Proximus NV (BGAOF) CEO Guillaume Boutin on Q1 2020 Results - Earnings Call Transcript
Proximus NV (OTCPK:BGAOF) Q1 2020 Results Conference Call April 30, 2020 8:00 AM ET
Nancy Goossens - Director, IR
Guillaume Boutin - CEO
Sandrine Dufour - CFO
Bart Van Den Meersche - Chief Enterprise Market Officer
Jim Casteele - Chief Consumer Market Officer
Conference Call Participants
Nicolas Cote-Colisson - HSBC
David Vagman - ING
Nayab Amjad - Citigroup
Emmanuel Carlier - Kempen
Ruben Devos - KBC Securities
Stefaan Genoe - Degroof Petercam
Good afternoon, ladies and gentlemen, and welcome to Proximus Q1 2020 results conference call. For your information, this conference is being recorded. At this time I would like to turn the call over to Ms. Nancy Goossens, Director of Group Investor Relations. Madam, please go ahead.
Thank you. Good afternoon, ladies and gentlemen, and thank you for calling in. I trust that everyone has seen the Q1 results and the presentation that we published this morning. We will not go through the results in detail, but we will keep the usual format. So most of the available time will be spent on your questions.
So let me just quickly introduce the participants from our side. We have here the CEO, Guillaume Boutin, on the call, and we have some members of the Executive Committee. I regret to say that for two of them, this is a very last Proximus results call, for the CFO, Sandrine Dufour; and Bart Van Meersche, the chief of the Enterprise segment.
And this after, yes, many quarterly iterations, I would say, between 21 for Sandrine, 37 for Bart, if I'm not mistaken. Okay. So yes, furthermore, we have on the call Jim Casteele, the Chief of the Consumer segment. Geert Standaert, the CTO; and Dirk Lybaert, the Chief Corporate Affairs. And Daniel Kurgan, the CEO of BICS. They will all be very happy to take your questions in the moment. But before we get to that part, we start with the introduction of the CEO, here. Please go ahead.
Thank you. Welcome to our 2020 results conference call. I hope that everyone is getting through the pandemic in good health and in good spirits. The various crisis is no doubt impacting us or personally and professionally. For the telecom sector, these are crucial times to proving huge value to society and to take up our responsibility to support our stakeholders in this difficult period.
At Proximus, we have taken up that role to the best of our abilities and I'm truly proud on how well our networks have been able to sustain the boost in traffic since the confinement. Today, we benefit from the significant investments done over the past years to keep high-quality networks. And we continue to invest. As we announced at our Capital Markets Day end of March, the first pillar of inspire2022 strategy is to build the Belgian gigabit network of tomorrow, deploying both fiber and 5G and to be the undisputed Belgium leader in terms of network. The recent events have even reinforced our belief that investing in the networks of the future is essential for the connected society of tomorrow.
At the same time, we have closely followed up on the needs of our customers and launched mid-March favorable positive commercial measures to support our customers through these times of lockdown. If you know, we have also very recently increased the Internet upload speeds for the vast majority of our residential customers and professional customers. The protection of our employees is obviously a top priority as well.
Therefore, we decided even before any government obligation to close all of our shops and to limit our customer installations and repairs, especially the limitation in customer installations is reflected in lower net customer growth for TV and Internet in the first quarter. Including nearly 7,000 Internet customers that could not be connected in March, but that will be connected in network, our net Internet customer growth would have been around 8,000 for the first quarter of 2020. So, very much in line with first quarter of last year.
Overall, Proximus is showing a good level of resilience in this very exceptional circumstances. And from a financial point of view, the effects of the COVID-19 sanitary crisis, we are very limited so far with only 2 weeks of impact in the first quarter. We closed the first quarter of 2020 for our domestic operations with minus 1% in revenues and achieved a stable underlying EBITDA, including a strong reduction in costs compared to the same period of 2019.
It is a mix of customer segments benefited once more from our conversion implementation strategy, further growing our convergence customer base. This was supported by the mobile data boost we have given to our prepaid users [indiscernible] combo continued to address successfully the maintenance segment. I'm also pleased by the results of our revamped mobile portfolio, leading to a solid decrease in mobile prospecture and good customer growth in the first quarter. Our enterprise segment posted a solid increase too for its mobile customer base in spite of its already strong. At the same time, the further eversion legacy services, notably affected our B2B margin, underlying the necessity of the major transformation that we have set up to the segment in the coming years, transformation that we announced with our inspire2022 plan.
