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

Good morning, everyone. Our apologies for this slight delay that we had due to some technical reasons, but now we can start. So I would like to welcome you to the presentation of the results of the second half year and the full year of 2023. Here with me are Xavier Pichon, our CEO; and Antoine Chouc, our CFO. 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's and Antoine's introductory statements. And I will now leave the floor to Xavier.

Thank you, Koen. Hello, everyone. Hope you're well. Welcome to this analyst call for 2023. So we'll start with Slide #3, I guess. So 2023 has been -- it's definitely been a crucial and pivotal year for Orange Belgium. A major event is undoubtedly the acquisition and the integration of VOO. The milestone event has made us stronger in the market and has significantly reshaped our strategic landscape. Following the acquisition, we embarked on a journey to transform our organization into a unified entity operating as one company. Our goal has been to maximize value creation and materialize synergies resulting from this strategic move. Looking ahead, we have been laying the foundation of our Lead the Future strategy, which is designed to propel us forward in the ever-evolving market landscape. Now, regarding this and as it comes to Slide #4, so our first pillar of our Lead the Future strategy centers around establishing ourselves as a leader in multi-gigabit networks. As we already announced earlier, I'm proud to say that we have made a significant stride in these directions. We have achieved a remarkable milestone, whereby we are the first operator in Belgium with 95% of households now enjoying very high broadband speeds up to 1 gig, thanks to our relentless focus on network infrastructure and expansion. Additionally, on our mobile network, we have made substantial progress in the deployment of 5G technology with 30% of our sites now equipped to deliver the next generation of connectivity. Our investment in the new 5G Core SA further solidifies our commitment to staying at the forefront of network innovation. Moving on to the second pillar. We placed a paramount importance on delivering exceptional customer experience across a multi-segmented ecosystem approach. Just after the closing of the acquisition of VOO in June, we have made significant strides in this area. We are transitioned to -- we have transitioned to operating as one unified operator, streamlining our commercial strategy and adopting a unified go-to-market approach. Furthermore, our strong and complementary brand portfolio enables us to accommodate diverse customer needs and preferences, enhancing overall customer experience. Our third pillar underscores our commitment to being a resilient, modern, and responsible company, guided by strong human and ESG values. We are proud to announce that nearly 100% of our people now work within our One team organization, fostering collaboration and innovation across the companies. Furthermore, we have exceeded our digital inclusion ambitions, ensuring that everyone has access to the digital resources they need to thrive in today's connected world. Additionally, we are on track with our CO2 reduction target, demonstrating our dedication to environmental sustainability and corporate responsibility. Moving to Slide #5. I will provide an update on the integration of VOO. This acquisition has been a significant strategic move for us. I'm happy to report that our integration efforts are progressing according to plan. Since the acquisition, our teams have been diligently working to ensure a seamless transition for both of our employees and our customers. We are focused on aligning our operations, systems, and processes to maximize efficiency and unlock synergies. With our combined strengths and shared vision, we are well-positioned to capitalize on the opportunities that lie ahead and deliver even greater value to our stakeholders. A major element in the integration of VOO is the consolidation of our operations to act as one operator on the market. This strategic alignment allows us to streamline our resources and present a unified presence to our customers. By operating as one operator, we can leverage our combined expertise, infrastructure, and resources to deliver enhanced services and experiences to our customers. This approach also enables us to optimize our market position and drive sustainable growth in the competitive landscape. This commitment to unity underscores our dedication to delivering value and excellence across all facets of our business. We have established also a common and aligned network strategy. This strategy ensures that our infrastructure investments are coordinated and optimized to deliver the highest quality of service to our customers while maximizing operational efficiency. Furthermore, we have aligned our commercial operations and objectives to create a cohesive approach to market engagement. By aligning our sales, marketing, and customer service efforts, we can better meet the needs of our diverse customer base and drive revenue growth. To support these initiatives, a new organization structure has been put in place to enhance efficiency and agility. This structure enables clearer communication, faster decision-making and improved collaboration across teams, ultimately driving better outcomes for our businesses. Our synergy plan, which outline the specific actions and initiatives to capture value creation has been confirmed and is operationally on track. By executing this plan effectively, we will realize the full potential of the VOO integration and deliver maximum value. That being said, I will now pass the floor to Antoine, who will give you more details either on the commercial and the financial results for 2023.

