Good afternoon, ladies and gentlemen, welcome to the Proximus Financial Year 2019 Results Conference Call. For your information, this conference is being recorded. At this time, I would like to turn the call over to Nancy Goossens, Director, Group Investor Relations. Madam, please go ahead.
Thank you. Good afternoon, ladies and gentlemen, and thank you for calling in. I trust you have all received the results this morning, and that you have been able to go through the numbers. We will be keeping our traditional format for this call, with most of the time reserved for your questions.
Let me just quickly introduce to you the participants on our side. We have here with us the CEO, Guillaume Boutin, CFO, Sandrine Dufour, as well as the CTO, Geert Standaert. From the customer divisions, we have Bart Van Den Meersche for the enterprise segment, and for the very first time, I think, on this call, also Jim Casteele, who's taking up the role at interim of Chief Consumer Market Officer. They will be taking your questions in a moment.
Let me remind you that for this round, we will be focusing on the published results for 2019. For your forward-looking questions, please bear with us until the CMD, which we scheduled end of March. Before turning to your questions, we will start with an introduction from Guillaume Boutin. Please go ahead.
Welcome to you all. I first would like to say that I'm very happy to present our Q4 and full year 2019 results. Since I've been appointed CEO, we have been working very hard on redefining a winning strategy for Proximus that will be presented at our Capital Markets Day scheduled for the 31st of March. Today, we will only focus on the 2019 results. .
As you could read in our announcements of this morning, we managed to keep a positive customer momentum in a very competitive market. The growth in our consumer customer base for internet, television, and mobile postpaid was supported by our appealing year-end campaign and by the ongoing success of our dual brand and segmentation strategy. For Proximus brand, we see a growing number of households signing up for converged offers, with especially the Epic and Minimus packs having strong traction.
By end 2019, over 60% of our household customer base was convergent. At the same time, Scarlet did well in the segment of price seekers. Through the no-frills offer from Scarlet, we answer the needs of customers that are looking for the cheapest offer in the market while we preserve our premium Proximus brand. We remain very attentive in differentiating both brands, with the Proximus brand typically providing a richer offer.
For example, on the 1st of December, we have launched My e-Press for Proximus internet customers. This in partnerships with two press groups. On the enterprise side, it remains challenging to preserve our strong position. In a tough competitive environment, we grew our mobile customer base, while the pricing pressure is reflected in a lower ARPU. For ICT, however, we ended the year on a high note.
This mainly came from higher revenue from ICT product deals, as well as a continued favorable revenue evolution from high-value professional services. To remain successful, we continue to reinvent ourselves. To unlock the digital potential of our enterprise customers, we have launched Proximus Accelerators. This is a collaborative ecosystem of Proximus subsidiaries with highly specialized digital IT experts.
They help companies in their digital transformation by creating fully integrated ICT support. Thanks to the progress made on our own digital journey, we realized strong cost efficiencies in our domestic operations. One example to illustrate our efficiencies, we recorded a 20% decrease in our call centers volumes. The fourth quarter financial results brought us to a full year achievements in line with our 2019 guidance, with domestic revenue excluding terminals down by 1.2% and a slightly growing domestic EBITDA.
With BICS included, the 2019 group EBITDA was stable compared to last year, as we anticipated. The CapEx for 2019 amounted to EUR 1.27 billion. This included, among other things, the further developments of digital platforms, the ongoing upgrade of our transport network, investments in mobile to continue to guarantee top quality for our mobile customers, and includes, of course, also the ongoing deployment of our fiber network.
For so-called brownfield fiber, we are today deploying in 13 Belgian cities, while we continue to deploy greenfield fiber across the country. The fourth quarter free cash flow generation was seasonally low and compared to an exceptionally high fourth quarter of 2018. Excluding cash out for acquisitions, the full-year normalized free cash flow was EUR 504 million, so fairly stable in comparison with 2018.
For our shareholders, the board of directors decided to propose to the annual general shareholder meeting of the 15th of April 2020 to return over the result of 2019, a stable growth dividend of EUR 1.5 per share, of which EUR 0.50 was already paid as interim dividend in December 2019.
