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

Hello, and welcome to the Orange Belgium Second Half 2024 Results. My name is George, and I'll be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]. I'd like to turn the call over to your host today, Mr. Koen Van Mol, Director of Corporate Strategies and Investor Relations, to begin today's conference. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to the presentation of Orange Belgium's financial results for the second half and the full year of 2024. I'm pleased to have with us today, Xavier Pichon, our CEO; and Antoine Chouc, our CFO. They will guide us through the company's performance, key achievements, and strategic outlook. Xavier will begin by providing an overview of the highlights and milestones of the year, followed by Antoine, who will take us through the financial details and guidance for 2025. After their presentations, we will open the floor for questions. Without further delay, I'll now pass the word to Xavier. Xavier, the floor is yours.

Thank you, Koen. Hello, everyone. Hope you're well. We are, of course, delighted to present Orange Belgium's financial results for the full year 2024. We'll start with the slide, Page 4, for those who can have access to it. 2024 has been a remarkable year for Orange Belgium, marked by continued commercial performance, strong financial growth, and great operational achievements. We have successfully delivered on our Lead the Future strategy, which has enforced our positioning in the Belgium telecom market. Let me start with some key highlights. We have solidified our position as a 100% nationwide very high broadband network provider with 95% HFC 1 gig and 5% satellite coverage. Our 5G coverage has also improved significantly, now reaching 93%. Additionally, we have begun the journey of our FTTP deployment, ensuring that we remain at the forefront of technological advancements. This year, we launched several new initiatives that have been warmly received by our customers. These include the introduction of our new Orange and Hey! portfolios, which have driven strong commercial performance. Both brands have been successful in attracting new customers with Hey! also introducing a smart loyalty platform to reward customer engagement. We also partnered with Netflix to integrate their offering across our entire portfolio, including mobile, fixed, and TV services. This deep integration is the first of its kind in Belgium and aligns with our strategy to deliver premium content and an enhanced entertainment experience for our customers. In November, we launched our mobile serenity solutions, providing cutting-edge digital security for families. In December, we extended our broadband connectivity solutions with the launch of our satellite internet service, ensuring that even customers in the remotest location can benefit from high-speed Internet. Sustainability remains a core focus for us. In 2024, we achieved a 5% year-on-year reduction in CO2 emissions, trained roughly 10,000 people in digital skills, sold 18,000 refurbished phones, and collected 57,000 mobile devices for recycling. These initiatives reflect our dedication to creating a positive impact on society and the environment. Slide 5. One of the most significant milestones this year was the successful integration of VOO, which has been a true game-changer for Orange Belgium. This integration has allowed us to fully consolidate VOO into our operations, enabling us to operate as one unified team with a shared vision and strategy. We have successfully implemented a common multi-brand commercial approach, leveraging our different brands to address the customer segments more effectively. Additionally, we have harmonized working conditions across the organization, fostering a stronger sense of collaboration and alignment among our teams. The integration has also delivered substantial financial benefits. In 2024, we achieved EUR 47.5 million in synergies, representing 56% of the run rate synergies, which is ahead of the amount we had initially estimated. As a reminder, we had announced a run rate of the synergies of EUR 85 million after 7 years. These synergies were mainly driven by the transfer of VOO mobile customers to the Orange network, optimizing our real estate and realized purchasing optimization. Furthermore, the integration has allowed us to optimize network resources, streamline processes, and enhance our ability to deliver convenient services to customers across Belgium. This milestone not only strengthens our position in the market but also reinforces our ability to deliver value to our customers. The successful integration of VOO is a testament to the hard work and dedication of our teams, and it positions us well to continue driving growth and innovation in the years ahead. Slide #7. Now let's take a closer look at the numbers, which clearly demonstrate the strength of our performance in 2024. We achieved solid growth across all key metrics, which reflects the successful execution of our strategy, Lead the Future. Our mobile postpaid customers grew by 4.4% year-on-year, reaching 3.5 million customers. This growth was driven by the continued appeal of our mobile offers through the introduction of our new portfolio. For the second semester of 2024, Vlaamse Overheid accounted for more than 9,000 net adds and for more than 56,000 in the full year. On the fixed side, our cable customer base has also increased by 3.5%, totaling more than 1 million customers. This growth reflects the success of our convergent offers. Our ability to deliver high-speed connectivity supported by our gigabit network supported this success. Revenues grew by 1.7% year-on-year, reaching almost EUR 2 billion. This increase was primarily driven by the strong performance of our retail service revenues, particularly in convergent services, which continued to be a cornerstone of our growth strategy. Despite a challenging competitive environment, this growth demonstrates the resilience of our retail offers. EBITDA saw a growth of 10.1%, reaching EUR 544 million. This increase reflects not only our revenue growth but also the synergies achieved through the integration of VOO and our ongoing focus on cost optimization. It underscores our ability to deliver operational efficiencies as well while continuing to invest in our future. Finally, eCapex increased slightly by 1.4% to EUR 368 million. This reflects our continued investment in key areas such as the RAN sharing operation, 5G deployment, and the expansion of our fixed network, including the early stage of our FTTP rollout. These investments are critical to ensuring that we remain at the forefront of technological innovation and are well-positioned to meet the future needs of our customers. These results are showing the strength of our strategy, the quality of our execution, and the dedication of our teams. They also highlight our ability to deliver sustainable growth while continuing to invest in the infrastructure and services that will drive our future success. At this point, I'd like to hand over to our CFO, Antoine Chouc, who will provide a deeper dive into our financial performance and explain our guidance for 2025.

