Proximus (Euronext:PROX) Q2 2026 Earnings Call

0:00 Hello, and welcome to the Proximus Q2 twenty '26 Results. My name is Gaia, and I will be your coordinator for today's event. Please note, conference is being recorded. And for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing pound key five on your telephone keypad to register your questions at any time. If you wish to withdraw your question, please press pound key 6 I will now hand you over to your host, Nancy Gussens, Investor Relations lead, to begin today's conference. Thank you. Thank you, Chaya. Ladies and gentlemen, welcome to our webcast covering the Q2 results.

0:47 As usual, we will begin with the presentation before opening the floor for your questions. Joining me today are Stan Baynens, the CEO Nicolas Gardner, Interim CFO Seshkin Arikan, global CEO and Jim Castere, the head of B2C and AI. So let's now turn to today's highlights. Stan, over to you. Welcome also from my side to our second quarter twenty six 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 one and cover each point in more detail. Overall, our financial performance was broadly in line with our expectations.

1:34 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 cards 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.

2:28 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 2,750,000 fiber homes across Belgium. This equals a 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 two key milestones in our fixed network strategy that will shape our fiber rollout in the coming years.

3:20 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 Unifiber, which is rolling out fiber in Wallonia's 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 Belgian Competition Authority approval for the network collaboration agreement in Flanders with Wired and Telenet.

4:09 We understand that the process took time and thank our investors for their patience, And we also acknowledge the significant resources committed both by the BCA and the BIPT and appreciate their 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 phase outing. In last week announcements, 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.

5:05 This duct access applies only on the dense area where we roll out fiber in standalone. It does not apply to the fiber collaboration zones. In principle, this drug 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 Proximus has already deployed its g pon fiber technology. It only applies to the free subjects in the Proximus network, meaning ducts we do not need today and will not need in the future.

5:54 On pricing, we are pleased that tariffs are based on current cost, 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 agreed to reduce the related one time fees by around 50% compared with the rates presented in the market test. In addition to the one time fees for physical interventions, a monthly rental fee applies for duct usage.

6:45 The MRC is based on an allocation key linked to the number of subducts used. There are typically seven subducts in a duct. For the first subduct, 25% of costs are allocated to the access seekers. This is increasing to 50% when more than three subjects are used on the same network segment. The rental period is always, at least five 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.

7:34 With the agreement in Flanders, we have significantly de risked our medium and long term CapEx and free cash flow trajectory. With rollout targets set and CapEx fully within our control, our investment path is now clearly defined. Once the 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 €400,000,000 by 2030, supported by a gradual decline in CapEx after the '27 peak.

8:21 This concludes my introduction on the domestic business. Before turning to the financials with Nick, I will briefly hand over to Setchkin for an update on Proximus Global. Thank you, Stan, 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 CPaaS leaders, and we have tightened our OpEx and CapEx discipline with a sharper focus on the areas where we want to see the growth coming years.

9:07 Second, I'm proud to say that our business continues to earn external validation. We have been ranked the number one global leader in sponsored roaming by Juniper Research. We are recognized as the leader one of the leaders in the 2,000 '26 Gartner Magic Quadrant for CPaaS. At the same time, new partnerships with Google Cloud and three caller Truecaller 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.

9:57 We also acquired through Root Mobile an entity called Heltar, 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, Sachin. 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 form a basis with continued solid growth in Residential Services revenue, offset by lower revenue from Business Services.

10:46 Turning first to the B2C units. 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 fibre 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.

11:32 As a result, ARPC remained positive, up 0.8% year on year. Turning now to the B2B units. Total business revenue increased by 1.8% year on year. This was driven by a €20,000,000 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 twenty twenty five contract wins are progressively onboarded.

12:23 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% driven by MVNO revenue and growing fiber wholesale volumes. This was partly offset by the consolidation effect of services that Proximus delivers to Unifiber. 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.

13:14 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 twenty twenty six, Global posted EBITDA of €29,000,000 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.

14:08 Turning now to group CapEx. In the first half of the year, accrued CapEx amounted to EUR $585,000,000, up 8% year on year. The increase was mainly driven by timing of multiyear content contract renewals as well as the initial impact of consolidating Unifiber CapEx from June. Unifiber 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 1,300,000,000. Looking at free cash flow for the first half of the year, we land at minus EUR82 million, including the cash out related to the Unifiber acquisition. On an organic basis, the free cash flow was minus EUR25 million, which compares to minus EUR5 million last year.

14:57 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 six 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 twenty twenty six guidance range for global EBITDA to EUR 110,000,000 to 120,000,000. With that, I will hand it back to the operator to open the line for your questions. We have the first question coming from David Bachman from ING. Your line is now open. Please go ahead.

15:54 Thank you. Hi, good afternoon, everyone, and thanks for taking my question. So the first is on the cooperation agreement and the DUC 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 subduct, Proximus Proximus doesn't need are are really accessible, if I understood that, correctly. So it is basically technically and economically a game changer or not for external parties?

