Proximus PLC (OTCPK:BGAOF) Q2 2024 Earnings Conference Call July 26, 2024 8:00 AM ET
Company Participants
Nancy Goossens - Investor Relations
Guillaume Boutin - Chief Executive Officer
Mark Reid - Chief Financial Officer
Jim Casteele - Consumer Lead
Ben Appel - Corporate Affairs Lead
Conference Call Participants
David Vagman - ING
Joshua Mills - BNP Paribas Exane
Dhruva Shah - UBS
Titus Krahn - Bank of America
Nuno Vaz - Bernstein
Justin Funnell - Nextgen Research
Siyi He - Citi
Operator
Hello. And welcome to the Proximus Q2 Results 2024. My name is Laura, and I will be your coordinator for today’s event. Please note this 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. [Operator Instructions]
I will now hand you over to your host, Nancy Goossens, Investor Relations Lead to begin today’s conference. Thank you.
Nancy Goossens
Thank you. Welcome ladies and gentlemen to this Proximus webcast. We have today some ground to cover. So, in addition to the second quarter results, we will also spend some time on the strategic announcements of last night. We will of course still foresee some time for your questions.
Before we get started, let me just introduce the participants on our side. Here with me today, I have the CEO, Guillaume Boutin; the CFO, Mark Reid; the Consumer Lead, Jim Casteele; and the Corporate Affairs Lead, Ben Appel.
Let’s now start the presentation. Guillaume, the floor is yours.
Guillaume Boutin
Thank you, Nancy. And with the year now halfway, it’s a good time to reflect a moment on some of our major achievements. Overall, I’m very pleased with our commercial achievements so far, showing a continued strong customer growth for our main product groups. Our Residential unit, for example, added another 46,000 mobile cards over the past quarter in a very competitive market. For Fiber, we activated an additional 40,000 customers and we continued deploying at high speed to reach a Fiber industry footprint of 38%.
Our International segment grew its direct margin by 7% in Q2, benefiting from its unique position in the global digital communications market and ready for its growth trajectory. All in all, this has led to our group EBITDA growing by 5.3% for the second quarter, a strong result that fueled our announced guidance upgrade.
The past month also has been very eventful. Not only did we close the Route Mobile acquisition, we also centralized our B2B IT activities into a dynamic new subsidiary, Proximus NXT IT, to better serve professional customers in the Benelux. And then, of course, the most recent news, the signing of the Fiber MoU for collaboration in Flanders and Proximus obtaining full ownership of Fiberklaar. Overall, our strategic progress is intended to safeguard a sound organic free cash regeneration. We’ll do a deeper dive on this in a moment.
I already said it. Overall, we can be very pleased on our performance, with all main results illustrated on this slide. I won’t comment on each, as we will have a closer look at it. But before that, let’s first go to our strategic achievement.
Our International segment is already delivering significant profitable growth. Remember, early May, we closed a major transaction, acquiring a majority stake in Route Mobile. We have elaborated on it extensively during our International webinar, now almost two months ago.
In short, we have created a unique position whereby we deliver services across the full value chain of digital communications, from connect, to engage, to protect and this on a global basis. We are proud of our International brands being recognized for their expertise, underlining the leading position for Proximus in taking those -- great shares of those global markets.
A speaking example is a recently signed strategic partnership with Microsoft. As part of this five-year agreement, Microsoft will use the best-in-class CPaaS and AI products of our International platforms, and as such further solidify our leadership in the digital communications space.
Turning to our Domestic market, for which our Fiber strategy remains a key driver of a strong commercial performance. In June, we were deploying Fiber in 164 cities and municipalities, bringing the fastest internet in Belgium, as was recognized by Ookla.
Moreover, we continue to innovate and bring now for Ultra Fiber customers the latest Wi-Fi technology to further boost the in-house experience. An increasing number of customers can benefit from our gigabit speed offers, with an additional 443,000 homes passed with Fiber over the past three months.
In June, we are close to the 2 million home pass bar, the milestone we have in the meantime crossed. Just to illustrate our accelerated pace, half of this coverage we achieved over the past two years, while the first million took six years to be reached. Customer traction for Fiber clearly continues. Our base of activated Fiber lines continued to grow solidly, now counting a total of 448 -- 481,000.
Business success of Fiber ambitions, of course, does not stop here, which brings me to the next part of this presentation. You’ve been waiting for some news on this front for some time now, so I’m excited to share that. After several months of constructive discussions, we achieved some major strategic steps in the deployment of Fiber for Flanders.
Yesterday evening, we announced the signing of two separate agreements. One, we signed an MoU on Fiber Collaboration with Wyre and Telenet, and two, we acquired 100% of Fiberklaar, the Flemish Fiber GV, in which we own approximately 50%. With this, we not only achieved a strategic milestone for the country and the industry, it also creates for Proximus a framework for long-term cash flow generation and competitiveness to increase network utilization, yielding additional Wholesale income. These agreements are expected to result in free cash recovering current dividend levels in 2025-2027, supported by our divestment program, which we scale to €500 million. From 2022-2028 onwards, we expect to return to growing annual organic free cash flow.
Let’s first take a closer look at the MoU on Fiber Collaboration. The intended collaboration with Wyre and Telenet stretches over approximately 2.7 million homes across the Flanders region. For the 2 million homes in the medium-dense area, Wyre and Fiberklaar would build componentary Fiber networks. 40% of these 2 million would be allocated to Fiberklaar, meaning about 800,000 homes passed, with part of that already completed today. The other 60% would be allocated to Wyre. And, of course, both companies would have reciprocal Wholesale access.