Thank you, Xavier. Hello, everyone. Thanks for attending this call. So let's take a look at our key achievements of 2023. Our positioning, our more-for-more approach and our complementary brand positioning contributed to a very good commercial result. We have increased our mobile customer base by 4% on a comparable basis, reaching about 3.3 million customers. We didn't have such an increase of our customer -- mobile customer base since the beginning of 2020. During the year 2023, we increased our cable customer base by 5.5%, reaching almost 1 million customers. This result contributed to an increase by 4.6% in total revenues, which reached EUR 1.750 billion, whereby the retail service revenue grew by 6.2%. Because of the increase in retail service revenues and tight cost control and despite the inflationary and energy prices impacting throughout the year, we were able to stabilize our EBITDAaL to EUR 451 million. Comparing on Slide 8 our results to our guidance, we see that we have on a comparable basis a growth of 4.6% in our revenues. Our outlook originally guided to low single-digit growth in comparison to 2022, which we clearly achieved. When looking at our EBITDAaL, we are slightly above our initial guidance that was between EUR 430 million and EUR 450 million. And when it comes to eCapEx for the year 2023, we landed at EUR 304 million, an increase in comparison to 2022, mainly following the implementation of the RAN sharing with Proximus with the implementation of the 5G network, as well as the upgrade of our cable network to a gigabit network. Nevertheless, we remain clearly within the guidance range we provided, which was between EUR 290 million and EUR 310 million. On Slide 9, when looking at our customer base, we can see that we are approaching 1 million cable customers combining Orange and VOO customers. From a comparable basis, we've increased our base, as I said, by almost 6% and our mobile customer base by 4%. On Slide 10, our revenues have increased by 5.9% for the semester, reaching a bit more than EUR 1 billion, mainly following the growth in retail service revenues. The service revenues increased following our more-for-more approach in our retail offers as well as thanks to the growth of our customer base. And our wholesale revenues decreased because of the decrease in incoming traffic, both in voice and SMS. But as you know, this has no real impact on our EBITDAaL as the traffic is very balanced. Our equipment sales and other revenues also increased over the year. On Slide 11, we had the waterfall for our EBITDAaL for the second semester of 2023. The stabilization of our EBITDAaL was driven by an increase in revenues for EUR 56 million, which permitted to offset an increase in costs that we had in comparison to last year. Our direct costs increased mainly because of the increase in volumes. So increase in labor has been a consequence of the mandatory indexation of the wages in Belgium. And we also had an impact on our indirect cost, as I just mentioned, because of the high energy prices we had over the year. On Slide 12, we increased our eCapEx by 4.1% on a comparable basis, mainly following the implementation of the RAN sharing agreement, the rollout of 5G, and the upgrade of VOO's network towards gigabits. On Slide 14, let's look forward to 2024. So we -- in terms of EBITDAaL, we foresee around -- guidance is around between EUR 515 million and EUR 535 million. And total eCapEx is expected to be between EUR 365 million and EUR 385 million. With this, I conclude this presentation and more than happy to answer all your questions.

[Operator Instructions] Our first question is coming from David Vagman of ING.

First, on the 2024 guidance range, the EBITDAaL. Can you elaborate on the different scenarios, including factoring in the range concerning Digi? And in particular whether you expect them to launch a fixed offer or not in this scenario? Secondly, on the CapEx, can you come back on the step-up for next year? So also concerning the guidance for 2024, can you explain the step-up in eCapEx? I understand it's mostly HFC-related. So can you guide us and explain whether HFC requires even more investment beyond 2024? And could you elaborate a bit on the split, let's say, between maintenance and pure network upgrade in 2024? And third question, on the cooperation discussion for fiber, could you describe the progress that are being made? I understand it was getting close to the soft deadline set by the regulator in May.

