotions in general. I'm just guessing here, it maybe that you have glimpsed some of the promos related to Black Friday and that may sound different or outstanding. In any case, this is in line with our past activities and this is well reflected in our results, both in terms of growth, but also revenues and EBITDA. A question from [ Alexander Petrovic ]. Do you have any appetite in Meo's assets? When do you expect to launch services in Portugal? I think the simple answer to the first part of the question is that, we are better as an organic growth operator, not necessarily an acquisitor. And our main business case involves operating -- developing and operating our own network, our own assets and so on. But other than that, never say never. And a second question also from Alexander. Do you have plans for refinancing the 2025 bonds with which instruments? So I did mention earlier during the presentation, and more or less, it continues from our previous discussions with you, our investors during the previous calls. We aim to refinance the 2025 bonds in the second part of next year. And at this moment, we aim to use our existing funds. So the cash on balance sheet and the undrawn facilities that we have readily available for this purpose. Another question from anonymous. Why is Spain RGU and revenue growth so strong in Q3? I think Spain RGU and revenue growth is not strong only just in Q3, we had continuous performance of this kind in the last several years. And this is, among other things, due to outstanding performance of our Spanish team, but also our commitments to the Spain market, the investments that we made, and also not lost to the partnership that we have with Telefonica in that market. So all in all, I think and we hope that we have contributed to the competitiveness to the welfare of the Spanish customers. But also, Spain has been very kind to us. Another question from Mollie. You saw excellent EBITDA improvement in Spain this quarter, is this improvement sustainable? Or are there any one-offs? Thank you. I think it's a very nice question. Thank you very much. We sincerely hope -- sorry, we don't have one-offs and we do sincerely hope that it's an improving trend. And when I say hope, I could say also stronger that we are aiming and working to improve profitability also during 2024 and also during 2025. A question from [ Lara Hernandez Lizarraga ]. How far along are the talks with Orange/MasMovil about the remedies proposal? Do you expect this deal to be approved by December 31? Yes, sorry, thank you very much. I do smile answering, but we cannot comment at this stage. Thank you. And second question, what are you hoping to achieve if you get the assets? What are your plans for Spain? How do you balance them with ambitions to expand in other countries, like Portugal and Belgium? I think it's a complex question. And regardless of remedies or, let's say, with or without them, as I mentioned earlier, we are very committed to Spain and we hope to continue our growth there, both in mobile segments, but in fixed segments. We have invested significant capital in that operation. We have been rewarded so far by our customers or the customers that have chosen our services. And we will certainly aim to continue this going forward. How do we balance Spain and other markets? It is a difficult one, but Spain has proven a successful case and for sure we will continue. But we also very much believe in potential of Portugal and Belgium. And we will develop our -- we will aim to develop our services over there as well. Not to ignore lastly, that also the existing or the oldest of our markets, Romania, besides being very mature one, still presents us a very good growth opportunity. And I do repeat myself, but with almost 20% growth year-on-year in mobile customers, 10% growth in broadband services and 5% growth in pay-TV, this is an outstanding performance. So a question from [ Joanna ]. What is your current coverage in Portugal for mobile and fixed network? I think it's less relevant to report on these numbers now. We will certainly communicate this around our market launch. What is clear, we are busy growing our presence and development, but it's a bit too early to share these numbers now. A question from [ Cristian Petre ]. Why did you choose to develop the network in Spain with Aberdeen and not finance in other way, debt equity? Do you plan to be asset-light in the future? Yes, I think it's a good question. It's a long-term one, it's strategy-related. Indeed, going asset-light or asset-heavy, financing yourself with debt or financing yourself through asset sale, these are all valid ways of growth and development. The industry has become very versatile in the last years, both the tower operators, the fixed basically the funds, let's say, the infrastructure funds, the infra companies, the infracos but also the operators have benefited from their presence. Not being -- not doing this type of expansion, in my view, in our view, would be limiting our options and our abilities. We are certainly open to both ways of going forward. We wouldn't want to use only one model or the other. Each of them has their pluses and minuses. I don't think there is a perfect way of financing your operations. But once again, we are open also to the classical financing, but we are also open to use, as you mentioned, asset-light way of operating things. A question from [ Andrew Webb ]. Can you shed any light on CapEx for 2024, even directionally versus your EUR 600 million target this year? So just a small clarification. So our 9 months CapEx, as we mentioned earlier, amounts to EUR 570 million. And as I mentioned before, this number was impacted by acceleration of certain payments, that we have done through ECA-type of financing. Without this acceleration of approximately EUR 120 million, we would show EUR 450 million on -- as CapEx in the first 9 months. Going on for the year, the total CapEx would rather be or is expected to be around EUR 720 million, and the CapEx adjusted for ECA financing would be in the area of EUR 600 million. So the number -- the EUR 600 million number in your question sounds right, but I wanted to just repeat this number to make sure that we are on the same page. Now, for the next year, we do expect the CapEx to be somewhat lower than this year, let's say, on a total basis, so with ECA-type of financing. So, I would expect next year total CapEx to decline from EUR 720 million to range of EUR 600 million, EUR 650 million. I do hope it is helpful and I do hope that it is an extensive answer. There's another question from an anonymous user. Do you think your pricing in Belgium will be similar to your pricing in Spain? It's a bit early on to comment on the pricing. But the general strategy is to provide widely available services, high-quality and at the most affordable pricing in each territory, in each market. So we can't really have one price for all countries, but we try to adjust our pricing to be as affordable as we can in each market. Now, whether it will be similar to Spain? Again, it's too early to say. It may be just as be better than in our Spanish market. I just repeating somehow or emphasizing, in Belgium, we are developing an MNO model, a model based on our own network, while in Spain we have an MVNO operation, which depends on the cost of operators. So, our price flexibility in Belgium should be higher in comparison to Spain. There's a remark from [ Robert Moreno ], asking about cost of capital. But I'm not sure what the question refers to. So the full question is, what is the cost of capital? I'm not sure I have an educated answer readily available. Sorry for that. If you look at our debt overall, EUR 800 million -- EUR 850 million worth of debt are priced at approximately 2.8%. The other debt is priced at more recent and higher levels, somewhere in the area of 5% to 6%. I think it can be seen from the financials. So this is something that probably either clearly seen or can be deducted from the financials. And there's a question again from the anonymous user. Is Romania going to join the roam like at home regime, or remain opted-out? Thank you for the question. Romania used to be opted-out. Romania is a roam -- so Romania operations, so Digi Romania, is applying roam like at home like most other operators in the EU as we speak. So indeed, we -- for some time -- for a number of years, we benefited from an opt-out option, but now we are not using it. So we are using the normal roaming arrangement. Well, this is it for now. I hope it was helpful to all of the participants. We did enjoy the questions and the quality. And we speak to all of you again mid-February or towards the end of February, discussing our Q4 results for 2023. So thank you very much once again, and hope to you soon. Bye.