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

Good morning, everyone, and welcome to the presentation of Orange Belgium financial results for the first half year of 2025. 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 and key achievements. Xavier will begin by providing an overview of the highlights and milestones of the first half year, followed by Antoine, who will take us through the financial details. After the presentation, we will be open for questions. Without further delay, I'll now pass the floor to Xavier. Xavier?

Thanks, Koen. Hello, everyone. Good morning. Thank you for joining us today as we present Orange Belgium financial results for the first half of 2025. Our first half year performance reflects the resilience and agility of Orange Belgium in a strong competitive market environment. Our performance was supported by net additions, particularly in the B2C segment, driven by the success of our mobile portfolio and targeted promotional campaign. Let me start with some key highlights on Slide #4. So we are actively progressing with the implementation of the RAN-sharing agreement with Proximus, a strategic partnership that we anticipate being finalized in 2026. This collaboration will enhance our network quality and expand mobile coverage while also achieving substantial cost efficiencies. As part of its commitment to network leadership, we have been modernizing our 1 gigabit fixed Internet access network to meet future connectivity demands by investing in distributed access architecture and next-generation network technologies. Orange Belgium reinforced its position as a leader in delivering innovative high-capacity broadband solutions. As laid out in our Lead the Future corporate strategy by 2024, Orange Belgium aims to cover its fixed network footprint in Wallonia and 6 municipalities in Brussels with 2/3 fiber to the premises and 1/3 hybrid fiber coaxial technologies, paving the way for speeds of 5 gigabits and 10 gigabits furthermore. In addition, we have started our FTTP deployment in the Brussels region, a key step forward, expanding our fiber network and ensuring that more customer benefits from cutting-edge broadband services. In June, we presented a leading B2B solution in the Belgium high-end market. The collective expertise of Orange Belgium, Orange Business, Orange Business Digital Services and Orange Cyber Defense is combined to create a powerful synergy and no other telco player in Belgium can offer to SMEs, corporation and public organization. This marks another milestone in the Lead the Future strategy, providing a unique B2B value proposition for present and future ICT, connectivity and cybersecurity needs. Building on its 2024 success in the B2C segment through substantial investment in future-proof multi-gigabit fixed and mobile networks and enriched customer experience, Orange now positioned itself as the leading and go-to partner in connectivity and cybersecurity solutions for Belgium enterprise. I also want to highlight on how our ongoing data and AI transformation is delivering tangible benefits. We are seeing a positive impact on reducing customer churn and call volumes while also enabling proactive network maintenance that lowers operational costs. We continue to focus on achieving our circular economy targets such as refurbishing our customers' device for which we are providing incentives to encourage participation. On the people side, we can confirm that the HR harmonization efforts following the VOO integration have been finalized, resulting in standardized practices and streamlined workflows and a cozy work environment. We'll now move to Slide #6. Now let's take a closer look at the numbers, which clearly demonstrate the trends of our performance. We achieved commercial growth, reflecting the successful execution of our strategy Lead the Future. Despite a market with stagnating growth, we have delivered strong commercial results. In Q1, our net customer additions have significantly outpaced our market share, demonstrating our competitive strength. Our mobile postpaid customer base grew by 3.6% year-on-year, reaching 3.5 million customers. This growth was driven by the continued appeal of our mobile offers in combination with targeted promotions. On the fixed side, our cable customer base also increased by 3%, totaling more than 1 million customers. This growth reflects the success of our convergent offers. Our ability to deliver high-speed connectivity, our gigabit network supported this success. Revenue slightly declined by 1.5% year-on-year, reaching EUR 963 million. This decrease was mainly following the decrease in the non-margin activities as well as a slight decrease in service revenue. While we've moved past some challenging times, we hopefully that the coming period results will improve, especially as the repricing of our mobile portfolio is expected to have a positive impact. EBITDAaL saw a growth of 4.7%, reaching EUR 265 million. Despite some headwinds, this increase clearly reflects the realization of the synergies achieved through the integration of VOO on top of our ongoing focus on cost optimization. Finally, eCapEx increased by 2.2% to EUR 184 million. This reflects our continued investment in key areas such as the RAN-sharing program, 5G deployment and the extension of our fixed network, including the early stages 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 show the strength of our strategy, the quality of our execution and the dedication of our teams. At this point, I'd like to hand over to our CFO, Antoine Chouc, who will provide a deeper dive on our financial performance and explain our guidance for 2025.

