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General

Belgacom Q4: mobile markt to stabilise, dividend lower, 4G acelerates

Thursday 13 March 2014 | 11:52 CET | Background

Belgacom recently reported results for 2013 and the fourth quarter, also presenting its outlook for 2014 and investment plans for the coming year. These will result in a significant reduction in its dividend, but are expected to restore growth at the Belgian operator from 2016. The company also announced that it's adopting its mobile brand Proximus for all its activities. Belgacom will remain the corporate name. 

 

The company reported fourth-quarter revenues of EUR 1.58 billion, down 3.8 percent in a continued deterioration in sales over the year. In Q1, the decline was only 0.1 percent. On an organic basis, quarterly revenues fell 5.0 percent, due to a positive effect of EUR 20 million from the sale of a building, which was included in revenues. Excluding regulatory effects, revenues fell 4.1 percent. 

Tango (Luxembourg) and Scarlet (sub-brand) provided some growth, but the three main divisions all reported lower sales: CBU (consumer business unit) down 4.3 percent, EBU (enterprise) down 3.8 percent and BICS (international carrier services) down 6.7 percent. Belgacom expects an improvement in 2014, when revenues are expected to fall only 1-2 percent, excluding BICS. The outlook is based on an expected stabilisation of the mobile market. For BICS, Belgacom expects sales to fall 10-15 percent in 2014, with a limited impact on EBITDA.

Profits and investments

EBITDA declined 4.0 percent to EUR 413 million, giving a margin of 25.2 percent versus 25.9 a year earlier. For 2014, Belgacom expects a decline of 3-4 percent. The results included a write-down of EUR 15 million on Scarlet Netherlands. The net profit fell 12 percent to EUR 148 million or 46 cents per share. The total dividend over 2013 is EUR 2.18 per share.

Capital expenditure jumped 82 percent last year to EUR 425 million or 27 percent of revenues. This was due in part to the 800 MHz band auction, in which the three operators each acquired 2x10 MHz for EUR 120 million. Other investments went to the fixed network (Dynamic Line Management, 'an internally developed technology'; preparations for vectoring, which will be deployed in 2014) and the mobile network (Dual Carrier technology). Free cash flow (EBITDA - capex) ended up a negative EUR 12 million. 

In 2014 Belgacom estimates capex at EUR 900 million, down slightly from EUR 972 million in all of 2013 and equal to 13-14 percent of revenue. This is based on an expected acceleration in the LTE roll-out, the start of vectoring and systems simplification. 

Networks

By the end of 2014, the LTE network should have nationwide coverage. For the fixed network, Belgacom recently started rolling out vectoring to improve the performance on VDSL2 to 70 Mbps. It will first cover customers within 400 meters of the exchange and from next year expand this to 700 meters. In Q2 2015 vectoring will be combined with the DLM technology (see above), raising the maximum speed to 100 Mbps. Belgacom is also embracing FTTH technology from this year, both at greenfield sites (new build) and brownfield areas (trials).FTTH will offer initially 200 Mbps and later be increased to 1 Gbps.

New CEO

The new CEO Dominique Leroy's first actions also includes a reduction in the dividend. Over the coming three years, Belgacom will pay EUR 1.50 per share. The CEO's focus will be on costs, flexibility, customer service and simplification. The financial targets exclude the planned sale of Telindus France (sales: EUR 241 mln) to Vivendi.

The rebranding to Proximus is not a bad idea. Proximus ('close by') is already known on the mobile market and can help the company lose the image of the former PTT. A similar branding strategy is evident in other markets, such as Iliad in France, which uses the Free brand in the retail market, and Comcast in the US, which has adopted Xfinity for most of its services. It appears no longer possible for operators to have just one name.

Belgacom's aim is to return to growth within two years, both in terms of revenue and EBITDA. .

Details

The following shows the more important developments at the divisions, with results presented on an annual basis, except for customers, which are shown on a quarterly basis. Some figures may be rounded. 

CBU 
Revenue fell 4.2 percent to EUR 556 million, and EBITDA was down 8.3 percent to EUR 223 million. Regulation caused 1 percent point of the revenue decline. The impact of the new contract legislation, from October 2012, is starting to lessen in the mobile results. The sub-brands Scarlet (fixed and mobile) and Tango (mobile in Luxembourg) both had higher revenues (+2.6%, +8.2%). The details per segment:
  • Fixed telephony: the number of lines fell by 19,000 to 1.63 million, while ARPU rose 1.1 percent to EUR 20.3. Traffic fell by 8.4 percent. All together revenues were down 4.5 percent to EUR 101 million.
  • Broadband: a gain of 16,000 customers for a total 1.26 million and ARPU up 1.2 percent to EUR 26.4. Revenue rose 4.9 percent to EUR 89 million.
  • TV: 20,000 customers added for a total 1.48 million and ARPU up 4.3 percent to  EUR19.0. This resulted in 13 percent higher sales, at EUR 69 million.
  • Mobile: a gain of 8,000 customers to 3.57 million thanks to 52,000 new postpaid customers offsetting a loss of 44,000 in prepaid. ARPU fell 10.4 percent to EUR 18.0 (EUR 9.0 voice and EUR 9.0 non-voice). Voice revenue was down 22 percent to EUR 94 million, and non-voice dropped 3.9 percent to EUR 96 million. SMS volume fell 7.4 percent to an average 272 messages per customer per month. 
  • Tango (Luxembourg) added 2,000 customers in the quarter for a total 280,000. ARPU rose 5.3 percent to EUR 32.4, and revenues increased 8.2 percent.
EBU 
Total revenues fell 3.8 percent to EUR 557 million, with 1.4 points due to regulation. EBITDA was down 7.5 percent to EUR 255 million. 
  • Fixed telephony: a loss of 14,000 lines for a total 1.29 million, while ARPU was up slightly to EUR 28.7. Revenue declined 4.3 percent to EUR 114 million.
  • Broadband: number of connections stable at 441,000, and ARPU up 1.1 percent to EUR 39.2. Some price pressure in data services. Revenues roughly stable at EUR 95 million (-0.7%).
  • ICT: revenue unchanged (-0.1%) at EUR 186 million.
  • Mobile: 44,000 customers added (including 8,000 machine-to-machine SIMs). Revenue down 9.1 percent to EUR 141 million. Voice fell by 13 percent to EUR 83 million, and non-voice dipped 0.3 percent to EUR 54 million. The latter included a 9.7 percent drop in SMS, offset by 8.5 percent growth in data. Voice ARPU fell 20 percent to EUR 17.2, and non-voice ARPU was down 8.2 percent to EUR 11.2. The lower ARPU is the result of regulation, the product mix (more M2M, which has lower ARPU) and new plans with unlimited voice and SMS.
BICS 

Revenue fell 6.8 percent to EUR 401 million, hurt by lower voice traffic to Asia, cuts to termination rates and the weaker dollar. Voice traffic was 9.1 percent lower, while non-voice volume grew by 15 percent. Revenues from non-voice were up 6.4 percent. EBITDA fell 2.4 percent to EUR 31 million.



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