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

Okay. Good morning, everyone. I would like to welcome you to the presentation of the results of the first half of 2024. Let me first apologize for the issues that we have with the bridge, which is due to the global outage of Microsoft Cloud. That's why we are doing it now via this Zoom [ conf ] call. So we will first start with the presentation. The Q&A, that will follow after. I -- you can indicate via the chat that you have a question, and then we will point to you to ask your question. So, I will now hand over to Xavier for the introductory statements.

Thanks, [ Ko ]. Welcome, ladies and gentlemen, for the presentation of this results of the first semester of 2024. Let's go now into the Section 1 where we'll highlight the main moments of the semester [ within ] our strategy called Lead the Future. Slide 4. So, one of the major moments this quarter was Nethys' strategic decision to exchange its shares in VOO for Orange Belgium shares. This transaction has positioned Nethys [ as ] a shoulder [ of our ] -- in Orange Belgium with a notable 11.1% stake in the campaign. As a result of this exchange, VOO has now become a fully owned subsidiary of Orange Belgium. This consolidation not only strengthens our position in the market, but also sets the stage for enhanced synergies and operational efficiencies within our organization. Slide 5. On this slide, so we want to share a significant milestone we had this semester. Orange Belgium has [ probably ] become the first telecom provider in Belgium to offer a nationwide gigabit network. This achievement comes 6 months ahead of our initial schedule, thanks to the dedication and the hard work that has been done by our team and strategic partnerships. In June 2023 we launched our ambitious Lead the Future strategy, aiming to provide all Belgians with one gigabit coverage by mid-2024. Through our long-term agreement with Wyre, the joint venture between Telenet and Fluvius, and accelerated modernization of VOO HFC's network, we have surpassed our goal, and since the beginning of the year we can now offer this high speed connectivity to 95% of Belgium households. Our efforts have positioned Belgium among the leading countries in Europe for gigabit connectivity, aligning with the European Union's Digital Decade program which targets one gigabit connectivity for all by 2030. By democratizing access to the fixed gigabit internet, we are significantly contributing to Belgium digital advancement. Slide 6. So on this slide, [ we'd ] like to update on our progress as we continue to lead the future and deliver on our strategic goals for 2024. Our efforts are concentrated in three main areas, the one you can see on the slide. First one, multi-gigabit network leadership; [ pillar ] number two, customer experience excellence; and then [ pillar ] number three, a commitment to people and ESG values. Firstly, [ our ] future is defined by an outstanding multi-gigabit network leadership. As I said earlier, Orange Belgium has taken the leadership in nationwide gigabit -- as a nationwide gigabit network provider. We have made significant improvement in 5G coverage as well, modernized our HFC network, and we are set to launch our Fiber Proof Of Concept. Secondly, our future is shared by a commitment to customer excellence experience, where we manage a multisegmented ecosystem and approach. We have launched a new range of mobile subscriptions catering to the entire family, introducing new portfolios for Orange, hey! and VOO. Moreover, our [ POC ] for WBCC, the call center of VOO, with Orange customer, has been a success. These initiatives is a testament to our [ promise ] that is, Orange is here to provide empowered customer experiences. Lastly, we care deeply for our people and are committed to being a resilient, modern and responsible company with strong human and ESG values. We have expanded our refurbishment efforts, ensuring [ substantially ] remains on core focus. Additionally, we have supported BuD-IT, the Belgian no-code start-up program fostering innovation and growth in our community. In summary, [indiscernible] Belgium is on track to achieve our 2024 strategy, leading with advanced network solutions, exceptional customer service and a robust commitment to [ societal ] and [ environmental ] responsibility. Now, I'll let Antoine comment the Section 2. Thanks. [indiscernible], [ go ahead ].

