Orange Belgium S.A. (OBEL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Orange Financial Results 2022. [Operator Instructions] I would now like to hand over to Koen Van Mol, Head of Investor Relations. Sir, please go ahead.

Thank you, operator. Good afternoon, everyone. My name is Koen Van Mol. I'm Director of Corporate Strategy and Investor Relations at Orange Belgium. I would like to welcome you to the presentation of the results of the second half and the full year of 2022. Here with me are Xavier Pichon, our CEO; and Antoine Chouc, our CFO. And as usual, you should have received our financial communication this morning. In any case, you can also find all the relevant information on our corporate website. A Q&A session will follow right after Xavier and Antoine introductory statement, and I will now leave the floor to Xavier.

Thanks, Koen. Thank you very much. Hello, everyone. Hope you are well. It's such a pleasure to have you on board. So, we are honored to present to you our results for 2022. So on Page 3 of our deck. So you can see that we've had very good results, and we are very satisfied with our performance, both commercially and financially. I would say, despite a slowdown of the growth of the market, our customer base continues to grow, especially when it comes to fixed and confidence. Our positioning has been strengthened by launching new innovative products, first confirming our new market positioning. We also have been active from a societal perspective with the Orange Digital Center as well with the Orange Belgium fund. We have been able to provide concrete real assistance to partners active in digital inclusion. 2022 has also been a pivotal year for some strategic steps that have been passed. The recent agreements we have signed with Telenet and the upcoming closing of the VOO transaction and the investment we are making in state-of-the-art technology on our mobile network are the key enablers to execute our convergent nationwide multi-Gigabit strategy. Now let's go into the highlights of the last semester. So Page 5, Slide 5, Head of Danone, sorry, we have signed with standard 2 commercial fixed wholesale agreements. From the moment the closing of the wood transaction has been complete. We will give access to each other's fixed network for a 15-year period. The agreements cover both current hybrid fiber coca and fiber and future fiber-to-the-home technologies in both network areas. With these agreements, we secure access to Telenet's hybrid fiber culture network and to its future fiber-to-the-home network. It is a key enabler to threaten, as we said, our convergent nationwide multi-Gigabit strategy. We will provide tenant access to VOO and Brutele hybrid fiber collection network and to our future fiber-to-the-home network in the regions of the south alone. It will secure Telenet as a wholesaler customer increasing network penetration and return on network investment. These agreements will foster competition and network investment nationwide. Slide #6. So we announced the signing of an agreement with Nethys for the acquisition of 75 minus 1 share of VOO at the end of 2021. The acquisition of VOO is a key is key for our convergent petite strategy. One of the major closing conditions is the clearance of the European emission, which we expect to happen this quarter. The closing is expected to happen in the second quarter of this year after the integration of Brutele. Slide #7. During the last semester, we have taken several initiatives in relation to 5G. Thanks to a plateau effect, we've started to raise the bar on the consolidation of 5G-- of the consolidation and 5G rollout which will lead to a 5G coverage of 40% of the population in 2023 and 90% in 2025. We are deploying a 5G stand-alone core network and cloud native architecture together with our partners, following virtualized end-to-end networks and combining the best of technical IT and data management solutions. Together, we show the full potential of 5G while investing in next-generation services. Another initiative that together with KPN, we investigate our 5G technology can accelerate the further digitization of one of Europe's most important waterways, the west scale. The study by Orange Belgium and KPN aims to define a low-altitude cross-border digital corridor for mobility applications that will make Ports and interland, more efficient, secure and sustainable. The high speed and low latency of the 5G networks will secure and highly reliable connectivity. In addition, after the opening of the first Orange 5G lab in [indiscernible] we have partnered help with the iconic ramps of Liege to showcase our 5G technology. The Orange 5G lab will be used to develop and test innovative and complete new 5G applications in collaboration with customers, prospects and partners. Slide #8, quite of fresh news on the regulatory topics. So we would like to highlight, as I said earlier that we expect the clearance of the European Commission for the VOO transaction in the first quarter of this year, and we foresee a closing before the end of the first semester. Further, the Belgium Competition Authority decided to dismiss Telenet complaint against Proximus and Orange Belgium regarding the Ranger. Slide #9, we have successfully implemented our segmented value and marketing policy. For our residential customers, on the one hand, we have our Orange premium brand. We provide innovative products that provide the ultimate customer experience, for example, guarantee a seamless indoor connectivity. And with respect to the new construction standards, we provide the mesh WiFi aimed at reinforcing the connectivity at home for our customers. We have also launched the new gaming pack, Ultragaming, gamers to enjoy Microsoft Xbox all Access offer which is a niche box console with 24 months of unlimited access to hundreds of games. Under the Orange brand, we also offer a complete offer smart device, which wholly controlled by our mobile application. Also for our residential customers, we have our high brand, which provides the best digital offers on the market, addressing our digital save customers. We have included specific promotions and encouraging loyalty by increasing the data bundles over time. And for our business customers, we provide relevant services such as cloud telephony, security, 5G stand-alone for industrial application and ICT services. Slide 10. In the light of our segmented strategy, we have substantially upgraded all our mobile data volumes and we remain ultra competitive with Ray. We are the only Belgium operator following a more for more logic to absorb the impact of rapidly increasing costs linked to the economic context and continue our network investment we have also adapted several prices. Slide #11, and we go into the key achievement of '22. Our positioning contributed to a good commercial results. have increased our mobile customer base by 2.5%, reaching about 2.8 million customers. During the year 2022, we added 49 new cable customers reaching 443 customers, an increase of 12.4%. These results contributed to an increase by 2% in total revenues, which reached EUR 1.391 billion, whereby the retail service revenue grew by 6.8%. Because of the increase in retail services revenue and management of our costs, we were able to increase our EBITDA by roughly 6%, reaching EUR 374 million. Slide #12. Our revenues grew by 2% over the year in line with our guidance and of low single-digit growth versus 2021. EBITDA has exceeded slightly our guidance with a result of EUR 374 million, while we guided between EUR 350 million and EUR 370 million. Our CapEx of EUR 220 million is perfectly within the range of our guidance for 2022. That being said, I will now pass the floor to Antoine, who will give you more detail on the commercial and financial results.

