Proximus Group financial results – Second quarter 2018

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Proximus Group closes a solid first half of the year with strong second-quarter results, showing continued customer growth and a solid set of financials in a highly competitive market

Proximus continues to grow its customer base for Internet, TV and Mobile Postpaid, driven by the ongoing traction for Tuttimus/Bizz All-in and Scarlet, while closing another strong quarter in the Enterprise segment

In a generally slow quarter for Internet and TV growth, Proximus continued to enlarge its customer base for both products. These customer gains were supported by a strong performance of Proximus’ no frills brand Scarlet, as well as by the ongoing success of Tuttimus/Bizz All-in offers, totaling 439,000 subscribers end-June 2018. Proximus achieved solid growth in its Mobile Postpaid base, supported by lower churn and a successful World Cup campaign for mobile.

The Enterprise segment realized continued customer growth as well. It successfully pursued its strategy to expand its portfolio well beyond pure connectivity services by offering helpful solutions for the digital transformation of professional customers. This led to a solid 6.5% revenue growth for ICT. With the recent acquisitions of Umbrio and Codit, Proximus emphasized its ambitions to keep growing in this domain. Moreover, the Enterprise segment posted higher Mobile Services revenues driven by solid mobile customer growth, and further progressed in Advanced Business Services.

Solid financial performance for Domestic activities, resulting in a 5.5% EBITDA growth driven by higher direct margin and further expense decrease

For the second quarter of 2018, Proximus posted a Domestic underlying revenue of EUR 1,114 million, a 0.8% increase compared to the same period in 2017. This resulted from higher Fixed Data and TV revenue, compensating for the steady erosion in Fixed Voice. Revenue from Mobile Postpaid was up as well, driven by the enlarging customer base over the past year, which more than compensated for the “Roam-like-at-Home” price pressure. Furthermore, Proximus Group posted for the second quarter of 2018 a solid 6.2% revenue growth for ICT.

The direct margin for Proximus’ Domestic operations totaled EUR 853 million in the second quarter. The year-on-year increase by 2.3%, in spite of the “Roam-like-at-Home” impact, was driven by the Consumer segment, benefitting from its customer growth and one-off tailwinds.

Proximus’ Domestic expenses were down by 1.2% compared to the second quarter of 2017, driven by a 2.5% decrease in workforce expenses.

As a result of the higher margin achieved for its Domestic operations, combined with lower expenses, Proximus posted a 5.5% increase in underlying Domestic EBITDA, totaling EUR 454 million for the second quarter of 2018. This includes a net regulatory impact of EUR -13 million.

Another strong quarter for BICS, highlighting double-digit growth of direct margin and EBITDA, driven by the contribution of the recently acquired US-based company TeleSign

BICS’ direct margin progressed to EUR 79 million for the second quarter of 2018, a year-on-year increase by 18.5%. BICS’ direct margin benefitted from the acquisition of TeleSign as it accelerates BICS’ strategic ambitions in the Application-to-Person messaging market, with boosting volumes, and realizing direct cost synergies.

BICS posted a second-quarter 2018 EBITDA of EUR 39 million, a year-on-year increase of 12.7% including TeleSign.

Higher direct margin drives Group underlying EBITDA uplift, offsetting the slight increase of operating expenses

Proximus Group ended the second quarter of 2018 with a 2.6% revenue growth, totaling EUR 1,454 million.

The Group underlying direct margin grew by 3.5%, totaling EUR 932 million for the second quarter of 2018.

Proximus’ Group underlying operating expenses for the second quarter were up by 0.7%. This was mainly attributable to the consolidation of TeleSign in BICS, while Domestic expenses were down year-on-year by 1.2%.

For the second quarter, Proximus posted a Group underlying EBITDA of EUR 493 million, a 6.1% increase compared to the same period in 2017.

Proximus’ second quarter 2018 Free Cash Flow totaled EUR 80 million, bringing the year-to-date June FCF to EUR 159 million, or EUR 180 million when excluding the cash-out related to the acquisition of subsidiaries in the ICT domain. The remaining decrease compared to 2017 was mainly the consequence of higher cash paid for Capex, partially offset by a growth in underlying EBITDA and lower Income Tax payments.