Thank you, Xavier, and hello, everyone. I'm pleased to share our results with you today. So let's take a look at our main achievement for the semester on Slide 8. On a comparable basis, we've reached a very nice 4.5% increase of our mobile and cable customer base, which means that we continue to increase our market share on both mobile and broadband. Let me also highlight the highlights. We've achieved a significant milestone by surpassing 1 million cable customers in Q2. This underscores our strong market presence and the growing demand for our broadband services. When it comes to the financial results, I want to highlight our solid revenue growth, 2.5% and our remarkable 14% EBITDAaL increase year-on-year. This growth in EBITDAaL is a result of the successful implementation of synergies, [ but ] [ notably ] the migration of NBN customers of VOO to the Orange network. Additionally, we had some successful litigation and some positive seasonal effect this semester. Lastly, our eCapEx excluding license fees has increased by 7% year-on-year. This is an investment [ discretion ] for our continued growth and technological advancements, particularly in our mobile network through [ HAND ] sharing and 5G as well as in our fixed network through HFC upgrade and the start of our FTTH program. In summary, the first half of 2024 has been a period of solid growth and very strong EBITDAaL performance for Orange Belgium. Let's turn and deep dive on Slide 9 on our key metrics for our cable and mobile postpaid customer base and net additions for the first half of 2024. Starting with our cable customers. We've added 18,000 new cable customers in H1. This consistent growth highlight our ability to attract and retain customers in a competitive market. Moving on to our postpaid mobile customers. We've also seen a steady growth. As of H1 2024, we've reached 3.4 million postpaid customers. This reflect our strong performance and successful strategies in the Convergent and Mobile segments. Regarding net addition in the postpaid mobile segment, we've added 74,000 new postpaid mobile customers in H1. This growth is a result following the progressive activation of the Flemish Government service contract, and it's also important to note that full figures have been included as of H2 2023, which has contributed to the significant increase also in our customer base and net additions. So, in summary, H1 has been a period of robust growth for both our cable and mobile postpaid customer bases. We continue to attract new customers, reinforcing our leadership in this market. On Slide 10, let's take a closer look at the comparable revenues evolution for the first half of 2024. Our total revenues have grown by 2.5% year-on-year, reaching EUR 977 million. This growth is mainly driven by an increase in retail service revenues. More specifically, Convergent service revenues contributed an additional EUR 31.7 million. However, this growth has been [ tempered ] by a decrease in mobile only services and fixed and IT services, which saw a decline of EUR 5.6 million and EUR 1.2 million, respectively, with also a decline in wholesale revenues, which does not impact our margin. And on a more positive note, equipment sales and Other revenues have increased, contributing an additional EUR 5.6 million to our revenues. In summary, our revenue growth in H1 is a testament to our [ effective ] strategies and strong market position. We continue to see positive trends in our core service areas, driving our financial performance. Let's now turn our attention to the comparable EBITDAaL evolution for the first half of 2024, as shown on Slide 11. Our EBITDAaL has seen an [ important ] increase, growing by almost 14% year-on-year on a comparable basis. This increase is, as already said, mainly due to service revenue growth and a strong contribution from synergies and especially the migration of VOO customers to Orange network and some positive one-off. On a comparable basis, revenues have contributed an additional EUR 24 million to our EBITDAaL, reflecting our strong financial performance and effective revenue generation strategies. Direct costs increased by EUR 5.8 million mainly because of increase in volumes and labor costs have remained relatively stable with a slight increase of EUR 0.2 million, indicated effective workforce management. Indirect costs have been well controlled with a modest increase of EUR 1 million, demonstrating our commitment to operational efficiency. On Slide 12, let's now take a look at the comparable eCapEx evolution for H1. Our eCapEx grew by 7%, reaching EUR 180 million. This is mainly due to our ambitious network deployment both in the mobile and fixed. The mobile network, we've been investing in [ HAND ] sharing and 5G technology to enhance our network coverage and capacity. This investment are crucial for maintaining our competitive edge and meeting the growing demand for high-speed mobile connectivity. The fixed segment, our focus has been on upgrading of the HFC infrastructure to support higher data speed and improved service [ reliability ] and start our FTTH program. The 7.2% increase in eCapEx reflects our commitment to investing in our network infrastructure. This investment are laying a solid foundation for future growth and ensuring that we continue to deliver high-quality services to our customers. Let's now review our guidance for 2024 as outlined on Slide 14. Our updated guidance for EBITDAaL is now set to slightly exceed EUR 535 million, which is an improvement from our previous range of EUR 515 million to EUR 535 million. This upward revision reflects our confidence in achieving strong operational performance and realizing further synergies. In terms of eCapEx, our target remains the same, between EUR 365 million and EUR 385 million, excluding the payment of license fees. This investment will primarily focus on our deployment plans, both in the mobile and fixed, ensuring we continue to provide high-quality services and meet the growing demand for connectivity. In summary, our updated 2024 guidance underscores our commitment to delivering robust financial performance while making strategic investment in our network infrastructure. We are confident that this target will position us well for sustainable growth and value creation. With this, I conclude the presentation, and we are more than happy to answer your questions.

