30 July 2019 Press Release

Proximus Group financial results – Second quarter 2019

Proximus Group closes the second quarter with continued customer growth for its main products and reconfirms its full-year guidance

  • Continued growth of Domestic customer base in a highly competitive setting:
    • +6,000 Fixed Internet,
    • +5,000 TV,
    • + 25,000 Postpaid cards, supported by multi-play offers and segmentation strategy
  • Effect of Domestic revenue pressure (-1.8% excl. terminals) remains contained on direct margin
  • Domestic underlying EBITDA of EUR 446 million, -0.8% on high comparable base of 2018. With BICS included, the Group underlying EBITDA ended 0.9% lower
  • Solid year-to-date June 2019 FCF of EUR 278 million, acquisition impact excluded
  • Full-year 2019 outlook reiterated

Dominique Leroy, CEO of the Proximus Group:

"We managed to further grow our customer base in a highly competitive setting, through our dual brand strategy and segmented approach. For our Consumer segment we attracted new Internet and TV customers and achieved back-to-normal growth in mobile postpaid customers. More and more households are convergent, with over 59% of the multi-play households taking fixed and mobile services from Proximus. The number of subscribers to our all-in offers Tuttimus/Bizz all-in increased to 552,000 by the end of June, and we also saw a good uptake of the convergent 3-Play offers Minimus and Epic combo.

We continued to grow our Enterprise Mobile base, despite mounting competition, putting pressure on customer growth and Mobile pricing, and hence on the profitability of customer contracts. On the Fixed front, however, we see reassuring support from our growing P2P Fiber park for Business customers, which is softening the ongoing erosion in legacy services, and we continued to post growth in Advanced Business Services and ICT.

Progressing further on our digital journey, we are realizing cost benefits in our Domestic operations, enabling stable costs, in spite of acquisition-related personnel expenses in the ICT domain. As a result, our Domestic EBITDA decline was limited to -0.8%, on a high comparable base.

Based on our achievements so far, we reiterate our full-year 2019 outlook and will focus for the remainder of the year on the execution of our #shifttodigital strategy. In this regard, and almost five years after the launch of the current Proximus brand, we announced our new brand promise “Think Possible”, making advanced digital experiences accessible to all our customers. We simultaneously launched 5 innovative, personalized applications and services that will make our customers’ everyday lives easier; among other things, with Proximus Pickx, a new TV interface and content platform.

Furthermore, our #shifttodigital strategy will accelerate our transformation to remain relevant on the Belgian market and to secure our company’s future. On January 10th 2019, we started the information and consultation phase with the unions, as part of the social dialogue, and entered the negotiation phase on June 10th 2019. We are continuously looking how to adapt our plan and minimise the number of dismissals, without compromising the necessary transformation and the cost efficiency objective that should give our company a sustainable future. We will continue to consult with the trade unions and it is our firm intention to be able to reach an agreement on the different measures after the summer.

We will also further develop the outlined mobile access network sharing agreement with Orange Belgium, for which we announced the term sheet signature on 11 July. This will enable us to meet the increasing customer demand for mobile network quality and deeper indoor coverage and will allow a faster and more comprehensive 5G roll-out in Belgium, covering also the 2G, 3G and 4G technologies. At the same time, we will continue to have full control over our spectrum assets and core networks, ensuring strong customer experience differentiation. We expect a very good return from the agreement, which will help us to achieve additional operational cost efficiencies.

As a final point, we were surprised by the low cable wholesale pricing in the regulator’s consultation on its cable wholesale draft pricing decisions, published on the 5th of July. We are awaiting the consultation on the Fiber pricing, expected in the course of September. In line with our earlier statements, we regard fair regulation, maintaining appropriate conditions to invest, as key for any future decision on our Fiber deployment."

The Mobile Postpaid customer base is further growing, a good Internet and TV momentum for both the Proximus and Scarlet brands is maintained and the Enterprise segment continues to progress with its new services

In the second quarter of 2019, Proximus further grew its Mobile Postpaid customer base and maintained a positive momentum in its Fixed customer base in a highly competitive setting. The number of Internet and TV subscribers increased, backed by convergent and segmented offers from Proximus and Scarlet. This is to be put in balance with a high decrease in terminal sales and continued Fixed Voice erosion.

In the Enterprise segment, Proximus continued to grow its Mobile customer base, although at a lower value due to a competitive market. In the M2M area, Proximus strongly progressed thanks to smart metering roll-out and European road user charging. The company realized growth for Fiber-based data connectivity, partially compensating the further erosion of legacy data services and Fixed Voice. Smart mobility solutions showed a strong progress following the acquisition of Mediamobile. ICT grew as well, including the contribution from specialized companies acquired in 2018.

Proximus limits the decrease of its second-quarter Domestic underlying EBITDA, despite a high Q2 2018 comparable base

For the second quarter of 2019, Proximus posted a Domestic underlying revenue of EUR 1,084 million. The revenue decline of -2.6% was for a large part driven by lower Mobile terminal sales (with no impact on margin). This excluded, the Domestic underlying revenue closed 1.8% below that of the prior year. On a half-year basis, Proximus registered for its Domestic operations an underlying revenue decline of 1.4%, excluding terminal sales .

