Good afternoon, ladies and gentlemen, and welcome to the Proximus Q3 twenty nineteen Results Conference Call. Your information, this conference is being recorded. At this time, I will now turn the call over to Ms. Nancy Gosens, Director of Group Investor Relations. Madam, please go ahead.
Thank you. So good afternoon, and gentlemen. Thank you for calling in. I trust you have all received the results released this morning and that you have been able to go through the numbers. So for this call, we will keep the usual format with most of the time reserved to answer your questions.
I have here with me Sandrine de Froux, CEO at Interim and as well as other members of the Executive Committee. We will be happy to take your questions in a moment. But before we get to that, we will start with an introduction by Sandrine. Please go ahead.
Thank you, Nancy. Good afternoon, everyone. Welcome to our third quarter conference call. As you could read in our announcement of this morning, we managed to keep a positive customer momentum with our customer basis for Internet, TV and mobile postpaid growing further in the third quarter. We achieved this in a market which is increasingly challenging from a competitive point of view.
Our segmentation and convergence approach continued to provide good support. We have further built on this, for example, by revamping our millennials offer epic combo. Our second brand Scarlet maintained a strong position in the segment of price secure and saw a good traction of its repriced Internet only offer, which now comes at €32 Through the no fees offers from Scarlet, we answer the needs of customers that are looking for the cheapest offer in the market while preserving our premium brand. The convergence rate of our customer base, I. E.
Customers taking both fixed and mobile services have further improved, thanks to the traction of our triple and quad pay offers. This was driven by enticing more families and small enterprises to our all in offers to Timus and Bisoleen and also an increasing number of customers signing up for our Triple Play offers, Minimus and Epic Combo, which both having an average revenue per household largely above average. On the enterprise side, the competitive intensity remains very high. We also continue to face the erosion of legacy services, however, softened by a growing point to point fiber park. We were once again able to further grow our mobile customer base, maintaining our strong position.
The tough pricing environment in the enterprise mobile market is, however, reflected in the lower ARPU. We also managed to keep our Internet base fairly stable in spite of the competitive activity in this area. On the ICT front, the third quarter revenue was rather stable. In line with our strategic focus, we saw a favorable evolution in high value professional services, while revenue from legacy infrastructure products decreased. All in all, the domestic revenue was 1.8 percent down from the prior year, the low margin terminal revenue excluded.
About half of this was related to regulatory effects with the international calling rates now having a full impact on the quarter. Thanks to the progress made on our digital journey, we realized further cost efficiencies in our domestic operations. The higher costs related to the ICT acquisitions we did in 2018 have now annualized and hence make our cost efficiencies more visible. For the third quarter, our good cost control, thanks to our shift to digital strategy has led to a slight positive domestic EBITDA evolution compared to 2018. BICS, the International Carrier Service segment, saw another strong increase in the A2P volumes supported by TeleSign.
The direct margin of BiCS was up year on year with the progressive in sourcing of services by MTN having so far only a limited impact. This is rather a timing effect, so we expect this to further build up over the next quarters. The CapEx level over the first nine months remain in line with our full year expectations. Our investments included, amongst other things, the further development 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're today deploying in 12 Belgium cities, while we continue to deploy greenfield fiber across the country.
Our pace of fiber deployment has increased significantly compared to last year, it's going about three times as fast and our current fiber plan foresee an even faster rollout next year. To ensure the operational capability to support this, we have now signed up a third consortium. The free cash flow of the quarter came in strong, bringing us to a year to date free cash flow of EUR $517,000,000, acquisition cash out excluded. And note that part is related to a positive finding element on tax payments, so the full year free cash flow should not be too far from our initial expectations. Looking at the remainder of the year, we will continue to execute upon our shift to digital strategy.
In this challenging market, we will keep focusing on further attracting new customers, driving convergence further in our customer base and continue to focus on improving our cost structure. We will finalize the mobile access network sharing agreement with Orange Belgium. And regarding the company's transformation program, we have the intention to finalize the negotiations with the unions before the end of the year. With this, I have covered my introduction and propose. We now start with your questions.
We have one first question from Mr. Nicolas Cote Caudisson from HSBC. Sir, please go ahead.
Thank you. I've got two questions, one on business. I was wondering how concerned you are about the naked broadband bundles in the market. Obviously, not going to attract 100% of the households long term. But if you believe in the one third addressable market, there might be some more headwinds to come against your TV base.