If you have any question, I said earlier, you can indicate that in the chat. But for now, we have a question from David Vagman from ING. [Audio Gap]

I can start answering your question, and I'll let Xavier complete. First, on your question regarding the full year EBITDAaL guidance. But what I can tell you, when we talk about positive [ litigation ], it accounts for around EUR 3 million for the semester, and we have some year-on-year seasonal effects and especially due to high energy prices that we had last year in H1, that were much lower in H2, that account for around EUR 5 million -- between EUR 5 million and EUR 10 million. That's what I can tell you. And we also have, as you know, the impact in [ H2 ], even if it's -- [ I think it will ] -- it should come in back to school of the new entrants in the market. So that's why all in all our EBITDAaL performance should be a bit lower in H2 compared with the one we achieved -- we posted in H1. And that's why all in all we expect an EBITDAaL growth for the full year a bit below 10%, which is in line with the new guidance we just issued. I don't know if it answered your question for the first [ point ]. For the -- your third question on postpaid, what I can tell you is that the Flemish Government's SIM card activations account for around 45,000 SIM cards in H1. So it's a clear booster of our commercial dynamic in mobile, as we explained. But even without this contribution of this large B2B contract, we are also quite satisfied with our mobile performance over the semester. And for your question regarding eCapEx, as you said, we now have the gigabit availability all over the country. But we still have some cable upgrades, especially in rural areas where we benefit from subsidies from the regional and Federal government through -- in areas where our -- we didn't -- we had cable, but we -- unidirectional cable, which [ mean ] only with TV offers and not with broadband, and we have great scale to be able to offer gigabit broadband services. So that's part of the [ explanation ] of the increase of cable upgrade even if we finalize the gigabit approach. And we also start our FTTH deployment in the more -- the dense areas of Belgium. We started also some [indiscernible] sharing with the utilities when it's relevant for us given our FTTH rollout plan. So that will also justify an increase of our eCapEx.

Yes. Yes, on the [ commercial ] [ bit ], so first, I think we do have also, like the [ older ] year [indiscernible] seasonality effect compare H1 to H2. When we look for -- I would say, look back on maybe the 1 or 2 previous years, that was exactly the same trend and it's the same trend, but not exactly the same absolute numbers, as you said. Looking at the market, maybe this is something that will change a little bit. I think the fact that now the market will move from a growth, I would say, to a [ share ] market, especially linked to starting of the [ emission ] market this year and last year in H2 maybe will have some effect. I think we [ saw ] [ further ] little bit from a higher churn in Q1 that has been [indiscernible] in Q2. But looking back on the net adds market share we've had in Q1, of course, we can't say that for Q2 so far. But looking back on Q1, we've been able to reach more than 60% net adds market share in Q1. So the absolute number is [indiscernible], you're right. But [ Intel's ] market share is largely positive with [indiscernible]. And this is something, of course, we hate to do and to, I would say, [ regain ] for the next quarters.