While the limit comes limited COVID effects for us are reassuring, it's clear we are not fully immune to the crisis, and we expect the impact to become more visible over the next quarter. The economic recovery for pension remains uncertain and especially roaming and ICT projects are exposed to further negative effects. It is very difficult to have a clear view of what the overall impact will be. So, far there are no signs the financial effect will be worse than what we have anticipated, and we expect that the EBITDA impact will be largely offset by lower CapEx. We, therefore, reiterate our 2020 full year guidance of group EBITDA minus CapEx ranging between €780 million and €800 million.
So, before opening the line for questions, I would like also to thank our colleagues Sandrine and Bart. As after today today their last quarter release for Proximus.
So, thank you, Bart, and thank you, Sandrine.
Can we open the lines for questions, please.
[Operator Instructions] We have one first question from Mr. Nicolas Cote-Colisson from HSBC.
I'll start with the mobile market. Two things, please. First, you had a good run in Q1 in terms of postpaid net adds, but ARPU has dropped massively despite only 2 weeks of COVID. So, could you explain a bit more what is happening there beyond the e-press effect? Second is still on the mobile market. Orange Belgium has launched the offers that quite attractively priced. I can see some promotions on your website matching Orange Belgium prices. So I wonder what is the engine there? How can you differentiate on other criteria than prices in the context of network sharing eventually? And if I may, just -- before saying good bye and all the best to Sandrine and Bart. I was wondering if you could share the process for the succession plans.
This is Jim Casteele speaking. So on the first question linked to the good results on postpaid adapts, but the impact on ARPU with only two weeks of COVID. So indeed, mobile ARPU is impacted by three big elements. The first one is international regulation that continues to put pressure on our mobile ARPU year-over-year. The second one is linked to the good performance that we had commercially with the data boost that we did on January 1, which has an impact, of course, from our out-of-bundle revenues. And as we all know that it takes some time if our customers adapt to new volume limits.
And so we expect to ease out this effect in the coming quarters. On top of that, but indeed only for two weeks. We gave an additional 10 gigabytes of data to our customers during the COVID-19 confining period. And then the third element that impacts the mobile ARPU or the internal accounting allocation that are linked to three big elements. First of all, the e-press, and secondly, also the continued push to convergence and also the impact that joint offers have on mobile ARPU. So I think these three elements together explain why mobile ARPU continues to be under pressure.
Bart Van Den Meersche
And then this is Bart for Enterprise. The good news is that we have been able to grow our part again. So we had 8,000 mobile cards. So the increasing of mobile market share that was already very strong. The other good news is that we're able to keep our churn pretty stable but indeed, there is pressure on ARPU. Actually, for three reasons. The first reason is competitive pressure, and it's not the secret. The results diligent as Orange trying to take a stake in the enterprise mobile market. So that puts pressure on prices. But next to that, it's also that customers are moving more and more to bundles, including more and more data allowance and third competitive prices. And so traditional out-of-bundle revenues are decreasing and has a negative effect on ARPU and then at least, indeed, there is much lower roaming revenues due to COVID-19. So those are the elements.
So on the second question. So this is Jim speaking again. So on the Orange offer and how do we see ourselves differentiating going forward? So for the moment, we don't really see a big impact of Orange group on our commercials. As you know, our strategy -- our commercial strategy is to boost conversions where we bundle different products into one and the same offer towards consumer. And so that gives you additional opportunities to differentiate when you bring a proposition to the customer. And even if we are doing network sharing with Orange, even then we still have capabilities to differentiate our mobile experience towards the customers. So I think these elements for us allow us to continue to differentiate in the market even if we are sharing the network with Orange.
We get the -- in the succession plan, your speaking. So the process is ongoing things for a few weeks now, so we are actively screening the market, and I hope I am able to give you news on that front to in the next quarter -- good news.
Next question is from Mr. David Vagman from ING.
So, yes, so I've got two questions on my side. The first on the wholesale cable regulation. So, what is your view and do you think this will impact the commercial dynamics in Belgium? And secondly, what would be your wholesale commercial strategy for fiber? So, I think Orange Belgium has been quite vocal about best desire to have a massive access. What is your view on this? And maybe a last question on broadband net adds. Could you come back on the performance, which was a bit weaker than consensus was expected?