Thank you, Xavier. Thank you, everyone, for being on the call today. I'm delighted to share with you our commercial and financial results. So let's start on Slide 14 with our cable customer base evolution. We keep on growing, and we gain more and more market share in convergence, thanks to cable. The last 6 months of 2022, we acquired 26,000 new cable customers with 443,000 customers, we have more than 12% increase compared with year-on-year. Slide 15 shows the steady growth of the mobile postpaid customer base. Despite the fierce competition, we consolidate our market share with 36 net adds over the last half year. The main component being the net ads coming from convergent customers. Slide 16 indicates an increase in our convergent ARPU and an increase in mobile ARPU. Our conversion ARPU increased, thanks to our segmented and value approach. The mobile-only postpaid ARPU also increased by 4.4% to EUR 21, also thanks to this marketing approach and increased roaming usage. On Slide 2017, you can see that our revenue have increased by 0.9% for the semester, mainly following the growth in retail service revenues where we have an increase by 7.2%. Wholesale revenues decreased due to the loss of mobile Viking revenues as well as a decrease in incoming traffic. If we go to Slide 21, you'll see the word fall of the revenues for 2022. In our retail service revenues, we see an increase of EUR 64 million in comparison to last year, mainly thanks to the increase of our convergent customer base. Also, the growth of our fixed customer base has contributed to the increase of our fixed and IT service revenues. We also had an increase in our mobile-only service revenues explained by the growth of the mobile-only ARPU in combination with a higher customer base. Our wholesale revenues contracted by EUR 32 million. And in the equipment revenues, we had a decrease of EUR 5 million. On Slide 23, you have the waterfall for our EBITDA for the full year 2022. The strong performance of our EBITDA was driven by an increase in revenues and we have used the retail price increase to offset higher costs due to inflation and higher energy costs. We also continue to manage our costs and therefore, profitability has improved. EBITDA grew by almost 6% year-on-year. Slide 24. We increased our CapEx by 7.8% to EUR 220 million for the year mainly following the implementation of the rent sharing agreement with Proximus. Our net debt amounted to EUR 190 million, an increase following partly payment of the spectrum fees. Gearing remains low with net debt to EBITDA at only 0.5%. Slide 26 and looking forward to 2023. In terms of guidance, we expect a low single-digit revenue growth in 2022 in 2023, sorry, taking into account further uptake on our postpaid and convergent customer base. We target an EBITDA between EUR 360 million and EUR 375 million. In addition, total CapEx is expected to be between EUR 210 million and EUR 230 million. For the outlook, we did not include the acquisition and integration of Voo, also we consider that the current market condition do not change drastically. On the dividend, the Board of Directors will not propose a dividend for the financial year 2022 to preserve cash for future capital requirements such as the full payment of the spectrum fees and the VO acquisition, of course. With this, I conclude the presentation. We are open to your answer your questions.