Then we have a question from Nicolas Cote-Colisson from HSBC. [Audio Gap]

No, it's nationwide. [Audio Gap]

Antoine, maybe I will take the first one on the network -- mobile network, sorry. So, I -- that's a very interesting question, because we know that for, I would say, other countries that has given some national roaming or [indiscernible] contract to new entrants, newcomers. So this is something, of course, that will be interesting for them at the beginning because, of course, they will have some nationwide coverage and so on. But we don't know actually the condition. We don't know which [ techno ] has been sold, which price is it [indiscernible]. So I think that compared to new entrants on the Proximus network we'll complete as we are continuing with Proximus, [ of course ]. [indiscernible], because we don't have the contract. We don't know whether they will have every [indiscernible], every [ techno ] [ rented ] by the contract. But compared to their own, I would say, rollout, of course, it could be very -- something that we -- that would be, I think [ inquisitive ] [indiscernible]. So it depends on how the -- their national roaming contract and on what [ techno ] they will have access to, of course. Maybe -- so we said that during the presentation, but in our first pillar, so we need to -- and we aim to lead the network experience both on fixed and mobile. So we've done that on the fixed, thanks to the gigabit nationwide where we [ achieved ] 95% of the population on the mobile. So we, I would say, have this [ HAND ] sharing [ operation ] moving forward. We have more than 50% of this, let's say, very important work. And of course, we are, I would say, accelerating little bit on the 5G coverage as well as we passed also [ 40% ] and we aim to increase this number by the end of the year.

Maybe on your second question, Nicolas, and thanks for that, regarding Convergent, of course, it's not -- frankly, it's not a matter of concern to us because it's mainly due to a mix effect and to a lower clients -- less clients with our TV offers because of cost cutting, because [ overall ] the [indiscernible] this well-known effect, and it's -- but it's not a big -- so it has an impact on revenue, for sure, but it's not a big deal when it comes to margin because we are not -- we have quite competitive offers for TV, and the margin on this offer is a bit lower. So we -- the ARPO decrease is not fully translated into EBITDAaL. So that's -- and we have, to offset part of this effect, a positive impact of our price increase in Jan on our Convergent packs. So it also -- and that's translated into EBITDAaL.

Just a short follow-up on the network speed on the cable network. I just wonder what is the uptake on the higher speeds? What the proportion of clients on higher speed [ tiers ]? And how do you manage the upsell opportunity?

Not so sure that we are communicating the mix. What we can say that we are very, very satisfied with the mix that has been, I would say, taken [indiscernible] by the customer since we launched this option. And of course, we do have some mix positive effect on the [ ARPO ] as well. But sorry, we [indiscernible] -- we want to [ mitigate ] the precise and a specific number on that. But we are [indiscernible] with that.

If there are any more questions, please raise your hand or indicate it in the chat.

So maybe an update on the fiber plans and discussions with BIPT? I know you can't tell very much on what's happening behind those. But eventually, we haven't heard very much in the last couple of months. So yes, any information would be great.

On fiber -- Sorry, on fiber, you mean?

Yes, yes.

Yes. So what -- so first, you [ heard ] that in Belgium [ there ] are some, I would say, [indiscernible] constraint that has been -- that have [ reached ] from the market because some inhabitants complaints about the way that [ rollout ] made by the current Telcos is not respecting the rules. So we are having some, I would say, decision with the public authorities and the regulator as well. So even if we have not started to do so, this is something that will come up in 2025. So we've made some proposal to either the BIPT and the public authorities to make sure that overall that will be completed in the coming months, quarters and years and will be done according the rules. You know that we know this [ stuff is ], of course, we -- Orange as a whole, mainly Europe and France and [ Poland ] as well. So we know exactly what happens in this country. So this is something Orange wants to do very, very gently and this is why we made some very interesting proposal to make sure that this is something that will create some positive ecosystem to every stakeholder, of course, including the [indiscernible]. On the plan -- on the operational plan, so we are -- at the moment, we have -- we do have 1 or 2 [ POCs ], testing a lot of things on the [ technical ] matters, on the equipment, on the [ active ] equipment, on the customer [indiscernible] as well, and we will start in 2025 in certain areas. And this is something, of course, we will manage coping with HFC 1 gigabit to make sure that we [ lead ] the future in terms of gigabit network [ experience ] for all the customers. So this is something that [ we'll ] start in 2025.

So that starts in 2025. But what about the ongoing discussions with your competitors to organize at the national level or maybe regional level?