Can you repeat the last question?
Yes. The last question was on broadband net adds. If you could just explain us a bit what was explaining -- yes, sorry, the weaker performance in net adds in Q1? Thank you.
So, on the cable wholesale pricing. So, the formal notification show that the BIPT, indeed, has taken a good note, of all the focus comments that that really [indiscernible] Proximus, but also that other did the depreciated asset valuation, the link with fiber that we can now that rethinking of the growth in cable pricing. And that's an important subsidiary. So, just for you to know that the [indiscernible] to react. So, we should have more news by the end of Q2. So, what is the takeaway -- the first, I think rather good news and those pricing are going in the right direction. I think also putting more balance the south of the country. So, I think that's pretty much, what I can say at that time, we have to have the confirmation, and we see how it goes -- it was a good news for us.
In terms of communication strategy for fiber, and we announced that during the Capital Market Day at the end of March, we want to build a fiber network, which is an open network, open to wholesale activities with wholesale partners. And I'm confirming that we want to pursue in that direction that we want to build a network that will be open to commercial partners, but also a method to co-invest in that nature. Yes. Discussion that could happen and that will happen basically with Orange on both sides of the equation. So, when we can have more advance discussions with Orange, we'll get back to you.
Yes, go ahead. Do you have any new questions? So, on the -- maybe first on the third question, on the broadband net adds. So, indeed, as we mentioned, the lockdown has impacted our operational results. The closing of the shops has impacted the sales but more importantly, the onboarding of new customers, Internet and TV, were impacted by our strict application of limiting the few technician activities to urgent interventions, which have significantly reduced the information capacity. As you know, to protect our employees, we have applied the guidance of government very strictly, more strictly at today. We closed our shops sooner than competition. And at the same time, we have also limited over the period broadband installations to urgent installations only.
And of course, we continue to do full repair service to our customers. We expect indeed that these customers will be installed in the next quarter. But keeping into account, of course, as we try to project it to the next quarter that in April, we were still strong for timing period as well. And on top of that, we, of course, have limitations on our production capacity. But I would say that the customers that we didn't install over the last weeks, they will be installed, like you said or are being already today as we speak.
Okay. And a quick follow up on the wholesale cable. Sorry, and on the current co-investments. Do you see a rising appetite from, let's say, local players, Sandrine, to co-invest together with you in fiber. Can you already tell us a bit more on that on potential partners for the fiber rolling?
I will not comment on the evolution of all the discussions. We do have, as we speak, with different types of partners. So it's too soon to comment on that question, but I hope I will be able to comment later this year on that front.
Next question is from Nayab Amjad from Citi.
First of all, can you quantify some of the COVID impacts seen so far in particular impacting churn and savings and also on track and/or has this been impacting marketing costs. Then my second question is on for [football subs] that have been paused, and costs is trying to get a rebate on this. Can you help us quantify how much will be the revenue impact? And also how much do you expect to recover in costs? And thirdly, do you have an update on the spectrum auction, if any? The BIPT has gone to approximating for the company's temporary 5G licenses today? Do you still foresee this as a risk of a new entrant?
So yes, I'm not sure I understood all your question. I understand that you wanted some quantification of the core impact, but I do not get all the details of the question. But I must say that in Q1, there is a limited financial impact of COVID. We have said that it mainly had an impact in the measures that we have taken and also sort of the benefits that we give to our customers, granting some more data and fixed voice. So that has had an impact on out-of-bundle. It also had an impact on our roaming revenue, where we saw the decrease in traffic. So this has had an impact. There have been a couple of savings as well, of course, this is true for Proximus. This is true for mix as well. And this has helped a bit. But net-net, it's limited to a couple of millions for the first 15 days -- for the last 15 days of March.
So on the update of the IT spectrum portion, first of all on the -- like we think that the agenda, which is currently positive published by the regulator will be respected, that is to say that these temporary licenses would become available as from July 1, and operators have to activate the licenses then between July 1 and the end of the year. On the real auction, there we have to wait for government in full part of it for the moment. We don't have a government in equal part. We have to wait for a government equal part. And so we don't expect this auction anymore in 2020. It will be for next year somewhere. I think Jim wanted to add.