As a last point, and following the agreement we concluded with the majority of the unions on our fit for purpose transformation plan, we are currently proceeding with a voluntary leave plan. An equivalent of 1,347 FTEs have signed up for this, with a majority of them leaving by the 1st of March 2020.
The period of uncertainty has not been easy for many of our employees, and we are thankful for their continued commitment. We can now start a new chapter, working on the future of Proximus with positive energy and renewed ambition. With this, I'm covered my introduction and propose we now start with your questions.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press zero one on your telephone keypad. We have one first question from Mr. David Vagman from ING. Sir, please go ahead.
Yes. Good afternoon, everyone. Thanks for taking my question. First, if we can come back on the free cash flow generation in Q4 and the working capital deterioration. Does it has anything to do with the change in payment terms related to CapEx? For instance, prepayment to building companies related to the fiber roll-out. That's my first question.
On the net adds momentum in mobile, in both postpaid, let's say, and prepaid, could you explain us a bit the dynamic that you've seen that explained your figures? Is it that you see an inflow of, let's say, prepaid customer moving up to postpaid?
What kind of conclusion should we draw in term of ARPU? Maybe, a last question on the mobile network sharing agreement. What is, in your view, the chances of this agreement to being accepted by regulators? Do you expect any harsh remedies or remedies at all so impacting the financials of the deal? Thank you.
Okay, thanks for your question. I'll start with the free cash flow question in Q4. As Guillaume said in his introduction, what happened in Q4 is really a seasonality element. We had in Q4 2018 an exceptionally high free cash flow. Just looking back even further at history, in 2016 and 2017, we had a free cash flow in Q4 which was roughly the same as the one that we have in 2019.
There are no elements such as structural changes in CapEx payment behavior, if you're referring to what has been announced in other geographies. I just want to highlight the fact that we have some payments that are all falling in Q4. Tax payment, double VAT. We have some HR costs in the quarter as well. We have the full spectrum cash out.
The comparison isn't unfavorable versus last year, but last year was exceptional. It was also exceptional for the disposal of buildings in 2018. We had less of them in Q4 2019. I look at the full year. For the full year, we have a nice coverage of our dividend because we are releasing EUR 504 million that covers our dividend.
Thank you.
On the mobile net adds. Our mobile net adds for Q4 are indeed rather soft versus competition. We have done a very strong Q4 in acquisition. At the same time, Orange has boosted their data and their products mid-November. We have recalibrated our mobile offer on January 1st, making sure that the value is back in line with the market, offering more data, so making our mobile proposition again more competitive and attractive.
We see the first positive results of that. With respect to your question on prepaid, postpaid. You have to bear in mind that in Q4, Scarlet stopped their prepaid offering, so that has impacted our prepaid results in Q4. Finally, on the mobile ARPU. Mobile ARPU in Q4 is impacted by the ePress offer linked to a recalibration between the fixed services and the mobile services.
Thanks.
On the network sharing deal. As you mentioned, we are waiting for the outcome, which is foreseen for mid-March. We are, I would say, quite confident on the outcome, as we have taken into account the remarks of the BIPT, and we believe that the agreement reflects all of those. We are quite confident.
You mean confident that there won't be, let's say, financial impact? That's what you mean, or? I understood from Orange that you have to basically bring clarification on the government side more than, let's say, stopping the data sharing in some region, for instance. Talking about technology that you basically have to be less ambitious.
We share that view. As I said, it was part of the remarks of the BIPT. As I said, all the agreement reflects all the remarks that have been raised by the BIPT. We are confident.
Thank you.
Thank you, sir. Next question is from Mr. Roshan Ranjit from Deutsche Bank. Sir, go ahead.
Hi, afternoon. Thanks for the questions. Two from me, please. Firstly, just on CapEx. I think back when you announced your fiber plan in 2016. You guided to fiber CapEx being around 30% of your overall envelope in 2019.
Can you give us an update here and where basically we ended up, please? Secondly, you talk about a tough trend in enterprise. Is that purely down to usual pricing down from customers, or are you seeing more competition from your peers? We have seen them continually make small B2B acquisitions. Is that having an impact on your customer base? Thank you.