For the 7,000 homes in the more rural areas of the Flanders region, Proximus would start offering services using the HFC network of Wyre. This would allow us to offer gigabit speeds throughout Flanders. Outside of this MoU are the dense areas, representing about 900,000 homes, with most of them already covered by Proximus Fiber today.
The MoU is a step forward towards an optimized Fiber rollout in Flanders, providing a path to maximize the utilization while ensuring broader Fiber coverage at an accelerated pace. All this would be achieved with a significantly reduced overall investment.
Separately, we announced that we are increasing our ownership in Fiberklaar, going from about 50% to fully ownership now, and this for a total consideration of €246 million. Becoming the sole shareholder of Fiberklaar will allow us to work more closely together and further increase the efficiency and quality of the Fiber rollout in Flanders.
At the same time, we capture the value generated by synergies. Integration in the group will especially allow for optimized funding costs, and in addition, will create operational synergies. We expect both to total up to an NPV of €100 million.
While collaboration will for sure bring benefits for Flanders and the industry, it also would secure strong incremental cash-generating fundamentals for Proximus from 2020 -- 2028 onwards. While it’s clearly too early to share any details, there are some key components inherently driving value. Top of the list, we have a massive CapEx avoidance, thanks to an optimized footprint for Fiberklaar.
Moreover, as just mentioned, pouring full ownership in Fiberklaar would gain both operational and financial synergies, particularly regarding debt management. The high utilization of the Fiberklaar network would bring additional Wholesale revenue from Wyre, partially balancing out the costs going the other way. The higher and faster Fiber coverage will also allow for faster decommissioning of a copper network, which is, as you know, costly to maintain. The intended collaboration would provide us access to the HFC and Fiber networks of Wyre, which will sustain and enhance our retail commercial Fiber momentum.
The chart of this slide illustrates our expected free cash flow trajectory. We make the distinction between two main timeframes, investment period running until 2027 and the timeframe beyond. Starting with this year, 2024, on the left-hand side, the work illustrates how we go from the estimated adjusted free cash flow, which was the ballpark of our company compiled consensus, to the full year free cash flow estimate, including the effect of the acquisitions.
During the under present ownership of Fiberklaar will consolidate the CapEx on our balance sheet. This leads to an estimated total group CapEx for 2024 of around €1.36 billion. The CapEx increase replaces the expected equity injections in Fiberklaar, therefore limiting the free cash flow impact.
Expected average annual free cash flow over the period 2025-2027 is already growing significantly, reaching a level that covers the current dividend supported by our divestment program. The CapEx relief offered by collaboration will kick in and we expect to return to growing annual organic free cash flow.
Besides our expectation to continue to grow Domestic EBITDA, we also will see support from our International segment, while our CapEx levels will be coming back to normalized levels. This transaction, therefore, allows us to provide significantly longer-term visibility and derisking as we will enjoy gigabit network coverage with no additional CapEx required by then.
The funding of the Fiberklaar transaction will have a limited and temporary impact on the net debt-to-EBITDA ratio. For 2024, we expect this to be around 3.1 times and should stabilize around 3 times as of next year. A strong deleverage is expected to start from 2029 onwards.
In terms of process, you can expect the Fiberklaar transaction to be closed shortly. As for the intended Fiber Collaboration, reaching a final agreement is subject to regulatory and antitrust approvals. The formal investigation by the Belgian Competition Authority has just started with the involvement of the BIPT and the outcome could be expected somewhere towards the end of this year.
Moving to the next and final part of this presentation with a quick overview of the second quarter results. Starting with our Domestic segment. As I already pointed it out at the start, our second quarter Domestic operations demonstrated once more solid growth supported by our attractive product offerings and effective multi-brand strategy.
Our strong commercial results combined with our pricing strategy led to another strong revenue growth for our Residential unit up by 5.3% in total with revenue from Services increasing year-over-year by plus 6.3%. The revenue from Residential Services was still supported by two price indexations, as well as by the ongoing customer growth, especially in the conversion base.
For Business units, revenue was growing by 4.8% with revenue from Business Services continuing the growth trajectory up by plus 2.2% for the second quarter. The growth in Business Services revenue was driven by a sustained positive revenue trajectory for Fixed Data and IT Services.
Our Wholesale revenue followed a similar trend as before with a revenue decline fully related to low margin interconnect revenue while our Fixed and Mobile Wholesale Services were up just over 9%. This brings me to the total Domestic revenue for which we achieved a sustained strong growth up by 4.6% for the second quarter driven by an equal 4.6% increase in Services revenues.
Turning now to the Domestic operating expenses which were up 3.8% from last year and continuing the improving trend following the further moderation of the inflationary cost effects. Bringing it all together, our Domestic EBITDA showed a strong growth year-over-year by 5.1% driven by the increase in direct margin.
Turning now a moment to the International part of our results, our International segment closed the second quarter with a solid growth in its direct margin. Before getting to detailed results, let me first frame some of the key drivers that are supportive of this.
One, with Route Mobile, we now have a unique exposure to the fast-growing APAC region for our CPaaS services which more than compensate for the currently more difficult U.S. and EU markets.
Two, we have omni-channel solutions that allow us to recapture some of the disappearing SMS traffic with omni-channel typically coming at higher margins.
Three, the loss of SMS volumes is to a great extent related to A2P, so application-to-person traffic for which the impact on margin is limited.
Four, besides CPaaS, Digital Identity and Mobility Services are also growing revenue and direct margin.
And as a last point, although P2P Voice & Messaging is typically a declining market, we achieve to limit the direct margin impact of this.
