Proximus Group financial results – Third quarter 2020

Proximus posts solid financial results and excellent commercial traction in the third quarter, full-year guidance revised upward

  • Strong commercial momentum with +57,000 Mobile Postpaid customers, +14,000 Fixed Internet customers and +11,000 TV customers
  • Underlying Domestic revenue of EUR 1,074 million, +0.2% compared to the third quarter of 2019
  • Proximus' underlying Domestic EBITDA totaled EUR 438 million in the third quarter, +1.9% compared to the same period of 2019
  • Nearly stable underlying Group EBITDA of EUR 469 million, 0.2% below the third quarter of last year
  • Solid year-to-date normalized Free Cash Flow of EUR 507 million
  • The Board of Directors approved an interim dividend payment of EUR 0.50 per share, to be paid in December 2020
  • Upward revision of full-year 2020 guidance, with Group underlying EBITDA-CAPEX expected to be at least EUR 830 million and Group capex below EUR 1 billion

Guillaume Boutin, CEO Proximus Group

"Despite Covid-19 uncertainties, we feel comfortable in raising our full-year guidance, thanks to solid underlying business trends.

The last few days have been marked by a fierce resurgence of the Covid-19 pandemic. At Proximus, we still pay the biggest attention possible to the health and safety of our employees and customers. Therefore, we have decided to close our shops as of Monday. Customers can still make an appointment or interact digitally with our sales staff. We are also taking different initiatives to support our customers through this crisis, as we have been doing since the start of the crisis. To ensure that we can all study or work from home without worries, we have decided to remove download limits for all our residential fixed internet products and continue the distribution of free WiFi access codes to pupils and students without internet at home. We will also provide an additional 10 GB of mobile data to healthcare workers so that they don’t have to worry about staying connected. Next to that, as bars and restaurants are closed, they can get a one-month discount on their unused products. Finally, we are also reaching out to the culture and media sector to allow them to bring their cultural creativity on dedicated live channels on our Pickx platform.

Although the sanitary situation is alarming, our operations have proved their resilience. For the third quarter we have achieved excellent results. I’m especially proud of our strong customer growth, capitalizing on our ongoing efforts in terms of customer satisfaction and brand image. We see – for the Proximus brand – a strong commercial traction on the consumer side, boosted by our new convergent offering "Flex", launched on 1 July 2020. This highly adaptable offer, customized to the needs of each family member, accelerated growth in convergent customers. Our Scarlet brand continues to thrive, offering the most compelling no-frills offer in the market for cost conscious customers.

Our compelling offers are translating into rising customer bases for Internet, TV and Mobile postpaid. As a result, for the third quarter, our Consumer segment achieved a 2.3% revenue increase showing nice sequential improvement from the previous quarters. Especially our convergent revenue progressed well, with a 4.1% increase over the past year.

The Covid-19 headwinds on roaming revenues continued as we expected, while we contained the total impact on EBITDA thanks to strict cost management. What is more, since the lockdown in March, we have seen a change in customer behavior with a sustained higher usage of telecom services. The consequences of the health crisis on our ICT business remained limited so far, and we continue to support our professional customers by bringing solutions to ensure their business continuity.

Based on our achievements until now and taking into account the volatility caused by Covid-19, we feel comfortable in revising our full-year 2020 guidance upwards and estimate to end the year 2020 with a Group underlying EBITDA-CAPEX of at least EUR 830 million. This includes an estimated Group capex below EUR 1 billion.

Earlier this month, we announced the selection of Nokia and Ericsson as partners for the modernization of our mobile RAN and Core network. Now that this selection process has been completed, we can further embrace the potential of 5G and the innovation that this technology enables. Six months after launch, we are still the only operator in Belgium to have launched a public 5G network. All major smartphone brands have released a device offering 5G connectivity via the Proximus network, with the iPhone 12 being the most recent one. For our Enterprise customers, we have recently launched a dedicated 5G innovation platform in order to further accelerate the development of 5G use cases.

