Proximus Group financial results – Second quarter 2020

Guillaume Boutin, CEO Proximus Group

"We contained the impact from the Covid-19 pandemic on our Group EBITDA in the second quarter and thanks to strong cost and investment management, we are confident to reach the high end of the full-year guidance. We also signed crucial MOUs in the execution of our #inspire2022 strategy, boosting our future Fiber deployment.

Proximus’ operations have showed a sound resilience to the sanitary crisis. The majority of our net customer growth results from a solid commercial performance, in spite of our shops being closed until 10 May. Even if our proactive commercial gestures during the confinement period have somehow weighted on our revenues, they supported for sure our customers to get through this Covid-19 crisis. This created a renewed confidence that translates in an upside in customer satisfaction and in historically low churn figures. We will continue to support our customers and the society as a whole in this crisis. As a responsible telecom company, it is crucial to enable people to keep in touch, to work from home, children to go e-schooling, or even for closed businesses to turn to online alternatives.

We contained the negative direct margin impact of Covid-19 on EBITDA level through a firm cost control, and capex was down on less strategic projects while preserving our Fiber capex. In view of our achievements so far, we are confident to meet the high-end of our full-year 2020 outlook of EUR 780-800 million underlying Group EBITDA minus CAPEX.

As for our Domestic operations, we have put our #inspire2022 strategy into action to reach our announced ambitions, resulting in concrete steps around customer value propositions, partnerships and building gigabit networks.
In support of our growth objective, we announced FLEX as from 1 July, for which we have seen a promising initial uptake. This new range of customized packs, addressing especially the multi-mobile family segment, is a new catalyst to further grow our convergent base.

Mid-June we announced our strategic partnership with Belfius bank, bringing digital banking solutions to our customers on a 100% asset-light basis. Belfius will sell Proximus telecom services and bundles through its entire nation-wide sales network, creating new customer acquisition opportunities for Proximus.

We were also happy to announce to our customers that we reached an agreement for the distribution of Eleven Sports’ new Pro League channels covering all live Belgian football matches on all their screens via Pickx for the next 5 seasons. Proximus customers will therefore continue to be able to enjoy an extremely comprehensive sports offer from the start of the season through our All Sports offer.
The Mobile Access Network Sharing JV MWingz is now operational since April 1st. Vendor selections for both RAN and Proximus Core are progressing well. We will take into account all EU and governmental requirements in our selection process and there is no additional cost to be expected versus our announced 6-year capex plan.

Last, but not least, I am really proud and excited that we can announce today the signature of Memorandums of Understanding with Eurofiber and DELTA Fiber enabling us to further enlarge and accelerate the roll-out of our open Fiber network in Belgium. This will allow us to realize a significant acceleration of around 30% compared to our target of 2.4 million living units connectable to Fiber by 2025. These partnerships will also facilitate a substantial further upscaling beyond that date, with up to 4.2 million homes and businesses that can be connected to Fiber by end 2028, representing a Fiber coverage of about 70%. This will generate long-term value accretion through a more cost-efficient roll-out, improved competitiveness through undisputed network superiority and even more copper outphasing. We expect the net effect on our cumulative FCF over the next 5 years to be neutral, lower rollout capex compensating the anticipated equity injections. Hence there will be no impact on our net debt level. Entering into these partnerships will enable us to lead in the multi-gigabit infrastructures and bring Belgium to the forefront of digitalization in Europe."

Proximus showed a strong commercial performance in the second quarter, resulting in a solid growth for Mobile Postpaid, Internet and TV, despite the partial lockdown.

In the second quarter of 2020, Proximus posted a solid commercial performance in the Consumer segment, especially in terms of net adds to the Mobile Postpaid customer base. Proximus also grew its customer bases for Fixed Internet and TV, partially influenced by lower churn levels and a catch up on the installation delay following the decision mid-March to limit customer installations to urgent interventions only. Proximus also managed to further increase its convergence rate, driven by the uptake of Minimus and EPIC combo. 
Proximus’ Enterprise segment managed solid growth in its mobile customer base as well and underlined its leading position in the Belgian Machine-to-Machine business, crossing the mark of 2 million M2M cards. ICT activities grew in the second quarter, mainly driven by product deals whereas the shift to new solutions continued to drive the ongoing erosion of legacy Telecom services.

