Outlook

Outlook

We delivered a robust financial performance in the first quarter with (i) broadly unchanged revenue on a rebased basis, (ii) a solid 4% growth in our rebased Adjusted EBITDA and (iii) a strong delivery on both Operating Free Cash Flow and Adjusted Free Cash Flow. The impact of the global COVID-19 pandemic on our Q1 2020 financials was relatively limited, but expected to be moderately negative in Q2 2020 and the rest of the year especially given the exposure of our subsidiary De Vijver Media to the more cyclical media and advertising markets. We continue to see underlying healthy trends in our core connectivity business both on the residential and the business side. This is underpinned by strong momentum for our core FMC bundles and a continued uptiering of our broadband customer base with the average download speed reaching 202 Mbps at the end of Q1 2020, which was up 44% versus 140 Mbps a year ago. 

We've mainly seen four COVID-related headwinds on our financial profile. First, we generated less low-margin revenue from the sale of handsets compared to the same period of last year given the closure of our retail stores since mid-March. In addition, we have also seen an earlier churn uptick for our pay-television sports channels Play Sports relative to previous years given the temporary halt to all major sports events since mid-March. Third, our May 2018 acquired ICT integrator business Nextel has been adversely impacted by certain delays in project-driven revenue, while finally we recorded lower advertising revenue at our media business De Vijver Media, which we acquired in June last year.

Despite today's exceptional circumstances, we remain very well positioned for the future thanks to our leading gigabit HFC and 4G+ converged network infrastructure combined with our value-accretive FMC strategy. Backed by our best-in-class Adjusted Free Cash Flow conversion and our robust liquidity and long-term debt maturity profile of 8.3 years, we remain in a very strong position to drive attractive shareholder value in 2020 and beyond. Therefore, we reaffirm our three-year guidance as presented during the December 2018 Capital Markets Day. As such, we remain on track to deliver an Operating Free Cash Flow CAGR of 6.5 to 8.0% over the 2018-2021 period (excluding the recognition of football broadcasting rights and mobile spectrum licenses and excluding the impact of IFRS 16, applicable as of January 1, 2019).

As for FY 2020, we expect COVID-19 to have a moderately negative, yet temporary, impact on both our revenue and Adjusted EBITDA performance of around 2 percentage points. This reflects the anticipated impacts of the current lock-down as of mid-March 2020 and excludes the effects of any additional lock-downs in the second half of the year, which could further affect our operations. It also assumes we will gradually exit the lock-down starting in May with a gradual economic recovery thereafter. Against this backdrop, we anticipate a top line decline of around 2% on a rebased basis. Excluding our other revenue, which includes (i) interconnection revenue from both our fixed-line and mobile telephony customers, (ii) advertising and production revenue from De Vijver Media NV, which we fully consolidated as of June 3, 2019, (iii) mobile handset sales, including the revenue earned under our "Choose Your Device" programs, (iv) wholesale revenue generated through both our commercial and regulated wholesale businesses, (v) product activation and installation fees and (vi) set-top box sales revenue, we anticipate our revenue for the full year to remain broadly stable compared to 2019, underpinning the resilience of our residential and business connectivity segments. We will continue to control our cost base, making sure we generate operating leverage across the business. As such, we expect our Adjusted EBITDA to contract by around 1% on a rebased basis. Given the robust nature of both our fixed and mobile infrastructure and our demonstrated track record of carefully balancing our future investments, we still expect our Operating Free Cash Flow to grow, more specifically between 1 and 2% on a rebased basis. Finally, we continue to target Adjusted Free Cash Flow of €415.0 - €435.0 million, skewed however towards the lower end of this range.

With that, we reconfirm our intention to maintain net total leverage around the 4.0x mid-point, while continuing to deliver on our shareholder remuneration strategy as presented during the December 2018 Capital Markets Day. As part of this capital allocation framework, we aim to distribute between 50% and 70% of the prior year Adjusted Free Cash Flow to shareholders through intermediate and final dividends. Within the boundaries of the aforementioned net total leverage framework and in absence of any of the above factors, the remaining part of our Adjusted Free Cash Flow may be considered for incremental share buy-backs, extraordinary dividends, deleveraging, accretive acquisitions or a combination thereof.

For more information on our FY 2020 outlook we refer to the Q1 2020 Investor & Analyst Toolkit.