I'll take your first question on CapEx. In 2019, the percentage of our CapEx dedicated to fiber is not yet at 30%. However, it's growing versus the previous year. I propose that we give a full picture on the trends when we discuss with you at our Capital Markets Day at the end of March.
If I may just say, are we talking about a few percentage points below? Are we talking close to 20%? Are you able to give a bit of detail on that?
It's above 20%.
Okay. Thank you.
Thanks.
On your question on enterprise. It's not a secret that we have a strong position in enterprise, and therefore that we get competition and pressure from competition as well from peers as sometimes from other new players. It is mainly, how would I say, noticeable in mobile, where the ARPU is somewhat under pressure due to competitive pressure.
Okay, that's clear. Thank you.
Thank you, sir. Next question is from Mr. Emmanuel Carlier from Kempen. Sir, please go ahead.
Yes. Hi, good afternoon. Three questions. One is on ePress. How much did ePress contribute in 2019 on sales and EBITDA? I don't think it's a lot. Could you also give maybe a bit of a view on 2020? Because in the French market, I remember that this was a huge tailwind, which then got reversed.
We'd like to know the impact and if you believe something similar could happen. Secondly, is on the transformation plan. You have announced the cash outs, but not the OpEx savings yet. Is there a way to give a bit of a range of how much that will result in OpEx savings in the coming years? The last question is on mobile service revenue trends, which weakened. I think you highlighted that it's partly driven by ePress.
Just want to check if other elements have played a role as well. If I remember well, I think Orange Belgium lowered two, three weeks ago. Not really lowered, but they increased the data allowance. Could that have an additional negative impact on the mobile service revenue trend in 2020? Thank you.
On ePress, as you know, we launched ePress on December 1st, 2019. That means that indeed the impact is limited in Q4. Yet it already influences a little bit the year-over-year trends. As said, it will contribute positively to domestic revenues, especially on fixed. Due to accounting allocation rules, it will have a negative impact on mobile services.
Overall, obviously, it's a positive revenue contributor. Looking forward to 2020, you can expect to have an uplift of a few euros per household, but you have to take into account that not all households have access to the ePress offer, so this will not be visible as such, as it will be averaged with households that don't have access to ePress.
Maybe on the third question, which is I think linked to the first on the mobile service revenue, it is indeed ePress that has the impact on mobile service revenue. There are no other elements impacting.
If I may just complement on the first question, because you made a comparison with the French situation. I would like to emphasize that in Belgium, we've done this in all transparency with the tax administration, it's compliant with the existing Belgium tax law. I just want to draw your attention on that for the security of the revenue impact. Regarding your question on our fit for purpose plan. Indeed, we've announced the cash impact.
We thought that on the OpEx saving benefits, it would make more sense to bring everything together to give you the full picture, including the strategy forward. We will share this with you in March. Just in terms of gross saving, I think what you can do is use a proxy of around EUR 65,000 per FTE, and get a sense of the gross savings.
What we are not saying there yet, because we are still working on it is all very fresh data, is how much resources we will have to reinvest in new hiring and in terms of also resources to make sure that we ensure the continuity of the business.
Remember, we had also the early leave plan at the beginning of the year, we had another, the last wave of departure with 375 people leaving the company on the 1st of January. We will have most of the 1,347 FTE leaving very soon. We need as well to spend resources to ensure the continuity. It is better that we give you a full view on the total benefits in a month.
The new people that you need to hire, are these different profiles or is that similar kind of cost to FTE?
We will comment further on this. Remember what we had said, that this transformation plan has to do with really making sure that we have the right profile for the future of the company. Indeed, we'll have to strengthen our position in domains, where we need some different skills as well. We'll comment further on that at a later stage, because part of this will be done as well through upskilling and reskilling internally. It's a full combination of how we move the internal resources and complement us with external resources for the future.
Yeah. On ePress, how many households will get impacted by that?
Well, less than the total households potential.
It's only for the Proximus customers, if I remember well.
My colleague said that we can say the number, it's EUR 1.2 million.
Okay. Thank you.
Thank you, sir. Next question is from Mr. Nicolas Cote-Colisson from HSBC. Sir, please go ahead.
