Proximus PLC (PROX) Earnings Call Transcript

Hello, and welcome to the Proximus Q3 2026 Results. My name is Gaia, and I will be your coordinator for today's event. [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, Gaia. Good afternoon, and welcome to our Q3 results webcast. We trust you have reviewed the results this morning. So we will keep the presentation to the point, allowing more time for your questions. Joining me for the presentation and the Q&A are our CEO, Stijn Bijnens and Fiona, the new CFO since September. Welcome Fiona to your first proxies results call. Also with us are Seckin Arikan, the Global CEO; and Jim Casteele, our Head of B2C and AI. So over to Stijn now for today's highlights. .

Thank you. Welcome from me as well to our third quarter results as you have seen the publication. So as Nancy said, we'll keep it short. This slide provides the usual brief overview, but as we will cover this in a minute, let me move straight to the next one. I'll start with a high-level overview and we'll leave it to Fiona to cover the financials in more detail. . In the domestic segment, we delivered another resilient quarter with slight increase in services revenue. This was offset by higher OpEx, which was in part due to the consolidation of Unifi and resulted in a lower domestic EBITDA. Turning to the Global segment. I'm pleased with the disciplined execution of its strategic plan, which delivered direct margin growth ahead of expectations. Overall, for the Proximus Group, the third quarter EBITDA decreased 2%. We'll leave it and move to the operational results. We delivered another good commercial quarter for the B2C unit and this in a highly promotional market. This led for the total domestic segment, including B2B to a growth of 18,000 mobile postpaid cards and 5000 Internet subscribers. Our convergent customer base also continued to grow steadily, adding 7,000 residential customers in the third quarter. Meanwhile, the fixed voice and TV customer base continued their gradual erosion. Turning to fiber. Our footprint continues to expand. By the end of September, we had passed more than 2.8 million homes across Belgium that represents population coverage of over 44%. In the third quarter, we added another 38,000 active fiber customers. This brings our total to nearly 860,000 and the network filling rate stands at 35%. Before I hand over to Seckin for Global, let me say a few words about satellite connectivity and AI agents. Both have raised concerns across the telecom sector and put pressure on Proximus share price in particular. Let's start with satellite. It's a great technology that helps solve problems that we don't face here in Belgium. Belgium is one of Europe's most densely populated countries. Even though rural areas are very different from the white open spaces, you find, for example, in the U.S., Africa or the Nordics. And we have very good networks here. Our 5G network already covers almost the whole country. We will reach 99% indoor coverage by the end of 2027. We also have a great and broad range of spectrum secured for the next 15 years. Our fixed network has as clear advantages over satellite to with our fiber agreements, we're on track to cover 80% of Belgium with fiber offering both fast upload and download speed. Satellite has physical limits on capacity. So it will always be limited in the number of households it can serve. We see satellite less as a threat and more as an opportunity, something we could offer as an add-on to our services. Turning to AI agents. I see this as an evolution and not a revolution. It's another step in how customers make these choices. Here too, we see opportunities. AI can help us build on what makes our services different our strong brands and our customer rewards. We're also investigating generative engine optimization, helping customers find us when they use AI to search Telecom will keep changing, and we will keep adapting. As more people use AI, good connectivity matters even more. AI needs networks that can handle large amounts of data, support more uploads and stay connected all the time. As Belgium's largest fiber own well-placed meet those needs. And with that, I'll hand over to Seckin to talk about global.

Thank you, Stijn, and good afternoon, everybody. As we told you earlier, our transformation will take 8 quarters, and we have now completed 3. We are making good progress, and we are on track. This year, we focused on a set of key integration battles, and we'll close all of them as planned. Let's talk about the core business. We improved how we form our large customers in Protect and engage. In Connect, we reinforced our scale with new roaming wins. Our growth portfolio across omnichannel, digital identity, IoT and cloud communication is gaining traction. In the meantime, our work continues to receive external recognition. SIM importing won an IoT Global Award for its secure sovereign eSIM solution. We took gold at the merit awards for 5G and next-generation mobile communications, and BICS is a finalist at the Fierce Network Innovation Awards. Lastly, building the future. Health is now fully integrated and expands our conversational AI capabilities. We see strong cost to customer engagements enabled by Helter in India market. Telecine and Bancontact company are partnering to prevent camo fraud. Root Mobile launched a sales formative messaging app on agent exchange and Big joined the Sion Association. In short, our transformation is on track, and we continue to stay focused. The core is getting stronger. Our growth portfolio is gaining traction, and we are building the capabilities that will make growth sustainable. Fiona now will take you through the Q3 financials.