Turning now to the numbers, two or three global brands, BICS, Telesign, and Route Mobile, we achieve to grow our International direct margin by 7.0% on pro-forma basis driven by Communications & Data services. Driven by the DM growth, the International EBITDA increased year-over-year by 6.5% again on a pro-forma basis.
Zooming in for a moment on Communications & Data services, which is a product group including CPaaS, DI and Mobility Services. Here, we posted a 9.5% growth in direct margin on a pro-forma basis. Besides omni-channel recapturing part of the SMS transition, especially in the APAC region, the margin also benefited from new customers and large contracts going live.
Digital Identity experienced robust growth with a net retention rate at 116%. And Mobility Services did good as well, driven by higher travel volumes. In contrast, over the same period, the revenue was down by 6.2% on a pro-forma basis, demonstrating that it is concerned, especially low margin CPaaS messages.
For our second International product group, P2P Voice & Messaging, direct margin was down slightly, all due to lower voice volumes in an inherently declining market.
This brings me to group results. Our traditional slide brings it all together, with the group EBITDA up by 5.3% on a pro-forma basis, with both the Domestic and International segment contributing.
The CapEx over the first half of 2024 totaled €585 million, which is a decline for last year, in line with the pace of the Proximus-owned Fiber build. Our free cash flow over the first half of 2024 stood at minus €114 million on an adjusted basis, with the variance from last year mainly being timing effects in working capital needs, partially compensated by a higher underlying EBITDA and lower cash flow CapEx.
In conclusion, we have closed the first half of 2024 on a high note, with strong growth realized for Domestic revenue and EBITDA, as well as for the group EBITDA. We therefore can, with confidence, raise our 2024 guidance for this matrix, as shown on the slide.
Following the full ownership in Fiberklaar and the resulting consolidation on a balance sheet, we are reviewing our expectation for the group CapEx to around €1.36 billion for 2024. The funding of the transaction will have a limited and temporary impact on the net debt to EBITDA ratio for 2024, expected to be around 3.1 times. Our three-year dividend policy we set for 2023-2025 remains unchanged.
With this, I have covered my presentation, but we can turn now to your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We will now take our first question from David Vagman of ING. Your line is open. Please go ahead.
David Vagman
Yes. Hi. Good afternoon and thanks for taking my question. The first is on the free cash flow outlook beyond 2027. I’m a bit surprised by the ballpark figure to be slightly above €300 billion, despite the significant step-up in CapEx and then your deal, a very nice deal, Fiberklaar deal with Telenet, so Telenet getting on your network. So, is this free cash flow of €300 billion and maybe a bit more, is it supposed to move up significantly after 2030 or could you explain basically why? Is this on you being cautious because of DG arriving in Belgium? Is it because you deduct minorities in International or is it simply reflecting high Wholesale costs and maybe not that high Wholesale revenues or still high CapEx, so, basically? The second question, when I look again at the free cash flow and the €300 million plus, is it correct to say that more than half would be coming from the International activities when I’m basically computing, let’s say, using your guidance from the International Day, Investor Day, so the free cash flow conversion, the EBITDA, margin and so forth? And maybe last question on the CapEx post-2027. Yeah, should we see a significant step-down? Is it correct to assume that there would be a major step-down in CapEx, let’s say maybe even less than €1 billion after 2027? Thank you.
Mark Reid
Hey, David. Let me take those. So, first of all, on the free cash flow 2028 and beyond, I think, again on the presentation we clearly state it’s an average and I think we also have a point in there that we expect it to be growing post that period because of the economics of the Fiber Collaboration.
So I think that’s where we are. I think hopefully it’s appreciated that we’ve given you that visibility. Clearly, we’re in a position right now where we’re super happy with the agreement we’ve come with the regulators and Liberty.
And so again, it’s hopefully giving you the directional element of where our free cash flow will be. And again, I think maybe point you to that we fully believe that will be fully organic by that point.
I think in terms of the International, I think again, you can use that. I think there’s no difference in terms of what we’re thinking on the International business, as Guillaume pointed out, and the results are very positive on direct margin EBITDA perspective of Q2 and we continue to see a great trajectory to hitting our guidance for 2024 and beyond on International.
And then on CapEx, and again, I don’t think we’ll -- we’re not disclosing exactly the years. But again, I think, you can think of around -- something around €900 million in terms of the period between now and 2028 in terms of the introduction of Fiberklaar. So I think that’s probably.
David Vagman
Okay. Thanks. Very useful. Maybe a quick follow up on the Wholesale cost you were mentioning. Concerning -- so you have this HFC deal with Wyre in rural areas in Flanders. Is it correct to assume or to extrapolate that there will be a similar solution in Wallonia? And is it included in your 2028-2030 free cash flow outlook?
Guillaume Boutin
I think we are not going to comment on the discussions on going on Wallonia. I think there are two different situations. Proximus in Flanders are -- is super different from the seasonal Proximus in Wallonia. So it might be that there is some also different outcomes on those discussions. So, I’m not sure you can really extrapolate what’s happened in the north for what could happen in the south.
David Vagman
Okay. Thanks. Clear.
Operator
Thank you. And we’ll now take our next question from Joshua Mills of BNP Paribas Exane. Your line is open. Please go ahead.
