Proximus Group financial results – Second quarter 2023

• Read the full Q2 Financial Report here

Highlights Q2 2023

• Proximus' Domestic segment closed the second quarter of 2023 with an excellent growth in Mobile Postpaid, +48,000 net adds, boosted by the customer traction for newly launched Mobile Portfolios. Proximus' enlarging Fiber footprint drove a sustained strong growth for its Internet base (+13,000), in a slowly growing market. The combined success of the new Mobile offers and Fiber is also reflected in the Residential convergent offers, growing by +16,000 customers to a total of 1,078,000, a +5.4% year-on-year increase. End-June 2023, the number of active Residential and Business Fiber lines totaled 322,000, of which +34,000 were added in the second quarter 2023. With churn seasonally low, the net erosion was well contained for both TV subscriptions, ( -3,000), and Fixed Voice subscriptions (-32,000).
• Proximus' Domestic underlying revenue was up by +4.2% to EUR 1,147 million. The Residential unit posted a +4.2% revenue increase, resulting from a +4.2% or EUR 19 million increase in Customer Services revenue and revenue from Terminals being higher by EUR 7 million. Convergent revenue was up +7.7% driven by further customer growth and the inflation-based price adjustments of May 2022 and January 2023. The second-quarter 2023 revenue of the Business unit grew +2.9% year-on-year. Overall, in spite of ongoing Fixed Voice pressure, Business Services revenue sustained its positive trend, up by +0.8%, driven by IT Services (+6.6%) and Fixed Data (+2.3%). IT equipment revenue, returning to normal business tendencies, was up by EUR 12 million. Proximus' Wholesale unit posted an overall -4.1% revenue decrease, driven by low margin interconnect revenue loss, while Wholesale Services revenue was up +6.9%.
• The second-quarter 2023 Domestic EBITDA totaled EUR 416 million, a -3.5% decrease from the same period in 2022. The support from higher direct margin, up by +2.5%, and ongoing company-wide cost efficiencies, was more than offset by inflationary cost effects. This includes the increase in electricity costs and the year-on-year effect from cumulating wage indexations, which is expected to gradually soften over the next 2 quarters.
• Telesign closed the second quarter with revenue growing +18.9% to EUR 128 million and direct margin + 3.4% to EUR 28 million, including adverse currency effects. On constant currency basis, this was respectively +21.9% and +8.2%. Growth is continuing for both Digital Identity and Communication segments. With material investments in Telesign's growth strategy having reached their peak, the year-on-year increase is slowing down. Telesign's second-quarter EBITDA was EUR -3 million.
• BICS closed the second quarter with revenue down by -1.1% to EUR 267 million, with the USD currency headwind impacting its topline. Overall, growth rates are normalizing from an exceptional 2022 which was boosted by the global post-Covid travel uptake. BICS' Core services revenue was up +8.1% for the second quarter 2023 driven by higher mobility services and messaging revenue. Growth services revenue was down from a high base by -6.3% as well as low-margin Legacy services revenue, -6.8%. BICS grew direct margin by +1.0%, and maintained a stable OPEX, resulting a +2.8% increase in EBITDA, despite an inflation-based wage indexation impact since 1 January 2023.
• In aggregate, the Proximus Group underlying revenue totaled EUR 1,495 million for the second quarter of 2023, up +4.0%. The underlying Group EBITDA totaled EUR 446 million, down by -3.7%.
• The Proximus Group CapEx for the first-half of 2023 totaled EUR 612 million, compared to EUR 557 million one year back, excluding spectrum and football rights. Fiber related investments counted for 29% of the total CapEx, with CapEx for Proximus' own Fiber build coming down from its peak in 2022, while the CapEx to connect and activate customers increases. Moreover, the Mobile network (RAN) consolidation between Proximus and Orange Belgium is ongoing, and Proximus increased its investments in Digitalization and IT transformation.
• Over the first six months of 2023, Proximus Group posted a Free Cash Flow of EUR -124 million, or EUR -99 million when adjusted for M&A-related transaction costs. The year-on-year decrease by EUR 99 million was driven by lower underlying EBITDA, higher tax payments and interest-related payments on spectrum rights, while Business Working Capital needs were lower.  With the first half of 2023 adjusted Free Cash Flow reflecting year-on- year phasing in VAT and income tax payments, the adjusted Free Cash Flow will return to positive ground in the second half of 2023, supported by underlying business trends and the sale of the Proximus headquarter.