Thank you. Hi, two questions. First, a follow-up on a previous question on EBU. Can you tell us if there was more pressure in the small/medium-sized company segment or if it was more with the larger accounts? Also explain why it is happening now in Q4 and not before, given your competitors were already pretty active in B2B beforehand.
The second question is on networks and speed. Your competitors have increased connection speeds lately, and I wonder what was your view on this. Does the speed differential trigger some churn in your broadband base? Maybe the other way to ask the question, what's the main drivers for churn? Is that speed, pricing, or any other factors? Thank you.
On your first question, quite honestly, the competitive pressure is not mainly on small and medium enterprise or on large. We see them in both. Now it's not new in Q4, so we've, I think already for several years, our competitors are saying they're targeting the enterprise market, but I think we have been able to sustain pretty well. The only difference in Q4 is that there is an ARPU impact, which is partially competitive, but also partially a number of one-offs, which make the ARPU decline in Q4, I would say, exceptionally high compared to previous quarters.
Do you mind if I ask you what are the kind of one-offs? Is that big contract renegotiations or?
Sorry?
What are these one-offs in Q4 then? Is it because of the big contracts being renegotiated or?
There are two types of one-off, Nicolas. One are some indeed contracts pricing renegotiations, which impact was retroactive. Second has to do with the correction related to out of bundle.
Okay.
On the second question linked to connection speed. It is a nice marketing claim, but on average, a family today and even in the near future, will not immediately require those speeds of one gigabit. Speed is definitely for the moment, not on top of the customer minds. As long as we can provide what they need, we will definitely be able to continue.
It only becomes an issue when you have challenges with the, what we call the hygienic speeds or the very low speeds become an issue. As you know, we have a very good copper network. Our customers are today getting more than what they are currently consuming. Don't forget also that cable has had a speed advantage over the past years. Nevertheless, we have been able at Proximus to increase our market share even in the north of the country.
It's overall the consumer experience that counts. It's about in-house and Wi-Fi experience. It's about the network topology. It's about providing low latency, for example, on gamers. It's to make sure that you invest in the convergent experience like we have done with our Pickx TV experience, the cloud gaming that we have launched with Shadow and the ePress solution that we have launched recently.
Okay. Thank you very much.
Thank you, sir. Next question is from Mr. Michael Bishop from Goldman Sachs. Sir, please go ahead.
Yes, thank you very much. Just a couple of questions, please. Firstly, I was just trying to recap your cash CapEx seems to have been running at about EUR 1.1 billion versus the accrued CapEx at around EUR 1 billion for the last two years. I was just wondering if you could just run through why we've got that difference and whether that will continue going forward.
Secondly, also it'd be interesting given the focus on, I guess, headcount cost, what you think the impact is on indexation for this year in absolute EUR millions, if possible. Thirdly, do you have any comments, a bit like Orange Belgium this morning around the potential acquisition of VOO? Thanks.
Right. The difference between the cash CapEx and the accrued CapEx has to do with the elements that we've always highlighted. As you know, when we guide on our CapEx, it's excluding the spectrum CapEx, which is spread over. That's one element. Our guidance on CapEx as well exclude the football CapEx, so the Jupiler League and the Champions League, which are spread over the years.
That explains the bulk of the structural difference. Beyond that, you have some working cap element that can play here and there, depending on the, I would say, the seasonality or how spread the accrued CapEx are over the year. The structural element are these two aspects. Sorry, on headcount cost indexation, it started in April. As of April, it's EUR 4 million per quarter, just to give you a sense.
Just one comment on the news that we read as you know this morning in the press. Indeed, Orange Belgium is challenging on court the procedure. Difficult for me to comment. It's too soon to comment, but in any case, we were not expecting the finalization of the deal before the summertime period. We see how it goes, but nothing more to say at this stage.
I just want to complement my previous answer. The answer I made on the 4 million is just on the index, the Belgian index. As you know, we also have some baremic increase of our salary, which are automatic, and also the merit increase. If I combine the pure index with baremic and merit, it's a higher number.
Okay, thanks. All really helpful.
Thank you, sir. Next question is from Mr. Ruben De Vos from KBC Securities. Sir, please go ahead.