Investment stays well on track to reach full-year target

Proximus invested EUR 238 million in the second quarter of 2018, bringing the capex over the first six months of 2018 to EUR 459 million. This covers Proximus’ extensive investments in enhancing its networks, with the ongoing roll out of Fiber and continued upgrades in the mobile network to maintain high-quality standards while national mobile data usage shows a steep increase of over 60% compared to the prior year. Mid-2018, the monthly national data usage per customer reached nearly 1.9 GB on average, supported by mobile viewing of the Football World Cup.

Furthermore, Proximus invests in its IT systems, further simplification and transformation, and ensures attractive content for its TV customers.

Full-year 2018 guidance reiterated

Proximus closed a solid first-half of 2018, delivering an EBITDA slightly ahead of company expectations. This included some one-off tailwinds benefitting mainly the Consumer direct margin. For the second half of 2018, Proximus expects to benefit from the annualising RLAH price regulations, though will face an inflation-based salary indexation and will no longer benefit from the mid-2017 price adjustments. Overall, Proximus estimates to end the year 2018 in line with its full-year guidance of slightly growing Group EBITDA, and nearly stable Domestic revenue, in spite of the highly competitive market. The 2018 capex outlook remains unchanged at around EUR 1 billion. Proximus also reconfirms its intention to return a EUR 1.50 gross dividend per share over the year 2018.

I’m very satisfied we realised a strong second quarter, showing continued customer growth and a solid set of financials in spite of a highly competitive market, and as such we close a solid first half of the year.

Through our dual-brand strategy, we have been able to continue to grow our customer base for TV and Internet, in a generally slow commercial quarter for Fixed. Nonetheless we continued to see good traction for our all-in offers, reaching 439,000 Tuttimus/Bizz All-in customers by end-June. We also achieved a strong growth in Mobile Postpaid, adding in total 45,000 cards to our Postpaid base, driven by a sequentially improved churn, a successful Red Devils mobile campaign, and continued growth in the Enterprise segment.

On the 25th of June we expanded our Consumer mobile offers with two EPIC price plans, fully digital mobile offers addressing the needs of music streaming and social network loving millennials, with some first promising results.

Our Enterprise segment sustained its solid position, with a further growing Mobile customer base and a strong growth in ICT. On top of the firm progress made organically, our ICT business is also benefitting from the investments we have made to strengthen our ICT portfolio, offering services that go well beyond pure connectivity. Over the past year, we have acquired small but highly specialized companies, offering meaningful solutions for the digital transformation of our business customers. Fitting this strategy, we have more recently announced the acquisition of Codit, a Belgian IT services company and a market leader in business application integration, API management, Microsoft Azure and Internet of Things. This will enable us to further support Corporate customers from the infrastructure layer up to the application layer.

The sound commercial achievements have led to a positive revenue evolution for our Domestic operations by 0.8%. At the same time we continued to manage our direct and operational costs, leading to a strong Domestic EBITDA performance, growing by 5.5% for the second quarter. This includes a EUR 13 million loss in Roaming Direct margin following the Roam like at Home regulation.

BICS closed a strong second quarter, with a year-over year growth in direct margin by 18.5% and EBITDA by 12.7%. This was strongly supported by TeleSign’s consolidation which accelerates BICS’ strategic ambitions in the growing Application to Person market, and delivering meaningful synergies.

With both Domestic and BICS achieving solid EBITDA growth, we closed the second quarter with a 6.1% increase for our Group EBITDA. This brings us to a 3.6% growth for the Group EBITDA over the first-half of 2018, slightly ahead of our expectations, including some one-off tailwinds in direct margin. Based on our estimates for the remainder of the year, we reiterate our full-year guidance of slight EBITDA growth for the Group, and nearly stable Domestic revenue. We also reconfirm that the Capex for 2018 is estimated to be around EUR 1 billion, and that we intend to return a EUR 1.50 gross dividend per share for 2018.

As a final point, we have taken note of the agreement of the federal government to open the upcoming spectrum auctions to a fourth mobile operator under discriminatory conditions. In the coming months we will work hard on elaborating different scenarios anticipating the possible arrival of the fourth entrant and the potential consequences for Proximus.



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