Earnings call transcript: Nos SGPS Q4 2024 sees revenue boost

Nos SGPS SA reported strong financial performance for the fourth quarter of 2024, with significant increases in revenue and net income. The company’s stock price rose by 5.63% following the announcement, reflecting positive investor sentiment. According to InvestingPro data, the stock has shown strong momentum, trading near its 52-week high with notably low price volatility. The company has maintained consistent dividend payments for 21 consecutive years, demonstrating long-term financial stability.

Key Takeaways

• Total (EPA:TTEF) revenues for Q4 reached $448 million, marking an 8.1% quarter-on-quarter growth.
• Net income for the quarter was $60.5 million.
• The company’s stock price increased by 5.63% after the earnings release.
• Nos SGPS achieved nearly 100% 5G coverage and expanded its gigabit fixed network significantly.

Company Performance

Nos SGPS SA demonstrated robust growth in Q4 2024, driven by strong performances across its service lines and strategic network expansions. The company expanded its gigabit fixed network by 300,000 households and achieved nearly complete 5G coverage. These advancements have positioned Nos SGPS as a leader in network quality and infrastructure.

Financial Highlights

• Total Revenues: $448 million (Q4), 8.1% quarter-on-quarter growth
• Full Year Revenue: 6.2% growth
• EBITDA: $182 million (Q4), 11.6% year-on-year growth
• Net Income: $60.5 million (Q4), $91.3 million (Full Year)
• Operational Cash Flow: 43% growth in Q4, 26% growth full year ($272 million)
• Free Cash Flow: Increased to $360 million
• Net Debt/EBITDA: 1.4x
• Total Debt: $912 million
• Average Debt Cost: 3.56%

Market Reaction

Following the earnings announcement, Nos SGPS’s stock price rose by 5.63%, closing at $4.13. This increase reflects investor confidence in the company’s strong financial performance and strategic initiatives. The stock’s movement is within its 52-week range, with a high of $4.18 and a low of $3.18. InvestingPro analysis indicates the stock is currently trading in overbought territory based on RSI indicators, though it maintains a strong free cash flow yield. For detailed valuation metrics and 10+ additional exclusive insights, explore the comprehensive Pro Research Report available on InvestingPro.

Outlook & Guidance

Nos SGPS plans to continue its transformation program, focusing on efficiency gains and further CapEx reductions. The company anticipates potential synergies from its recent acquisition of ClariNet. However, specific growth guidance for the upcoming quarters was not provided.

Executive Commentary

• "We see still a lot of room for efficiency gains in 2025," an executive stated, indicating ongoing efforts to enhance operational efficiency.
• The CFO emphasized the company’s commitment to a strong balance sheet and long-term value creation, stating, "We are committed to strong balance sheet, sustainability and long term value creation."

Risks and Challenges

• Market Competition: The evolving competitive landscape with new entrants could pressure Nos SGPS’s market share.
• Economic Conditions: Macroeconomic factors could impact consumer spending and business investments.
• Regulatory Changes: Potential changes in telecommunications regulations may affect operations.

Nos SGPS’s strong Q4 performance and strategic initiatives position the company well for future growth, despite the challenges in the competitive and regulatory environment. InvestingPro subscribers can access detailed analysis of the company’s competitive position, including comprehensive peer comparisons and expert insights on growth potential. The platform’s Fair Value assessment and advanced metrics help investors make informed decisions about their investment strategy.

Full transcript - Nos SGPS SA (NOS) Q4 2024:

Melissa, Moderator/Host: afternoon, everyone. Welcome to our full year twenty twenty four results conference call. We have the executive team in the room, to answer your questions after our CFO, Zaf Freire will go through a brief presentation, which is on our website, highlighting the main topics of the results. Over to you, sir.

Zaf Freire, CFO: Thank you, Melissa. Hi, everyone. Welcome to the call and thank you for making the time. Today, we’ll focus we’ll do a brief presentation focusing on three key dimensions, Our strategic execution, obviously, our performance throughout the year and the quarter and also some highlights in terms of our cash flow generation, the way we view long term value creation for our shareholders. So going into the results at the quarter and the year.