[Operator Instructions] Thank you.

Yes, David Vagman from ING. First question is on the deal with Telenet. Could you give us a rough idea of the type of savings that you could generate in the north of the country, so in tender versus rollable cable rate. So let's say that's in the north. And in the south, would you rather expect Telenet to be more successful commercially the ambitions all of time a 10% market share. You see them rather being successful on the blue footprint. Is that a fleet in your rate on the proxies footprint? That's my first question. And then the second one of CapEx can you come back on the capitalized expense for this year? So the EUR 253 million reported in the cash flow statement. I guess a good deal of that is the spectrum payment, what is the rest?

Okay. Thanks, David. So on your -- maybe on your first point, so for sorry. On the first question, so sorry about that. But of course, we can't provide any, I would say, detail. Out of those that have been announced through the press release. So we can't answer directly your question on potential savings and the wholesale tariff. So sorry for that. And then for your question on the retail, I would say, goal and ambition. I invite you to, I would say, ask a question directly to the Telenet management. Of course, we can't comment what has been subvented in it on that side as well. On the CapEx side as you said, the EUR 250 million of the CapEx that for the fees -- the spectrum fees that are capitalized for 2022. It's -- we've already paid around half of the total amount due following the auction. The second part will be paid over the course of the first semester 2023, meaning that the rest of the auction payment will be capitalized in 2023? I don't know if it answers your question.

Is there a mismatch, let's say, between the -- I think you -- I think I understand that you paid it weather pressure for the spectrum payment of EUR 178 million this year, I mean 2022 is that correct? Or is it really that you pay out already EUR 253 million.

No, we -- in fact, there are 2 different things. There is the one-shot payment that is being made is the one that we committed to pay during the auction. But you know that there is also as part of the auction rules, I would say, spectrum allocation rules. There are some annual fees that has to be paid and that we also capitalize the net present value of this annual spectrum fees that are on top of what we -- let's say, the one-off amounts that we paid following the auctions. So you have around EUR 200 million, EUR 180 million to be specific that are linked to the one-off that is one-off payments that have been made and the rest of it will be paid in 2023. And you have around EUR 60 million of net present value of the annual fees that will be paid and cashed out over the course of the license during 20 years.

Okay. And we implied change in terms of accounting that they used to be expensed

They used to be expensed, but you may know that there is a different billing model with the licenses acquired in 2022. It has changed from a variable model for the previous licenses to a fixed model, meaning that we can now capitalize on the annual spectrum please.

Thank you. We have no further questions coming from the phone lines. [Operator Instructions] Next question. Caller, please go ahead.

Nicolas Cote-Colisson from HSBC. As usual, on the fiber strategy. I just wonder what you are expecting from the regulator. It looks like there is a market analysis or at least a consultation that should be presented before the end '23. And I suspect it will take time before I conclude. So how do you see Orange Belgium building a network strategy with Voo when the regulation is pending. I'm just curious to see how you plan to deal with the upgrades at those network and decide whether you go for upgrading cable or fiber. So if you can give us a bit of clarity on that, that would be great.

