Proximus Group financial results – Third quarter 2019
Regulated info 25/10/2019 7:00
Proximus closes the third quarter keeping a positive customer momentum and benefitting from its structural cost efficiencies
- Continued growth of main Domestic customer bases in a highly competitive setting
- Solid Domestic cost control, lowering expenses by 2.9%
- Domestic underlying EBITDA of EUR 430 million in the third quarter, +0.4% compared to the same period in 2018; the Group underlying EBITDA was up by 0.5%
- Solid year-to-date September 2019 Free Cash Flow of EUR 517 million, acquisition impact excluded
- Full-year 2019 outlook reiterated
- Interim dividend of EUR 0.50 per share to be paid on 6 December 2019
Sandrine Dufour, CEO ad interim of the Proximus Group
"In spite of a challenging market, we maintained a positive customer momentum, growing our Internet, TV and Mobile Postpaid customer bases, supported by our convergence and segmentation strategy. We continue to launch innovative offers to address the needs of customers, with the recent revamp of our millennials offer Epic combo, providing an even more attractive fully digital experience. With Scarlet we maintain an attractive position in the price seekers segment.
The Enterprise segment sees a continued erosion in its legacy Fixed revenue, while facing intense competition on the local telecom market. Nevertheless, we have grown our Mobile base further and achieved to keep a fairly stable Internet park. Within the ICT area, we keep a strategic focus on the growing market of professional services, supported by the acquired ICT companies and defocus on simple product selling.
Based on our year-to-date results, we are confident to reach our projections for the year. Our #shifttodigital strategy, initiated since the start of this year, is bearing fruit and we are seeing some cost benefits crystalizing somewhat earlier than expected in our Domestic operations. Driven by solid cost control and operational efficiencies of digitalization we increased our Domestic EBITDA by 0.4% in the third quarter and improved our EBITDA margin to 40.2%. For BICS, the impact of the progressive insourcing by MTN of services following the renewed commercial contract comes with some delay, with the effect in the third quarter being less than anticipated.
Our Fiber project is developing well, with the roll-out now ongoing in 12 Belgian cities and bringing attractive commercial achievements. Over the past year, we have been able to considerably improve the pace of our roll-out and we have recently signed up a third consortium to ramp-up operational capacity and deliver the ambitious roll-out pace foreseen in our present plan.
I have now spent more than a month as CEO ad interim of this great company. After five years as CFO, I know the company well and adhere to the #shifttodigital strategy defined together with the Executive Committee and the Board of Directors. In an increasingly competitive market, we will keep focusing on acquiring new customers and driving convergence while continuing our cost reduction and further digitalization. We will further progress on our Fiber roll-out for both our residential and enterprise customers, finalize the mobile access network sharing agreement with Orange Belgium and we can confirm the intention to finalize the negotiations with the unions before the end of the year on the company’s transformation program."
Proximus increases its main customer bases in the third quarter, supported by its convergence strategy and segmented offers
In a commercially dynamic Back-to-School period, Proximus’ Consumer segment grew its Mobile Postpaid base, while improving its churn level by 1 p.p. compared to the same period in 2018. The Mobile Prepaid erosion was more limited, a.o. driven by the launch of Proximus’ new prepaid portfolio in April. The Enterprise segment also managed to keep a growing mobile base, despite intense competition in this market.
In the Fixed market, Proximus maintained a positive evolution in its Consumer Internet and TV customer bases, while the Enterprise segment kept its Internet park fairly stable.
Proximus continued to benefit from its convergence strategy with a year-on-year growing 4-Play customer base and an increase of its 3-Play convergent base through the uptake of Epic combo and Minimus.
- The number of Fixed Internet customers grew to 2,079,000 end September, with +8,000 lines added in the third quarter (+1.9% year-on-year).
- TV customer base totaled 1,635,000, with +3,000 new subscriptions in the third quarter of 2019 (+1.9% year-on-year).
- By the end of September 2019, the total amount of Fixed Voice lines was 2,440,000, a decrease of 36,000 lines in the third quarter of 2019 (-5.2% year-on-year).
- Mobile Postpaid customer base grew by 23,000 cards over the third quarter (+2.6% year-on-year), totaling 4,088,000. The number of Prepaid cards totaled 742,000 (-11,000 cards in the third quarter, -13.5% year-on-year), while the number of M2M cards increased to 1,679,000 by end-September (+113,000 in the third quarter, +31.5% YoY).
- End-September 2019, Proximus counted 1,104,000 convergent households and small offices (HH/SO), increasing its convergence rate to 59.6% on the total multi-play HH/SO, an increase of 1.9 p.p. year-on-year.
Proximus manages to slightly grow its third-quarter Domestic underlying EBITDA thanks to structural cost efficiencies
For the third quarter of 2019, Proximus posted Domestic underlying revenue of EUR 1,071 million, or 2.0% below that of the same period in 2018. The eroding low-margin terminal revenue aside, the third-quarter Domestic underlying revenue was 1.8% below that of the prior year, a stable decline in comparison to the prior quarter.
The revenue from Telecom services totaled EUR 782 million, down by -2.0% or EUR -16 million, of which EUR -9 million through regulatory effects.
Revenue from Fixed Services remained impacted by the eroding Fixed Voice park and accompanying traffic. In contrast, Proximus managed to grow both its Internet and TV customer base, despite intense competition.