So I wonder what is your view on this? And given the EBITDA at risk, how do you see actually, do you see extra or new type of revenues to come in the medium term to offset this rather than just the cost cutting? And my second question is about governance. Is there a deadline for the Board to decide on the CEO role? And also to you, Sandrine, has the Board asked you anything different or on top of what Dominique was asked to deliver by previously?
Guillaume speaking on your first question, Nicolas. I think that you might prefer as well on the net add growth on TV that we posted this quarter that are indeed a little bit soft. It's, of course, an evolution that we are really clearly monitoring with a strong attention with the team. Maybe let me comment on the evolution of the quarter, and then I'm going to comment on the long term view. Many reasons for this performance this quarter, if you compare to Q2 performances, there is a seasonal effect in the due to the intake higher intake of student customers mix during the summer versus Q3 last year.
There is also the success of our revamped one piece Scarlet offer that got very strong commercial focus after the launch this summer. If I look at going forward, if I look at the remaining of the year, so it's not yet long term, but we expect a better TV mix in Q4, supported by the strong commercial focus on conversion product during the Christmas periods. And this is both on Proximus and Scarlet brands. But for sure, all the strategic plan that we put in place as we speak aim to stay and to keep a relevant place on the videoTVgaming space as demonstrated with the successful launches of PSPIX in June and EPIC combo in October. And you may know as well that this strategy will also be supported by the launch of our brand new set of books beginning of next year.
So for sure, we are putting a lot of strategic execution efforts in making sure that we're going to stay relevant in broader place than just the TV segment as we are also trying to extend our reach beyond TV and also touching upon the gaming space as you saw on the with the Epic Combo launch and the partnership we did with Shadow. That's what I can say today, but of course, this is key for us to stay relevant in that space. Okay. Thank you.
And Nicolas, on your question on governance, there's no deadline for the Board to decide on the CEO role even though they're very active in the currency searching the market on that. And the Board has given me a clear mandate as CEO at interim to continue with the team on the execution of our shift to digital strategy. So I think we are in the continuity on that front. That's very clear. Thank you both.
Thank you, sir. Next question is from Mr. Emmanuel Carlier from Kempen. Sir, please go ahead.
Yes. Hi. Good afternoon. Three questions. One on fiber to the home.
So the decision to potentially accelerate fiber to the home rollout, will that still be taken at the full year 2019 results or could that be delayed a little bit because the analysis from the regulator is also taking longer than initially expected? And could you give maybe already a bit more color on what you intend to do? Then secondly, on pricing. So given your KPIs, your customer additions are softer the last three quarters, I would say. How does that make you think about pricing mainly on fixed?
And then thirdly, so we have seen a lot of news of who being potentially for sale. Yes, that would obviously be very negative for Proximus. How are you thinking about defending the very dominant market position you have over there? Thank you.
So on your first question regarding the decision to potentially accelerate FTTH, Indeed, will I confirm the timing we have in mind to come back in terms it. We're still, as you know, working on all the elements that we had mentioned. One of them, as you say, has to do with the regulatory elements. We are hearing indeed that it takes a bit more time on the cable. But hopefully, by that time, we have more visibility and we'll see in February.
Pricing?
Pricing, I think today, as you know, we have a digital brand strategy, and we are managing our pricing strategy in between those two brands, playing on promotional activities, by the way, the average, that is not the same for all the part of the countries and all the different segments on the Proximus brand and playing on naked price on Scarlet without additional promotion. And we are quite satisfactory with the operational results that we did in Q2. As you said and mentioned, it was a little bit softer in Q1, Q2, but we went back on track in especially on customer numbers, both on mobile and Internet. And in fact, we have had a very, very good back to school momentum. As you know, in Internet, that will be partly materialized in your Q4 Internet net growth.
Are there still some delays in between the sales and the activation of the customers? And thanks to the promotional activity that you we have as we speak, we plan to sustain this momentum throughout the Christmas period. And important to note as well, so far, we do not see major changes in Proximus performances following the recent competitors' announcements. So I think that we remain quite confident with the current pricing and the current promotional activities on our ability to deliver good commercial performances in Q4. Of course, this is also supported by the new communication plan that we launched, a new branding platform.
And as you can see also in the numbers, a very, very accurate and performing churn management, especially on mobile.
And on your last question regarding the VU sale process,
of course,
we are very vigilant on how this will evolve in terms of which type of shareholders will end up owning VUE, which can have depending on which is different impact in terms of competition for Proximus. I think it's a bit early to comment on this. I can only say that the longer it takes potentially the better for us.
Thank you.