Thank you, Xavier, and good morning, everyone. It's a true pleasure to be with you today. As Xavier mentioned, 2024 has been a year of strong financial performance for Orange Belgium. Let me take you through the details starting on Slide 8 with the evolution of our mobile postpaid and cable customer bases. In 2024, our mobile postpaid customer base grew by 4.4% year-on-year, reaching 3.47 million customers. This growth was driven by the continued appeal of our mobile offers, supported by the introduction of the new mobile portfolios. The performance of our Hey! brand also contributed to this growth as it continues to attract younger digital savings customers with its innovative and flexible offers. This continued growth demonstrates our ability to retain existing customers while attracting new ones in a competitive market. On the fixed side, our cable customer base increased by 3.4%, totaling more than 1 million customers. This growth reflects the success of our convergent offers, which combine mobile, Internet, and TV services into seamless packages that meet the evolving needs of households across Belgium. The continued rollout of high-speed connectivity supported by our gigabit network and the early stages of our FTTP deployment have further enhanced our ability to deliver value to customers now and in the future. On Slide 9, now let's go into the financial, focusing on the revenues and EBITDAaL evolution as illustrated in the waterfall graphs. For the full year, we achieved revenues of almost EUR 2 billion, reflecting a 1.7% year-on-year growth on a comparable basis. This solid performance was primarily driven by a 3.1% increase in retail service revenues, which remain the cornerstone of our business. Within retail services, convergent offers were the standout performer, growing by an impressive 8.9% year-on-year and contributing EUR 611 million to our total revenues. This growth underscores the continued success of our convergent offers, which combine mobile and fixed packages. The strength of our convergent services has also largely offset the decline in mobile-only services. Fixed services also made a positive contribution, supported by the expansion of our cable customer base. The integration of VOO and the ongoing rollout of high-speed connectivity have enabled us to attract more fixed customers, particularly in areas where demand for reliable broadband is growing. However, these gains were partially offset by declines in wholesale revenues and equipment sales. Wholesale revenues decreased due to lower interconnection revenues, particularly from SMS traffic, which as a zero-margin segment had no impact on overall profitability. The strong growth in retail services demonstrates the resilience of our business model and our ability to adapt to changing market conditions. Turning to EBITDAaL on Slide 10. Let me highlight that we delivered an impressive 10.1% year-on-year growth, reaching EUR 544 million. The waterfall graph highlights the key contributors to this performance. The largest driver was the synergies mentioned by Xavier achieved through the integration of VOO, which contributed more than EUR 45 million OpEx savings in 2024. These synergies came from areas such as purchasing optimization, real estate, and obviously, the transfer of VOO mobile customers to the Orange network. Additionally, our strong revenue growth and disciplined cost management further supported EBITDAaL expansion despite some increases in labor and indirect costs. These results underscore our ability to deliver operational efficiencies while continuing to invest in our growth. Let's move to eCapex on Slide 11. In 2024, our eCapex, excluding license fees, totaled EUR 368 million, representing a slight increase of 1.4% year-on-year. This reflects our continued investment in key strategic areas. A significant portion of the spending was allocated to the implementation of the RAN sharing program, which is critical to optimizing our network infrastructure and accelerating our 5G deployment. We also invested in upgrading our cable network to provide gigabit coverage, particularly in rural areas, and began the initial stages of our FTTP rollout. These investments are essential to ensuring that we remain at the forefront of technological innovation and are well-positioned to meet the future needs of our customers. On Slide 12, I'd like also to highlight that we successfully achieved our revised guidance for 2024. Our EBITDAaL exceeded EUR 535 million, and our eCapEx was well within the range of EUR 365 million and EUR 385 million. This achievement demonstrates our ability to deliver on our commitments while maintaining financial discipline even in a competitive and evolving market environment. Let's now look ahead to 2025 on Slide 14. We are targeting an EBITDAaL of EUR 545 million to EUR 565 million and eCapex between EUR 365 million to EUR 385 million, excluding license fees. These targets reflect a balanced approach, taking into account the required investment and the changing market environment. On the investment side, we'll continue to allocate resources to the implementation of the RAN sharing program. Additionally, we will accelerate our FTTP deployment, which is a key pillar of our long-term strategy to deliver high-speed connectivity. These investments are critical to maintaining our competitive edge and meeting the growing demand for reliable and high-speed Internet. At the same time, we are preparing for a new competitive environment in 2025 with the entrance of a new mobile player into the Belgium market. This has increased competition, but we are fully confident in our ability to differentiate ourselves. Our multi-brand strategy supported by the further realization of the synergies positions us well to address the needs of different customer segments and remain competitive in this evolving landscape. In summary, our guidance for 2025 reflects our confidence in the continued execution of our strategy, our ability to navigate a more competitive market, as well as the need for strategic investments. With this, I'd like to conclude the presentation, and we'll be more than happy to answer all your questions.