So maybe on your first, I would say, market-related question, of course -- I guess that -- and you can imagine that we won't disclose any specific topic that have been embarked in our plan, of course. What I can do in the forefront of what we have experienced in the past across the group that, as we already said, we know what is the fourth entrant or what is the newcomer, I would say, because we experience that in our several footprint across Europe. We know what could be, of course, the strategy of these bodies. But actually, we don't know what will be the choices that will be made by the newcomers. And I say that there is not only Digi coming up, but also Telenet in the South as well. So we have embarked, of course, some impact in this guidance, but we won't disclose anything on that moving forward. Maybe on your question #2 -- and I will let Antoine having some specific potential information on that. But of course, we have planned to start in FTTH rollout, as we said in the past. We do have a kind of agnostic technical policy for customers, which means that now we are -- we do have the leadership in terms of very high broadband all across the country with our 95% 1 gig coverage. And of course, we will start, of course, rolling out fiber. But also on this topic, we won't disclose any specific, I would say, strategy. Just say that we'll do that, of course, in the course of our -- what could be splitted across either the country in the South, but also that could be something with partners, as you said on your last point. So no change. We will do what we said, I would say, moving forward on the FTTP. But sorry for that, but we won't give you any precise information.

Just to add a few things. So as mentioned by Xavier, yes, this -- behind the increase of our eCapEx, there is the first FTTH rollout in Wallonia and Brussels. By the way, we have also some CapEx to install our active FTTH equipments in Flanders, leveraging on our wholesale agreement with [Audio Gap] wire. We have also a peak of our CapEx when it comes to the RAN sharing and the 5G rollout. So 2024 should be the peak of this projects, and that the main -- the 2 main impacts that explain the increase of our CapEx for 2024. And maybe, Xavier, the last question regarding the fiber cooperation.

Yes. As I said and as we said, so -- sorry. So as we said on your last mile -- on your point, so we said that -- and we are -- maybe you -- the first one, just to ask for more, I would say, collaborative topics, including regulatory upfront on the FTTP. But we'll see depending on, of course, our negotiation with stakeholders across the market what could be the best way to deliver value, to create value on that side, including the fact that the time to market, the cost, of course, of the rollout, of course, is key in our strategic plan. So there is no, I would say, specific information at the time. And then since we would have agreed with something with somebody, okay, we will keep you posted. But one thing is very, very clear, that we will count on both architecture, either HFC and FTTP [Audio Gap].

Hello. This is the operator. Is this for the Orange call? Okay. I don't know what's happening, but your line went to silent. I will put you right back in. One second, please. Stay online. Your line will be live. One moment. Okay. Ladies and gentlemen, the speakers have rejoined. Please go ahead, gentlemen.

Okay. Sorry. So again, David, on your point #3. So we've always said, and we've been, of course, in favor of encouraging potential collaboration in the South, of course, in the south of Brussels as well with either partner, operator on the FTTH rollout. So far, we don't have any, I would say, precise information to give to you and to the market. One thing is, of course, we'll start in '24 rolling out the -- deploying the FTTH in our footprint and then, as said by Antoine, also to invest on active equipment in the North. But so far, okay, we can't provide any specific information on that side on the collaboration with potential partners.

And maybe Antoine about the, let's say, a bit the normalization of CapEx going forward. Let's say, what is -- does HFC requires more investment also beyond 2024?

After 2024, the -- we will have a slight increase of our CapEx even if we don't give a formal guidance, but it will be linked to a FTTH rollout and HFC modernization.

What we'll do now is we'll move to our next question, which is coming from Nicolas Cote-Colisson from HSBC.

Just back on the guidance. I appreciate you can't provide all the moving parts and all the details. But can you tell us if you have synergies or rather integration costs embedded in your forecast for EBITDA? And also, if you can remind us what would be the average price rise expectations for 2024? And would you expect this to translate into additional EBITDA, something we haven't seen in 2023? I've got another question about kind of a long term or kind of a very difficult question about your assets and the control you may have in theory, whether you are more inclined to keep control of your cables/fiber and mobile towers in the future? And I may have a follow-up question after that.

Maybe we'll start with the last one, Nicolas. So of course, the moment where we are at the moment is much more focused to, I would say, invest to take the leadership either on the fixed and mobile, of course. So this is why we decided to buy this asset, of course. As a HFC, we will -- I would say we will speed up -- we have speed up a little bit on the DOCSIS [indiscernible] installment to make sure that we will keep the leadership. And then -- so the question to us is at the moment to make sure that we will keep the -- I would say, the leadership, but also the ownership of this asset. This is very important. You know that elsewhere in the group this is something we can count on. And the question would be in Belgium to replicate this strategic, of course, position and to make sure that we will Lead the Future in terms of gigabit network. So broadly, I guess, now we are moving forward on keeping this leadership in the future to first finalize and end, I would say, the [ hunchain ] operations on the mobile to make sure that also we'll have the 5G deployed across all the regions, but also on the fixed, to continue to modernize and expand a little bit the network on HFC and then invest on FTTH. So this is why also this ambition is nationwide across all regions, thanks to also the agreement we signed with Telenet wire in the North.