Joshua Mills
Hi, guys. Thanks for taking my questions. I had a few, please. And I was going to focus on the Fiberklaar transaction because I think that’s the one which is probably getting the most pushback today. So, the first question related to this is, what was the rationale for reconsolidating this business now just two years after you set up an off-balance sheet joint venture? And then related to that, how do you justify the €160 million premium being paid to EQT based on the buyout price versus what they’re putting with equity? And finally, if we look forward, you still have a number of other joint ventures related to Fiber in other parts of the country. Is this the kind of template which you would be adopting when you look to reconsolidate those or is there a reason why in this circumstance there is such a high premium being paid? And the second question, just more of an operational one. And on the Wholesale co-investment with Telenet, have you already identified the 60% to 40% split of areas? And does the mechanism simply mean that where you build, they pay you, and where they build, you pay them on equal terms? And then, finally, just coming back to the CEO contract extension, it looks like there’s now a much bigger focus in terms of fixed compensation on the International business, which is clearly quite small in the scope of Proximus today. I just wondered if you could comment on how that may affect your strategy and also if you can give us any color on how remuneration targets are played out in the 2023 annual report might have been changed as well? Thank you.
Mark Reid
Joshua, let me start. I’ll try and put the rationale and the value on the EQT. So, I think, we’ve talked about this before. I think ownership is super important to us and I think the ownership economics of a fully utilized network, I’m sure you can understand that.
I think the other element is, again, we’re now very, very sure in terms of the alignment of incentives between ourselves, Liberty and the regulator, and I think that really gives us confidence in terms of the next period in terms of getting to the long form. I think that also helps by the fact that it’s the three of us.
I think if you look from a valuation perspective, again, I think, if you take comparables across Europe, there’s very few networks that will be able to have this kind of utilization rate, a surety on overbuilt risk that this network will have once we get to the long form. And so, therefore, again, we feel economic value is worth it at this point.
And then we add on top of that the synergies that we announced today on the acquisition of the additional share. Again, those will accrue clearly to us. So I think that’s how we think about it. But, I mean, Guillaume, I don’t know if you want to add anything to that on that first part.
Guillaume Boutin
On the first part, I think, what I would love to say is more your second question is that, again, stated just previously, but starting point of the decision of Proximus in the north and in the south and Brussels are completely different.
So what happens in the north on the way we took back control of the duty we had in the north cannot be extrapolated for the rest of the country, neither on the German speaking community or in the Walloon region. That’s extremely clear and important to note.
Mark Reid
And then, Josh, again, on the terms of the MoU, again, I think, we’ve been very explicit in terms of the details we’ve shared with you in terms of the allocation of footprint and how we’re going to use each other’s technology. We’re not going to divest. We’re not going to divulge any further details on the terms at this point. Clearly, we’re still in a long form time negotiation. But, so that’s a little bit where we are on that. So, hopefully, we -- I think we’ve provided a lot of detail today in terms of you to be able to work out how this is going to work, so. Guillaume?
Guillaume Boutin
Now, on my new contract, obviously, no effect or no impact on the strategy of the group with the new remuneration framework.
Operator
Thank you. We’ll now move on to our next question from Dhruva Shah of UBS. Your line is open. Please go ahead.
Dhruva Shah
Hi. Thank you. Thanks for taking the questions. Two questions, please. First is, could you provide an update on the competitive dynamics in the Domestic business across Belgium? And I’m just interested to hear in particular if you’re seeing any impact from Telenet entering Wallonia at a lower price point than Proximus and also if you’re seeing anything from Digi? And then second question, you’ve seen very strong Domestic growth in Q1, Q2 off the back of price rises and good commercial momentum. But just looking at the guidance and what it implies mechanically, this suggests a declining EBITDA for the second half of the year. So could you just break down for us how much of this decline or forecast decline is due to the lapping of price rises versus the potential impact for Digi’s entry or if there’s anything else to consider? Thank you very much.
Jim Casteele
So, hello, this is Jim Casteele for Consumer. So on the launch of internet and television from base in Belgium, because it’s not, of course, not only in Wallonia, but it’s a nationwide launch. And so far, as you can see in the results, we don’t really feel that impact.
Also linked to the fact, of course, that we already have been executing on a multi-brand strategy for several years now, where next to our Proximus brand, we also have Scarlet and Mobile Vikings as alternatives, where Scarlet is well positioned versus base in terms of positioning of the market.
And at the same time, over the last years, we’ve also been working on increasing the premiumness of the Proximus brand, linked, of course, to the deployment of 5G, the spectrum that we bought, the Fiber experience that we bring to our customers, investments in Wi-Fi technology, in our digital platforms, et cetera. And so we’re convinced that by bringing Proximus to a more premium positioning, and then at the same time, our multi-brand strategy makes us well positioned to cope with the changes that we see today in the market.
Mark Reid
On the guidance, so I think, we’re super happy with the first half of the year. I think in terms of the main components of guidance for the second half, I think, you struck the main two or three. I think price is the vast majority. We start to lap the price, as you noted.
We have put some Digi assumptions in there. Again, we’re not seeing a huge amount of activity there, so that may be on the conservative side. We had a contract in the enterprise side that we’re also lapping, and terminals revenue also, we’re lapping some hard comparables from last year.
But I think the way I would think about it really is it’s primarily the price rise, annualization, a bit of assumptions in terms of the market, the conditions that may exist in the second half. But again, as I’m sure Jim will say, as we’ve been trading through July, trading continues to be strong. So we’re very comfortable with our guidance for the year.
Dhruva Shah
Thank you.
Operator
Thank you. And we’ll now take our next question from Titus Krahn of Bank of America. Your line is open. Please go ahead.