[Operator Instructions] We'll take our first question now.

David Vagman from ING. The first question on your long-term expectation regarding the VOO synergies. Can you update us on your view? So you mentioned again the EUR 85 million run rate to be achieved after 7 years. And maybe a bit of a follow-up on the savings and your efficiency gains. What makes you positive actually on the EBITDAaL in 2025? If you can explain us a bit the key building blocks of your -- of the expectation of a progression of the EBITDAaL in a challenging year actually given the arrival of Digi? Then second question regarding the FTTH rollout, especially in your case, in high-dense areas, how are you looking at Digi plan to connect 2 million households in the same areas? And last question on the fiber cooperation agreement. The CEO of Proximus very recently mentioned in the press that Proximus is looking at using your network in Wallonia in areas that would be too expensive for fiber rollout. Can you update us on the progress of your discussion for mid-dense and low-dense areas for cooperation agreement, I mean, in Wallonia?

Hi David, thanks for all your questions. Maybe first on the long-term expectations on VOO synergies. With these very positive results, we confirm what we have already said that we plan to reach the run rate of EUR 85 million of synergies rather on year 4 post-closing instead of the year 7 that we communicated just after the closing. So that's -- we are fully confident that we will be able to reach this EUR 85 million sooner than initially planned. So that's the answer to your first question. And for the first year, it's clear that we are significantly above what we plan to do in the first year, especially when it comes to purchasing synergies. On your second question on the main EBITDAaL building blocks for 2025. Clearly, the growth will be driven by the increase in our synergy. We won't disclose our synergy expectations for 2025, but it's clearly a very nice increase. And we always -- we -- of course, that's the main impact when it comes to improving our profitability, but there are a lot of cost efficiencies that can be achieved beyond the synergies on our running business. And we also have many initiatives in terms of digitization of improving the operational efficiencies of our cable operations. And we are counting also on this improvement to deliver the EBITDAaL growth that we commit on for 2025 despite the evolving market and some kind of pressure on our competitive dynamic. Maybe I'll leave the floor to Xavier to answer the question on both FTTH rollout and potential collaboration with Proximus. Thank you, Xavier.