• TV customer base grew by 11,000 in the second quarter, reaching 1,652,000 end June 2020 (+1.3% year-on-year). 
• The number of Fixed Internet customers totaled 2,108,000, with 19,000 lines added over the second quarter (+1.8% year-on-year).
• By the end of June 2020, the total amount of Fixed Voice lines was 2,327,000, a decrease of 22,000 lines in the second quarter of 2020 (-6.0% year-on-year). 
• Mobile Postpaid customer base grew by 45,000 cards in the second quarter of 2020 (+2.9% year-on-year), to a total of 4,178,000. The number of Prepaid cards totaled 662,000 end June (-36,000 cards over the second quarter, -12.2% year-on-year), while a net amount of 175,000 M2M cards were added in the second quarter to reach 2,085,000 cards (+32.6% year-on-year).
• End June 2020, Proximus counted 1,091,000 convergent customers, increasing its convergence rate to 58.6% of the customers having at least a Fixed and a Mobile component. This represents an increase of 2.2 p.p. year-on-year. 

Proximus’ commercial traction, combined with a firm decrease in Domestic operating expenses and smart capex management mitigate the negative financial effects of Covid-19

For the second quarter of 2020, Proximus posted Domestic underlying revenue of EUR 1,037 million, 4.3% below that of the previous year. This was largely driven by Covid-19-related impacts, with a steep decrease in the overall Roaming revenue following the travel bans, and revenue loss following Proximus’ proactive commercial gestures for its customers in times of confinement. The Covid-19 effects aside, normal business trends remained rather stable, supported by Proximus’ converged multi-Play offers gaining further traction, which led to a year-on-year revenue increase of 3.1% from convergent customers.

The second-quarter underlying direct margin totaled EUR 804 million for Proximus’ Domestic operations, 4.6% down in comparison to the previous year. More than half of the decline was caused by Covid-19 headwinds, with all customer segments impacted by lower roaming volumes following the travel bans, and both the Consumer and Enterprise segment having offered temporary free usage of some selected Telecom services to their customers.

Proximus achieved a firm 8.8% decrease in the operating expenses of its Domestic operations for the second quarter of 2020, for a large part driven by a lower headcount. The company’s efforts to manage its costs during exceptional times were also reflected in its non-workforce expenses. Excluding the billable ICT workforce expenses in the B2B segment, the indirect Domestic expenses were year-on-year down by 9.3%.

Finally, Proximus posted a Domestic underlying EBITDA of EUR 442 million for the second quarter of 2020, down by 1.0% compared to the year before, with the strong reduction in expenses nearly fully offsetting the pressure on its direct margin due to the negative financial effects of Covid-19. The Domestic EBITDA margin as percentage of revenue rose from 41.2% to 42.6% over the past year.

BICS’ second-quarter performance marked by substantial impact from Covid-19, with lower expenses only partially offsetting the pressure on margin

For the second quarter of 2020, BICS posted a direct margin of EUR 76 million, down by 5.3% compared to the previous year, with a negative impact from COVID-19 on BICS’ roaming margin coming on top of the progressive insourcing by MTN. This was only in part offset by a strong performance by Telesign, especially in the authentication business (A2P) and Mobile Identity services. The direct margin as a percentage of revenue improved by 1.6 p.p. year-on-year to reach 25.9% in the second quarter of 2020. BICS’ second-quarter EBITDA totaled EUR 35 million, a decrease of 7.4% compared to the same period in 2019.

Strong cost control results in significantly lower operating expenses, partly offsetting the direct margin decrease

Overall, the Proximus Group underlying revenue for the second quarter of 2020 totaled EUR 1,330 million, 5.9% lower in comparison to the same period in 2019.

The second-quarter 2020 underlying direct margin of the Proximus Group totaled EUR 880 million, a 4.7% decrease compared to the second quarter of last year.

Proximus Group posted a strong decline in its underlying operating expenses for the second quarter of 2020, down by 8.3% compared to the year before, totaling EUR 403 million. This resulted nearly fully from the 8.8% decrease in the operating expenses of Proximus’ Domestic operations. BICS expenses were down by 3.3% over the same period.