Titus Krahn
Good afternoon, everyone. Thanks a lot for taking my questions. A couple from me, please. I would say three of them. The first one, quick one, just on the 2025 to 2027 free cash flow guidance, where you mentioned that your increased €500 million divestment program will benefit the reported free cash flow. Is there any way to kind of give us an indication how much of these €500 will be divested throughout 2025 to 2027, or maybe ask differently, how much kind of cash proceeds have you received so far? And then the second question would be on your new CapEx guidance, including Fiberklaar and the actual Fiber rollout throughout the period until 2027. The Fiberklaar rollout, is that going to be kind of quite equally weighted throughout the years? I’m just asking because your initial plan was for your own rollout to drop significantly and gradually over the next couple of years. But your new CapEx envelope is basically stable for the next four years. How can I reconcile that? Will you also accelerate your initially planned rollout or is there some other delta within the CapEx guidance? And then a very, very brief question just on the transaction, on the Fiberklaar transaction. If the regulator does not approve your cooperation with Telenet, can you back out? Would you back out? Is that an option? Thank you.
Mark Reid
Yes. Let me take a discussion on the 2025 free cash flow guidance on the divestment. So, where are we on divestment? So, we’ve increased the number to €500 million. In terms of the timing, clearly these are M&A type processes and so clearly the timing is difficult.
But one element I can give you that maybe helps you in terms of time is, we are -- I would say in the advanced negotiations of around 40%, we’re in the process of another 45%. And so, of that €500 million, there’s 85% of it in sight, right? I think that’s where we are.
The remaining part is we clearly identified and we’re running, starting to understand where the timing of that process will be. So, it’s difficult to call exactly, but I think the pieces that are in our control are well in -- under process.
In terms of how far -- how much we’ve raised so far, we had €30 million. I think that’s well disclosed in our accounts where we had €30 million cash in for the sale of our headquarters building in December 2023.
In terms of CapEx guidance, so I think, I mentioned earlier on the call, we’re going to take on just around €900 million of the Fiberklaar CapEx. Again, I’m not going to disclose fully the timing of that, but there are going to be elements that we’re discussing with the regulator about the timing and the phasing of the build, which will dictate exactly when that phasing is and it’s not fully agreed at this point. But I think, again, you can probably, given our 2024 guidance and the number we gave you for 2025-2027, you can probably work fairly close to it. And then, Guillaume, do you want to take the last one? What the question was?
Guillaume Boutin
On the regulatory discussion and with the comfort we, what kind of comfort we have that we get through that discussion with the regulator? I think we are confident. I think we have been interacting with the authorities to make sure the principles of the MoU are aligned with the expectations.
And I think that if you look at the communication issued by the regulator this morning, it has been confirmed that, based on that MoU, the BIPT and the BMA are launching the new investigation.
So I think we are quite confident that we -- that MoU will get to a closing moment, that where we are, if it’s not happening, we are back to competition on the infrastructure. But I think this is not a healthy situation for neither the country, neither Wyre, neither Proximus, neither the regulator. So I think the -- there is all incentivization for all parties to get to an agreement on that deal based on the detailed MoU that we shared with the regulator last night.
Titus Krahn
Okay. Thank you. And in the worst case, you would still roll out on balance sheet then?
Guillaume Boutin
Yeah. Then we continue the rollout. But there is, probably, no situation where you’re going to have overbuilt in the country. That’s for sure. And I fully realize and agreed in between all stakeholders. So I think there is…
Titus Krahn
Okay. Thank you so much.
Guillaume Boutin
…very high confidence on ourselves to get to a conclusion of the deal. Just to go back on the free cash flow guidance beyond 2028. I think, first, we never guided on the International activities beyond 2026. That’s a bit where we are. So extrapolation of what is going to be those International activities beyond 2026 is a bit difficult to say and it could be a fast-growing segment of the first.
And that’s the first element. Second, when we look at the free cash flow generation beyond that period, we say in the presentation and it’s clearly stated that it’s an annual average organic free cash flow and we also clearly state in the presentation that that free cash flow will be growing from 2028 and onwards in the later years. That’s something that you also need to take into account when you look at that period post-2028.
Titus Krahn
Thank you.
Nancy Goossens
Thank you.
Operator
Thank you. And we’ll now take our next question from Nuno Vaz of Bernstein. Your line is open. Please go ahead.
Nuno Vaz
Hi. Good afternoon. Thank you for the opportunity as well to ask questions. Three from my side, but I think all pretty straightforward also, mostly focused on this Fiber announcement. The first one is in terms of the areas that will be passed by Fiberklaar. It’s my understanding that Telenet will still have the cable network active in those areas. Is there some sort of incentive to make them switch or because you can see from my perspective that they might want to save some money and some Wholesale costs? Is there any sort of incentive for each of the parties to switch to Fiber? The second question on the 700,000 homes where you now have access to Wholesale to cable, I assume this is not really a technology you’ve used before. Does this have any sort of costs of preparation in terms of customer premise equipment, in terms of this new technology? Just to understand, because my understanding is you’ve not used this technology before. Then just the third one is a quick clarification, because in the past we used to see a lot of targets, about 95% Fiber coverage in Belgium. I’m assuming that target has now been pretty much dropped, but there’ll still be quite a few rural areas in Belgium. If you could just comment on if there’s any developments on that. Thank you.
Guillaume Boutin
On the first one, I think as you can imagine, we cannot disclose the details of the MoU that has been discussed between the parties, but you can imagine that there are incentives to build, so incentivization to migrate customers. So, rapidly, the decision will be that when you have one network, one Fiber network, you’re going to have all the customers on that network. That’s the way you should look at it.