Antoine, just on the HFC and the expansion you just mentioned, is that like the 95% going to 100%? Or is there something else?

I guess what we said a couple of weeks ago is we aim to maybe move a little bit from 95% to 97% or, I would say, 98% at least, but we won't have 100%. And of course, this is not affordable in terms of -- either on cost and ROE. So this is it. But having maybe much more -- 97% would be a big deal in terms of value creation and position of leadership.

Regarding your first questions, the first one on synergies. Of course, the -- we have a significant bucket of synergies embedded in this guidance. We completed at the end of 2023 a migration of all VOO mobile customers on Orange networks. And that was successfully done and we are very satisfied of this achievement. We are delivering the first purchasing synergies. Of course, it's still the beginning and we are far from the run rate of purchasing synergy in 2024. But it's already quite promising. And so, yes, we have a very nice positive impact of all the -- and I'm talking of net impact of all the synergies in 2024. And most of the integration costs you mentioned were booked in 2023. So it should be rather limited in 2024, except for maybe a few IT CapEx linked to some IT projects that are linked to the integration. And that will enable us to unlock further synergy in the future. On your second question, yes, we had some price increase at the beginning of the year, always in our compliance with our more-for-more strategy. So we give more value to our customers in relation with the small price increase. And what I can tell you is that, yes, it will have a positive impact on our margin in 2024 compared with 2023, where we had a major cost impact due to inflation and energy price hike.

Okay. That's very clear. And so my follow-up question is on what you announced back in November about this 25% of VOO. So you said you were to issue new shares, 11%, eventually to Nethys to buy the minority stake. Can you just help reconciling the EUR 279 million liability you still have on the balance sheet, because I can't reconcile that with the lower value embedded in your market cap? So just to understand what am I missing here.

I won't comment in detail this transaction because all the surrounding governance is currently being done. So we have the independent directors who are assessing the transaction, where auditors are assessing the transaction. And the board didn't -- we'll still have to review the whole documentation, et cetera. So we will provide you with all the relevant information on this transaction I hope in March and all the documentation will be disclosed at this moment. What I can tell you specifically regarding your question is that the equity value of VOO at closing, which is the EUR 279 million that we have in our balance sheet also and that we disclosed, this includes significant synergies that will be -- that's the -- all -- this includes all the synergies that we embedded in our purchase price for VOO, including some synergies that will be realized and captured at Orange Belgium level, especially the -- notably the -- all the MVNO-related synergies. That means that when you have to assess the fair market value of VOO to define the exchange ratio and the 11% you mentioned, we don't have -- we can't value this synergy at VOO level and we value them at Orange Belgium level. So that explains most of the difference between the fair market value of the equity value of VOO and the EUR 279 million. But we will...

So it means that sometime in March when the deal is completed and agreed with the Board and so on, eventually, these 270 -- well, you said there could be some upside here?

Well, if I mean -- I'm not sure...

Well, you don't have to answer.

Okay. I'm not sure I understand...

[Indiscernible] that question.

There won't be upside on this topic. This topic will be treated, I would say, including the fact that there will be some exchange between VOO and Orange for the Nethys' minority stake. Of course, they will become a minority shareholder at OBE. And then this EUR 280 million will be treated as well. But it is something that will be, I would say, as Antoine said, disclosed in March. But there won't be any upside on that side.

Our next question will be coming from Joshua Mills of BNP Paribas Exane.

