NOS.LSNOS.LSLIS
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Pedro Cota Dias: Good afternoon, everyone. Thanks for joining, and welcome to NOS's Fourth Quarter and 2025 Full Year Results Conference Call. As usual, we will start with a brief presentation by our CFO, Luis Nascimento, and then we'll open for Q&A, and we have the executive team in the room for that as well. So Luis, over to you.
Luis do Nascimento: Thank you, Pedro. Good afternoon to all, and welcome to our conference call. We will begin, as usual, with the main highlights of this fourth quarter. In the quarter, NOS maintained a positive operational momentum despite new competitive environment, leveraging 5G and nationwide fiber fixed infrastructure, also a healthy cash flow generation driven by top line growth, operational efficiencies across OpEx and CapEx structural decline. And an attractive shareholder remuneration with a strong dividend yield while maintaining a robust financial position. A quick overview of our main KPIs. During fourth quarter, consolidated revenues increased by 0.3% to EUR 486 million and EBITDA rose 4.4%. This solid EBITDA performance, along with a CapEx reduction of 4%, led to improved EBITDA CapEx -- EBITDA AL minus CapEx of almost 21%. Recurring free cash flow, excluding extraordinary effects, increased 132% to EUR 71 million and net income increased 58%, reflecting a solid operational performance and our strategic transformation program. Our annual numbers also reflect a strong performance, which we will discuss in more detail later in this presentation. So NOS has achieved upgraded classifications from both CDP and S&P Global Ratings, recognizing its significant ESG efforts. The CDP score improved from B to A, reflecting a leadership position in the fight against climate change, a distinction achieved by only 2% of the companies. Furthermore, NOS's S&P Global score increased from 58 to 75, nearly doubling the sector average of 40. As part of its dynamic strategy to create value, NOS is enhancing its customer value proposition through COMBINA, a new initiative in partnership with Galp and Continente. This program offers unique customer benefits, including up to a 10% discount at Continente and a EUR 0.30 discount per liter on fuel at Galp. These significant savings can partially or even fully offset the family annual telecom costs. With 150,000 customers in the first 2 months, COMBINA is a key component of NOS value proposition, translating into significant savings for our customers. Our SCAILE program with 140 AI use cases identified and already 40 implemented is a key driver of our efficiency, contributing to a 2.3% reduction in fourth quarter OpEx. The personal productivity vertical, one of our 7 SCAILE initiatives is successfully massifying AI across NOS. NOS GPT supports over 4,000 users with an impressive 40% daily adoption, and our FAAST training program has already reached over 1,400 employees. With SCAILE, we are effectively boosting efficiency throughout NOS. On the operational performance side, this was another strong quarter of Fiber to the Home. More than 6.1 million households are now covered by NOS Gigabit fixed network with Fiber representing almost 90% of households passed. This is a significant increase of 159,000 households quarter-on-quarter and almost 380,000 year-on-year. But despite a challenging competitive market, NOS delivered a strong fourth quarter with 2% increase to 10.9 million RGUs. With 60,000 -- 66,000 net adds, this quarter posted a good level of net adds despite natural fourth quarter seasonality. We achieved 7,000 net adds in unique fixed accesses in the quarter. Despite the seasonal slowdown and intense competitive environment, these results are consistent with [ pre-digi ] levels. Churn continue at low levels and new offers, WOO and naked broadband continue control, but with some impact in the mix of new customers. In mobile, with 62,000 net adds in the quarter, mobile RGUs increased 3.3% year-on-year, reflecting a strong performance, particularly in postpaid customers with higher ARPUs. Postpaid had 88,000 net additions, posting very strong results driven by WOO and by NOS's competitiveness on convergence cross-sell. Prepaid net additions declined 26,000 in the quarter, below fourth quarter '24, driven by the competitive pressure that impacted more on low ARPU customers. In summary, a solid operational performance despite the competitive environment. Now moving to Audiovisuals and Cinema business. The number of tickets sold declined 19% year-on-year, an improvement versus the minus 28% of third quarter, driven by a difficult October and November, but with a solid December with revenues flat year-on-year, supported on Zootropolis, Avatar and Now You See Me, all movies distributed by NOS Audiovisuais. On the financial performance side, NOS consolidated revenues rose 0.3%, mostly affected by an 8% decline in Audiovisuals and Cinema division that were offset by the resilient performance of the Telecom segment and by the solid 4.4% growth of IT. Telco revenues were flat year-on-year, primarily due to the performance of the enterprise sector that posted a 1.3% increase driven by large company segment and Wholesale. The B2C segment experienced a decline of 0.4% due to the increased competition impacting ARPU despite the strong operational activity and solid equipment sales, still an improvement versus the decline of minus 1.1% in third quarter. Revenues in the B2B