Firstly, I’d like to highlight our very strong market position and sustainable growth as you’ve seen throughout our results, not only from the quarter, but the overall result of 24%. Also in that sense, an important aspect, which has been our continued increase in revenue market share in the market, which reached 31.5%. And when looking at the results, just highlighting a couple of data points. Growth in revenues quarter to quarter of 8.1% in the year 6.2% EBITDA growth in the quarter 11.6 and full year, 7.1%. And then also very importantly, in terms of operational cash flow, I would highlight a growth in the quarter of roughly 43% and the year 26% to $272,000,000 We’ll go into a bit of more details in the next couple of pages.

Going into the revenues themselves, as mentioned before, for the quarter, we reached $448,000,000 a growth of 8.1%, very strong, especially in our telco revenues as well, $430,000,000 in the quarter with overall growth of year on year 7.2% and for the full year 6.3%. So very strong performance on the revenue side, which through our as you know, our continued operational focus and efficiency capture has delivered very strong margins and EBITDA growth. So for the quarter, $182,000,000 roughly 11.6% growth year on year with 1.3 percentage points margin expansion. On the telco side, specifically, a growth of or an EBITDA of $170,000,000 growth of 10.5%. So very strong performance and margin expansions, which are driven in part as well through our very robust CapEx execution.

As per the previous quarters, we continue structural decrease in our CapEx expenditures, which translates especially if we look at network expansion in particular, a decrease of 12.4 and accumulated for the full year 3.9% decrease in overall CapEx. So altogether, the combination of CapEx focus, operational efficiencies, which is impacting positively our OpEx structure, we have been able to deliver a very positive performance of operational cash flows, up 43% year on year. And this in a way is driven by our focus in terms of operations, our momentum and obviously the way we execute our strategy. Just looking at a couple of operational data points, we continue to expand our next generation networks coverage today at roughly 83% of the households. And in the previous year, we expanded 300,000 households in terms of our gigabit fixed network.

In the five gs, as also mentioned before, the coverage and investment is virtually done. We have a coverage today of virtually 100% of the population with a very strong performance in terms of the sites that we have. So NASH is the leader again in the Portuguese market in terms of five gs capabilities, infrastructure and obviously as a consequence network quality and customer experience. In that regard and as the backdrop for that, our execution is materializing in very strong business and KPI momentum. So we see positive results across all key operating metrics, across all services.

And as you see, very robust and healthy net adds throughout all of the service lines that we have in the market. Just a quick note regarding our Audio Visuals and Cinema business. This quarter was very strong. We had a growth of 21.6% of revenues. Tickets sold year on year grew 19.2%, so very strong quarter, which led to an overall performance of 2.8% growth in revenues for the business.

So quite a solid performance, especially in the context of Q2 that had several issues as you know. So and just to wrap up, in terms of financials, without going into too much detail, on the net income side, very strong growth in the quarter of sixty point five million dollars overall for the year $91,300,000 Regarding free cash flow, again, a year with very strong not only due to the operational cash flow, but also some extraordinary effects, a growth of roughly $230,000,000 in terms of free cash flow for the year to $360,000,000 in total roughly, while still maintaining a very strong and healthy balance sheet that allows us for added strategic flexibility in the future. So at the close of the year, 1.4 times net financial led to EBITDA after leases with roughly $912,000,000 of debt, an average cost of debt that is slightly decreasing, so on average 3.56% and a very solid liquidity position. Within all of these with this backdrop and all of these elements in play, the board has approved an ordinary dividend of $0.35 and also an extraordinary dividend of $0.05 which totals $0.4 for the year. So with that, Madhizra, I think we can go.

Melissa, Moderator/Host: Yes, over to Q and A.

Zaf Freire, CFO: Yes.

Conference Operator: Thank you. We will begin the Q and A session now. Our first question comes from Roshan Ranjit from Deutsche Bank (ETR:DBKGn). Please go ahead.

Roshan Ranjit, Analyst, Deutsche Bank: Great. Good morning, everyone. Thanks for the questions. I just got a couple, please. Firstly, you highlight the strong EBITDA performance and we saw a very good margin expansion this quarter, like I said, as we’ve seen through the year.

