Proximus PLC (PROX) Earnings Call Transcript & Summary

Hello, and welcome to the Proximus Q2 Results 2026. My name is Gaya, and I will be your coordinator for today's event. Please note, that during the conference, the conference is being recorded. [Operator Instructions]. I will now hand you over to your host, Nancy Goossens, Investor Relations lead to begin today's conference. Thank you.

Thank you, Gaya. Ladies and gentlemen, welcome to our webcast covering the Q2 results. As usual, we will begin with the presentation before opening the floor for your questions. Joining me today are Stijn Bijnens, the CEO; Nicolas Gaertner, Interim CFO; Sasken Arikan, Global CEO; and Jim Casteele, the Head of B2C and AI. So let's now turn to today's highlights. Stijn, over to you.

Welcome also from my side to our second quarter 2016 results presentation. I will take you through the key messages from today's release. They are summarized on this slide, but I will move directly to the next 1 and cover each point in more detail. Overall, our financial performance was broadly in line with our expectations. The domestic segment continued to perform well with EBITDA increasing slightly while global progressed as anticipated. We are therefore reiterating our full year guidance across all domestic and group metrics. For global, we have narrowed the EBITDA guidance range, reflecting greater confidence in the margin trend. As Nicolas will cover the financials in more detail later, I'll leave it here and move on to the operational results. We delivered another solid commercial quarter. For mobile postpaid, we added 25,000 cars and our Internet subscriber base grew by 8,000 lines. Our convergent customer base also continued to grow steadily, adding 12,000 residential customers in the second quarter. Meanwhile, the fixed voice and TV customer bases continued their gradual erosion. Our solid fixed Internet performance continues to be supported by our expanding fiber footprint. By the end of June, we reached more than 2.75 million fiber homes across Belgium. This equals the population coverage of around 43% and the network filling rate further progressed to 35%. And we added another 44,000 active fiber customers in the second quarter, bringing the total to 820,000. Over the past few months, we reached 2 key milestones in our fixed network strategy that will shape our fiber rollout in the coming years. Let me start with Wallonia, south of Belgium shown in the right hand of the slide. At the end of May, we took full ownership of Unifiers, which is rolling out fiber in Wallonia mid-dense areas. This simplifies the structure and gives us greater strategic flexibility. Negotiations on the intended network partnership with Orange in this part of Belgium has also progressed well. Turning to the left side of the slide. This is the more recent milestone we announced last week. We're very pleased to receive BCA, the Belgium Competition Authority approval for the network collaboration agreement in Flanders with wire and Telenet. We understand that the process took time and thank our investors for their patients and we also acknowledge the significant resources committed both by the BCA and the BIPT and appreciate the important role throughout this process. Overall, the collaboration agreement benefits all stakeholders. For Proximus, it enables us a more capital-efficient fiber rollout in the mid-dense areas, it also improves rollout economics and helps to accelerate copper phaseout. In last week announcement, the addendum included an overview of the deployment commitments and pricing. Let me now focus on the additional information shown on the slide, specifically on duct access, more precisely the subduct access. This duct access applies only on the dense area, where we roll out fiber in stand-alone, it does not apply to the fiber collaboration zones. In principle, this truck access continues the framework previously imposed by the BIPT. The specific modalities are now confirmed in the context of the FTTH cooperation agreement. The duct access is granted under friend principles and only in areas where boxes has already deployed its GPON fiber technology. It only applies to the 3 subjects in the Proximus network, meaning that we do not need today and will not need in the future. On pricing, we are pleased that tariffs are based on current costs, reflecting the investments Proximus has made in its duct network. Prices are indexed annually by 1.9%, except if actual inflation deviates materially. It is important to underline that only Proximus can carry out work on the duct infrastructure to safeguard network integrity. As a trade-off, we get to reduce the related onetime fees by around 50% compared with the rates presented in the market test. In addition to the onetime fees for physical interventions, a monthly rental fee applies for duct usage. The MRC is based on an allocation key linked to the number of sub-ducts used. There are typically 7 subjects in a duct for the first subject, 25% of costs are allocated to the excess seekers. This is increasing to 50% when more than 3 subjects are used on the same network segment. The rental period is always at least 5 years with upfront payment. This summary covers the key points. More details are available in the reference offer on our website and in the BCA decision, which will be will be published on its website. With the agreement in Flanders, we have significantly derisked our medium and long-term CapEx and free cash flow trajectory, with rollout targets set and CapEx fully within our control, our investment pub is now clearly defined. Once the black box is black box is fully analyzed and the South agreement is finalized. We can be more precise on the CapEx expectations over the next few years. But I can say that we are very confident in achieving our long-term ambition of restoring organic free cash flow to EUR 400 million by 2030, supported by a gradual decline in CapEx after the '27 peak. This concludes my introduction on the domestic business before turning to the financials with Nick, I will briefly hand over to Seckin for an update on Proximus Globe.