Guillaume BoutinCEO Proximus Group

Proximus has delivered an excellent Domestic commercial performance in second quarter, whilst having taken a major step in becoming one of the worldwide leaders in digital communications

The strong commercial momentum over the past 3 months demonstrated our ability to rapidly adapt to changes in our domestic market: our new mobile postpaid portfolio launched in May boosted our mobile customer growth to +48,000 in the second quarter 2023. In addition, our successful “You got the Fiber” advertising campaign and the launch in April of our unrivaled 10Gbps technology, nationwide as of July, have supported the success of our Fiber offers, adding 34,000 additional active Fiber customers during the second quarter. The continued commercial traction along with our pricing strategy translates in a sustained strong revenue growth, with Domestic revenue increasing year-on-year by 4.2%.

In parallel, the deployment of our Gigabit network in Belgium, is progressing well. End June, Proximus reached a national coverage rate of 25%, with nearly 1.5 million homes and businesses connected to the Fiber network. Proximus is several years ahead in the deployment of Multigig Fiber technology –setting itself apart from its competitors through delivering the fastest Internet connections. To ensure that Fiber is even more rapidly available to all, I’m calling for an effective and rational Fiber collaboration and co-investment framework in Belgium, for the benefit of the whole country.

Turning to our international segments, I am delighted to confirm a similarly solid commercial momentum with Telesign on the one hand, delivering robust sales bookings (+31% YoY) and continuing to post double digit revenue growth of 21.9% at constant currency from its Communication and Digital Identity services. Moreover, the value of its customer base continues to progress with a 117% Net Revenue Retention rate.

BICS, on the other hand, after an exceptional 2022 growth trend, which was boosted by the global post-Covid travel uptake, continued to perform well on its core Messaging and Mobility services, whereas legacy services evolution reflects the inherently declining Voice market.

On top of these commercial achievements, I’m really proud that we have announced a strategic transaction which will materially accelerate our international activities. The acquisition of a majority stake in Route Mobile, a global CPaaS player listed in India is transformational for the Proximus Group. Indeed, the transaction will make us one of the world’s leading companies in the fields of digital communications (CPaaS) and digital identity (DI). With Route Mobile and Telesign, the Group now holds two strong and highly complementary global assets, both from geographical and product expertise points of view. This strategic move will help to support our growth over the coming years with substantial effects on the Groups value creation, reflected in annual EBITDA synergies of at least €90 million, 3 years after the closing of the transaction.

To conclude, we continue to implement successfully our bold2025 strategy, with important milestones achieved both in our Domestic and international markets over the second quarter of 2023. For the second half of the year, besides closing the transaction with Route mobile, we will focus on maintaining a strong commercial momentum through leveraging our Gigabit networks and preparing for the new entrant.

Overall, I am very pleased with what has been achieved during the first half of the year, in an ever-challenging macroeconomic environment. We are therefore confident of reiterating our 2023 full year guidance on all metrics. Domestic revenues growth is even expected to be at the upper end of the given range of +1% to +3%, largely thanks to better-than-expected revenues from devices sales and IT hardware over the first six months of the year.

Operationals, in thousands

Reiterating 2023 full-year guidance

Based on the financial results over the first six months of 2023 and the company’s best estimate for the remainder of the year, the guidance for the full-year 2023 is reiterated. Based on higher-than-expected revenue from Terminals and IT hardware over the first half of 2023, the growth of Domestic revenue for the full-year 2023 is expected to land at the upper-end of the range of “+1% to +3%”.

With the anticipated significant headwind from inflation being confirmed, the underlying Domestic EBITDA outlook remains unchanged, with an expected full-year decline of around -3%. Proximus’ cost savings program, targeting a EUR 220 million cost reduction over the 3-year period 2023-2025 remains on track and successfully mitigates inflationary cost effects.

The International activities provide a unique growth pathway for Proximus, allowing it to take leadership positions in double-digit growth markets. Proximus expects its International segments BICS and Telesign to deliver combined a high single digit direct margin growth for 2023, excluding currency headwinds affecting the Telesign Direct margin.

In aggregate, Proximus reiterate its expectation to end the year 2023 with an inflation-driven decline in Group underlying EBITDA of around -3%.

Proximus expects its Group CapEx to reach its peak of around EUR 1.3 billion in 2023. In line with its investment plan, Fiber CapEx to pass customers is trending down year-on-year, while there is higher CapEx need to connect and activate Fiber customers. In addition, the CapEx reflects investments in Mobile with the mobile network consolidation and 5G roll-out ongoing. Inflation impacts on CapEx are being managed through CapEx optimization and efficiency programs.

The Net Debt/EBITDA ratio for 2023 is expected to be around 2.6X, allowing for sustained solid investment-grade credit ratings and near-term financing at low interest rates.