Proximus booked EUR 844 million Domestic underlying direct margin in Q2 2019, 0.6% lower on a high comparable base of 2018 (this would be c. +0.4% excluding one-off tailwinds in 2018). For the first half of 2019, the Domestic underlying direct margin is 0.2% above that of the comparable period in 2018.

Proximus’ expenses for its Domestic operations totaled EUR 398 million in the second quarter of 2019, 0.3% lower compared to the same period in 2018. Within the mix, the Domestic non-workforce expenses grew by 0.4% year-on-year, while the workforce expenses decreased by -0.7%, in spite of acquisition-related personnel expenses in the ICT domain. The lower workforce expenses are a result of a decrease in Proximus’ organic headcount, achieved through structural cost efficiencies and digitalization, especially within customer operations. In aggregate, Domestic expenses for the first half of the year were slightly down (-0.3%) compared to 2018.

As a result of the lower Domestic direct margin, and with operating expenses nearly flat, Proximus posted a Domestic underlying EBITDA of EUR 446 million for the second quarter, down by 0.8% year-on-year on a high comparable base. The Domestic underlying EBITDA for the first half of 2019 shows a 0.6% increase to EUR 874 million.

BICS increases its direct margin driven by non-Voice activities, with higher operating expenses leading to a decreased EBITDA over the second quarter

For the second quarter of 2019, BICS posted a direct margin of EUR 80 million, up by 0.8% driven by a positive variance in non-Voice direct margin, while limiting the direct margin impact of the Voice revenue decline. Over the first half of 2019, the direct margin of BICS increased by 1.8% year-on-year.

BICS posted a second-quarter 2019 EBITDA of EUR 38 million, a year-on-year decrease of 1.8%. This includes higher operating expenses (+3.2%) driven by Telesign workforce expenses and HR-related provisions. The year-to-date EBITDA of BICS by end-June totaled EUR 73 million (-0.3% compared to the same period in 2018).

Second-quarter Group underlying EBITDA slightly decreased compared to the same period in 2018, Free Cash Flow remains solid

In aggregate, the Proximus Group ended the second quarter of 2019 with underlying revenue of EUR 1,413 million, -2.7% compared to the same period in 2018. Over the first six months of the year, the Proximus Group posted an underlying revenue of EUR 2,828 million, 2.2% below the same period of 2018.

The underlying EBITDA of the Proximus Group for the second quarter of 2019 totaled EUR 484 million, a decrease by 0.9% on a high comparable base. Over the first six months of 2019, the Proximus Group underlying EBITDA increased by 0.5% to a total of EUR 947 million.

Finally, Proximus’ Free Cash Flow over the first half year totaled EUR 241 million, or EUR 278 million when excluding the cash-out for acquisitions. This compares to EUR 180 million for 2018. The year-on-year increase in FCF was mainly the result of a lower amount of tax prepayments, lower cash needed for business working capital, lower interest payments, the year-to-date progress in underlying EBITDA and less cash paid for capex.

High investment level in digital platforms, Fiber for Belgium, transport backbone and mobile network quality sustained

By end-June 2019, Proximus Group invested EUR 466 million, spectrum capex excluded. This is slightly above the EUR 459 million invested over the same period of 2018.

Proximus continued its investments, amongst others, in new digital platforms, its Fiber for Belgium project and the ongoing multi-year modernization of its transport network (TITAN). So far, Proximus is deploying Fiber in 11 cities, with Aalst and Vilvoorde announced in the first half of 2019. Furthermore, Proximus continued to invest in its mobile network to provide a high-quality mobile service while coping with a continuous increase in data usage. End-June 2019, the average data usage was above 2.7 GB/month, a year-on-year increase of nearly 50%.

2019 Outlook and shareholder return

Proximus reiterates its full-year 2019 nearly stable ‘Domestic revenue excluding terminals’ outlook, in spite of the competitive pressure, with a second half year in line or slightly better than the first half year revenue evolution, depending on a more volatile ICT revenue.

Proximus also reiterates its outlook for a stable underlying Group EBITDA, including a slight underlying Domestic EBITDA growth. It’s expected this will be offset by an unfavorable EBITDA variance for BICS. Following the renewed agreement with MTN, the insourcing of the transport and management of MTN’s traffic within the Middle East and African regions is expected to start showing in BICS’ results as of the third quarter.

For the entire year 2019, Proximus estimates regulatory measures to negatively impact the Domestic underlying margin by an estimated EUR 20 million.

The Group capex, spectrum excluded, for 2019 is expected to be stable compared to the level of 2018, including increasing investments in the Fiber for Belgium project, for which the roll-out has started in 11 cities.

In line with the announced 3-year commitment on 16 December 2016, Proximus expects to return over the result of 2019 a stable gross dividend per share of €1.50.

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