In aggregate, the Proximus Group second-quarter underlying EBITDA totaled EUR 477 million, a decrease of 1.5% in comparison to the same period of 2019, including an estimated net effect from Covid-19 of EUR -15 million. The underlying Group EBITDA margin improved by 1.6 p.p. to 35.9%.

Proximus posted a Free Cash Flow of EUR 252 million for the first six months of 2020. The year-on-year decrease mainly results from the payments in the framework of the “Fit for Purpose” transformation, 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.

Strong Capex control in the second quarter by de-prioritizing investments on less strategic projects while safeguarding crucial Fiber, 5G and digital transformation plans

Proximus invested EUR 187 million in the second quarter 2020, bringing its total capex to EUR 418 million over the first six months of 2020. This was EUR 466 million for the comparable period of 2019, spectrum capex excluded. The year-on-year decrease resulted mainly from a Covid-19 impact on Capex (e.g. delays in roadworks, customer connections and equipment, backbone migration …), and the company managing down copper and delaying less strategic investments. Moreover, a number of investment projects have been completed, such as the migration to a single mass market order-to-cash IT chain and Fiber to the Business in large industrial zonings.

The investment level for Fiber over the first six months of 2020 was prioritized permitting to roll-out an additional 39,000 homes, with its Fiber footprint reaching 346,000 Homes and businesses Passed by end-June 2020. Proximus plans to reach the full 2020 planned roll out by the end of the year despite of some Covid-19 headwinds.

2020 Outlook & Covid-19 impact

Over the first half of 2020, Covid-19 impacted the Proximus Group direct margin by EUR -34 million. This resulted from the free usage given to customers during the period of confinement, and especially from the decrease in roaming margin. Proximus’ Consumer and Business segment were significantly affected by the travel bans, especially to non-EU destinations, while Proximus’ Wholesale segment was impacted by lower visitor and instant roaming. Moreover, BICS carried a relatively high Covid-19 impact due to its world-wide travel ban exposure.

The negative Covid-19 direct margin impact was in part contained through an active management of expenses and capex investments, besides a direct favourable impact from the lockdown. To some degree a partial catch-up on these OPEX and Capex savings is foreseen over the second half of 2020.

With the cost benefits included, the underlying EBITDA of the Proximus Group for the first half of 2020 was negatively impacted by Covid-19 effects for an estimated net amount of EUR -20 million.

For the remainder of the year, Proximus expects its direct margin to be under further pressure, with travelling for the next 2 quarters likely to remain limited, especially for non-EU destinations, impacting both its Domestic operations and BICS. Whereas the sanitary crisis has accelerated the digitization journey of Enterprise customers, driving demand for Cloud and Security services, the business segment is expected to be exposed to increasing delays or cancellations of ICT projects. At the same time, Covid-19 related cost benefits are expected to be very limited in the second half of 2020, and some delayed commercial expenditures will occur in the second half. Therefore, Proximus anticipates an additional net impact on its underlying Group EBITDA of about EUR -40 million for the second half of the year.

While anticipating further Covid-19 EBITDA pressure, Proximus remains assured it can manage the level of CAPEX for 2020 accordingly. This by de-prioritizing less strategic capex projects, while safeguarding its crucial Fiber, 5G and digital transformation plans, as such covering for the expected full-year Group EBITDA Covid-19 impact of around EUR -60 million.

Based on the results achieved so far, and taking into account its estimates for the remainder of the year, Proximus is confident to meet the high-end of its full-year 2020 outlook of EUR 780-800 million underlying Group EBITDA minus CAPEX, as was announced at the Capital Markets Day on 31 March 2020.

Guidance metric (EUR million)	FY19 Actuals	FY20 Guidance	YTD20 Actuals
EBITDA - CAPEX	844	780-800	523
Group underlying EBITDA	1,870	-	941
Capex (excluding Spectrum & football rights)	1,027	-	418

Proximus reiterates its intention to return over the result of 2020, 2021 and 2022 an annual gross dividend of EUR 1.2 per share, to be considered as a floor.