In terms of preparation to go on Coax, I think it’s not a technology we don’t know. It’s a technology we don’t use. And of course, Wyre is already ready to accept our customers, because they have Orange as a customer. On their side, I think, they are quite ready to welcome Proximus. And for us, it would be a limited amount of investment to be made, but super limited in the context of Proximus to be able to service Coax for customers, but also a fantastic opportunity to win market shares, because in the areas where we’re going to have access to that new network, our market shares are limited in terms of size. And that opportunity to win shares will be also present in those areas compared to the situation of today, which is an upside that we think we can capture as well.
Then on the Fiber coverage in Belgium, I think, it will depend on the way our government, the Belgian Government, will look at the subsidization of the rollout, as we always stated. Of course, having one network helps the economics of the Fiber build, but to go up to 95%, you’re going to have to create a framework where you need to be helped, supported by subsidization to get to this kind of level. I think what we achieved with that agreement is that we will offer the possibility for Proximus customers to access the Gigabit network in Flanders as of tomorrow. That’s a bit the good news for our customers.
In terms of whether we’re going to be using for 95% of the country Fiber of Coax, it’s still to be decided. And of course, otherwise, we’re going to be rationally -- we are going to be extremely rational in the way we’re going to take those decisions to use either Coax or to develop Fiber networks, which will also depend on the support we’re going to receive from government. But we all know that to go beyond 81% of coverage, you need probably some support to bridge the gap between 81% and 95%.
Nuno Vaz
Thank you. That’s very clear. Thank you.
Operator
We’ll now take our next question from Justin Funnell of Nextgen Research. Please go ahead.
Justin Funnell
Yeah. Hi. Thank you. I hope you can hear me okay. Could you give us any insight into how you expect the respective Fiber networks that you’re building in the semi-dense to be regulated? Do you think it’s going to be minus or do you think it’s going to be a cost model that the regulator basically requests or forces you to adopt? And then on your leverage, you obviously have a 3 times target. Is that a hard ceiling or is this safe for you to run above 3 times per period given that your credit rating is BBB+? Thanks very much.
Mark Reid
Let me take the leverage one first. So, I mean, Justin, you’re right. We gave guidance. The 3 times was we wanted to operate below 3 times. I think we announced today because of getting access to a path towards this collaboration deal, we’re going to temporarily go above that with the inclusion of Fiberklaar.
Again, I think we were clear that we see this as a temporary elevation above that level and that we expect it to come down around that for a couple of years. And then we see a deleveraging period once we return to the free cash flow levels that we talked about earlier in this call.
So, that’s where we are. There’s no hard target. Again, I think we’ve always been in constructive discussions with our rating agencies and we’ll explain to them fully this deal. But, again, we feel it’s a very temporary element above three in 2024 and we expect our conversations to discuss that in the next coming weeks.
Guillaume Boutin
On the regulation, on the semi-dense areas, I think, what will come with that deal and it’s a good thing. It’s a long-term visibility on the way the regulators will look at the different networks. So, in those discussions we had with our regulations -- regulators, sorry, what we -- what was super important for us is that long-term visibility and we get that in that agreement. So, we’ll get that visibility on the way they want to manage the Fiber network in terms of regulation for the next hopefully 10 years. The way we look at that, so it will be regulated, but with a long-term visibility which helps navigate and maximize the value creation for everyone. So, I think this is our expectations. And there is no reason why those expectations should not be heard and met by the regulators.
Justin Funnell
Thanks. Can I just follow up? I mean, in terms of reading between the lines, you say you expect it to be regulated. That suggests a cost plus model or am I reading too much into what you just said?
Guillaume Boutin
I think the regulators said also that they don’t want to change the way they look at the cost to access, the price to access the network and they don’t want to change the methodology. So, I think, we are seeing that framework and I think this is a fair way to assess the economics of actually seeing a network for our customers. So, I think we are seeing that mindset. The good thing, again, is that we can have visibility for a long period of time on the fees and the conditions to access the different networks of the different operators.
Justin Funnell
Thank you.
Operator
Thank you. [Operator Instructions] Thank you. We will now take our next question from David Vagman, once again, from ING. Your line is open. Please go ahead.
David Vagman
Yes. Thanks for giving me, again, the opportunity to ask questions and sorry to come back on the free cash flow 2028 and 2030. I heard well your comment that this is an annual average and it’s growing. So, do we have to understand that there is actually basically the possibility that in, let’s say, you have a big discrepancy between these three years and then is it because you still have quite a bit of CapEx or any particular reason impacting significantly, let’s say, 2028, and then that you would have quite a significant CapEx, sorry, not CapEx, free cash flow exceeding this period. So, let’s say 2030. I’m trying to figure out basically what is a bit normalized free cash flow level for the group. So, that’s my first question. Then, secondly, if I do the math quickly for Fiberklaar, so, and thanks for the indication that there is still like €900 million of CapEx to, let’s say, to invest. If I look at Fiberklaar, I have the impression that they’ve already invested something like, let’s say, €450 million, something like that. It would give a CapEx per premise per household at €1,700. It seems quite a bit above the initial CapEx guidance of Fiberklaar of €2 billion for 1.5 million households. Any particular reason why we’re landing at a higher cost of CapEx per home passed? Thank you.
Mark Reid
Yeah. David, on the 2028 to 2030, I mean, look, again, I don’t think we’re going to talk too much more. We can disclose too much more on that. I don’t think there’s nothing else mature. We don’t have another CapEx significant investment after that period. So, there’s nothing there. The Fiberklaar CapEx build will be almost fully done by 2028. So, that’s how we should be returning to more normalized CapEx levels, and that’s why, again, over that 2028 and beyond period, we’ve said it’s an average and it’s growing, right, and it’s organic. So, I think that’s the way you should think about it.