Thank you, sir. Our next question is from Mrs. Nayab Amjad from Citi. Madam, go ahead.
Thank you for taking my question. So Proxima's domestic revenue ex terminal guidance is now at minus 1.5 versus previously stating nearly stable or growth in Duhish dependent on ICT revenues. What has changed since 2Q for Proximus to tweak the guidance down? Is this mainly ICT revenues? Or are there any other reasons for this?
And my second question is on free cash flow generation, which currently covers the guided dividend of EUR 1.5. However, if Proximus was to raise the FTTH CapEx, dividend could be uncovered. How would you how should we view shareholder returns going forward? What is your target on leverage? Thank you.
So on your first question regarding the revenue guidance, I think the overall message here to understand on our revenue guidance is that we don't expect big changes in the trends in the last quarter of the year. As we had indicated in Q2, some parts of our revenues are more volatile and that's indeed the ICT segment. There is, as we said, a time element to the ICT type of project. And we had said some revenue might slip into next year. And for some of it, we rather show that it will be for next year.
But there is also a link to mention, which is with the federal government formation, which as you know is not finalized in Belgium and that has an impact that leads to some softer public sector revenue, Proximus exposure to the public sector is quite high. And I would also add that what we see in the is that the ICT infrastructure, I'm not mentioning the ICT professional service, which are growing, but the ICT infrastructure is facing some pressure. And so that's how you can explain the fact that in Q2, we were expecting an H2 close to minus 1.4%. Now it's close to minus 1.5%. On your questions regarding free cash flow generation, We're confirming our ambition to deliver a free cash flow for the year that will cover our dividend as we had given in terms of guidance.
And despite the fact that we are accelerating this year the FTTH CapEx. We're not giving guidance beyond this. We will come back in February in terms of guiding towards the dividend. I can only say that what we have said is that if we were to decide on fiber acceleration, we would use certainly as a priority, the very strong balance sheet we have, the fact that we have a very low level of leverage.
You. Thank you, madam. Next question is from Mr. Alexandre Ronsi from Exane. Sir, please go ahead.
Hi, thanks for taking the question. I have the first one on fiber coverage. If you could just maybe tell us what's your current full fiber coverage
in
the country? Then the second one on data usage that I saw was quite down sequentially. Obviously, it's still up year over year, but I was wondering if you could maybe give some color on the sequential seasonal impact over data usage. And then lastly, I've seen in the press the recent interview of Mr. De Becker, your Minister of Telecoms.
And I was wondering if you could give us more color on the recent discussion you've had with the government. It does seem that for the upcoming five gs auction, they are willing to maybe use the same model as France used last year, meaning free spectrum against increased coverage obligation. Any color on that and on your sentiment on the full front front will be much helpful.
Okay. So on your first question of fiber coverage, we are not disclosing these elements. We're still in the first years of our rollout program. So we are still talking about small numbers, but at some point, we'll come back to you to provide you with more visibility. On your second question, I think we'll come back to you on this because it's a trend that I have not have not seen.
I don't know if anyone Nancy can
take this one. Maybe an element to add on this one is don't forget that our data usage that we are providing is national usage, so it doesn't include roaming. So there's probably some seasonality impact to it as well with the holiday period where it moves more to roaming volume. So it's only national volume in there.
Okay. So on five gs, what we can say is that we are, of course, eager to deploy five gs as soon as spectrum is available. Today, don't have full visibility on the timing when the spectrum auction will be done. What we can say as well is that if there are opportunities to contribute in the forms of further investment in exchange of the spectrum price, we're fully open to have such discussion with the government.
Thank you. And any change perhaps on what you think the government position is at both the federal and the regional level regarding the fourth entrance?
Well,
the fourth entrance, we don't have lots of information on this. We understand that the risk is still there potentially depending of course of who is going to be forming the future governments. What we can say, however, is that, well, we still very much claim that there is no room for a fourth player on the Belgium market. But since eighteen months, you've seen that there has been an abundance of new offers in the mobile space with unlimited offers with lower price. And so we think that the economic space for a potential force entrance has decreased.
Thank you. That's very clear.
Thank you, sir. Next question is from Mr. Ruben Devos from KBC Securities. Sir, please go
Regarding the transformation plans, I believe it was said yet that you would restart negotiations with the union at the August and that the idea is to conclude talks before the end of the year. Just curious to hear whether anything has changed since August to expect to the time line in respect to the objective of the plan. And related to this, it would be great if we could get some guidance on whether we should be expecting some of the benefits already coming through when we look at next year's forecast? And then to come back on fiber, more of a general question. You said the potential acceleration in the fiber rollout would be further with the balance sheet potentially.