For Mobile Services, Proximus posted EUR 301 million in revenue, i.e. a -3.0% year-on-year decline. The European regulation on tariffs for international calling and texting, applicable since mid-May 2019, had an effect throughout the full quarter and was the principle driver of the year-on-year decrease in Postpaid revenues. This in addition to the ongoing decline in low-margin Inbound revenue. The growth in Proximus’ Mobile Postpaid customer base could not fully compensate for a lower Mobile Postpaid ARPU in both the Consumer and Enterprise segments.
ICT revenue for the Group totaled EUR 133 million in the third quarter of 2019, up by 0.4%, with the benefit from the expanded ICT portfolio in the Enterprise segment now fully annualized. Proximus continues its strategic focus on higher-margin ICT services rather than low-margin ICT products.
Proximus posted a third-quarter underlying direct margin of EUR 827 million for its Domestic operations, -1.2% compared to the previous year. On top of the ongoing erosion in Fixed Voice direct margin, the direct margin was impacted by a regulatory headwind of EUR -6 million (lowered Fixed Termination Rates and regulated international calling/texting rates) and by the annualization of the contribution from specialized ICT companies acquired in 2018, which deliver high-margin ICT services. However, the Domestic direct margin as percent of revenue improved by 0.7 p.p. compared to one year ago, reaching 77.2%, since part of the revenue pressure relates to low-margin products.
Proximus reduced its Domestic underlying expenses for the third quarter by 2.9% year-on-year, supported by the evolution for both its non-workforce expenses (-2.7%) and workforce expenses (-3.0%). With the 2018 ICT acquisitions fully annualized, the benefits from a decreasing organic headcount became more pronounced. The lower third-quarter expenses also result from the company’s structural cost efficiencies, benefitting from digitalization and company-wide cost reduction efforts.
Driven by solid cost control, Proximus posted a Domestic underlying EBITDA of EUR 430 million, year-on-year up by 0.4%.
BICS posts solid direct margin growth, mainly driven by non-Voice activities, and closes the third quarter on a growing EBITDA
BICS posted a third-quarter direct margin of EUR 83 million, up by 4.4%. The impact from the progressive insourcing by MTN came slower than anticipated, only having a limited effect on BICS’ third-quarter financials. BICS’ direct margin growth was fully driven by the non-Voice direct margin, which was up by 11.2% from the prior year following a strong volume growth in Application-to-Person (A2P) and roaming. BICS’ direct margin as percent of revenue improved by 1.8 p.p. from the prior year to reach 24.9% in the third quarter of 2019.
As the direct margin growth was partially offset by higher workforce expenses, BICS posted a third-quarter 2019 EBITDA of EUR 40 million, a year-on-year increase of 0.9%.
The Proximus Group posts for the third quarter a positive evolution in underlying EBITDA and a solid FCF generation
In aggregate, the Proximus Group’s underlying revenue for the third-quarter of 2019 totaled EUR 1,407 million, -2.3% compared to the same period in 2018.
The third-quarter 2019 underlying direct margin of the Proximus Group totaled EUR 911 million, which is 0.7% lower compared to the third quarter of 2018.
The underlying operating expenses of the Proximus Group for the third quarter of 2019 were down by 1.9%, totaling EUR 441 million.
The Proximus Group’s third-quarter underlying EBITDA totaled EUR 470 million, up by 0.5% from the same period in 2018.
Proximus’ third-quarter 2019 Free Cash Flow totaled EUR 240 million, leading to a year-to-date FCF of EUR 482 million. Cash-out for acquisitions excluded, this was EUR 517 million and compares to EUR 395 million for the same period in 2018 (adjusted for EUR 46 million acquisition cash-out). The year-on-year increase in FCF was mainly the result of a timing effect in tax prepayments, less cash for CAPEX, lower interest payments and positive Business working capital, and was supported by a year-to-date progress in underlying EBITDA.
Proximus maintains substantial investment in digital platforms, its transport network, high-quality mobile service and the Fiber for Belgium deployment
By end-September 2019, the Proximus Group invested EUR 688 million, excluding spectrum-related CAPEX, slightly below the EUR 697 million invested over the same period in 2018.
Overall, Proximus continued its investments in, among other things, new digital platforms, the ongoing multi-year modernization of its transport network and its Fiber for Belgium project. So far, Proximus is deploying Fiber in 12 cities and municipalities, with Aalst, Vilvoorde and Knokke-Heist announced so far in 2019. 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.
2019 Outlook and shareholder return
Based on the best estimate for the remainder of the year, Proximus expects the full-year 2019 variance for its Domestic revenue excluding terminals to remain close to the -1.5% year-to-date decrease, despite the intensifying competition. With the solid cost reduction realized so far and the benefits from the #shifttodigital strategy arriving somewhat sooner than expected, Proximus expects to end the year with slight growth for its Domestic EBITDA. The impact of the renewed agreement with MTN so far was limited and is expected to progressively build up in the coming quarters. Proximus reiterates its stable projection for the Group underlying EBITDA. This includes an estimated negative direct margin impact from regulatory measures of about 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.
In line with the three-year commitment announced on 16 December 2016, Proximus expects to return a stable gross dividend per share of €1.50 over the result of 2019. On 24 October 2019, 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 6 December 2019.