increased by 1.3% to EUR 123 million, continuing the growth path from previous periods. The slowdown in the overall revenue growth of the business results from a lower volume of projects and resale with lower margins. The new IT business showed a strong increase of 4.3%, mainly driven by a solid 9% growth in IT services and despite a 3% reduction in the volatile resale of equipment and licenses. As previously explained, the Audiovisuals and Cinema division reported an 8% decline, driven by the 19% reduction in cinema attendance. So NOS's operational performance and solid results of NOS transformation program supported on Gen AI-driven efficiency program continued to deliver strong 4.4% EBITDA increase, significantly above revenues with a strong contribution from Telco and IT, which recorded increases of 4.4% and 11%. Audiovisuals and Cinema division posted a 1% EBITDA increase despite an 8% decline in revenues. NOS CapEx continues the structural declining trend, and this quarter dropped 4% to EUR 92 million, supported by a CapEx decline in all lines of businesses. Telco CapEx declined 1.2%, driven by a 2.6% reduction in customer-related investments. [ Expansion ] CapEx had a small increase of [ 0.4% ] this quarter, mainly driven by fiber projects as we approach the end of NOS Fiber deployment. IT CapEx declined 34% to EUR 1.9 million, explained by an exceptional customer-related investment during fourth quarter '24. And Audiovisuals and Cinema CapEx declined 24%, reflecting a return to a more normal spending levels in movies after the higher investment in 2024 caused by the Hollywood strikes and by a reduction in cinema CapEx. As a result, improved operational performance and efficient CapEx management drove to a 20.6% increase in EBITDA AL minus CapEx. Net income declined to 10.9% to EUR 63.8 million, primarily due to a reduction of EUR 31 million in extraordinary effects, mainly related to ANACOM refund of activity fees in fourth quarter '24. However, excluding these items, net income rose EUR 23.5 million, a 58% increase year-on-year. It's a strong increase driven by a strong EBITDA growth, supported by a solid operational performance and by a proactive cost management, complemented by a EUR 10 million contribution from tax reduction and by EUR 3.9 million in results from joint ventures. Free cash flow increased 155% with a EUR 2.8 million positive year-on-year impact from an extraordinary tax payment in 2024 related with the ANACOM refund of activity fees. Without extraordinary items, recurring free cash flow increased 132% driven by EUR 11.7 million from strong operational performance and lower investments, by a positive impact of EUR 22 million in working capital and by a reduction of EUR 5.6 million of income tax paid. So now moving on to the final year key financial numbers. Despite stronger competition, NOS demonstrated a resilient revenue performance in 2025 and strong OpEx and CapEx efficiencies leading to a solid EBITDA AL minus CapEx growth. Consolidated revenues increased by 1.6% with Telco growing 1.6% and IT 3.5%, offsetting a 2.6% decline in Cinema and Audiovisuals. Consolidated EBITDA also grew by 4.3%, while EBITDA AL minus CapEx saw a significant 15% increase. NOS showed strong growth in net income and free cash flow in the final year '25, excluding extraordinary items. Net income after adjusting for these items increased 29% and free cash flow, excluding these items, also rose by 15%, indicating a solid underlying financial performance. So at the close of the year, NOS's debt decreased to EUR 1.022 billion, and the financial leverage ratio dropped to 1.5x, well below the reference threshold of 2x. Additionally, NOS benefits from a lower average cost of debt, now 2.7%, representing a decrease of 0.8% year-on-year, reflecting lower interest rates. As end of December, the company held EUR 342 million in cash and liquidity. So with all these elements in play, the Board has approved a total dividend of EUR 0.45 per share composed of EUR 0.35 ordinary and EUR 0.10 extraordinary. This payment reaffirms our strong commitment to an attractive and sustainable shareholder remuneration. With this, we conclude our presentation, and we are now ready to answer to your questions.
Operator: [Operator Instructions] And now we're going to take our first question. And it comes from the line of Ajay Soni from JPMorgan.
Ajay Soni: I've got 3 questions. First is around your SCAILE program. So what headcount reductions could you deliver from this in '26 and in the midterm? And then where are the most of these -- could most of these cuts come from within your business areas? Second is around the slightly slower business growth we've seen from lower volume of projects. So what's the reason behind this? And is the Q4 growth expected to continue into 2026? And then the last one is just around your price rises in 2026. Could you remind us what you've done and then what the customer reaction has been so far relative to the price rises you did in previous years?
Luis do Nascimento: First, well, we didn't understand completely the questions. But if I understood, the first one is on SCAILE. And if we can -- if we believe that we can continue to have these solid efficiencies for 2026. And yes, we do believe so. As I said, SCAILE is a long project. We have 140 use cases. We have begun only -- we have implemented 25% to 30% of them. So yes, we do believe that we can have efficiencies for the next couple of years.