Yes, good afternoon. I've got three. One is related to the temporary 5G user rights. The BIPT proposed to award those, given the potential delay until 2021 for the spectrum auction to take place. I was curious whether you could share your thoughts on this proposal and whether that would make you rethink in some way 5G-related investments.
Secondly, just on the uptake of fixed mobile conversion bundles. I understand you've grown penetration to 60%, helped by Epic and Minimus packs amongst else. Could you add more color on the success of those bundles? What has been catching on or which specific features have been successful within the subscriber base?
Lastly, with respect to BICS and then specifically the impact of progressive insourcing of MTN. I understand that there has been a timing shift leading to a more limited impact in 2019. That suggests the insourcing could be a drag on this year's forecast. Just wondering whether it would be possible to quantify the impact you expect to see in 2020 from that. Thank you.
On the temporary licenses proposed by the BIPT. As Proximus, I think we welcome this initiative. The attribution of those licenses is a step forward that should allow us to continue our mobile network development strategy. We said that in the past, Proximus has always expressed its willingness to launch 5G as soon as possible in Belgium.
We certainly intend to apply in order to serve our customers with 5G technology and use cases. Of course, we are looking forward to that draft decision and consultation by the BIPT. At the same time, we hope that the spectrum auction for the licenses can be organized as soon as possible.
As you know, we see the auction process as the only way to award spectrum in the needed quantity and for long-term duration, which would allow to deliver the required perspective for operators to continue to invest in mobile networks and innovation. It's important that the auction process grants spectrum to players with clear intention to invest.
We want to avoid fragmentation of a scarce resource like the radio spectrum. In terms of timing now for the auction, very difficult to say when it will happen. Hopefully, by the end of this year, but most probably beginning of next year.
On the question on the convergence bundles, we had a growth of 11,000 convergence households in Q4 year-over-year, of which 8,000 are linked to Minimus and Epic.
Good afternoon, this is Daniel. On your BICS question, indeed, we signed this contract with MTN early 2019. The implementation has been slow. It's quite complex. It took more time than expected. Indeed, it's underway. It will definitely impact 2020, which we had forecasted. We are not giving any specific guidance on that item.
Okay, thank you, sir. Next question is from Mr. Ulrich Rathe from Jefferies. Sir, please go ahead.
One is your perspective on the announcement from BIPT yesterday on the mobile spectrum sort of reissue. It sounds a bit like it's a fairly limited amount, but still the existing MNOs wouldn't be able to bid. What's your perspective on that?
The second question is, there was sort of fairly detailed discussion so far over that e-Press bundling. Would you be willing to talk about your expectations, what this does net to the revenues and the EBITDA? What the sort of rough effect would be in % terms? That would be very helpful. Thank you.
On the 4G spectrum that had been announced yesterday. We took note indeed that the BIPT at launch call for candidates for one of the blocks of 50 MHz in the 2.6 GHz band, mainly used today in densities.
You know that Proximus cannot participate because of the royal decree foresees a cap of 20 MHz, and we currently hold already two times 20 MHz in this band, and thus we are maximizing our holdings according to the cap fixed in 2011.
That said, even if, as you mentioned, it's not enough to have a full roll out of 4G for the country because we need more bandwidth than the one they got. We are surprised by this sudden decision and have some question about the initiative, almost a decade after the first auctioning without any study or consultation.
There is also another concern for us, which is that apparently the BIPT would grant this license for 15 years, so till 2035, while the other part of that band is licensed until 2026, which creates a little bit of desynchronization. That's been a surprise, but let's see how it goes.
On your second question on ePress, I think you can easily do the math. We gave the targeted households 1.2 million. We said it's a couple of euro of revenue. It's very limited in Q4 because it was just launched in December on top line. As for EBITDA, we give a good chunk of that to the publisher. I think I have described the type of math you can do to get a sense on the month and on 12 months.
Thank you.
Thank you, sir. Next question is from Madam Nayab Amjad from Citi. Madam, go ahead.
Thank you for taking my question. I have two questions, please. What is the outlook for competition in the market, especially if BIPT cuts cable wholesale rates further? Orange Belgium has gained good traction on its dual play offer. Has Proximus seen a churn as a result of this? My second question is, if the government wanted to reduce their stake, are there any limitations or an approval from parliament needed to reduce the stake? Thank you.