Our fiber roll-out is progressing well, with the technology being deployed today in 14 Belgian cities, having meanwhile reached 400,000 Homes and Businesses Passed. As announced in July, we plan to go even broader and faster. I am very pleased to announce that we have signed the final agreement with Eurofiber, allowing us to connect at least 500,000 Homes and Businesses to fiber in Wallonia within this collaboration. To this end, a new joint venture between Eurofiber and Proximus will be set up with the aim of designing, building and maintaining the network, which will be open and accessible to all. The file will now be submitted for approval to the competent authorities.

The shift to almost full-time homeworking linked to Covid-19, created a momentum to rethink our day-to-day dynamics and the role of our headquarters and physical offices throughout Belgium. To prepare Proximus for the future, we are kicking off a multi-year workplace program, with the aim to embrace a new dynamic: establishing distant working as the norm even after Covid-19 and adapting our physical offices to primarily facilitate inter-personal contacts and meetings. To support this vision, we will investigate the best scenario to create a greener "campus-like" building in Brussels that is smaller and better suited to collaboration, formal and informal contacts. As a welcome addition, this could bring sizeable CO₂ impact reduction and financial benefits."

Successful launch of Flex boosted Mobile Postpaid and along with the attractive Scarlet back-to-school campaign supported a strong growth for Internet and TV

In the third quarter of 2020, Proximus posted a strong commercial momentum for both the Proximus and Scarlet brand. This led to a rising customer base for Internet, TV and Mobile postpaid, with Proximus capitalizing on the initiatives taken in terms of customer satisfaction and brand image, and the successful launch on 1 July 2020 of the new convergent offering "Flex". Moreover, Scarlet's promotional campaign, exceptionally offering free installation over summer, convinced many customers.

Proximus' Enterprise segment posted a further growth of its mobile customer base as well as another strong increase in M2M cards. Covid-19 impacts on ICT remained limited so far and activities in the domain of Hybrid Cloud, Advanced Workplace and Smart Networking did well over the quarter, involving mostly product revenue. Advanced Business Services recovered well after facing a considerable Covid-19 impact on parking services in the previous quarter.

Proximus realizes 1.9% EBITDA growth for its Domestic activities in the third quarter, supported by a favorable revenue evolution and continued strong cost control

For its Domestic operations, Proximus posted underlying revenue of EUR 1,074 million, 0.2% above that of the previous year. Proximus posted a sequentially better revenue trend for its Consumer, Enterprise and Wholesale segment. While roaming revenue showed a sustained impact of the Covid-19 travel restrictions, Proximus benefitted from its growing convergence revenue, higher traffic revenue driven by higher usage and a growth in ICT revenue, for which the Covid-19 impact was limited so far.

Proximus posted a direct margin of EUR 825 million for its third-quarter Domestic operations, 0.3% down in comparison to the previous year. With Covid-19-related headwinds softening in the quarter and the benefit from some good business trends, the Domestic direct margin sequentially improved compared to the two previous quarters.

Proximus reduced its Domestic expenses for the third quarter by 2.6%, driven by lower workforce expenses (-4.0% year-on-year). Proximus benefitted from ongoing company-wide cost efficiencies and increased productivity. The operating expenses continued to be favorably impacted by Covid-19 effects, however more limited in comparison with the previous quarter.

Finally, Proximus posted a solid Domestic underlying EBITDA of EUR 438 million for the third quarter of 2020, up by 1.9% compared to the year before, with the reduction in expenses more than offsetting the minor decline in direct margin. The Covid-19 effect on the third quarter Domestic EBITDA is estimated at about EUR -9 million. The Domestic EBITDA margin as percentage of revenue rose from 40.2% to 40.8% over the past year.

BICS results impacted by Covid-19 travel restrictions and progressive MTN insourcing, more than offsetting a continued strong performance by TeleSign

For the third quarter of 2020, BICS posted a direct margin of EUR 74 million, down by 10.7% compared to the year before, with about EUR 7 million negative impact from Covid-19. The sequentially higher margin decline versus the second quarter resulted from the low travel during the typical summer holiday peak and a progressive impact from MTN's insourcing since mid-2019.

This was somewhat compensated for by a continued strong performance by TeleSign, providing solid growth in the domains of mobile identity and authentication, along with the expansion of BICS' activities in the numbering business.

BICS' EBITDA for the third quarter of 2020 totaled EUR 31 million, a decrease of 22.5% compared to the same period in 2019.