Miguel Almeida: Yes. The third question was on price raises. So what we did is this February, so this past month, we raised prices by 2.34%, which is in line with the inflation in 2025. And until now, the customer reaction has been very positive in the sense that there was no reaction, even when we compare to other price inflation increases in the past, so we didn't have them last year. But in the past, we had less customers either calling us or complaining. So the reaction in that sense was good, mainly because the amount of the increase is not that significant. I'm not sure we understood the second question.
Luis do Nascimento: If I understood, it was about B2B resale.
Ajay Soni: Sorry, it's around the business growth. So you mentioned the slower growth in Q4 was down to a lower volume of projects. So I was wondering what the reason was behind this? And then is this Q4 growth a level you expect to continue into 2026? Or should it accelerate from here?
Miguel Almeida: This line of revenues from projects is very volatile. It has been always the case in the past, some quarters very strong, some quarters not that strong. It also -- we are always comparing to the same quarter of previous year. So if you have a good quarter last year and not so good quarter this year, the difference is significant. But there is no structural trend that you can take out of that. Probably next quarter will be okay. There's always a lot of volatility around this kind of one-shot projects. It's not like telecom revenues, which are basically monthly fees, which are recurrent and stable, but these B2B projects, not so much. But again, there's no particular trend or structural trend you can take out of these numbers.
Luis do Nascimento: And the question comes from the line of Mollie Witcombe from Goldman Sachs.
Mollie Witcombe: I just have 2. Firstly, some color on the competitive environment in B2C specifically would be fantastic. I've noticed that the ARPU in Consumer seems to be a little bit better in Q4. So just an idea of how you're thinking about incremental competition in Q4 and into Q1? And then my second question is just on IT growth potential. You previously talked about potential for 5% to 10% CAGR, 3-year CAGR market growth with 5% to 10% in applications, tech consulting, cloud, et cetera, and then 10% to 15% in cybersecurity. Could you give us an update on these trends? Is this still what you're expecting to see? And how are you seeing the markets develop?
Miguel Almeida: Yes. Thank you very much. In terms of competitive environment, I don't think there's any significant update. We have been living more or less the same competitive environment since November '24 for the reasons you all know. The dynamics hasn't been different throughout 2025. Nothing really relevant changed already this year in 2026. So I would say that from that sense, of course, in a level of competition, that is much more aggressive than we had before November '24. But since November '24, it has been the same. And we don't expect it to change going forward. So it's a new reality. We have been living under this reality with the strategy that we have communicated. So with the main brand NOS, with a premium service and with a discount brand WOO, fighting the low end of the market. We are happy with the results, and we don't see trends changing materially going forward. In terms of IT growth, yes, that's -- we're still kind of bullish around the IT business. We believe we have tailwinds, and we will continue to grow in that business. So the numbers you mentioned, 5% to 10% is within our -- also our estimate up until now. And when we look at 2025, we actually managed to be slightly above that, but we'll see going forward. But we are still betting on significant growth on that line of business.
Mollie Witcombe: Understood. Sorry, just a follow-up maybe with a third question. Potential upside from AI on CapEx has been a bit of a theme this quarter amongst other European telcos. Just you've talked a lot about kind of potential from AI, but just wondering specifically what you're seeing on CapEx.
Miguel Almeida: Well, what we're seeing is across different cost drivers. Some from accounting point of view are considered OpEx, others are considered CapEx. But what we see is the impact is very transversal, very across many different functions, processes, areas. So yes, we see some impact there. But nevertheless, we were already planning beyond AI. We are already planning a decrease in terms of CapEx in 2026 when compared to 2025. But of course, it helps to have that reduction with this help from AI, which makes us more productive and as such, taking more out of each euro that we invest.
Operator: And the question comes from the line of Roshan Ranjit from Deutsche Bank.
Roshan Ranjit: I have 3 questions as well, please. Perhaps following up on the question around pricing, and you mentioned the mix. And I think this year, we didn't have a price increase, but the Q4 ARPU trend and exited the year quite well. Is that perhaps upselling within the tiers? Or is that just a better mix within your kind of premium brand and your challenger brand given perhaps a more relaxed competitive dynamic in the market? Second question is around the operational efficiencies from SCAILE. So I guess, limited top line growth through '25, but 4 percentage points expansion at the EBITDA AL level. Is that the right level we should think about in '26? Or should we see a pickup in those efficiencies? And lastly, on the fiber rollout, can you remind us what your target coverage is? I think you said low 90s before. And should we be thinking that the remainder will be covered by alternative technologies such as satellite?