On the question linked to competition. Competition will no doubt remain elevated in Belgium. This said, it's not an irrational market. As you said, competitors have launched skinny offers in the past year. So far, we have been successful in continuing to grow our customer base. This thanks to our dual brand and our segmentation strategy, with Scarlet for price seekers, Epic for millennials, Tuttimus and Minimus for families, and Bizz All-in for our small enterprises.
As you know, our strategy is to increase convergence and by doing so, increasing stickiness of the base. As we already explained before, our mobile net adds have indeed been rather soft. On the broadband side, we are one of the two growing in the market, and on TV, we are the only one growing in Q4.
On the second question related to the state reducing our stake. There was a temporary law that allowed the government to do that without passing by parliament, but that law ended last year. If they want now to reduce their stake, they have indeed to pass by parliament.
Thank you.
Thank you, madam. Next question is from Mr. David Wright from Bank of America. Sir, please go ahead.
Hello. Yes, thank you very much for taking my question. Very brief. Just reading some press reports about Citymesh as a potential interested party in new spectrum. Do you guys come across them much in the B2B space? Do you find that mobile solutions are growing, those kind of fixed substitution solutions are growing and starting to take share? Is that kind of operator starting to put pressure on enterprise mobile prices anyway? Any information that would be useful? Thank you.
Just one quick concern, then I will let Bart complement. It's not that a surprise that Citymesh is applying for the spectrum because today Citymesh has already some local spectrum in the 3.6 GHz band. It's logical that especially in the first phase of 5G, the non-standard phase of 5G, they are looking for supporting spectrum in the 4G band.
As for the 5G spectrum currently held by Citymesh, it should be noted that there are local licenses that do not allow for nationwide deployment. The license will expire in 2025 and only covers 40 MHz of spectrum. I will comment. In fact, let Bart comment on the more competitive parts.
On the fact or the question, do we come across them? Initially, Citymesh was focusing on Wi-Fi, as you probably know. Because, almost by coincidence, they got spectrum on 5G, they started to work on this. We have only come across them in the harbor of Zeebrugge, and then they have also some tests going on in the Brussels Airport.
It's not a surprise to us. It's not a surprise in the sense that we know that there are a number of players that are looking into the 5G MPN work, or let's say, market. It confirms only that there is a 5G opportunity which will be sizable in the B2B market. We know that they are targeting on this market together with some others. The only surprise is now this 4G license.
While this is an open market, we believe that Proximus is anyhow better placed to help B2B customers in their MPN projects, and we are really focusing on that. We have a high market share in mobile, because we have a better mix of spectrum, because we offer a hybrid and seamless combination of private and public solutions.
Above all, as a digital service provider, we can leverage our unique combination of owning the spectrum, having deep mobile network knowledge, while also bringing security, cloud, and application integrations to the table. We make sure that we can differentiate on a series of elements that is going to be important in this context.
Thank you.
Thank you, sir. We have one last question from Mr. Matthijs van Leijenhorst from Kepler Cheuvreux. Sir, please go ahead.
Yes, good afternoon. It's regarding the dividends. I am aware that you will have this Capital Markets Day, but during previous calls, you made it pretty clear that in case your free cash flow generation was not enough to cover the dividend, you would use the balance sheet, or you will gear up in order to pay the dividend. Is this still the policy?
We have not announced a new policy on dividend, and as we said, we will come back on this at the end of March. I can confirm what we said in the past, that this was put in the context of a potential acceleration of our fiber deployment. In that case, we said that as we have a very strong balance sheet with a very low level of debt and net debt to EBITDA, we thought we had room to releverage the balance sheet and use this as a way to fund deployments. Which in that case would mean that our free cash flow might not cover the full dividend. That's what we said, and I confirm what we said. Now, we will discuss all of that with you at the end of March.
Okay. Thank you.
We have no other question. Back to you for the conclusion.
Okay, thank you. As there are no more questions, we can end this call. Thank you for your participation, and I hope to see many of you at the Capital Markets Day at the end of March. Thank you. Bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.