Thank you, Seckin. Let me start with, first, domestic revenue. In the third quarter of this year, domestic revenue increased by 0.3% year-on-year on a pro forma basis, supported by growing service revenue, which is up by 0.4%. This was driven by continued solid growth in the residential service revenue offset by lower revenue from business services. Turning first to the B2C unit. Total residential revenue increased by 2.4% year-on-year specifically happy to see that continued positive trend in customer service revenue, up by a solid 2.9% year-on-year. This was, amongst others, the result of a continued growth in the customer base for Internet growing year-on-year by 2.3% and post mobile postpaid growing 3.1% year-on-year. Summing in for a moment on the customer service revenue of the third quarter. As illustrated on the chart, we achieved to continue a nicely growing trend moving up to 2.9% growth, as mentioned earlier. This was driven by sustained growth in revenue from convergent customers, which increased by 4.7% compared to Q3 of last year. . Overall, the first service revenue benefited from January 2026 inflation-like price increase as well as a continued migration to higher average revenue per customer conversion offers and also a modest support from the renewed Belgium football broadcasting rights. This was partly offset by the ongoing shift in customer brand mix. And taking these all together, the overall average revenue per customer was up by 1.7% year-on-year. Turning now to the B2B unit. Total business revenue declined by 1.9% year-on-year. This was driven by lower business service revenue down 2.8% year-on-year on a pro forma basis, broadly in line with recent quarters. The lower B2B service revenue reflects the combination of a few adverse effect in line with historical and market trends, we undergo in the telecom space a steady pressure on legacy fixed voice as well as on legacy data offers. This was not fully offset by continued growth in Internet service. Therefore, the total revenue of fixed data is staying rather stable. The third quarter also saw continued pressure on mobile revenue where the business carefully balances value and volume. IT service revenue also remained soft. The decline reflected project implementation delays, partly offset by continued cybersecurity growth. Looking forward, we see that the longer-term time line remains solid. So we expect the IT performance to improve. For the wholesale unit, the reported revenue decline in fully due to ongoing erosion of interconnect revenue. However, with almost no margin impact. Revenue from wholesale service was slightly up driven by higher MVNO revenue, roaming and fiber volumes, which fully offset the revenue loss from services that Proximus delivers to UniFiber as a result of this consolidation. Now turning to domestic EBITDA. Direct margin grew by 0.5% year-on-year in Q3. Solid B2C services revenue growth supported this although B2B headwinds offset most of the benefit. As you can see on the chart, higher OpEx more than offset the growth in direct margin. This includes around EUR 5 million of fiber consolidation on top of inflationary pressure and higher rental and cloudification related OpEx. Our head count reduction remains on track. Workforce expenses rose only slightly by 0.2% year-on-year. Lower domestic FTE almost fully offset the wage in the station of March and September 2026. Taking together, these results in a 1.4% decline in domestic EBITDA in the third quarter. That concludes the domestic session. Let's now turn to the Cosmos Global segment. Starting with the global direct margin, we returned to growth earlier than expected. Direct margin was up 0.8% year-on-year and 4.5% compared with the previous quarter. This growth came in highly from the Communication and Data Protect Group, which direct margin grew by 4.4%. This is a promising sign that our investments to support the global turnaround are delivering results. Turning to costs. This disciplined OpEx investments together with wage inflation drove a 5.8% year-on-year increase in the third quarter OpEx we expect spending on these initiatives to increase further in the coming quarters as the business moves into its next phase of growth, focus on customer acquisitions. All in all, this brings global EBITDA to EUR 35 million for the third quarter, which is a good result. Now let's turn to the group CapEx. Over the first 9 months of the year, the group accrued CapEx totaled to EUR 835 million. This is EUR 10 million more than the same period last year. The increase was mainly driven by phasing of multiyear content contract renewals as well as the impact of consolidating unifier CapEx from June onwards. At the same time, fiber investment in the dense areas as well as CapEx for the upgrade in the mobile rent network were coming down as well. As a result, a strong organic free cash flow in Q3 2026 have left up year-to-date organic free cash flow to EUR 114 million, which compared to EUR 153 million last year, you can see on the graph, the year-on-year decrease was mainly driven by lower EBITDA from global, higher interest paid and higher cash catch over the first 9 months of the year. On a total reported basis, the free cash flow for the first 9 months of the year was EUR 54 million. This brings me to the last final slide on outlook for the full year. We reiterate our domestic guidance, expecting underlying domestic service revenue and EBITDA for 2026 to stay broadly stable on a pro forma basis. For global, the full year EBITDA expectation is raised to EUR 125 million to EUR 135 million reflecting the earlier than expected improvement in direct margin combined with disciplined OpEx investments to support the turnaround. With the improved EBITDA outlook for Global combined with slightly lower CapEx expectation, we also lifted up our full year outlook for organic free cash flow to around EUR 100 million. With that, I will hand it back to the operator to open the line for your questions.

