Comments on the financial situation

In document Orange - Financial results Q4_2019 (6.2.2020) | Vlaamse Federatie van Beleggers (pagina 6-11)

2.1 Consolidated figures for the Orange Belgium Group

Orange Belgium Group: consolidated P&L continuous growth in convergence (+47.7%). On a reported basis, IT & Integration services revenues increased due to the consolidation of BKM.

Wholesale revenues declined 10.4% on expected lower MVNO revenues as well as lower interconnection revenues.

MVNO revenues were €4.2m in the quarter versus €10.2m in the comparable period of last year. Interconnection revenues were impacted by lower SMS costs.

Orange Belgium Group: consolidated revenues

Result of operating activities before depreciation and other expenses

Result of operating activities before depreciation and other expenses

Q4’19 was characterised by several effects: lower MVNO revenues, EU regulation on intra-european calls and sms, and brand fees (from May 2019). Nevertheless, EBITDAaL grew 5.5% to €79.6m through a focus on continuous operational improvements and cost control. The cable operations in Belgium generated for the third consecutive quarter a positive EBITDAaL, amounting to €3.3m during the quarter on improved operational efficiency. The EBITDAaL margin increased by 14 bp to 21.5%.

Reconciliation from operating profit to EBITDAaL

Depreciation, amortization of other intangible assets and property, plant and equipment 62.0 62.2 235.7 243.4

Other restructuring costs2 2.9 4.8 7.6 10.7

1. The Group has initially applied IFRS 16 on 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognized in retained earnings at the date of initial application.

2. Restructuring costs consist of contract termination costs and redundancy charges.

Total operating expenses increased by 4.6% on a comparable basis, amounting to €289.8m in Q4’19 vs €277.0m in the previous year. The following table provides an overview of the different expenses.

Operating costs customer access connectivity and contents partially offset by lower interconnection costs as well as less commissions paid to retail partners.

Labor costs were €38.8m, increasing by 3.4% vs the same period of last year on a comparable basis, due to indexation and internalisation of distribution channels.

Indirect costs grew by 2.2% compared to Q4 2018 on a comparable basis due to the payment €4.1m of brand fees in Belgium. To highlight the lower spend vs Q4’18 in IT and network, advertising and promotion as well as in customer service.

Restructuring costs for the quarter increased to €4.8m.

Depreciation and amortization

Depreciation and amortization increased from €62.0m in Q4’18 to €62.2m in Q4’19.

Financial result

Net financial expenses of the quarter decreased in comparison to the previous year and amounted to €0.8m.

Taxes

The group reported a tax credit of €0.9m, for an effective tax rate of 9.3% due to tax return for 2018 accounted in Q4’19.

Income tax

Net profit for the quarter increased by 35.1% yoy to €11.0m.

2.3 Liquidity and capital resources

The Group uses Operating cash flow and Organic cash flow as the main metrics for analysing cash generation. Operating cash flow is defined as EBITDAaL less eCapex. Organic cash flow measures the net cash provided by operating activities less eCapex.

Operating cash flow increased from €8.4m to €18.6m in comparison to Q4’18, due to lower eCapex.

Operating cash flow

in €m Q4 2018 Q4 2019 FY 2018 FY 2019

EBITDAaL 79.6 300.1

ECapex -61.1 -180.2

Operating cash flow 18.6 120.0

Adjusted EBITDA 77.4 286.1

Capex -69.0 -179.4

Operating cash flow 8.4 106.7

Organic cash flow increased to €13.0m in Q4’19.

Reconciliation to organic cash flow

in €m Q4 2018 Q4 2019 FY 2018 FY 2019

Net cash provided by operating activities 35.9 67.1 261.4 339.7

eCapex -69.0 -61.1 -179.4 -180.2

Increase (decrease) in fixed assets payables 19.1 19.7 -1.4 -0.4

Repayment of lease liabilities 0.0 -12.8 0.0 -46.7

Organic cash flow -14.1 13.0 80.6 112.4

Net debt was €234.3m at quarter-end. Gearing, as measured by the net debt/reported EBITDAaL ratio, resulted in 0.8x.

Net debt

€m, period ended 31.12.2018 31.12.2019

Cash & cash equivalents

Cash -6.7 -1.9

Cash equivalents -19.9 -18.3

-26.6 -20.2

Financial liabilities

Intra-group long term loan 269.9 245.0

Intra-group short term loan 20.8 9.4

Third-party short term loan -2.6 -1.7

Derivatives (net) 2.8 1.8

290.9 254.5

Net debt 264.3 234.3

Net debt/Reported EBITDAaL N/M 0.8

Net debt/Reported EBITDA 0.9 N/M

2.4 Activities of the Orange Belgium Group by segment

The following gives a breakdown of Orange Belgium Group’s activities in greater detail:

2.4.1. Orange Belgium

Operating review

During the last quarter of 2019, Orange Belgium’s convergent customer base continued to grow with net-adds of 25k, resulting in 258k Love customers. B2C customers represent 90% of convergence subscriber base, totalling 231k customers. B2B convergent customers increased to 27k. The billing of set-up fees has not stunted demand for Orange’s convergence products. An increasing number of postpaid mobile subscribers are becoming convergent, the proportion grew from 11.5% in Q4’18 to 15.9% at the end of 2019.

The B2C convergent ARPO increased by 1.6% to €76.7 due to set-up fees and additional options (mainly fixed line option).

Orange Belgium: convergent services operating figures (in ‘000s, unless otherwise indicated)

Convergent KPIs

Q4 2018 Q4 2019 change Q4 2018 Q4 2019

Convergent customer base Net-adds

B2C convergent customer base 162 231 42.6% B2C convergent customer base 22 22

B2B convergent customer base 18 27 51.8% B2B convergent customer base 3 3

Orange Belgium ended the quarter with 2.6m mobile postpaid customers and net-adds of 31k.

Mobile-only Postpaid ARPO decreased by 1.6% yoy to €20.4 due to the regulation on intra-EU calls. The company continued to benefit from the migration towards simple abundant tariff plans which shrink out-of-bundle revenues while increasing access revenues.

Orange Belgium: mobile services operating figures (in ‘000s, unless otherwise indicated)

Mobile KPIs revenues declined from €10.2m in Q4’18 to €4.2m in Q4’19. Equipment sales increased by 31.3% as a result of successful end-of- year offers.

Orange Belgium: key financial figures

EBITDAaL grew by 5.9% to €77.0m despite lower MVNO revenues. The improvement was driven by higher retail service revenues, sustained efficiencies as well as continuous improvements in the cable operations. The latter generated a positive EBITDAaL of €3.3m during the quarter on improved operational efficiency and increased ARPO.

2.4.2. Orange Communications Luxembourg

Operating review

Orange Luxembourg delivered good EoY commercial results, especially on handsets, accessories and on its BeUnlimited offer, despite communication efforts of other providers. In addition, operators continue to heavily discount broadband plans.

At the end of the quarter, Orange Luxembourg’s mobile subscriber base grew 3.3% to 199k in comparison to Q4’18.

Orange Communications Luxembourg: mobile services operating figures (in ‘000s, unless otherwise indicated)

Mobile KPIs

Q4 revenues increased by 1.9% yoy to €19.4m mainly because of higher equipment revenues, and with 4.3% FY 2019 to reach €69.8m

EBITDAaL Q4 decreased by 4.0% yoy to €2.6m but increase by 30.7% FY 2019 to reach €8.1m.

Orange Communications Luxembourg: key financial figures

In document Orange - Financial results Q4_2019 (6.2.2020) | Vlaamse Federatie van Beleggers (pagina 6-11)

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