You previously highlighted that the benefits of the transformation program had kind of been realized already. So is there a new transformation program ongoing or is it kind of upside to what you had previously expected? I guess this was a second year double digit EBITDA growth. Can we expect something similar for 2025, please? And secondly, in terms of network expansion, you guys have have put a lot of money into both the fixed and the mobile side.

Can I get your thoughts on potential wholesale access and already monetizing the network which you built? Now we’ve seen that your new entrant is building out quite swiftly, is one thing which we can see you guys do here in terms of offering access? Thank you.

Zaf Freire, CFO: Hi, Roshan. Thank you for your questions. Maybe breaking it down one by one. In terms of the transformation program, this is something ongoing. So I’m not sure I understood from your question if you mentioned it was over, but it is not the case.

So this has started for a while back for sure. It has already materialized quite significantly and this is what we see in the numbers in the past couple of years. But fundamentally, this is an ongoing effort that will continue to deliver very significant savings in our view, not only on the CapEx side as I’ve discussed as well, but essentially on the OpEx side. So So this is our transformation program is, I would say, fundamentally focused on capturing efficiencies across the board in

Miguel, Executive: terms of our cost

Zaf Freire, CFO: structure, okay, so on one hand. On the other hand, your question regarding double digit growth or not, obviously, as you all know, we are in the context of uncertainty. We are positive about our performance and all the assets that we have in the market. But at this point, we don’t have specific visibility and guidance regarding the growth that we expect for the year.

Miguel, Executive: Yes. In terms of offering access to our FTTH network, that is not within our plans. Actually, we don’t have any requests to do it, and we have no plans to do it with the exception of this exception that we already opened the network to our joint owner. As you know, this is a shared network, so already used by not only us, but also another operator. But we don’t have any plans to further open the network to third parties.

Roshan Ranjit, Analyst, Deutsche Bank: That’s clear. Thank you.

Conference Operator: Thank you for the questions. Our next question comes from the line of Fernando Cordero from Banco Santander (BME:SAN). Please go ahead.

Fernando Cordero, Analyst, Banco Santander: Hello, good afternoon and thanks for taking my two questions. The first one is on the B2B segment performance during the last quarter. And I would like to understand at which extent the performance in that segment is coming mainly from new clients, is mainly coming from selling products or services to the current clients. Just to understand the drivers. And also, at which extent the recently announced PlataNet acquisition would fit in terms of the product offering in the segment?

Sorry. And the second question is related with you have just named it the uncertainty on 2025. Yes, willing to understand which kind of first impact in some KPIs like for example, channel or for example, growth such trends have you experienced from the recent launch of the in the market?

Zaf Freire, CFO: Hi, Fernando. Nice to hear from you. Thank you for your questions. On the B2B side, the growth that we’ve been experiencing, I would say it’s a very well balanced mix of expansion in current clients and new client acquisition. So it’s fairly well balanced.

Typically on the new clients we see and you see that from our results, some more, if you like, IT projects, new equipment sale, so resale project revenues on our current clients, we tend to focus more on the expansion of recurring revenue base. So overall, fairly well balanced. On the ClariNet side, as you know, ClariNet is a we believe it’s a very interesting asset. It has an interesting presence in Portugal as well. But fundamentally, in our perspective, will bring us not only more scale into the services that we provide, but also a bit more breadth.

So assuming that everything and once we have the approval of the competition authority, our expectation is that through Clarinet, we’ll be able exactly to continue and accelerate the rate of acquiring new clients due to the new capabilities, but also be more profitable in the way we serve these clients due to the scale effects.

Miguel, Executive: On the market context, I think I didn’t fully got the question, but I think the question was around market dynamics in recent times given the new competitive context. I would say a few things. First of all, it’s still a little bit early days to have a final view on the dynamics of the markets. We had no surprises on that front. We expected is more or less what is happening.

We are comfortable with the evolution in terms of ARPUs, both in our main brands and also on the digital brands. The main consequence, the only thing I believe we can say at this stage is that the mix between customer acquisitions on the main brands and customer acquisitions on the alternative, the digital brand, the mix changed somehow with the digital brands increasing its weight within the relaunch that was made last quarter. So the mix is a little bit different, but in terms of within each of the brands, we don’t see major impacts or significant material impacts until now.