Thank you, Antoine. David, hope you are well. So on your 2 questions on the FTTH. So the first one is, I would say, for you that we are intending to, of course, preserve our premium network capacities in the former VOO network area, which means the south of Brussels, 1/3 of Brussels, and of course, the entire Wallonia. So this is the case actually on the HFC, of course, and we've just complemented the HFC 1 gig with satellite, as we said. So our macro plan, of course, is to preserve this premium. And then, of course, high-dense areas or dense areas, of course, are at the heart of our strategy. So we will keep, I would say, the pace. And as mentioned, we just started, I would say, rolling out HTTP in one of the areas of Brussels, with a state-of-the-art design and an open network. So this is something, of course, that we will continue in the years to come, and this is very crucial for us to maintain our leadership on the Pillar 1 and 2 of our Lead the Future strategy. As it comes to your question on the agreements we might have or discuss with others. So this is exactly the same. We said previously that we were intending to find, I would say, the best value creation and customer access to the gigabit networks. And we can confirm that we are discussing with Proximus. Of course, we can't say more, but this is it. And maybe you'll have news, I would say, in the upcoming months or quarters depending on the outcome of the negotiation.

It's Roshan Ranjit from Deutsche Bank. I've got 3 questions as well, please. Firstly, just on the retail service revenue growth. Now you guys don't provide ARPU numbers, I guess, given the ongoing shift with the customer base. But can you give us a sense of how the, I guess, convergent discounts are playing a part in that? Because if I look at the H2 growth versus H1, it was a bit slower. Secondly, and these are kind of follow-ups to the previous question. You talk about 5% satellite coverage as part of your fixed connectivity. Can that increase? Can that be kind of an area of efficiencies where you don't have to roll out to the kind of unprofitable areas where it's more expensive to roll out fiber? And the third question is, you've talked about rolling out fiber in Southern Brussels. Have you come up against any issues because I think there's a ruling about not being able to dig up the ground for 5 years if previous utilities work have been done there? And we know that one of your peers has been aggressively rolling out fiber. So have there been any issues logistically in deploying fiber there?

Roshan, I'll take your -- Antoine speaking. I'll take your first question, and I'll let Xavier answer your 2 other questions. When it comes to the sequential evolution and the slight decrease between H1 and H2 retail service revenue growth, the main explanation is that we had some price hikes at the beginning of H2 2023 following the acquisition of VOO, both for B2B at or in Belgium for some B2B clients at the OB side and on VOO mobile offers following the acquisition. So this had a positive effect in H1 2024 year-on-year, but we no longer had this positive effect in H2 2024. That's the main explanation. Of course, there is also a slight impact linked to the increase of our convergent base with higher discount than for mobile-only but offset by lower churn, but it's not the main impact. The main impact to me comes from the kind of seasonality effect I just mentioned on our price increases in 2023.