Thank you, Xavier. Thank you, Xavier. Hi, everyone. Thanks for being on the call. Let me take you through the details, starting with the evolution of our mobile postpaid and cable customer base. At the end of H1 2025, our mobile postpaid customer base grew by 3.6% year-on-year, reaching 3.5 million customers. This growth was driven by the evolution of the mobile portfolio and the sustained 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%, totaling more than 1 million customers. This growth reflects the success of our convergent offers. The continued rollout of high-speed connectivity supported by our gigabit network and the early stages of our FTTP deployment has further enhanced our ability to deliver value to customers now and in the future. Let's go into the financials on Slide 8, focusing on the revenues and EBITDAaL evolution as illustrated in the waterfall graph. In the first half of the year, we generated EUR 963 million in revenues, a 1.7% decrease year-on-year. This slight decline is attributable to several factors. Firstly, a structural decline in wholesale revenues, especially SMS due to reduced traffic. However, since traffic is very well balanced among operators, margins remain unaffected. Secondly, we experienced pressure on our service revenues driven by 2 main factors. On the one hand, the intense promotional activity on the convergent packages, particularly at the end of last year, which slowed down our convergent growth. On the other hand, the impact of our customers' adoption of the new mobile offering portfolio, which had been launched in June 2024. Our GO portfolio launched 4 years earlier was no longer generating sufficient commercial traction. However, the short-term financial impact is largely offset in terms of value by a sharp decrease in churn and renewed commercial appeal for the Orange brand. Looking ahead, we anticipate an improved revenue trajectory in H2, supported by modest price increases implemented from July 1. Turning to EBITDAaL on Slide 9. We achieved nearly 5% year-on-year growth, reaching EUR 265 million. The waterfall graph clearly illustrates the key contributors to this performance. We successfully improved our gross margin by nearly EUR 10 million. Labor costs increased by EUR 2.4 million, primarily driven by inflationary pressures, which we managed to offset partly through other efficiencies. The remainder of our indirect costs saw a positive reduction of EUR 4.7 million, further supporting our margin improvement. Following the new management services agreement that has been agreed with Orange SA on which we communicated also this morning, we have an increase in comparison to last year. Nevertheless, we continue to deliver strong financial performance, partly driven by the successful realization of the synergies. And this underscores our ability to adapt and optimize our cost structure effectively even in a challenging environment. Let's move to Slide 11 on eCapEx. In the first semester of 2025, our eCapEx, excluding license fees totaled EUR 184 million, representing an increase of 2.2% 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 spendings. And we also invested in upgrading our cable and we started the initial stages of our FTTP rollout. Let's now move to the last slide on -- about our guidance on Slide 12. I would like to reaffirm our guidance for 2025, which we established at the beginning of the year. We anticipate EBITDAaL to be in the range of EUR 545 million to EUR 564 million with eCapEx expected to be between EUR 365 million and EUR 385 million, excluding license fees. We are confident that our EBITDAaL will be positioned towards the higher range -- the higher end of this range. With that, I would like to conclude my presentation, and we'll be more than happy to answer all your questions.

Thank you. We will now have a Q&A session where you will have the opportunity to ask questions regarding the results. Operator, may I ask you to open the floor for the questions.

[Operator Instructions] We will take our first question from the line of David Vagman from [Technical Difficulty]

David Vagman from ING. First one is on revenue growth or revenue guidance, let's say, for H2. I understand it will improve. So can you describe a bit the ARPU dynamic you expect in mobile? And then maybe discussing quickly about H1. So you had the mobile customer base up 3.6%. And then I think it's not fully comparable, but mobile-only services revenues were down 6%. So it looks like the drop in mobile ARPU was north of 6%, maybe up to 10%. Can you comment and how much of an improvement should we expect basically in H2, maybe year-on-year? So that's my first question. Secondly, on the new MSA, can you explain us a bit the dynamic and how we should basically model it, okay, we've got the EUR 15 million a bit stable for 3 years. But then going forward, should we see that as a percentage of sales like between, let's say, 75 bps of your sales and 1%? And is this -- when you prepare the 2025, let's say, business plan, is this in the end, what you negotiated, is this better or worse than what you had in mind? You knew you had to renegotiate? And then maybe final question, can you update us on the synergies and your total savings? I think the VOO synergies you said at the end of last year, you were close to EUR 15 million of synergies would be…

I'll answer. David, I will answer your question. Maybe starting with the MSA. So as you saw in the press release this morning, yes, there is a cap of EUR 15.4 million a year for 3 years. And then this agreement will have to be rediscussed with the group with the same 7:97 procedure, protecting the interest of the minority shareholders. So we -- I think it's reasonable to consider that as long as the service rendered by the group have the same scope and as long as we -- there is no inorganic move from Orange Belgium with an increase -- significant increase of our revenues, think it's quite reasonable to consider that in the long term, this amount will remain flat even if it's not -- it will have to be rediscussed in 3 years with the group. That maybe the first answer to your question. When it comes to revenue, yes, we -- as you may have seen, we increased -- slightly increased our prices in -- as from July 1 with a positive impact on, on H2, and that will help us to have a better revenue dynamic in H2 compared with the impact on H1. The main impact for the first semester was clearly the fast migration from the old GO portfolio to the new mobile portfolio. But once again, we have an ARPU impact over the semester, thanks due to this migration, which started in July last year, but it's offset by a better churn. So in the medium term, it will clearly have -- it should clearly have a positive impact in terms of value. What I can tell you is that between the new mobile -- with this new mobile portfolio, which is compared with the churn we had on the old -- on the GO mobile portfolio in H1 last year, we have a huge drop of our churn by around 30%. And regarding your question on VOO synergies, we think that we'll be able to deliver synergies up to EUR 80 million in 2025. And the first results delivered in H1 make us very confident that we will be able to achieve this ambition.