So, on the churn impact related to COVID. So, in this, we have seen, as all the other operators reduced commercial activity in the last 2 weeks of March. So, this has positively impacted the churn on the fixed part. On the mobile part, we have very good churn results in the first quarter. That these are driven more, thanks to the commercial changes we did on the portfolio on January 1, where we boosted the data for our customers, which has really given a very good impact on churn. And this is more important on mobile churn impact than the COVID of the last 2 weeks. So, I would say on fixed, the churn reduction, thanks to this just to -- I would more say, COVID on mobile is mainly the changes on the commercial portfolio that has driven churn and also impacted by COVID reducing churn as well.
Next question is from Mr. Emmanuel Carlier from Kempen.
So, three questions from my side. The first one is going back on the fixed subscriber additions. I think it's since a couple of quarters that they were quite weak. You mentioned the COVID-19 impact, but given that, that only started to take place by mid-March. That cannot just be the only reason, I think. So, I would love to get a little bit more explanation on what is resulting in these weak fixed subscriber additions and how you intend to turn that around? Secondly, on cost savings. So, I've seen quite solid cost savings. Is that base sustainable? And is that mainly driven by the risk, the announced layoffs? And then how should that evolve in the coming quarters? And then lastly, on the fourth entrants. Do you believe that politicians have generally less appetite for fourth entrant because of the importance of good networks in COVID-19 environment.
So, I'm going to start on the fixed part. So, I understand your question and the hesitation that 2 weeks of COVID can have such an impact on the net adds. But as the broadband market is a very saturated market where we do quite some acquisitions to compensate quite some churn at the same time. So, if you calculate the churn rates on the installed base, and you look on the volumes that it drives over a quarter, you will quickly realize that, indeed, in 2 weeks' time, if your production machine is nearly stopped that it can have quite an impact on the net adds on the quarter.
Then on your question on cost savings. So it's true that we had indeed a very good year-over-year cost reduction in Q1 and that was mainly the result of the lower headcount. Of course, we continue to take actions everywhere in the company to focus on our costs. But Q1 decrease should not be taken as a run rate for the rest of the year. We certainly expect further changing by end of year, but not at the same rate. And I can give maybe a bit more color on that. First, we had in -- versus Q1 last year, it's a higher comparable basis in 2019. If you look at the Q2, Q3, there are about €20 million lower this Q1.
So which worked on the cost at the next quarter in 2019. So that's one element. There are also some tightening effects in the commercial needs where some media campaigns have been postponed. And remember, as of first of April, we have rate indexation in Belgium. So the year-over-year for the next quarters will be impacted by this element. And as part of our SSP plan, we had many SSP which departed first of March. And we've always said that there were some specific skills that we needed to rehire, and this has not really had an impact in the month of March yet, but this is ahead of us. So I think that's a series of explanations to guide you not to multiply by four the performance of Q1 in cost decrease.
On the fourth entrants question, this is for sure, there will be about post COVID that will be fully different from the world before COVID. This is one element because we proved the importance of network, as you mentioned, as being crucial for the economy. That's the first element. Second element, that we announced a massive investment plan to upgrade the network conversion and to roll out fiber, which you know will be instrumental to make sure that the recovery of the economy will be accelerated without good connectivity without fiber network, with 5G network. There will be no speed, the faster takeover of the economy. So we're going to be a central element, and also with our investments to create a good momentum for the economy of [patients]. This is the second element.
And so the even the more risk, less attractive in the base market for the entrants. So all those three elements together, I think that probably lowered the risk of having a fourth entrant into the market. That says, we no, but for sure, think I might say that the season bit growth compared to the risk we had a few quarters ago.
Does that mean that the government kind of gave their words that they appreciate that if you do 5G home investments that -- yes, that makes it quite tough if there would be a fourth entrant. Or is that a step too far?
Not for the moment. Not yet.
Next question is from Mr. Ruben Devos from KBC Securities.
Two questions. Just the first one, on potential additional lockdowns. I can imagine you don't take it into account in your current outlook. But of course, I'm curious whether you could expand a bit on a scenario where there would be additional lockdowns? How much of a strain that could be for your business? You think some businesses say such a scenario may be very disruptive. But I was curious for Telco, would it be much different from what we've already seen, in your view? Secondly, just on 5G and sort of the press reports or the concerns by citizens around health and environmental issues. I mean much has been written on the topic, refuting the arguments that the rollout of 5G would be harmful. But still, how do you think the development could hinder the roll out the 5G technology, the granting of mobile permits. And so how have discussions been with policymakers really in communities, in general, on this topic? Thank you.