A couple from me. The first is, could you provide us with the pro forma revenue, EBITDA, and CapEx basis for 2023, assuming that you are consolidating VOO for the entire 12 months rather than just 7. And I'm just trying to use that to work out the underlying growth, which is implied by the guidance. Because if I take the run rate of the second half, EBITDA, for example, it looks like the guidance for EUR 515 million to EUR 535 million of EBITDA next year is assuming a decline. And the second question is, again, similarly related. But it looks like on a comparable basis, EBITDA growth and in broadband net adds weakened this semester versus first half of the year and then the second half of last year. So it'd be great to get a bit more color on what's happening to the underlying growth and the mix shift within the base. Are you seeing continued strong broadband net add growth on Orange Belgium and losses at VOO? Or has both the Orange Belgium and the VOO broadband net adds slowed down relative to last year?

I think we already disclosed the pro forma for 2023 -- for 2022, yes, for the whole year of -- so it can give you an [ idea ]. And we, yes, will have a nice EBITDAaL growth year-on-year if we -- on a comparable basis. And if we include -- value Orange for the -- VOO for 12 months instead of 7 months, so the EBITDAaL -- the pro forma EBITDAaL is a bit less than EUR 500 million. I think it's for EUR 495 million for 2023 when it comes to EBITDAaL. So if you compare it with our guidance, you see that we have a nice EBITDAaL growth. So we plan to have a nice EBITDAaL growth over the years. For the -- when it comes to the net adds, we have -- slightly true that we have slightly less net adds at full level in S2 2023 compared with S2 2022. But it's not very material. And it's offset by better net adds at Orange Belgium level. So yes, that's -- and that's -- also that could be also explained by the migration of VOO clients to our mobile customer base. This is a mobile network. It means that the focus was more over the last semester on this migration and on the management of the customer satisfaction, over this journey, rather than on new customer acquisition. But it's -- we are still very satisfied with the VOO performance in terms of upselling to their fixed -- of broadband customer base upselling some mobile offers.

Our next question is coming from Konrad Zomer of ABN AMRO ODDO.

The first one is on energy prices this year. They've come down significantly from the peak a while ago. Do you have any idea what the year-on-year impact would be on your EBITDA in 2024 versus 2023? And my second question. It does come back to your guidance, and I know you've already talked about it in 2 previous questions, but it's a bit difficult for us to assess what the breakdown is of what is included in your guidance. So maybe you can clarify again what's the full year consolidation effect of the additional 5 months of consolidation this year? What do you intend to achieve in synergies? And what the underlying growth is for your existing business, please?

For the first question, we'll have a very positive price effect when it comes to energy prices this year compared -- in 2024 compared with the prices we had in 2023. By the way, we are entirely -- now entirely hedged for 2024. And the EBITDAaL impact year-on-year should be around EUR 6 million because this price effect is partly offset by the volume impact. It means that we consume -- we plan to consume more -- a bit more energy year-on-year because of the -- notably the 5G rollout and 5G antenna consumer -- as you add more bandwidth on your network, you also have more energy needs. But the net impact will be around EUR 6 million. So that's quite positive. And yes, I understand it's quite difficult for you to assess all the -- to have a full breakdown of our guidance. But as Xavier said at the beginning of this call, we can't disclose all our, I would say, business assumption on the market for 2024. So we can't disclose this detailed breakdown. But yes, we have some market impacts that are more than offset by our synergies and our more-for-more approach. That's what I can tell you.

[Operator Instructions] We'll move to Roshan Ranjit of Deutsche Bank.

I've got 2, please. Just going back to the guidance and on CapEx, I know you highlighted the upgrades of the fixed network, but you also highlight the RAN investment. So I guess that's part of your mobile JV and any equipment for [indiscernible]. Is it possible to give us a sense of what part of the step-up in CapEx comes from that component, so the mobile JV investment, please? And secondly, I guess we haven't got any ARPU trends, of course, given the VOO integration. But can you just give us a sense of how that has tracked in comparison to your price increase? I think price increase last year was 5%. Should we -- has that been a direct translation through to the ARPU, bearing in mind the dilution that you kind of have from the VOO base? Are they moving across to some of your own OBEL plans as well? Anything you could say there will be very helpful.