And could you repeat the number for the synergies for 2025, please?

EUR 80 million, 8-0.

Very quick follow-up on the MSA. How is it booked? Is it all indirect cost? Or is it a bit split between cost of goods sold, et cetera?

No, no, it's only indirect cost. Of course, we have half of it in H1. And as you said, maybe I didn't answer this part of your question, it was already embedded in our guidance because we knew at the beginning of the year that this agreement was renegotiated. We didn't know at that time when we issued the new guidance for 2025, what will be the final cut on this. That we had at least an idea that's why we embedded it directly in the guidance. So it was -- the final result was very close to what we had in mind when we gave this guidance.

We will take our next question from the line of [Technical Difficulty].

It's Roshan Ranjit from Deutsche Bank. I have 2 questions, please. First one is going back to the price increase and Xavier, Antoine, you just mentioned the second half increase. And if I think about that increase, coupled with the, I guess, removal of the low-end tariff a couple of months ago. Are you feeling a bit more comfortable around the dynamics in the market? Are you seeing perhaps less pressure from Digi after their -- 6 months of the launch now? Anything you can say and that will be super helpful. And I appreciate you don't necessarily give the split, but it's fair to assume that you've seen a bigger portion of gross adds on your Challenger brands versus previous quarters. And second question is just around fiber. And I think Xavier, you mentioned the target of covering Wallonia and I think certain parts of Brussels with 2/3 of fiber. What is the kind of coverage target for this year? And how should we think about that glide path going forward, particularly in the context of the, I think, discussion that the regulator is having around coverage in the rural areas?

Yes. Thanks for your questions. Maybe just to come back on your last one. So you know that moving forward, we are 6 years, I guess. I think it's 5 or 6 years that we are having for the goal to make sure that we'll have also the best network position in the south, but also the way we will implement with very good value and return the FTTH network on top of. So this is something we are still discussing with Proximus in a good shape. And this is something that also is well seen and well noted by the authorities, IBPT and the BMA. So it's moving for -- I guess it's moving on. And this is, of course, very important for us to keep our Lead the Future, I would say, first ranking position and state-of-the-art networks in the future in the south of the country, including the 6 municipalities in Brussels. On your first question, so right to say so, this is I would say, actually a mixed feeling, mix balance feeling. I think we are having very, very good net adds results in the Q1. We said that during the speech, either on the fixed convergent and the mobile. But we see the market growth, I would say, decreasing a little bit on the fixed. It's not something new. We've seen that, started to see that in 2024. It continues in the H1. So of course, this is very important to keep the pace and to maintain our volume dynamic. And this is why also we have these promotional efforts in Q4, and it has impacted a little bit the H1 dynamic, as we said. On the mobile, as Digi commercially vest, I would say, since Q2. So we see pretty good dynamic either on the volume, but also we are confident that we'll be able to keep our ARPU dynamic in H2, as explained by Antoine, as such. So in a way, that's why we are expecting better trends on the revenue side and especially on the service side for H2.

[Operator Instructions] We will take our next question.

I just have one on fiber and your cable growth. So still growing on cable, which is good to see, but then the rate of growth is clearly slowing. So there's been a number of press reports on Digi's fiber rollout expanding outside of Brussels into other regions. Could this explain some of that cable customer growth slowdown? And from what you're seeing, are Digi now gaining meaningful fiber footprint nationally?

Yes. Thanks for your question. So I guess at the moment, I would say there is no link, sorry, no ties between the -- some local rollout development for Digi in Brussels and in the south of the country, Wallonia and the market slowdown, as explained. This is something that has started in '24 maybe in H1 or in H2 coming up and coming back to the numbers we've shown you lately. The goal for us would be to -- in this market, slightly decreasing in terms of dynamic and process, of course, to focus either on our share of net adds. This is why we are very satisfied with the Q1. We'll see the Q2, but in the Q1, so we are really largely higher than our market share broadly, and I would say, in whole regions. And point number 2, and we emphasized this during our speech as well to focus on the churn avoidance and to make sure that our value management program would be successful to make sure that either keeping the ARPU at the highest level, but also, of course, reducing the churn rate, which is, I would say, historically a bit higher in Belgium and as region Belgium than in other countries. So this is the goal in a market that would be maybe in the same dynamic for H2, as you mentioned.

[Operator Instructions] There are no further questions on the line. So I will now hand you back to your host for closing or additional remarks.

Thank you for your participation in this call. Would you have any other follow-up questions, please do not hesitate to contact the IR team for any further comments. Thank you very much.

Thank you. Bye-bye. Take care.

Thank you for joining today's call. You may now disconnect.