Miguel Almeida: Thank you very much for your questions. In terms of -- I would tend not to read too much from the ARPU in Q4. There are some specific effects, namely, for example, premium TV channels that had a good quarter, which helps ARPU. But I don't think you can read from those numbers any significant change in terms of the mix between the main brand, the premium brand and the low-end brand. I don't think you can have that reading from the quarter numbers. Obviously, the low-end brand will keeps growing, keeps increasing its weight on the overall customer base of NOS. That is something that we expect to continue throughout 2026. So you cannot read too much from those ARPU numbers from Q4. As I mentioned, this is very seasonal and specific impact, namely from the premium TV channels. In terms of SCAILE, what -- actually, what you asked would imply some kind of guidance that we tend not to give. So what we can say is that we expect SCAILE to continue to contribute to cost optimization. That much is true. But in terms of numbers, I would rather not give any specific guidance, even though obviously, we have our own budget and our own estimate. In terms of fiber rollout, we estimate our present coverage in terms of households passed close to 94%. And that is as high as we will go on a stand-alone basis. We expect the remaining of the market, so 100% to be actually also covered with fiber. But from this project, the state project that has as an objective to cover the white areas with fiber. So one can expect once this project is implemented, and it should be pretty soon, at least start pretty soon, 100% of the country would have fiber, which means that alternative technologies are not necessary, and we don't see any space for those alternative technologies in a country that has 100% fiber coverage.
Roshan Ranjit: That's very helpful. Just a follow-up on the fiber point. Given the extensive fiber network, have there been any developments on the wholesale front offering out the network and maximizing that utilization?
Miguel Almeida: You mean -- sorry, can you repeat your question? I'm not sure that [indiscernible] wholesale.
Roshan Ranjit: Sure, of course. It was just any wholesale discussions on the fixed network, please.
Miguel Almeida: Wholesale discussions in the sense that we should open the network. The answer is no, not at all. We have no plans to give access to our network in the coming future.
Operator: And the question comes from the line of Antonio Seladas from A|S Independent Research.
António Seladas: So first one is related with your SCAILE program. So I know that you don't like to provide any guidance. Nevertheless, it seems fair to assume that OpEx will continue to perform below the top line. So it seems fair to assume it. I don't know if you want to comment on this. And second question is related with -- there were some comments on the press this morning that you could acquire some company on the IT space. I don't know if you want to comment on this.
Miguel Almeida: Yes, sure. The question was around our plans for the IT business unit, if we had plans to expand to grow. And the answer was, first of all, we want to grow organically. We already mentioned the targets in terms of growth -- organic growth. But also, we said that we are open and actually actively looking to also grow from acquisitions. It's not obvious. We don't have any specific target at this time, but we are open to the possibility of growing also through acquisitions. In terms of the OpEx numbers and the impact of SCAILE on the OpEx, what I think we can say without giving too much guidance is that we expect margin expansion.
Operator: [Operator Instructions] And now we're going to take our next question. And it comes from the line of Fernando Cordero Barreira from Banco Santander.
Fernando Cordero: Thank you for taking my 2 questions. The first one is on the COMBINA program that you have presented as well. I would like to understand which is the kind of impact that you are expecting in your churn rates at the end, given the discounts that you are offering be, let's say, -- just trying to understand which could be the savings on the -- either on the [indiscernible] or in the customer retention cost that is going to be at some extent, funded by the COMBINA program. And the second question is quite simple. Just would like to understand if you are expecting any kind of financial impact from the floods and from the meteorological issues that we saw in this first quarter when you report the first quarter in May.
Miguel Almeida: Okay. Thank you very much, Fernando. In terms of COMBINA, I think it's fair to say it's still early days. The main objective for us is churn reduction. To be completely transparent, that is the main objective. Nevertheless, we announced 150,000 COMBINA clients, I think, last week. In the first 2 months, 150,000, we have 1.5 million customers. So it's still limited in terms of the customers that have joined the program. But without any number or quantification because it's still too early, the objective is clearly to reduce churn, given one more reason to customers to stay with NOS because the benefits from this program are actually quite significant. In terms of the storms, it was hard. We still have some residual customers without service on fiber. In mobile, it's back, working again. We have some negative impact, but it's quite limited. We have the negative impact in terms of revenues because we have to credit the customers that were without service. But we are talking a limited region of the country and a few days, nothing very significant. We have some costs associated to rebuild what was destroyed. But again, some of the major investments associated with that rebuild is not on us, namely towers, namely poles, which suffered a lot. This is not on us. So again, we are not expecting a big impact in terms of financial costs. In terms of service, it was a big impact, as you know. But in terms of financial impact, not that significant.
Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to the management team for any closing remarks.
Pedro Cota Dias: Okay. So thanks very much for joining again and any questions, please feel free to reach out. So take care. Bye.