For the first question regarding our guidance CapEx and the split between what comes from the fixed network and what comes from the RAN investments, you have more or less 40% of the increase linked to the [ hunchain ] and 60% coming from all the fixed network. And when I say fixed networks, also it includes customer equipments. It includes the -- of course, the rollout, the start of fiber, et cetera. So it's a bit less. It's 35%, 65%, more or less. On your second question, we won't disclose our ARPU forecast for the year. That are behind the guidance. But what I can tell you is our price increase in the beginning of 2023 translated into ARPU just according to the plan. We didn't have significant down sell following the price increase and the more-for-more for the more data allowance. So we had obviously a bit less out-of-bundle consumption. That's also part of the plan, is to reduce the out-of-bundle from our clients so that they don't have any surprise at the end of the month. But all-in-all, yes, it all went according to our initial forecast for 2023.

We also now have a follow-up question from Nicolas Cote-Colisson of HSBC.

Yes. So it's going to be a short one. Just to make sure I got the number right, can you just repeat the pro forma EBITDA for 2023, you mentioned earlier?

EUR 495 million.

EUR 495 million. Okay. And just another easy question. You don't provide any more the convergent customer base, neither the ARPU for the different products. Why is that? Why are you reducing the disclosure on that front?

Nicolas, globally, I would say, roughly speaking and globally across this particular year that we will enter, I would say, in '24 -- sorry to be a bit deceptive on several, I would say, items. We talked about network gigabit with the spread with HFC fiber. We talked about our market potential assumptions for '24 and all these newcomers and this, of course, disruptive environment that we could face. And in the line of that, okay, we decided to shrink the number of items that we disclose. Sorry for that. We know that it's a bit hard for you guys to live with, but this is it. You know that this particular year, 2024, will be different. And then that was the addition we made for several items we disclosed in the past. Sorry for that.

I just wanted to check to the reason why. And a very short one. Any upfront cost ahead of Telenet taking your wholesale offer in Wallonia? I'm just wondering is there any fixed cost that -- or upfront costs on your side?

Not -- honestly, not much. We are working well with Telenet. And of course, we will respect our obligation from them. But there is no major cost issue on that. And totally, of course, embarked in our guidance for '24 on that side, of course.

We also have a follow-up question from Joshua Mills with BNP Paribas Exane.

It's similar to the last one. I think I may just have missed this, but have you actually disclosed that pro forma EBITDA in any of the documents? And if not, could you also give us the same numbers, if you can, for revenue -- service revenue and CapEx in 2023? Because it would just be a really helpful way of thinking about modeling the growth on a pro forma basis for 2024.

Yes, it's not disclosed yet. But of course, it will -- we will disclose all this information when we would publish our 2024 results in July and, of course, in Feb 2025 to enable this comparison.

So you've obviously given the number for EBITDA. Could you -- would you be willing to give a number for revenue as well so that it helps us with our modeling?

I think I told you that we will have a slight increase of our revenues over -- year-on-year and including this pro forma.

Ladies and gentlemen, as we have no further questions, at this time I'll turn the call back to the organizers for any additional or closing remarks.

We still have some questions which are coming from the chat, which are from Ganesha Nagesha from Barclays. So the first question is, what is your view on the regulatory co-investment framework? Are the discussions underway with your peers? And the second question is, will VOO network modernization will be largely complete in H1 '24? Could you please provide some color on progress so far?

So on your first maybe topic. So as we previously said, so we were, of course, encouraging in the past some open discussion, and in every single, I would say, areas, including very dense, mid-dense and rural areas. So this is something moving forward. But we won't specific -- we won't, sorry, disclose specific information on that at the moment. And maybe on your question #2 -- sorry for that -- with VOO network we will largely complete -- largely -- yes, as we said, so we are working on, I would say, having, of course, on a short-term basis but also on a long-term basis the network leadership in terms of gigabit and then multi-gigabit speed in the future. So of course, we will continue to either modernize and expand, as I said, from 95 maybe to 97, or something like this, our footprint in the south of the country. I'm not so sure that it will be totally complete in H1, but I think '24 and maybe last mile in '25, as said by Antoine, on that HFC network will be done. The future is much more colored on the FTTP -- FTTH network investment and potential co-investment. Thanks a lot.

Okay. As there are no further questions, I would like to thank you for the participation in this analyst call. Would you have any follow-up questions later on, don't hesitate to contact us for any more information that you would need. Thank you very much, and have a nice day.

Thank you very much, sir. Ladies and gentlemen, this concludes today's presentation. Thank you for your attendance. You may now disconnect. Have a good day, and goodbye.