Fernando Cordero, Analyst, Banco Santander: Okay. Very clear. Just a follow-up on Clarinet. It is clear that it’s still waiting for the approval of the regulator. But do you have any sense in any kind of synergies that you can get from Clarinet?

And no need thinking on OpEx synergies, but also on how complementary is the customer base of Planet versus your customer base in B2B?

Miguel, Executive: We expect it. We don’t have of course, at this stage, we’re still waiting for the competition authority’s approval, so we don’t have detailed information. But our expectation is that there’s a lot of compliment coming from Clarinet’s customer base in terms of the names of the customers, of course, a lot of compliment in terms of the services, the products provided to the customers. So we see significant potential on both sides, both on the telecom side and on the Clarinet side, significant potential to extract commercial synergies and cross selling that will ensure that one plus one in this case is more than two.

Fernando Cordero, Analyst, Banco Santander: Okay. Very clear. Very clear.

Conference Operator: Thank you for the questions. Our next question comes from the line of Joel Pinto from JP Capital. Please go ahead.

Miguel, Executive: Hi, good morning, everyone. Three questions, if I may. The first one is on margin into 2025. Can you tell us if you still see material efficiency gains potential for 2025? And what level of top line growth would you need to reach a stable margin in 2025?

The second one, I don’t know if you can, but on Clarinet, can you guide us through the business economics? What is the expected top line growth here and the normalized EBITDA margin? And that’s all. Thank you. Maybe I’ll start with Clarinet’s question.

I think it would be better to give some additional color once the operation is concluded. So likely, hopefully, I mean, next call, we will be in a position to give further details on the operation and the operation of Clarinet and the economics and all those questions. We will be better positioned than to answer all the questions. At this stage, I think it’s better if we wait to have this additional detail. But from on our side, of course, we want to be fully open, but I would rather do that once we have access to the all the details and we have access to Clarinet, which we don’t have today as we wait for the competition authority approval.

On the first question around efficiency, clearly, the answer is yes. We see still a lot of room for efficiency gains in 2025, not only in 2025, but going forward. But for sure in 2025, of course, the plans are more specific and we are in the process of implementing those plans. And we are very optimistic in terms of efficiency gains for this year. Thank you very much.

Conference Operator: Thank you for the questions. One moment for the next questions. Next (LON:NXT) question comes from Luigi Minebra from HSBC. Please go ahead.

Miguel, Executive: Yes, good afternoon. Thanks for taking my question. It’s on shareholder remuneration. I was wondering if you can help us with a kind of framework to think about shareholder remuneration more over the medium term. So for instance, as long as your leverage ratio is at two times, would

Speaker 6: the board be willing to distribute all free cash flow to shareholders?

Miguel, Executive: And I appreciate that segmenting the dividend for this year between the ordinary and the special, essentially the message is that we shouldn’t take the as the basis for next year. But still, I guess, if you can help us with a more medium term framework, it can be helpful. Thank you.

Conference Operator: Yes. Well,

Miguel, Executive: I think we’ll have to say what we usually say. We don’t have a dividend policy as you know, but we have a practice and that practice has been, I think, consistent over time. We don’t see we are very comfortable with the leverage. We have actually with the two times leverage that you mentioned, that is the reference number for us. And we are very comfortable in the interest of the cash flow that remains within that balance context.

So that was been the practice in the past and most likely will be in the future, but we don’t give any guidance. So you can expect from us more or less what you can expect is consistency. Okay. Thank you so much.

Conference Operator: Thank you for the questions. Our next question comes from the line of Antonio Saladas from AS Independent (LON:IOG) Research. Please go ahead.

Antonio Saladas, Analyst, AS Independent Research: Hi, good afternoon. Yes, three questions. So first one is still in the B2B business, so that’s performing quite well. And apparently, you have been gaining market share, I would say, and traction. So my question is, should we see this kind of revenues growing double digit in 2025?

Or do you think that there was some specific reasons on the fourth quarter? And should we see a slow valve? So that’s first question. Second question is related with your non recurring gains. I don’t know if you can because they have been in the recent past.

