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Proximus Group financial results – First quarter 2019

Proximus Group closes the first quarter with a growing customer base in a competitive market and posts an underlying EBITDA growth thanks to the progress of the underlying direct margin

  • Further traction of all-in offers Tuttimus and Bizz All-in, reaching 538,000 subscribers
  • Continued growth of Domestic customer base in a highly competitive setting: +8,000 Fixed Internet, +7,000 TV, + 25,000 Postpaid cards
  • Low-margin terminals revenue aside, the Domestic underlying revenue was 0.9% lower YoY
  • Domestic underlying direct margin +0.9%, EBITDA +2.2% compared to the first quarter of 2018
  • Solid first-quarter 2019 FCF of EUR 143 million, acquisition impact excluded
  • Full-year 2019 outlook for stable underlying Group EBITDA reiterated. When excluding low-margin terminals revenue, underlying Domestic revenue still expected to be nearly stable

Dominique Leroy, CEO of the Proximus Group:

In the Consumer market we continued to attract customers on our main products, supported by our dual brand strategy and segmented offers. We grew our convergent customer base further, with customers benefitting from our attractive content and our gradually expanding fiber footprint. Especially our all-in offers continue to thrive with our Tuttimus and Bizz All-in base now reaching 538,000 subscribers.

The mobile market remains, also in the first quarter, very competitive. At the same time customer behavior is changing, with usage moving more and more to communication apps, lowering revenue from inbound.

I am very satisfied with our achievements in the B2B segment, closing a strong quarter with another solid increase in its mobile base and the acquired companies living up to expectations. We bring a strong offer to our Enterprise customers, providing solutions to help them in their digital transformation. In this view, I’m pleased we have increased our ownership in Be-Mobile, the Benelux market leader in the field of “smart mobility” and which strengthened its position in the automotive industry through the acquisition of Mediamobile in November 2018.

Following the recent declining trend in the business of reselling standalone mobile devices, we have refocused our revenue outlook to ‘Domestic revenue excluding Terminals’. This strategically more valuable revenue is expected to remain nearly stable to the prior year. We reiterated our full-year outlook for stable underlying Group EBITDA, including a slight growth in underlying Domestic EBITDA.

We are confident that our #shifttodigital strategy will enable us to progress further in an increasingly competitive market and will deliver the foreseen savings over the coming years. Regarding our transformation plan, the discussions with the social partners are still ongoing and we hope to enter in a negotiation phase soon.

Both brands keep good momentum for Internet and TV in the residential market, while the Enterprise segment closes a strong quarter driven by ICT, Mobile services and Advanced Business Services

In the consumer segment, the company kept a positive Internet and TV momentum for both the Proximus and Scarlet brands, despite more limited commercial means spent in the first quarter. Further upselling to all-in offers brought the Tuttimus and Bizz All-in base to 538,000 by the end of March. The residential Mobile Postpaid customer base remained stable in the first quarter of 2019, due to fewer Prepaid migrations and stiff competition.

The Enterprise segment achieved strong mobile customer growth in a competitive market. ICT remained a solid growth driver, benefitting from acquired companies strengthening Proximus’ ICT portfolio and moving the company from pure connectivity towards digital transformation solutions for its professional customers. In the Advanced Business Services segment, the company achieved strong growth as well, following the acquisition of Mediamobile by Proximus’ subsidiary Be-Mobile.

Proximus manages to grow its first-quarter Domestic underlying EBITDA by 2.2%, despite a decline in revenue, mainly due to lower mobile device sales without impact on margin

For the first quarter of 2019, Proximus posted a Domestic underlying revenue of EUR 1,096 million, 2.2% below that of the same period in 2018. The decrease is largely due to lower Mobile terminal sales and includes a further erosion of mobile inbound revenue, both having no effect on margin. Terminal revenue aside, the first-quarter Domestic revenue closed 0.9% below the prior year.

Proximus’ Domestic underlying direct margin progressed to EUR 847 million, up by 0.9% compared to the same period in 2018. This includes a net EUR -2 million regulatory impact from lowered Fixed Termination Rates. The margin improvement resulted from a growing customer base, upselling, residential price changes and the acquired ICT companies.