Yes. So on your first question of the potential lockdown and the impact on the business. We are, of course, as all companies, working on various scenarios of how this will evolve. What is going to be the length, what is going to be the depth of the impact over our business? And how should we best prepare to make sure that we can maybe lighten the impact. And of course, beyond what we've seen so far, we can expect to be impacted in the business most exposed to the crisis and so on the B2B front, we are closely monitoring the evolution that can happen from the various customer base, but also in the IT, we certainly expect that some decisions will be disposed and that there will be an impact on the traction, on the type and our ability to execute some of our potential projects there. Travel, certainly, will not be the same. So, for sure, our roaming business part is going to be impacted for a certain period of time as well. So, that's certainly part of the scenario. And so at the same time, what we're doing is that we're very closely looking at how we can best absorb this and see how we can manage and better manage our costs to make sure that we can minimize the impacts on our EBITDA and our global cash expectations. So that's just the type of very close monitoring that the company has put in place on a very regular basis and also, of course, on the cash aspect.
Okay. With respect to your second question, this is Jim speaking. First of all, when we launched 5G and say very [indiscernible] of course, afterwards, we've got many rate reactions forums on social media and mostly driven by failures number of observation that this is a broad trend, of course, Belgium. That is one. But in fact, also a very big difference with respect to the reaction between the north of the country and the south of the country. With respect to our reaction, we have shown to decide, in fact, to softly react. We'll bring more information and we are now preparing -- because clearly, there is a request for more information. So we are now preparing that with all the different stakeholders. The next steps that are scheduled is we continue with 5G. But the first rollouts that we will now do will be in north. So that is the one step. The other step is that we will do a truce with the stakeholders in Wallonia to bring the necessary information. So there, we can bring comfort with respect to 5G and further rollouts that we want.
[Operator Instructions]. We have a next question from Mr. Stefaan Genoe from Degroof Petercam.
Stefaan Genoe, Degroof Petercam. Two questions. Overall, you've seen a limited COVID impact on the results in the first quarter. But could you give a bit more color what you've seen on the different cost levels of the company and the cost layers of the company in terms of impact? And could you draw, I would say, lessons from this going forward that could benefit you in terms of savings going forward? And then second question, has there been a sell-up from clients having lower broadband connection -- lower capacity broadband connections, such as the Scarlet customers that have requested for higher bandwidth offers in view of the homeworking that we've seen in the country.
So well, on the cost side, there are the obvious one because everyone working from home. So you can expect to see that anything which is linked to supporting the business, the travel, the fuel, the events, all this has stopped. And so that's immediate impact in some of our -- part of the company. As we said, we stopped as well from installation and provisioning. So this our elements, which have had an impact as well on our OpEx and part of our CapEx as well where we stopped deploying. And of course, when you see that there is a less traffic going on from pandemic.
Is COGS associated to this? And now what does that mean for the future? Of course, the question is how digital will continue to grow. There hasn't been a portion of this, which might be leveraged, but will go back at some point to its physical interaction and team meetings and connecting with customers. So I think it's -- certainly, lessons to be taken, it be early to say, but we look at this and see how we can leverage the experience and maybe it has been an accelerated journey to digitalize the way we work, and we'll certainly learn from this for the future, but hopefully not to the magnitude of what we've been having over the last weeks.
So then on the second question linked to up-tiering on broadband. So we haven't seen a lot of short-term impact on the broadband tiering due to COVID crisis. Of course, I think we all agree that this crisis has shown the importance of good performing connectivity for both consumers and businesses. What we do have seen, however, on the consumer side is, I would say, an increase in the TV options. So the Netflix BTV or family buckets and VOD consumption. There, we have seen some traction over the last week.
I think we're surprised we have these types of several customers who asked us to increase their bandwidth because of the employees working from home, which we have been able to accommodate all of them.
Sir, we have no other questions.
Thank you that, I think we can leave it at this. Should there be any follow-up questions we can obviously address this to the Investor Relations team. Thank you very much, and have a nice day.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.
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