But just wondering what are sort of the arguments at this stage that would make you go ahead with an accelerated rollout? Or what sort of counterarguments would hold you back aside from regulation, of course, from ramping up? Thank you very much.
Okay. So on the transformation plan, what we said is that negotiations are ongoing and that we do have the intention to finalize the negotiation with the unions and with the mediators before the end of the year. We certainly want to remove the uncertainty that exists today on the employees within the company and be in a position to implement the various measures next year. I will not come back on the size and what we had said because I want to fully respect the current confidentiality, which surrounds the discussion with the unions. It's of utmost importance that we do not breach this considering the past events in September and I will give chances to the current negotiations.
Sorry, second question on fiber. Yes, not used to answer all questions, so that's why. So indeed, I will maybe remind everyone the way we look at it and how we are structuring our thinking on the fiber acceleration. What we have consistently said in the past is that we were waiting to see the various KPIs that we are achieving with fiber on NPS, the uptake, the win back, the ARPU uplift, customer satisfaction, churn, etcetera. And to make sure that we have enough relevant indicators, which would give us the comfort to make the decision to accelerate.
I must say that on this front, we observed very satisfactory element both on the consumer and the enterprise markets. That's one aspect. The second aspect we said has to do with our ability to not only ramp up capacity, but also make sure that we improve the effectiveness of our processes so that we decrease our costs to connect and our unit costs. We had announced the targets in terms of achieving a certain unit cost. And on this front, we are making progress, but there's still a lot to be done, but we are making a good progress.
At least we see some opportunities to further control and decrease our unit cost. And the third element has to do with regulation, which is something that I have already commented. And based on all these parameters, then we would make the decision.
Thank you.
Thank you, sir. Next question is from Mr. David Wagman from ING. Sir, please go ahead.
Yes. Hi, everyone. Thanks for taking my question. First question on the fiber rollout again, sorry to come back on this. My question is the following.
Would the regulatory change to the new wholesale cable regulation that we see, assuming it doesn't change, would this make you more open to co investments? And what type of co investments could we see? Could you be ready to consider? Second question on cost savings. So you've been saying in the press release that you are somewhat faster on cost savings.
What is actually driving the speed of these cost savings? Is it new initiatives? Is it faster execution? And what is exactly going faster? And then last question, so third question.
Could you comment on the ARPU trend for triple play offers on the kind of and dual play? Is it Scarlet impacting the mix? Is it lower out of the double expense? Thank you.
Okay. So on your first question, I wouldn't link the wholesale cable regulation with the opportunities for co investments. I would repeat what we said on the fact that potentially there are low wholesale cable prices is not a good signal that the regulator is sending. It's basically sending a message where you would plan to favor renting the network rather than investing and building in a new network. And this is where as we consider the cable and the fiber space being from the point of view of the customer being the same broadband market, we don't think it's the right signal to send, but I wouldn't link this with the co investment question.
And on your second question related to cost savings, what we have seen in Q3 are honestly very nice benefits from a series of measures that we've been taking over the past years on the customer experience on migrating our customers on one single mass market IT stack. We're close to finalizing this on the deployment of some digital service interface to our various agents. And all of these initiatives have materialized into a quite strong decrease of the number of calls to our call centers or decrease of such, I would call them physical interaction. So really materializing the benefits of our shift to digital strategy. And so in that sense, with probably a better discipline in terms of hiring in the current context.
We've delivered somewhat better OpEx saving. So with this week confirming our global ambition for the full three year plan that we had announced on the EUR240 million. But to your questions, are there new initiatives? It's an ongoing process. There are always reflection in terms of findings what are going to be the new initiatives.
And I can just name the one of the mobile network sharing. As you know, the benefits of such initiatives will come beyond the horizon of the three year plan.
On your question on ARPU, at the consumer side, which is really important to note that the average revenue per home is still growing quite nicely, growing by 1.7% year over year. And the growth is supported by increased RGU per home but also an increased favorable tiering on our mobile customers. Indeed, what you can see looking at the more precise evolution per play, you see that 4P net customer growth is softer this quarter but largely compensated by the positive evolution of our 3P convergent customers, both generating very high average revenue per home, up to €100 per month. So this is what we are clearly monitoring. This is this high value mix within our customer base that is generating the growth of our average revenue per home.