So should we assume that they are over for now or can expect more now including gains related with excess fees paid in the past? And finally, on the CapEx, sorry, CapEx figures for 2025, you can provide a figure or a guidance? Thank you very much.

Zaf Freire, CFO: Thank you for your questions. So on the B2B side, yes, we’re very happy about our performance. As we’ve mentioned before, obviously, this is an area in which we’ve been doubling down and investing significantly and obviously the ClariNet acquisition is part of that strategy. So I would say that we expect this performance to continue and double digit growth to persist. So this would be our this is our expectation.

On the non recurring gains, obviously, there’s I would say there’s significant uncertainty regarding that. Within the whole process, we still have pending legal action that has not materialized yet, but we don’t have a certain visibility about it. So we cannot provide you any more specific information regarding what is going to happen in 2025. Although we do have still outstanding legal action regarding that topic. Finally, on the CapEx side, what you can expect for 2025 is a continued decrease of the CapEx level that we have in place today.

So this is, as we mentioned before, CapEx is a very strong focus in terms of execution. We are at the tail end of five gs and FTTH rollouts. And we will continue to focus on CapEx reduction and OpEx reduction as well as mentioned before.

Antonio Saladas, Analyst, AS Independent Research: Great. Thank you very much and congratulations for the figures.

Zaf Freire, CFO: Thank you.

Conference Operator: Thank you for the questions. Our next question comes from the line of Ajay Somi from JPMorgan. Please go ahead.

Ajay Somi, Analyst, JPMorgan: Hi there. Thanks for taking my questions. My first one is just around the comment you made around more digital acquisitions. So are you seeing a step up in maybe customers spinning down to your second brand as a form of a retention offer? And then just taking that information, doesn’t that imply that you’re going to get a softer ARPU growth in 2025?

You’ve got more digital brand acquisitions and no price rises in 2025. So that’s my first question. My second one was just kind of a follow-up to a CapEx one that was just asked. Obviously, you are coming towards the end of your rollout. I think it was about a $10,000,000 to $15,000,000 step down from 2023.

So can we expect that again going forward? And then my last one just on shareholder remuneration. Are you guys able to do a buyback? And what was your decision in going for a special dividend as

Miguel, Executive: opposed to a buyback? Thank

Jose Antonio Suarez de Voe, Analyst, IFAPN: you.

Zaf Freire, CFO: Thank you for your questions, Ajay. So on the first one, there was a bit of a breakup on the line, but I’ll try to answer and let me know if you need a follow-up. So as Miguel mentioned before, we have seen an uptick in our wool brands for several reasons, but obviously with the DG entrance, the market is also more aware and paying attention to it. An important aspect is that we separate these are two brands. NOS is a premium brand with premium assets and service.

WOO is a digital brand. We don’t do retention with the WOO brand. So each brand has its own autonomy operating model and the way they manage the base and the clients, I would say, is fairly separate. So in that sense, you should not expect us moving clients from the North to the Wu brand as a retention tool, absolutely. But naturally, with more awareness to digital and the market expansion in a way, we expect our mix to change throughout time and to have more weight obviously of wool compared to the past.

So that on the first question.

Miguel, Executive: Can I add just one thing? Just an additional comment on that. The unit economics on the main brands, on the digital brands, the brands are quite different. So you have to take that also into consideration. As the weight of the digital brand has increased, unit economics have declined because we are talking about unit economics that are fairly different between the services provided by one brand and the other.

Zaf Freire, CFO: Thanks, Miguel. Coming back to our CapEx question, as I mentioned before, we expect for 2025 our CapEx level to decrease. As you know, we don’t provide specific guidance on the exact levels that we will reach, but the level of reduction would be in line with previous years in terms of what we believe is the sustainable pace to decrease CapEx. Finally, on the buybacks, I would say that obviously, this policy as per dividends is a board decision. Having said that, we don’t have any specific plans or intentions to go through a buyback program at this point in time.

Ajay Somi, Analyst, JPMorgan: That’s very helpful. I could just have one follow-up on the unit economics. So you said that they’re very I mean, could you quantify that for us a little bit? I’m assuming you’re talking about the EBITDA margin from each brand. So any color on that would be very helpful.

Thank you.