[Operator Instructions] The first one is coming from David Vagman from ING.

The first is on the CapEx guidance cut for this year. Could you clarify how much is really efficiency gains and how much is phasing of the CapEx? And then the second is on consumer mobile. It seems to be a sort of a mini price war in the North RealeLimited segment. Can you explain the -- just in your view, the justification behind it. So is it that you anticipate to move DG on unlimited? Is it preventive -- or are there other reasons behind this development? And my last question is on the cooperation agreement in fiber and HFC. Can you update us on the latest development in the North and in the South.

Okay. I'll take the -- the last 1 on the fiber collaboration. So in the South, we it's advancing very well, and we're interacting with the regulators I would guess, my best guess would be finalization by the [ December '27 ] in the north, of course, the Competition Authority approved the deal. So it's more in finalization also with the telecom regulator on market analysis. So -- but everything is moving according schedule and very positive around the outcome. The CapEx question, I'll refer to Fiona.

Yes. So on the CapEx, we will be slightly below our EUR 1.3 billion guidance especially, this is driven partly by efficiency and partly by timing effect timing effect, I mean, by the cash CapEx. So we expect a little bit later to pay in the cash CapEx for this year. So you can count half year efficiency, half is cash CapEx is slightly below our EUR 1.3 billion.

David I'll answer question on Consumer Mobile. So if you look indeed a recently launched their unlimited plan at EUR 24, we already had with Mobile Vikings, an unlimited plan at EUR 25 as entry unlimited plan because we have speed tiering on our mobile plans to drive further value up. I think it's probably a mix, we look at it as a mix of elements. On the one hand, what we have seen is that these unlimited plans actually drive IRPC up. So it's actually a value-based move. But of course, at the same time, it also helps to prepare for potential new Digi moves on unlimited plans because you have lowered already price points in the market. But what we see today is that it's actually driving value rather than being a price war.

Maybe a very quick follow-up on the CapEx efficiency gains. Should we think that there could be more in '27 or it's more in the vein of the CMD 2026? .

Well, we I mean each of the CMD, including the Unifiber acquisition, but we're always looking for efficiencies across the Borad.

the next question is coming from Drew Vasa from UBS.