On the Fiberklaar mass, I think there’s a couple of things. I think it highly depends on the footprint. That footprint, the medium-dense, is a difference in, where it is in that medium-dense. And I think the other element you need to kind of work into is, we have Fiber in the street, which we disclose, which is not just Fiber’s home passed built and ready for service and so that also has to play into your numbers. So, I think that’s probably the way to think about it.
David Vagman
Okay. Thanks. And when you say, Mark, that the CapEx will be done by 2028, you mean done in 2027 and then little CapEx in 2028?
Mark Reid
David, I’m not going to pick a year…
David Vagman
Okay.
Mark Reid
… but I think, hopefully, you can get directionally where we are on that 2028 to 2030 number. And as I said, look, we’re going to come back once the long form is done and we’ll be, hopefully you understand that there’s only certain amounts that we can disclose at this point and we’re still need to finish the long form. But we’re super happy with the fact that we’ve got to this step. This is a the three parties and creating value for the regulator, society, Liberty and ourselves. And so, hopefully, you guys can get that and understand that on the…
David Vagman
Okay. Okay. No. Sure. Thanks. Thanks, Mark. I think you also understand why I basically want to understand whether there is potentially a big upside in free cash flow down the road also from this period. Thanks.
Operator
Thank you. And we’ll now take our next question from Siyi He of Citi. Your line is open. Please go ahead.
Siyi He
Hello. Good afternoon. I hope you can hear me okay. I just have one question and just another clarification. The question I have is on your assets disposal. I think you announced a plan at the beginning of 2023 and now for almost one year and a half. And then, I think, the proceeds that you achieved is €30 million. Just wondering if you can just share with us what’s the lesson learned that you have on your assets disposal? And should we still think that the initial €400 million achieved by end of 2025 is still a valid timeline? And the second question is how will you file the cash cut-outs that you added from Fiberklaar? Are they annual cash -- annual cut-outs? What I’m trying to understand is that for next year, so when you expect this €160 million consolidated and it will potentially have a double size from this year? Thank you.
Mark Reid
I’m sorry. The line was really bad. Let me try and if I don’t get the question. In terms of disposals, as I said earlier, I think to a question, we are in process for 85% of the now uplifted €500 million, right? and so, that means almost half of it is actually in what I would call a negotiation phase, the other 40% is in a process, and the remainder, the small part of it, is in planning and is not going to take three years to execute. So I think in terms of and I’m sure you understand, running these processes can take time and the ability to forecast when they will close is difficult. So I think that’s what I would say on that first part.
On the Fiberklaar, again, the Fiberklaar cash CapEx, I think the question was around the €160 million a year and was that appropriate level for the next few years. I think the answer to that is yes.
Siyi He
Thank you very much.
Mark Reid
Sorry, the line was really bad, so.
Operator
Thank you. And we’ll now take our next follow-up question from Joshua Mills of BNP Paribas Exane. Please go ahead.
Joshua Mills
Hi, guys. Thanks. A couple of quick clarifications. On Slide 18, I just want to triple check. So there is a difference, if I’m correct, between the three cash flow definitions on the middle chart, which do include asset proceeds, and then the one on the right-hand side, which exclude any M&A and asset proceeds. If you could just confirm that the right-hand chart doesn’t include anything of M&A, that would be helpful. Secondly, I know you gave some disclosure on how many of the Fiber lines are built through JVs in the presentation on Slide 10. Could you maybe just give us an update on how many homes have been built by Fiberklaar already within the, I think, 280-odd million, which the 12% of the 2 million would suggest? That would also help us do some maths on the CapEx. And then finally, I’d like to come back on my initial question about the reason for reconsolidating the joint venture at this point. I’m more interested about whether you’ll do this again. And if so, what would the justification be? How do you cut -- how do you weigh up the benefits of deconsolidating these Fiber builds, as you clearly set out a strategy to do three years ago versus buying them in now? Is it simply a change of control clause and something to do with the relationship between you and Fiberklaar, which meant when you did this deal with Telenet you have to do this or has something fundamentally changed in your thinking about the benefits of fully owning these networks rather than doing the joint ventures? I just really want to understand whether this is something that will come back with Wallonia and some of the other rural areas? Thanks.
Mark Reid
Yeah. So, Joshua, let me talk about the slide and the earnings. So I think on the slide on the left, we clearly provide a walk from our adjusted free cash flow in 2024, which, again, includes divestment, right? And we’ve had this discussion several times, so that includes divestment. And then, we walk that from the inclusion of Fiberklaar and the eventual acquisition of, right, Route Mobile, which gives us our reported free cash flow.
On the right hand side, again, two nuances there. The free cash flow 2025 to 2027, as we said in the notes, it includes the divestment. It clearly says that scale up divestment programs from €400 million to €500 million to support the free cash flow level. And then, again, it’s -- why we’re so confident in being able to kind of meet the dividend coverage is that, we’ve got, as I said, 85% visibility of the divestments to support that free cash flow. And that free cash flow clearly, because we’re taking Fiberklaar on the balance sheet during that period, is why you’re seeing, it being negatively affected and then offset by the dividend.
On the 2028 to 2030, we have no divestments in there. It’s purely organic. And again, I think, I mentioned that earlier in the period, from that period onwards, we purely have organic free cash flow growth from the business. So hopefully that’s clarified that point.
Other questions? On the homes passed on Fiberklaar joint ventures, again, we haven’t disclosed that number. Again, I think, you can see the total joint ventures, and again, Fiberklaar is probably the lion’s share, is probably the way to think about it. So hopefully that points you in the right direction. And then on the reconsolidation of others, Guillaume, do you want to take that question?