Thank you, Stijn, and good afternoon, everyone. I would like to give you a short update on how Elevate our global strategy is progressing. The headline is that it's progressing well. First, the transformation we have launched is on track. Our 2026 integration commitments are moving ahead as planned. We have strengthened the team with additional experienced CPS leaders and we have tightened our OpEx and CapEx discipline with a sharper focus on the areas where we want to see the growth in coming years. Second, I'm proud to say that our business continues to earn external validation. We have been ranked the #1 global leader in sponsored roaming by Juniper Research. We are recognized as the leader -- one of the leaders in the 2026 Gartner Major Quadrant for CPAs. At the same time, new partnerships with Google Cloud and 3 caller -- True caller are finalized. Finally, we are beginning to shape how AI can support our future growth. This is still early. The strategy is very much a work in progress, but we are taking some concrete steps -- we have set up a dedicated AI-focused unit to explore where AI can add the most value across our portfolio. We also acquired through Root Mobile an entity called health are a small but specialized player gives us useful capabilities as we develop our thinking here. If I summarize disciplined execution today, and the foundations for stronger growth tomorrow. With that, I will hand over to Nicolas to take you through the financial results.

Thank you, Seckin. So let me start with domestic revenue. In the second quarter of this year, domestic revenue increased by 1.1%, supported by higher IT hardware and terminals revenue. Services revenue was broadly stable year-on-year on a pro forma basis. with continued solid growth in residential services revenue, offset by lower revenue from business services. Turning first to the B2C unit. Total residential revenue increased by 2.2% year-on-year. This was partly supported by higher terminal revenue, but it was mainly driven by the continued positive trend in customer services revenue. In the second quarter, customer services revenue grew by 2.1% year-on-year, this was driven by sustained growth in convergent revenue, which increased by 3.9% in the quarter. Overall, the services revenue benefited from a continued solid B2C commercial performance including upselling to fiber in the January price indexation. These positive effects more than offset the continued shift in brand mix and lower sports revenue linked to the nonrenewal of Belgian football rights over the period. As a result, ARPC remained positive, up 0.8% year-on-year. Turning now to the B2B unit. Total business revenue increased by 1.8% year-on-year. This was driven by a EUR 20 million increase in IT hardware revenue, which is more volatile by nature. Services revenue in the B2B unit was softer in the quarter. B2B services revenue declined by 3% year-on-year, mainly reflecting continued pressure on legacy services such as fixed voice and traditional data connectivity. This is not fully offset by continued growth in Internet services supported by the expanded fiber footprint. IT services revenue also remained soft, although we expect some improvements later this year as the 2025 contract wins are progressively onboarded. Turning now to wholesale. The total revenue trend remains impacted by the ongoing erosion of interconnect revenue, however, with no margin impact. More importantly, the wholesale services revenue was up plus 1.2% and driven by MVNO revenue and growing fiber wholesale volumes. This was partly offset by the consolidation effect of services that Proximus delivers to Uni fiber. Despite broadly stable domestic services revenue, we grew direct margins slightly in Q2, which more than offset the increase in OpEx. As a result, domestic EBITDA increased slightly, up 0.3% in the second quarter. The increase in OpEx was driven by higher non-workforce expenses, partly reflecting a lower comparison base following the one-off real estate tax provision reversal highlighted in our first quarter results. It also reflected general inflationary effects and transformation-related costs. Workforce expenses, however, decreased by 1.4% year-on-year, benefiting from lower headcount as part of our cost efficiency program. This concludes the domestic section. Let's now turn to the Proximus Global segment. For the second quarter of 2026, Global posted EBITDA of EUR 29 million, -- this reflected a stabilizing trajectory in global direct margin since the third quarter of last year as the business starts to cycle the structural CPaaS SMS downturn. At the same time, global OpEx increased year-on-year, reflecting inflationary effects and initial targeted growth investments to support the turnaround. Over the coming quarters, we expect the direct margin trend to continue improving while OpEx will increasingly reflect these growth investments. Turning now to group CapEx. In the first half of the year, accrued CapEx amounted to EUR 585 million, up 8% year-on-year. The increase was mainly driven by timing of multiyear content contract renewals as well as the initial impact of consolidated -- consolidating Unifiber CapEx from June. Unit fiber CapEx will continue to affect the remainder of the year, alongside the usual back-end loaded investing profile. Overall, we remain on track to meet our full year guidance of around EUR 1.3 billion. Looking at free cash flow for the first half of the year, we land at minus EUR 82 million, including the cash out related to the UniFiber acquisition. On an organic basis, the free cash flow was minus EUR 25 million, which compares to minus EUR 5 million last year. As you can see on the graph, the year-over-year decrease was mainly driven by lower EBITDA from Global, the interest we start to pay on the bond of April last year, partly offset by lower cash CapEx over the first 6 months of the year. That brings me to our final slide, where we confirm our guidance across all domestic and group metrics and narrow the fiscal year 2026 guidance range for global EBITDA to EUR 110 million to EUR 120 million. With that, I will hand it back to the operator to open the line for your questions.

[Operator Instructions] We have the first question coming from David Vagman from ING.