I would say, yes, you're right to say so. Maybe it will take time. But nevertheless, and even if we are working for now of time for years, I guess, to build the more efficient and appropriate FIC network strategy in every region, okay? We actually, we need maybe to, of course, to do it accordingly to the future potential regulation that could be stated and elaborated by the BIPT. So we invite, I would say, the BIPT to pursue its willingness to get some view on that. And of course, to make sure that in the upcoming potential strategy we might have in all the regions, okay, it will be reliable and actually. So this is it. In the meantime, of course, we need to make some decision. We did it with the Voo signing, of course, but to make sure that every, I would say, strategy will be well designed, and we definitely need to get the BIPT view. So, we'll see how much time it will take. But at the moment, of course, I guess maybe this is exactly what has been said by Proximus, a couple of weeks ago during the Capital Market Day. And this is the work that the PT gets on its plate, and we are, I would say, eager to see what will happen on China.

Also, you mentioned Proximus, okay. But at least on that side, they invest on fiber. And so it looks like there's a lot of delay between Proximus and yourself and also Telenet, and it looks like will remain for some time. So you're not too worried about this asymmetry of technology that will be perpetrated in the next couple of years maybe.

Yes and no. It depends on what we will be authorized to deal and with whom and where. So that's why we are eager to see what could be the BIPT view on that side. Nevertheless, as soon as we can, I would say, have direct and deep access to the Voo that are on that side. We'll see what could be the best option for the years to come in the sales and of course, in Brussels. So this is it. Our strategy is to deliver this multi-Gigabit network capabilities everywhere. So will design and disclose what could be the best options for the South and Brussels South as soon as we are able to do. We'll see.

And if you allow me, just a very quick follow-up. So you mentioned you should refer to Telenet when it comes to share that you may be able to answer the question of the kind of market share you intend to capture in Flanders then?

The one we are intending to catch in Flanders you mean?

Yes, obviously, your strategy because obviously, they come to you and you are already -- well, you don't give the split between achieving impact -- and in varun. So I'm just wondering if you have the same type of market share targets on the other side?

You mean Orange in vendor or our view of Telenet in the sale?

No, no, no, no. Of you in vendor. -- more easy for you to answer, I suspect.

But we -- I said one day that we aim to reach 20% nationwide. So it could be interesting to see the math with the sales potential future sales, market share in the sales and then in Brussels as well. So of course, we are signing and we've signed our commercial agreements in the north and us to make sure that we were able to provide this key enabler that is the utilit network for the next year. So of course, our ambition either on network, but also on retail market share is, I would say, to get, yes, a larger pace piece of the market. So I don't want to provide any figure and precise figures, but lenders is, of course, one of the key growth territory for Orange in the future. So this is. So our ambition is to grow everywhere. But I want to provide any specific, okay. Maybe one day, we'll do the math between our market share and the fact that this deal will be closed in the cells. But honestly, we are a nationwide provider. We are a nationwide MNO. I think our product on the Orange and Hey brand are B2C and B2B. RealD for every region, including good performance we're now having in the North. This is it. So we do have a great ambition in north as well, not only the South of course.

Next question, caller, please go ahead.

It's David Vagman from ING. So coming back on the, let's say, fiber and the rollout for the coming years. What is your view on Proximus IFB initiatives, the fixed 25% coverage of the footprint I would say, yes, maybe again by region. So as you look at it in tenders, given that actually, you have this agreement with Telenet but in the south where the situation is obviously a...

Thanks, David. Actually, this initiative is, I would say, a part, of course, of our whole thinking about that, particularly in the sales. It's interesting, I would say, initiative that will be put in the landscape. And actually, this is also something that could connect the us with what I said on the market study done or that will be done by the BIPT. It of course, includes every, I would say, part of the territory, including these less dense and rural areas that are maybe linked to this project. So we will look, I would say, and have a look on every single initiative, and we will make the right choice either for the investors and the clients of Orange, depending on the landscape in the region. And this one, of course, will be part of our study.

That's very clear for the South for the North?

I think that this -- is there any initiative.

Okay. Okay.

Okay. For the North, I think for -- first, the IFB business initiative with I think is still relatively unclear when it comes to the economics and even the coverage areas for the moment, we have an agreement with Telenet. It will cover 100% of the territory.