Hope you're well. So on the HTTP, I guess, this is something, as I said, that we've, I would say, planned and prepared for now several years. By design, the group background experience on that. So we are helped by, I would say, the group on designing the best technical, I would say, shame, the fact that this is, of course, something that will come up on top of the HFC will allow us to maintain our premium network. And then, of course, we have designed something which could be considered -- which is considered now across the group as a kind of state-of-the-art rollout technical design. So this is something very interesting. As it comes to the satellite and related to your question, I would say currently, we don't see our satellite offer, which is, I would say, not at 1 gig. The satellite allows customers maybe to get into internet at roughly, yes, 200 or 250. So this is actually good. If I have a look on the average, I would say, speed that our customers so far have across our customer base. I think it's really, really good. But I would say, if we project this kind of access to the 1 gig and of course, to the speed we might have in the next decade, I think satellite at the moment currently is not totally satisfactory. So this is for us, a kind of complementary technical design that will be, of course, efficient, but which is not the target, and it won't replace a pure FTTP, of course, rollout in the near future. And last but not least, we know the topic. As I said, we've rolled out across the group more than 50 million households. So we know how it can be, of course, difficult somewhere and sometimes to roll out fiber and to make sure that we will respect all the obligations and the rules. This is what we will do at Orange, of course, and we started to implement a fair rollout process and with respect with all the obligations we have locally and of course, regionally. I would say, on that topic, we are also seeing some other peers rolling fiber with maybe not exactly the same behavior as it comes to the respect of our permit allocation and the urbanism rules. So this is something that we will, of course, respect 100%. And doing so, I think so far, we do have a very, very good relationship with the local authorities when we ask for permits and of course, authorization to roll out. So this is something that is on our side at the moment, done with respect with the policy and the obligation we have.

We'll now move to our next question.

It's [ Drev Shah ] from UBS. The first is just around your pricing and what gives you the confidence to raise pricing on your main brand by 3% to 4% from January this year despite Digi's entry? Is this due to the fact that Digi has a limited fiber footprint currently, and therefore, you can expect a limited impact on your broadband base and on converged customers near term? What are you expecting in terms of mobile-only? The second question is just around your 2025 guidance. And if you can perhaps just give a bit more color in terms of what you expect in terms of an impact from Digi in terms of the financials, both on retail service revenue and on the EBITDAaL level?

Thanks for your question, and I hope you're well. On your first question, I think it's something also that has been successfully, I would say, prepared and then done so far in this 2024 year. It can be reflected on the commercial momentum we've had across the year. If we exclude, Vlaamse Overheid, we did very, very well in H2 or largely well -- largely better in H2 than in H1 on the mobile side, on the postpaid side. And then if we -- I would say, if we dive within the H2, I think Q4 has been very, very interesting with a high level of intensity with the commercial momentum. So to us, and maybe to, I would say, answer your question more globally, the marketing policy, the segmented approach, and the brand segmented approach as well, thus completing a kind of mass-market premium with the Hey! brands and then truly, I would say, generous and affordable price on the access brand Hey! has allowed us to, I would say, have very, very good -- very intense and good commercial momentum. And this is something we will continue, of course, to monitor in the coming quarters, months, and years. This allows us also to get some extra value generation either for the customer and for us because, of course, we will nourish the Hey! brands with more and more, I would say, services, devices, access to devices, functionalities, and entertainment access. So this is something we will continue to monitor. And so far, so good. It has worked very well for 2024.

On your second question, we won't obviously disclose figures about the potential impact of Digi. Of course, it's -- and there are still many, many assumptions behind. What I can say is that we are confident that we will keep a commercial momentum in 2025. What's clear, the main financial impact is that this commercial momentum compared with 2024 will come more from our Hey! brand and the Orange brand for Mobile. We don't expect a significant change in terms of convergence. And so clearly, without fourth entrants, our revenue growth could have been slightly higher, but we don't expect, I would say a major disruption. And I think our guidance shows that we remain confident in our ability to offset part of the revenue impact through higher synergies.

[Operator Instructions].

Nicolas Cote-Colisson from HSBC. I've got a question about the commercial dynamics in the fixed broadband area where -- sorry, in fixed broadband, an area where Proximus has fiber. Are you seeing tough competition when fiber is coming in? I mean the underlying question must be whether you need to move faster than expected with fiber. And I also wanted to know if you are part of any of the discussions between Proximus Wire and the regulator because eventually, we were expecting more structural announcements in the Belgian market in the last month, but nothing is coming in. So if you can provide us an update on the general discussions between you, your competitors, and the regulator, that would be very helpful indeed. And maybe just a follow-up question regarding the EBITDA for 2025, trying to assess the value of the synergies that you may deliver. Did you say -- did I understand well when you said that EUR 44 million of the synergies were OpEx out of the EUR 47 million or EUR 48 million in 2024? Is that correct?