So the first is on the cooperation agreement and the dock access and thanks for the technical detail already. So could you explain us technically in what way it can help, for instance, DG or other, let's say, Orange Belgium to accelerate their rollout and cut costs. So I mean, for instance, how many ducts are they in percentage of the population, the number of households and how many of these ducts are really accessible, if I understand only the sub-ducts Proximus doesn't need really accessible, if I understood that correctly. So it is basically technically and economically a game changer or not for external parties? And then second question, now that the cooperation agreement has been approved. Could you give us a rough guidance on the wholesale costs you expect in Flanders over time the progression and ultimately how much they should represent. And third, final question on football rights, how much of a tailwind was it EBITDA-wise in H1. What should we expect in H2 and basically next year. So are we talking like very roughly tens of millions? Or is it less? Is it more?.

Thank you, David. So duct access it's up to the duct access see to make their economic analysis, whether they want to trench themselves or use of the pricing. So it's based on on the cost to do it, so it's current cost pricing. So it's a trade-off that the access seek has to to make it. It's pretty similar to the synergies agreement that if we start to trench, everybody can cooperate and then we split the costs. So whether it's a game changer or not we will see -- we will not know whether our competitors what their appetite will be to use our offering at least our offering is now clear, and we have regulatory certainty about the framework. So that's a good step forward. So in terms of the physical duct access seeker can ask there is a procedure to ask whether we have an available duct at at the specific location. So that's also described in the process. So the duct access needs to ask us, and then we provide information whether we have spare available. The wholesale cost, it's also published. So it's kind of in line with also the market test public information. In the football right, I'll give it to Jim.

So David, thank you for the question. So the tailwind we had on football rights was about roughly, I would say, 0.5% of our ARPC. So you can expect that coming back as of August. Now of course, at the same time, this is a relatively limited impact on IRPC. And so keep in mind that, of course, promotional activities brand mix changes impact on fixed voice decline, TV decline, et cetera, will continue to impact our revenues as well. So I would say directionally, we expect a similar growth year-over-year as we have seen in S1. That's a bit the target I would think about.

The question was more about the EBITDA impact in the sense that you didn't have to pay for football right in H1, if I'm correct, a bit as you...

So your Proximus football is in cash and -- so you need to look more at the cash part of it. And that, of course, will have a positive impact. The fact that we had that we didn't have football in was positive on cash. The deal that we renegotiated should allow us to neutralize the cost with the price that we pay. So I think we have a good deal. I think cash-wise, it will probably be a more neutral element. But on EBITDA, you will see an upside because content football content is below EBITDA.

Another quick follow-up. So on the ducts, which are accessible. We have no -- you don't have a view of how many relate what is the percentage of the doctor that you do not use and are accessible -- it's on a dock by duct by duct basis.

No, we don't provide that information. It's on a case-by-case basis, yes.

The next question is coming from Dhruva Shah from UBS.

I have 3. Maybe just starting off with the fiber wholesale cost. -- but also income and maybe asking it in a different way. If I look at the relative market shares of Proximus and Telenet within Flanders and then the relative proportion of fiber that's being rolled out in the mid urban areas. Is it fair to assume that actually wholesale costs and income will be truly neutral in Flanders. So that's question one. Question 2 is on global and the global trajectory, especially the top line has improved meaningfully as you lapped revenue headwinds from last year. So you've given us some color on what to expect in terms of direct margins, but also some higher OpEx and the guidance has been narrowed, but how should we think about the top line going forward. So can you just remind us of some of the moving parts, the relative size of the legacy declining business but also the offsetting growth areas. Then finally, at the CMD, it was clear that you cut the dividend to ensure it was covered by organic free cash flow. Now post the unifier consolidation, the dividend for this year is again uncovered. So is there a risk of a further cut? Or are you just very confident on free cash flow growth and that already by 27%, free cash flow will be above I think 0.4 dividend implies EUR 130 million next year, and therefore, the dividend is going to be covered very, very soon.

Thank you for the questions. I'll take 1 and 3 and then hand over to Global. So your first question in terms of wholesale cost in the 2 directions. Yes, it's fair that the cost versus income will be around neutral. That's a very good assumption. Regarding the dividend, I would say, on the contrary, I don't see any risks. We are very confident with our guidance for free cash flow for this year. And also with the agreements in place, we gained much more visibility on our CapEx, which we fully control, and hence, our free cash flow plan. So there's no risk on our dividend trajectory. So I'll hand over to Seckin.

Thank you, Stijn. When it comes to revenue, revenue is not a metric that drives our business and we don't incentivize our employees on the revenue. And the main reason is that it's quite a big trading part of our business. It fluctuates quite much. All of us in Proximus Global are driven by DM EBITDA and cash generation. But just to give you a little bit insight, we see that CPaaS CMS our team is farming that business very well. So we have managed to reduce the decline in that area, also in the P2P voice, while it is in decline, we are able to farm those businesses better. For the future guidance, we will stick to the EBITDA guidance that we are providing.

Very helpful. Maybe just 1 quick follow-up then. In terms of being driven by DM EBITDA, we have good color on those. But in terms of cash generation, could you perhaps share what the cash generation at Global was in '25 or in H1 '26 from memory, I think it was around EUR 94 million in 2024.