16:41 And then second question, now that the cooperation agreement has been approved, could you give us a rough guidance on the wholesale costs you expected tenders over time, the progression and ultimately, how much they should represent? And third, a 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 seekers to to make their economic, analysis whether they wanna trench themselves or or use or or or the pricing. Yes?

17:34 So it's based on on the cost to do it. Yes. So it's it's current cost pricing, so it's a trade off, that the access seeker has to to make it. It's it's pretty similar to, yeah, the synergies agreement that, if we start to trench, everybody can cooperate, and then we we we split the cost there. So whether it's a game changer of or not, yeah, you we we will see. We we will not know whether or or competitors, what their appetite will be to to to use our offering. At least our offering is now clear, and we have relative certainty about the framework, so that's a good step forward. So in terms of the the physical, a duct access seeker can ask, there is a procedure to ask, whether we have an avail available duct at the at the specific location.

18:42 So that's also described in the process. So the the access seeker needs to ask us, and then we provide information whether we have spare ducts available. The wholesale cost, it's also published, So it's kind of in line with, also the market test. It's public information. In the football rights, I'll 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, point 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.

19:37 And so keep in mind that, of course, promotional activities, brand mix changes, impact on fixed voice decline, TV decline, etcetera, 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. Thank you, Jim. The question was more about the EBITDA impact in the sense that the you didn't have to pay for football, right, in H1, if I'm correct? A bit as in H1. The Proximus football is in cash and not in EBITDA. So you need to look more at the cash part of it, that, of course, will have a positive impact. The fact that we had that we didn't have football in s one was positive on cash, the deal that we renegotiated should allow us to neutralize the cost with the price that we pay.

20:36 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. Okay. Thank you very much. And a very quick follow-up. So on the DUCs which are accessible, we have no you don't have a view of how many, relative what is the percentage of the ducts that you don't do not use and are accessible. It's on a duct by duct basis by duct basis. No. We don't provide that information. No. It's on a case by case basis. Yes. Okay. Thank you. The next question is coming from Drew Bashar from UBS.

21:22 Your line is now open. Please go ahead. Hi. Many thanks for taking the questions. I have three. Maybe just starting off with the fiber wholesale costs, 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 broadly neutral in Flanders? So that's question one. Question two is on global and the global trajectory, especially the top line has improved meaningfully as you lapped revenue headwinds from last year.

22:09 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, was clear that you cut the dividend to ensure it was covered by organic free cash flow. Now post the Unifi with 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, 400,000,000 dividend implies EUR 130,000,000 next year, and therefore, the dividend is going to be covered very, very soon.

22:57 Thank you very much. Thank you for the questions. I'll take one and three and then hand over to Global. So your first question in terms of wholesale cost in the two direction. 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.

23:45 So I'll hand over to Sergey. Thank you, Stan. When it comes to revenue, revenue is not the metric that drives our business, and we don't incentivize our employees on the revenue. And the main reason is that it's a bit quite a big trading, part of our business. It fluctuates quite much. All of us in Proximus Global are driven by PM, EBITDA, and cash generation. But just to give you a little bit, insights, we see that the CPaaS SMS, our team is farming that business very well. So we have managed to reduce the decline in that area. Also, in the p to p voice, while it is in decline, we are able to farm those businesses better.

24:36 For the future guidance, we will stick to the EBITDA guidance that we are providing. Very helpful. Thank you very much. Maybe just one 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 twenty six? From memory, I think it was around $94,000,000 in 2024. Sure. I'll take that one. So your memory is absolutely correct for 2024 indeed. It was in the region of 90,000,000. If you look at, what we expect from this year, the majority of what we're going to be generating, which is according to our guidance, the approximately EUR 50,000,000, will continue to be coming from our global business.

25:31 So a little bit just a little bit lower than we saw last year, but still very much a cash generative business unit. That's perfect. Thank you very much. The next question is coming from Paul Sidney from Berenberg. I'm going go for three as well, if you allow me. So firstly, on the on the Telenet Flanders gigabit collaboration, it it just seems very, very complicated. You know, we've got rate sets for MRC, HFC, there's indexation, ARPU caps.

26:18 If if we just take a step back, could you just set it out in simple terms, kind of what it means? Will these rates allow Proximus to make an acceptable return over time? And then second question, staying at I remember you stated at the CMD back in February that the global business does not necessarily belong with Proximus' domestic Belgian business. I was just wondering, are there any further thoughts on your strategic options for global in order to create value for Prox shareholders and create value for the global business as well. And then just so you lastly, big picture, there was obviously a very cynical spectrum auction back in 2022 creating the new entrant. But are we now seeing a a real structural change in terms of the way the Belgian regulator and government looks at the telecom industry following the, you know, the positive moves on these collaboration fiber gigabit agreements.