Guillaume Boutin
I think, I try to give you a bit of where we are. I think, again, what happened in the north cannot be extrapolated on the south. And why we wanted to gain ownership of Fiberklaar in the north, because you have that split in between the two players, the split in between Wyre on one side and Proximus on the other side. And we wanted to make sure that we control our fair share of the network, because we believe that the value creation of controlling that network going forward is going to be massive for us and that’s why we decided to control 100% of Fiberklaar.
In the south, again, the situation is really different. We are in a situation where we have a share of network ownership that is already quite significant and it might not be that we want to come to the same conclusion in terms of we need to own 100% of Fiber JV in the South, because we already are in a very sound situation in terms of network ownership. As you know, network ownership for incumbent is important. Mark said it as well. And so we want to make sure that we own a large majority of the Fiber networks of the country, including the part of the country where we can compete on infrastructure.
So including Zone A, Zone B and Zone C, we want to own a strong majority of that network for our customers and that’s the plan we are holding out. In the north, we decided to get 100% ownership because we wanted to secure the right ownership for Proximus on the long-term in terms of Fiber plugs. In the south, if you take the ownership we already have today, we are in a very good situation. I’m not sure that we want to increase that or to improve that situation. I think at least it’s not something that I foresee in the near-term.
Joshua Mills
Okay. Great. Thank you very much.
Operator
Thank you. And we’ll now take our next follow-up question from Justin Funnell of Nextgen Research. Please go ahead.
Justin Funnell
Yeah. Thank you again. I suppose it’s the same question that others have asked, but in a slightly different way. Just can you explain why you’re buying Fiberklaar now, why you’re buying the 50% now? Why not wait for the regulatory review to be completed? It feels like there was some sort of technical reason why you had to buy it in, but maybe that’s wrong. And secondly, on the asset disposals, the €500 million, I guess, some of these assets you’re going to be leasing once you’ve sold them. It might be perhaps the data centers. Is there a lease cost that we should be thinking about versus the €500 million of cash in? Thank you.
Mark Reid
Justin, let me take the first one. I mean, there are different flavors of that, obviously. So maybe let me take the headquarters building. I think we’ve talked about this before. We -- the plan for the headquarters building is to dispose of 100,000 square meters and shrink to 42,000 square meters, something like that.
So clearly we get -- that type of transaction, we get a cash in. But we also, because of the operational synergies, we actually end up in a total cost of ownership with the lease that’s actually, thereby, in terms of the actual operation of that entire building prior to that. So, there’s elements where there are clearly operating costs or lease costs that come back in.
There are also elements where that’s not the case, where there’ll be clear straight disposals and no lease back. So I think there’s -- in that €500 million, there is a mix of that type of activity. And again, in the free cash flow projection we’ve given you, that is all worked in. So I think there’s no additional lease costs that you should think of on top of this, of these free cash flow projections, given the €500 million divestment. On Fiberklaar, why now, Guillaume, do you want to do that? Why don’t you take it?
Guillaume Boutin
I think you take it. So, I say ownership on networks is important for us. I think for us, because of that deal, which is likely to happen, very likely to happen, because we’ve got a good conversation with the regulator, because we’ve got a good conversation with Liberty, because we think that it makes sense for all parties to get there. I think this is something that we trust is going to be raised in the coming month, because at the end of the day, there is not a lot of other options for all players to get to that collaboration situation.
And then with -- if we step back, if we look at the complexity to get to this kind of outcome, I think it made a lot of sense to have three partners around the table, Liberty, Proximus and the regulator with 100% aligned incentives. I think the chance of a better outcome for us was and is higher in that situation. And the step where we are today, where we have a publicly announced MoU, where you have support for that deal coming from all angles of the country, from politicians, from regulations, also from Wyre and Telenet, but there was also -- we’re also extremely pleased by the announcement of yesterday.
I think we are creating something unique, but we want to get long term benefit from that situation. So for that, we want to be exposed as the network owners to the benefit of that deal. That’s why we wanted to secure the fact that we get the right ownership of the Fiber networks in the north of the country. Again, the situation is different in the south, and I will repeat it, there is no starting points are different. So outcomes might be also different and there is something that you should really consider living that core. So that’s a bit what I wanted to see.
And we think we have a good deal, we are well positioned to meet the value creation that we have set -- target that we have set to ourselves. The fact that we own Fiberklaar today is also a good thing for learning the discussions and you can see obvious reasons for that. And again, the deal is something good for everyone.
For customers, and that’s something that we don’t talk a lot about today, but the deal is also the way for us to secure access to gigabit networks for all of our customers. And today, if you look at the situation with today, that was the case. So, now we have secured that for our customers in Flanders.
Again, it is good for the country and politicians, I think, of all part of the spectrum -- of the political spectrum are behind that deal. It also creates a condition to discuss whether the collaboration could be even broader and we need also a bit in other parts of the country. That is a question that could be asked also by politicians at some point, because we have opened the way for a Fiber collaboration.
Why limit that collaboration to only part of the country? A question that needs to be also discussed in the coming months. And as I said, it’s also win for our partners. So, I think this is something we -- which is value that maximizes our chances to extract a lot of value from our Fiber investments.
Justin Funnell
Thank you. Thanks very much.
Operator
There are no further questions. So I’ll hand back to your host to conclude today’s conference. Thank you for joining today’s call.
Nancy Goossens
Thanks. I just wanted to say thank you to all for your questions. Should there be any follow ups, as usual, you can reach out to the investors.
Operator
Thank you. Thank you for joining today’s call. You may now disconnect.