Miguel, Executive: Well, yes, I understand I provoked the curiosity, so I understand fully understand it, but we rather not give specific numbers. But in terms of initial customer acquisition CapEx, they are very different in terms of commercial costs. They are very different significantly different in terms of equipment costs, which are not the same. And once we have the customer in terms of operation costs, again, quite different. The digital brand is much more automated in terms of customer service, for example.

So you have very different unit economics, but I’d rather not specify the exact numbers. That’s very helpful. Thanks for your answers.

Conference Operator: Thank you for the questions. Our next question comes from the line of Jose Antonio Suarez de Voe from IFAPN. Please go ahead.

Jose Antonio Suarez de Voe, Analyst, IFAPN: Hi, good morning. Thank you for taking my questions. I have two, if I may. So you’ve been mentioning that, of course, you’re not that you’re not providing like guidance evolution for 2025. But I was wondering if you could provide some proxy on how could be the evolution of I know it’s too early, but did you have any proxy on how should we see the evolution of revenues or EBITDA after leases in 2025?

For example, low single digit, mid single digit, something that could help us a little bit to see how should we foresee the 2025 even knowing that it’s a little bit early, but anything you could provide would be very, very helpful? And on the second question, I was wondering, you distributed an extraordinary dividend of around $26,000,000 which was much below the cash in you had from the Selmex towers, which were 57.3%. So why were you so proud in this extraordinary dividend having such a robust balance sheet? I was wondering what’s the rationale between that? So are you like staying rational to see how competition will go forward?

A little bit more information on why the dividend the extraordinary dividend was smaller than significantly smaller than the cash in from the film next hours. Thank you.

Zaf Freire, CFO: Hi, Alessandro. Thank you for your questions. On the first one, not wanting to disappoint, but as you know, we don’t provide specific guidance on the metrics that you asked, even within the single or high or double digit range. So in that sense, we won’t be able to give you any additional specific information. On the second aspect regarding your question, and Miguel in a way already answered beforehand, we are committed to strong balance sheet, sustainability and long term value creation.

And in that sense, the way we structured shareholder remuneration was indexed in a way to the free cash flow generation that you mentioned. So in our minds, on one hand, the consistency that Miguel mentioned in terms of ordinary dividend was an important factor. On the other hand, obviously, provide to the shareholders some extraordinary remuneration regarding the towers. And then the third driver was precisely the Cladonets acquisition that we’ve been discussing. So when we add up the three elements, you will see that it essentially is the free cash flow generation that we’ve had for the year.

So that has been the driver of the decision and the way we structured those two components that you mentioned.

Jose Antonio Suarez de Voe, Analyst, IFAPN: Could I go with a follow-up please on this topic? If I may, regarding the what you’ve been mentioning that you want to have a like a sustainable dividend policy going forward. Now that Clarinet would be in your portfolio, should we assume that the dividend evolution going forward should also be positively impacted by this contribution clarinet should have from a net income perspective so that the payout ratio should more or less stabilize and as you increase the payout the net income, the payout should be increasing going forward on clarinet, right? So that should be an assumption that can be that’d be rational, right?

Zaf Freire, CFO: Yes, I would say that is a fair assumption. As Miguel also mentioned in one of the previous questions, we expect if everything goes according to expected timelines in the next quarter to be able to provide more transparency and more color on the structure, the potential synergies that we expect, etcetera. So in that sense, it will give you a better understanding of the potential. Having said that, obviously, Clavinet within the context of the overall business has a relative weight that might not be substantial in terms of what we are discussing.

Jose Antonio Suarez de Voe, Analyst, IFAPN: Yes, yes. But from the synergy part, it can be from cost side, it could also boost the net profit coming from B2B?

Zaf Freire, CFO: Absolutely. Within the context of robust balance sheet, net income and free cash flow generation, these are the three variables that in general and the practice that we have is to be guided by those three elements.

Jose Antonio Suarez de Voe, Analyst, IFAPN: Perfect. Thank you very much.

Conference Operator: Thank you for the questions. We have no further questions from the line. I’d like to call back to the management. Please continue.

Melissa, Moderator/Host: Well, thank you everybody for listening into the call and for your interest. As usual, the team is available for any follow-up. And in the meantime, look forward to speaking next quarter.

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