27:21 It does feel as though there's been a bit of a change. But, yeah, it'd be great to get your thoughts. Thank you. Okay. The the first question indeed, these fiber deals are complicated. That's why it also took so long, both with the regulator and with the other party. Of Of course, we feel confident that we can stay in businesses. So for Proximus, we're transitioning from one hundred years copper to 100 fiber gigabit access. And in that transition, we found a solution, which is a mix of technologies, mainly fiber, but the HFC and also flexibility in using a fixed wireless access. So with that mix, we do think we can stay very competitive in the market.

28:21 Your second question about strategic options, yes. So I basically also asked my Board to give me two years to get global back on track. I think it's way too early to monetize the asset at the moment. I feel confident that Setskin and his team can deliver on the expectations of the Elevate strategy. And then at the moment in time, we will have to make a decision at both level on what to do and how to do it and how to structure a potential value crystallization. So of course, we think about it, but there's nothing new compared to our thoughts at the Capital Market Day. We're very focused on execution.

29:14 Impact on DG, we don't see a structural change at the moment. So we have four players in Belgium. Of course, if you look at what's happening in other countries, even the bigger countries realize that it's better to go to three, and we're just a small country. So but I don't think anything has changed, and we we, of course, will be fighting in the market against our competitors. Thank you. Yeah. That's really interesting to say that you say that. Do do you think that the Belgian government would allow four to three? I mean, it's obviously quite a hypothetical question. But, again, do do you think the mood music has changed and we wanna go down the investment route rather than just this obsession about cheap prices for consumers and competition dealers? Yeah.

30:10 Right. Well, I I cannot talk for the government. It would be smart for them to do it. That's my personal, opinion. But, again, we're market leaders, so it's not up to us to kind of change, the market. But, definitely, I I do think medium term, there needs to be market repair to cover all investments. Of course, Proximus is in good shape because like our peak investment year is '27, so we're fully financed and have a strong balance sheet to get through the fiber CapEx cycle, but also looking forward to six gs and what AI will need in terms of infrastructure to stay competitive as a country, I do agree that politicians should look more at favoring investments in innovation.

31:09 Really appreciate your comment. Thank you very much. There are no we have a follow-up question coming from Drew Vashat from UBS. Your line is now open. Please go ahead. Thanks again. I hope in the absence of any other questions, may just try sneaking two very nerdy numbers questions, if that's okay. The first is just with regards to the DUC taxes. And obviously, you mentioned that there's upfront payments for these five year contracts. So do you expect that to potentially lead to a meaningful working capital tailwind? And if so, when do you expect that to potentially be realized?

31:57 And then the second is, if I look at the PPE, so it looks like PPE on the balance sheet has gone up by around million post the UniFiber consolidation. So if we're assuming roughly fifteen years depreciation rate, should we expect DNA to step up by around EUR40 million per annum? Is that a reasonable assumption? Very much and apologies for the nerdy questions. Well, the first one is not nerdy. The second one, I'll give them to my CFO. Duct access, yes, of course, it's also a wholesale business. So if we if Duct Access is extremely successful, then our wholesale business will grow. On the other hand, of course, Duct Access will give tailwind to competitors to potentially roll out an overbuilt network in the dense areas faster than us. So it's two kinds two sides of the coin. So we to be honest, currently, we don't have a clue on whether our competitors will use our tucked access or or or not. I think it's a fair deal, and we will, yeah, due course, report on how successful this new business of a wholesale department will be.

33:24 Regards to your second question, I suppose you're referring to the CapEx uplift post the Unifiber acquisition. So indeed, now that we've consolidated Unifiber, you can think about directionally increase in our depreciation over the next twenty years. We typically depreciate fiber investments over twenty years. So you can think about that in that regard. I think we shared a bit more details a couple months ago around the expected CapEx from Unifiber in the coming years. I think we shared about 500,000,000 over five years. So you can think about a twenty year depreciation period for that, if if that helps. Helps. Super. Thank you very much. We have another follow-up question coming from David Bergmann from ING.

34:12 Your line is now open. Please go ahead. Yes. Thank you. A very quick follow-up on Bologna. Any update on the timing of potential operation agreement and a bit similar to Flanders or not? Any key differences that could come? Yeah. That's a important question. So now that, the regulatory teams are kind of done in Flanders, some people will shift their workload to the south deal. So we already submitted the the the key documents to the the BCA. So now the the BCA will start to to work on it, start the market test at the moment in time.

35:03 But it will take some time, but I think a good estimate for getting it done would be end of q one, '27. Do we see a a a of issues? No. I don't think so. So the the negotiations with Orange go very well. Of course, a lot of the remedies, are already negotiated out with the authorities in in the North, so we don't see any, big roadblocks in front of us. And we should expect, if I understand you correctly, kind of similar remedies?

35:53 Yes. Okay. Perfect. Thank you very much. There are no further questions. So I will hand back to your host, Nancy Gruens, to conclude today's conference. That leads me just thanking you all for joining us and for your questions. Should there be any follow-up questions, as usual, you can reach out to the IR team. Thank you very much, and have a nice weekend. Bye. Thank you for joining today's call. You may now disconnect.