If I come back also on the revenue evolution, which is today fully explained for Q3 by terminals, inbound and regulation. And the first two elements, I. E, terminals and inbound revenue, have no impact on margin. Regulation impact at the revenue level for consumers amounted to almost €5,000,000 which is twice the amount of the previous quarter. And if you go back to the direct margin level, at the direct margin level, we managed to grow slightly our Consumer business direct margin if you exclude this impact of regulation.
Thanks very much.
Thank you, sir. Next question is from Mr. Michael Bishop from Goldman Sachs. Sir, please go ahead.
Yes, thanks.
Just two questions, please. Firstly, actually a similar question on ARPU to the previous question, but on the mobile consumer postpaid ARPU, it's still declining even if you strip out the impact from the international call regulation. And I would have thought that given you potentially got a more accretive spin up effect as people start to use higher bundle tariffs, including unlimited, just over EUR 40, that the ARPU should have stabilized now or could stabilize going forward. So it'd be good to get some color on that and how you see that progressing. And then secondly, on free cash flow.
Could you just give us a sense of where you think the cash tax and the working capital will end up for the full year 2019?
On mobile postpaid customer ARPU, first, one thing important to note is if you look at the 1P mobile postpaid ARPU, this one is growing, thanks to higher tiering. And then you have the ARPU within the pack, which is a less difficult element to analyze. But if you look globally at the mobile postpaid ARPU, if you exclude regulation and if you exclude inbound with no impact on margin, then you have an ARPU mobile postpaid, which is evolving, sorry, on the right directions, so growing. On the question on the higher bundles, one year after the launch of our unlimited offer, we have now fully recovered the effect that we had on the first month on the out of bundle decrease. And now we are back to the trends of last year in terms of out of bundle growth for mobile customers.
So we have been able to fully compensate it, thanks to higher tiering and evolution of the behaviors of our customers, the impact of the long term unlimited on out of bundle ARPU.
Okay. So on your question on free cash flow, we're not providing the detailed granular components of free cash flow. I just want to reiterate that it's for the full year, it's still in line with our projection. Don't expect to see lot of cash flow generation in Q4. There are timing elements with tax, and that's all the elements that we can highlight.
Thanks. That's very clear.
Thank you, sir. Next question is from mister Guy Petti from Macquarie. Sir, please
Yeah. Hello, team. Just going back to this fiber issue, you mentioned about trying to sort of still targeting your unit cost for rollout. If my memory serves me right, you were looking at about EUR 1,000 unit cost rollout and that was including connection costs. So firstly, is that still the right number?
And secondly, on the build process, I'm sure that actually the unit cost of building fiber will come down the greater you actually roll it out. So can you actually give me numbers, for example, what is your rollout rate at the moment and what you expect it to be in 2020 when you have a faster rollout target? Thank you.
So on the unit cost fiber, recently said that we're not achieving yet this target and that this target was something which was over the next month that we're working towards it. I think it's important to understand that it's an average. And actually this average can have very, very different level depending on where you're building. The key components that can have an impact on the unit cost has to do with the density, has to do with how many how you can deploy on facades on the houses versus trenching and these elements can have quite different impact. So to your point, in terms of looking at the unit cost as we build up forward, there's certainly an element of scale and efficiency and learning curves, that's for sure, and that's we are working on in terms of improving our processes.
But at some point in time, there will be also a question of moving to lower density areas where we know that we will have to face potentially more trenching than facade. So all these components are playing and having an impact on the unit costs. And just keep in mind that it's a constant effort to find the ways to decrease it and to industrialize it. And here there, we consider that we still have some space to do so.
Thank you.
Thank you. Next question is from Mr. Shavon Adolfat from New Street Research. Sir, go ahead.
Good afternoon. Quick question. How do you view the risk of your network share with Orange attracting antitrust action? Because The Czech Republic shares some characteristics in the sense that it's a three player market where the two sharing parties have a majority of the mobile market share. So your take please on how you evaluate that risk?
So on the mobile network sharing, are confident that it's compliant with regulation. I think we're well aware on the Czech Republic decision of statements from the commission. I don't think it's a fully final decision. It might take time. But I think every situation is very specific, and we see that there are some differences in the current situation versus the Czech Republic one.
So still confidence on the regulatory and antitrust aspects.
Okay. Thank you.
Yes, sir. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, you may press 01 on your telephone keypad. Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have no other questions. If there are no more questions,
I think we can end the call with this. Should there be any follow-up questions, you can obviously contact the Investor Relations team. Thank you very much, and have a very nice weekend.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.