Proximus’ expenses for its Domestic operations totaled EUR 419 million in the first quarter, 0.3% lower than the prior year. Within the mix, Domestic non-workforce expenses decreased by 2.3% as a result of lower commercial means spent in the first quarter of 2019 and ongoing company-wide efforts in achieving structural cost efficiencies. Workforce expenses were up by 0.9%, driven by acquisition-related headcount in the ICT domain.

Benefitting from an improved direct margin, and with operating expenses nearly flat, Proximus’ Domestic operations posted first-quarter 2019 underlying EBITDA of EUR 428 million, a 2.2% increase compared to the first quarter of 2018.

BICS increases its direct margin and EBITDA, supported by the growing business of TeleSign

For the first quarter of 2019, Proximus’ carrier services BICS posted a direct margin of EUR 79 million, up by 2.8% compared to the prior year, with a positive evolution in both the Voice and non-Voice direct margin. The Voice direct margin progress was driven by the development of cloud numbers and TeleSign mobile identity services, while the increase for non-Voice resulted from the growth in Application-to-Person SMS volumes and the realization of direct cost synergies through the BICS-TeleSign combination.

BICS posted a first-quarter 2019 EBITDA of EUR 35 million, a year-on-year increase of 1.3%.

Group underlying EBITDA progresses by 2.1% compared to the same period in 2018, with higher direct margin and broadly stable expenses

With Proximus’ Domestic underlying revenue impacted by lower mobile terminal sales, and carrier services BICS posting stable first-quarter revenue, the Proximus Group ended the first quarter of 2019 with underlying revenue of EUR 1,415 million, -1.8% compared to the same period in 2018.

The underlying direct margin of the Proximus Group progressed by 1.1% to EUR 926 million for the first quarter of 2019, representing 65.4% of revenue.

Proximus’ Group underlying operating expenses for the first quarter of 2019 remained broadly stable (+0.1%) at EUR 463 million, including higher operating expenses for BICS driven by TeleSign workforce expenses.

The underlying EBITDA of the Proximus Group for the first quarter of 2019 totaled EUR 463 million, a 2.1% increase compared to the same period of 2018, benefitting from the EBITDA progress in Proximus’ Domestic operations.

Finally, Proximus’ first quarter 2019 Free Cash Flow totaled EUR 112 million, or EUR 143 million when excluding the cash-out related to the increased ownership in Be-Mobile. On a like-for-like basis, the FCF is EUR 59 million higher compared to the first quarter of 2018 including lower cash needed for business working capital, the benefit from underlying EBITDA growth and lower interest payments.

Continued investment in digital platforms, transport network, Fiber for Belgium project and mobile network quality

Over the first 3 months of 2019, Proximus Group invested a fairly stable amount of EUR 219 million, excluding EUR 8 million of spectrum-related capex for Proximus Luxembourg.

Proximus invested, amongst others, in new digital platforms, the ongoing multi-year modernization of its transport network and its Fiber for Belgium project. With the Fiber roll-out for the city of Aalst announced on 19 March 2019, Fiber for Belgium is now ongoing in 10 cities. Furthermore Proximus continued to invest in its mobile network to provide a high-quality mobile service while coping with a persisting increase in data usage. For the first quarter of 2019 the average data usage was 2.5 GB/month, a year-on-year increase of nearly 60%.

2019 Outlook

Based on the recent trend in the reselling business of standalone mobile devices, creating top line pressure while being margin-neutral, Proximus redefines its revenue metric for the full-year 2019 outlook, moving to ‘Domestic revenue excluding terminals’. This metric eliminates the volatility linked to the sales of standalone mobile devices and keeps focus on value. In a competitive market, Proximus anticipates its 2019 underlying Domestic revenue excluding terminals to remain nearly stable in relation to the prior year.

Proximus reiterates its outlook for stable underlying Group EBITDA, including a slight underlying Domestic EBITDA growth.

For 2019, Proximus estimates regulatory measures to reduce the Domestic underlying margin by an estimated EUR 20 million.

The Group Capex for 2019, spectrum excluded, is expected to be stable compared to the level of 2018, including the continued investments in the Fiber for Belgium project, for which the roll out will start in 6 additional cities over the remainder of the year, on top of the 10 cities that are currently being deployed.

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