I'll start maybe with your last question, Nicolas. And yes, that's correct. It's exactly EUR 45 million out of the EUR 47 million. So the CapEx synergies are significantly lower than the OpEx. It's quite normal as we are more complementary in terms of network ownership. We are more mobile-centric, they are fixed-centric. And the CapEx synergies are not that significant, but it's clear that the OpEx synergies are very, very high.

So on your question related to our commercial performance on the fixed area in where Proximus has already deployed FTTH, actually, it's not visible, I would say. We are benefiting from our 95% coverage, 1 gigabit on HFC. As I told you, and you know that, so we are using our A brands, Orange and VOO, and Hey! also as a B brand to monitor depending on the customer segment and on the networks that have been deployed by, I would say, the market player, what could be the best and optimized offer. And so far, so good, it works. So this is something that we do have under control. And of course, we continue to make sure that thus benefiting from this network premium in general, okay, we will continue to sustain a good commercial performance. Maybe if I take your point on the broadband, I would say, on the fixed commercial dynamics. So as you can see on our numbers and figures, H2 and H1 were a bit flattish, which reflects what we said during the H1 results conference, which is the fixed market is not as dynamic as the postpaid, okay? Maybe it will change one day or in the coming quarters. But so far for 2024, it has been a bit flattish. Nevertheless, we have been very satisfied with that because -- not with that, but with the fact that our commercial performance in net adds were largely higher as a fair share than our market share. So we continue to grow in the fixed market. As it comes to your question on the discussion we have with Proximus, and you are a bit, I would say, right that the announcement that have been made by the BIPT and maybe the Belgium Competition Authority were in terms of agenda and time line a bit optimistic. You know that these kinds of discussions are taking a lot of time. So we can't say more on the purpose. But of course, as I said and as Guillaume Boutin said, we are discussing on this -- and I hope -- and I guess and I hope that you will have some upcoming fresh news as soon as we can.

Can I ask just a follow-up question about labor costs? How do you see them in 2025? And also if you expect any impact or changes from the new government on any topic you may think?

Maybe I will leave Antoine on the workforce cost on the labor cost. But on the -- I would say it's very fresh, of course. It's very new. I think it came up a few days ago. What we have started to see is a kind of continued willingness to make sure that either customers and industrial makers will be in a good shape to make sure that the 1 gig, of course, that have been already implemented will benefit from the whole, I would say, inhabitants in Belgium, which is already the case. We are providing, as we say, 100% very high broadband coverage with 95% on 1 gig. So this is already done, and it has been put in the government papers. So that's very nice. On the other topic, it's a bit fresh and too early to comment. So we'll see maybe some things popping up. But so far, so good, okay? It's not totally, I would say, embarked in our, I would say, in fact, to read that, okay? The first comment we have is this is exactly what we were waiting for the Gulf. And what has been announced as a goal is already done, AKA, the 1 gig nationwide.

And regarding your question on labor costs, as you know, there is the famous indexation -- automatic indexation in Belgium and this year is around 3.5%, a bit more. What we expect is more or less stable workforce costs for 2025. I mean we would absorb the headwind of the indexation.

We have no further audio questions at this time, gentlemen.

We have another question from the chat. Most of them have been answered. There's one more question. What is the horizon within which you can see dividend payout starting up again?

Okay. I'll take this one. So that's -- I think we have already commented on that over the last analyst call. And what we already answered it remains the same is that we don't see any potential for a dividend as long as our net debt ratio remains as high. We have a net debt ratio today around 3.5, and it's significant compared with the average ratio of the Orange Group. And for the moment, the priority is clearly to deleverage the company rather than to distribute some dividend.

Okay. As there are no further questions, we thank you very much for your participation. Would there be any further follow-up questions, do not hesitate to contact the IR team, and we will be happy to respond to them. Thank you very much, and have a nice day.

Thank you. Ladies and gentlemen, that will conclude today's presentation. We thank you for your attendance. You may now disconnect. Have a good day and goodbye.