Supported by its strong Domestic EBITDA, Proximus posts a nearly stable EBITDA at Group level, as well as a very solid Free Cash Flow

Overall, the Proximus Group underlying revenue for the third quarter of 2020 totaled EUR 1,368 million, a decrease of 2.8% in comparison to the same period in 2019.

The third-quarter 2020 underlying direct margin of the Proximus Group totaled EUR 899 million, a 1.2% decrease compared to the third quarter of last year.

The Proximus Group reduced its underlying operating expenses for the third quarter of 2020 to EUR 430 million, down by 2.3% year-on-year. This was fully driven by lower Domestic expenses, while BICS' expenses were stable year-on-year.

In aggregate, the underlying Group EBITDA for the third quarter of 2020 totaled EUR 469 million, remaining nearly stable (-0.2%) in comparison to the year before, including an estimated net effect from Covid-19 of about EUR -14 million. The underlying Group EBITDA margin improved by 0.9 p.p. to 34.3%.

Proximus posted a solid Free Cash Flow of EUR 253 million for the third quarter of 2020, bringing the normalized FCF over the first nine months of 2020 to EUR 507 million (excluding EUR 2 million net cash-out for acquisitions). The FCF of 2020 included EUR 141 million more cash-out related to workforce transformation plans, mainly related to the 2020 Fit for Purpose transformation plan. This was for a large part offset by lower cash needed for capex, lower income tax payments and a favorable year-on-year evolution in Business working capital.

While the Fiber share within the capex envelope steadily increases, Proximus manages to control its total investment

Excluding spectrum and football broadcasting rights, Proximus invested EUR 210 million in the third quarter of 2020, bringing its total capex to EUR 628 million over the first nine months of 2020. The year-to date decrease by EUR -59 million resulted from the combination of an outstanding Covid-19 impact on capex, the company managing down copper investments and some of the anticipated 2020 Mobile investments that have been put on hold, awaiting Proximus' new vendor choice for the Radio Access Network. The announced renewal with Nokia, Proximus' selected vendor for the RAN, will start in 2021. Moreover, a number of investment projects have been completed earlier in 2020, such as Fiber-to-the-Business in large industrial zonings.

The investment level for Fiber is rising. Over the third quarter, Proximus deployed Fiber for an additional 45,000 homes and businesses, with its Fiber footprint reaching 391,000 Homes and Business Passed by end September 2020. In October, the 400,000 Homes and Business Passed milestone was reached.

2020 Outlook & shareholder return

The impact of Covid-19 on the company's Group underlying EBITDA for the third quarter of 2020 was less severe than anticipated in prior company projections. What is more, a number of supporting business trends in the Domestic operations drove a better Domestic EBITDA. This resulted amongst other things from fixed and mobile services positively impacted by changed customer behavior in terms of usage, and a solid customer growth supported by the launch of the new Flex offering.

While remaining vigilant for the volatility caused by Covid-19, and anticipating a tougher fourth quarter, Proximus feels comfortable in revising its full-year 2020 guidance upwards, , estimating to end the year 2020 with Group underlying EBITDA-CAPEX of at least EUR 830 million. This includes an estimated Group capex below EUR 1 billion.

Proximus' full-year 2020 estimates include a negative impact of Covid-19 on Group EBITDA for about EUR -45 million, an improvement from the initial estimation of about EUR -60 million. The positive revision of the Covid-19 impact is based on a mix of favorable cost effects, and a lower than anticipated impact on direct margin.

Guidance metric (EUR million) FY19
Actuals
YTD20
Actuals
FY20
Previous guidance
FY20
Revised guidance
EBITDA - CAPEX 844 782 780-800 At least 830
Group underlying EBITDA 1,870 1,410 - -
Capex (excluding Spectrum & football rights) 1,027 628 - Below 1,000

Proximus reiterates its intention to return over the result of 2020, 2021 and 2022 an annual gross dividend of EUR 1.20 per share, to be considered as a floor.

On 28 October 2020 the Proximus Board of Directors approved to return to the shareholders a gross interim dividend of EUR 0.50 per share, to be paid on 11 December 2020.

 

Coupon 31
Gross interim dividend: EUR 0.50/share
Net dividend (30% withholding tax assumed): EUR 0.35/share

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