I have a few, please. If you start off with domestic and just continuing in terms of the residential competition did you are now offering their mobile plans in the 655 BPOs across the country. So do you think this will lead to a step change in the net add trajectory? Or do you think this really is a nonevent? And maybe just on the -- so that's on the mobile side and on the fixed side with Digi -- are you seeing anything significantly changing in terms of their rollout. They've obviously committed effectively to being in the Belgian market through additional financing. So just curious as to, yes, any changes on the fiber side of things. Second question really on the global side of things. Can you maybe just double-click on what's driving the stabilization in revenues? Is it more that the legacy declines are slowing? Or is the higher growth in the growth areas? Or is it a combination of both -- you also mentioned that you're 3 quarters through of the 8-quarter transformation the direct margins are already growing. So would you say things are going quicker than expected? And do you still expect EBITDA for 2027 -- global EBITDA for 2027 to grow. The final question really is just on free cash flow. So my understanding is 2027 will be the peak CapEx year. But if I rewind back to the CMD and if I recall, collect correctly, then there was a free cash flow chart, which suggested that we will see moderate free cash flow growth in each year all the way through towards the targeted EUR 400 million per annum. So is that still the case despite peak CapEx in '27, should we -- and could we expect free cash flow to still grow.

So on the question on DG and post. So the way I look at it is that we have a great retail network ourselves. We have our own Proximus shops. So we also have an extensive nonexclusive retail partner network. So we're really that we have a very strong retail environment ourselves. So we're not really worried that we would be under pressure from a channel perspective. This deal has been signed a couple of months ago. And if you look at our quarterly net adds, I think we're continuing to deliver robust that's in a very competitive environment. So I think our strategy is working. We're continuing on focusing on our own strength. And as I mentioned, we're very happy with our strong retail channels ourselves.

Concerning additional findings for fiber rollout Well, we have a fully financed business plan. So it's in the Capital Markets Day, we show that we have a good bond program with good maturities. The first maturity is in '28. So we will probably raise some bond before that. And from a free cash flow perspective. And that, indeed, we said previously that organic free cash flow for '27 million would be above EUR 100 million, and that's still the case. So we also confirm our dividend policy for next year and the year after. Global. I'll hand it over to Setia.

Thank you, Drew, for the question. There is not a silver bullet to be honest with you when it comes to the stabilization of our business. It's lots of hard work and the disciplined execution of our Elevate strategy. We are working very closely with our largest customers to make sure that we maximize that business our legacy declining portfolio, P2P voice and P2P messaging. We are securing that we farm those businesses and reduced the decline as much as we can and we see a good traction in our growth products like IoT, omnichannel digital identity. The thing search let me say it like this, where we want them to be at this stage in these 8 quarters of the journey. We are around less -- to be finalized in 3 quarters, a little bit less than 50%. We are happy where we are.

The next question is coming from Michiel Declercq from KBC Securities. Please go ahead.

Yes. The first 1 would be on the domestic EBITDA development in the third quarter. You mentioned that there is a bit of an impact from the unifier consolidation. Just curious, is this a bit of a one-off impact, like implementation impact? Or is this more structural? Just to get a bit of a degree on what kind of impact we should expect from this in the fourth quarter as well and maybe rolling over into 2027. And also a bit on the inflation in rent and cloud inflation. I assume this is something that we will see continue in the fourth quarter. So that would be my first question. . The second question would be just on the consumer ARPC or ARPU was up quite a bit in the third quarter and you gave a bit the drivers here on the strong revenue per customer?

Yes. I'll take the unifiber one. So -- of course, Uni Fiber will continue to have OpEx, but the EUR 5 million in Q3 is rather exceptionally high due to some timing elements. So for kind of the second half of '26 so the last 6 months of this year, the OpEx impact is approximately EUR 6 million to EUR 7 million, so rather it's exceptionally high. Of course, in the future, it will be offset by also income with the increasing filling rate and intended onboarding of orange on the unifier network that should become a positive result in the future.

So on the question on consumer revenue per customer. So we indeed have a year-over-year increase on IPC, which is driven by a combination, of course, of the basin power that we still have on the Proximus brand with price increases that we did in January '26. We continue also to see a movement of customers to convergence where is higher IPC than on customers that only have one product and also fiber monetization continues to help drive FPC up. Of course, there are some elements that put pressure on the RP. We talked about the AB brand mix but also the continued decline of fixed voice and television puts pressure. But all in all, with the positive upside that we drive, we continue to see an increasing RPC and consumer in detail.

And coming back on the more general question on cost side, the inflation, of course, the Belgian situation is an automatic indexation of salaries. That's why we have a very disciplined OpEx program to help that to work out to our plan.