Proximus : financial results – FY 2016

Proximus Group closed 2016 with another solid quarter and achieved underlying EBITDA growth for the second year in a row

• Solid customer growth in 2016 reinforced by strong uptake of new product portfolio
• New product portfolio Tuttimus & Bizz All-in, launched mid October '16, already at 124,000 customers at the end ofJanuary, driving higher customer value and accelerating 4-play penetration
• Full-year underlying Domestic revenue up 0.7%, in spite of roaming regulation impact and new competitive setting
• Solid underlying Domestic EBITDA growth of 4.7%, driving a 3.6% increase in underlying Group EBITDA
• Capex investment of EUR 949 million in Fixed and Mobile networks, enlarged TV content and improved customer experience
• Free cash flow of EUR 559 million over the full-year, up 23% vs 2015 on like-for-like basis
• Dividend of EUR 1.50 gross per share over the result of 2016

Proximus further growing its customer base in 2016 in spite of a tough competitive setting, supported by Scarlet and the recent succesfull launch of Tuttimus and Bizz All-in.

Strong commercial campaigns and the launch of the new product portfolio Tuttimus and Bizz All-in mid-October led to a good growth for Proximus' customer base for Fixed Internet, TV and Mobile Postpaid. Notwithstanding the intense competitive environment, Proximus grows its market shares for Fixed Internet to 46.3%, Digital TV to 35.9% and Mobile to 40.7%.

The Consumer segment strengthened its customer base further, shifting towards high-value, low-churn households and small offices for its Proximus brand. The customer base of its low-cost brand Scarlet too showed good growth. As for the Enterprise business, 2016 showed a strong mobile customer growth, in a competitive market.

• Unique TV customers totaled 1,489,000, with +75,000 new subscriptions over the full year 2016
  (+5.3 % year-on-year).
• The total Fixed Internet customerbase grew to 1,920,000 end-2016, with +64,000 Fixed Internet lines added over 2016 (+3.5% year-on-year).
• Fixed Voice totaled 2,688,000 lines at the end of the 2016, a decrease of 93,000 lines in 2016
  (-3.3% year-on-year).
• The total Mobile customer base stands at 6,543,000 (+8.9% year-on-year) over 2016 , with +126,000 Mobile Postpaid Voice, -163,000 Mobile Prepaid, and +571,000 M2M (machine-to-machine and Internet Everywhere cards).
• 3- & 4-Play households and small offices totaled 1,363,000 at end-2016, representing 46.3% of the total customer base, with +62,000 new customers over the full-year 2016 (+4.8% year-on-year).
• 54.5% Convergent households and small offices increased 1.4 p.p. year-on-year.

Strong Domestic financial performance

For full-year 2016, Proximus posted EUR 4,410 million in Domestic underlying revenue, 0.7 % higher than the previous year. This was mainly driven by the growth of TV (+10.0%), Fixed Internet (+5.2%), ICT (+4.0%) and Mobile device sales (+2.5%), offsetting lower revenue from roaming due to new EU regulation and lower revenue from fixed voice.

Proximus' Domestic direct margin increased by 0.4% to a total of EUR 3,354 million for the year 2016, resulting from a favorable variance for the Consumer and Enterprise segment, slightly offset by lower Wholesale direct margin.

Executing Proximus' strategy to reduce its cost base, the 2016 Domestic operating expenses decreased by 3.4%, with workforce expenses down by 3.5%. This includes a continued benefit from initiatives launched to structurally reduce the Proximus Domestic cost base.

Proximus'2016 underlying Domestic EBITDA increased by 4.7 % to EUR 1,647 million. The Domestic EBITDA margin improved by 1.4 p.p., reaching 37.3% for full-year. This was driven by lower expenses and a slightly higher Domestic direct margin.

BICS financials reflecting ongoing shift from Voice to Data and pressure on legacy services

BICS is operating in a volatile and declining Voice market, influenced by a shift from voice to Data. Being mainly a trading business, BICS focuses on managing its direct margin instead of revenue, since the latter is not a good performance indicator for this type of business. BICS posted a 2016 direct margin of EUR 274 million, 1.3% below 2015 impacted by continued high volatility in the voice market, with a less favorable destination mix.

BICS 2016 EBITDA of EUR 149 million was 7.2% below the prior year, due to a combination of the lower direct margin and higher expenses, mainly related to geographical expansion and investments in new growth initiatives.

Continued strong Group underlying EBITDA growth and a solid Free Cash Flow

The Proximus Group generated an underlying revenue of EUR 5,871million in 2016, 2.1% lower compared to 2015. The Domestic revenue grew by 0.7% in 2016, while revenue from BICS ended 9.6% below that of 2015.

In 2016, the Proximus Group posted an underlying direct margin of EUR 3,628 million, slightly up by 0.3% versus 2015.

Year-to-date December 2016 the underlying expenses of theProximus Group amounted to EUR 1,832 million, a 2.7% or EUR 52 million reduction versus 2015. With its Domestic expenses decreasing in 2016 by 3.4% or EUR 59 million, Proximus is well on track to deliver upon its cost reduction plan, aiming for a EUR 150 million net decrease between 2015 and 2019. For BICS, the 2016 operating costs were up by 6.6%, or EUR 8 million, from last year, supporting investments in new geographies and future growth domains.

Proximus' 2016 underlying Group EBITDA progressed by 3.6% to EUR 1,796 million, entirely driven by a 4.7% increase for Domestic, more than offsetting the 7.2% lower EBITDA for BICS.

Proximus posted a solid Free Cash Flow for the year of EUR 559 million, up by 23% excluding the net impact of major one-off cash items in 2015. This was mainly driven by the growth in underlying EBITDA, less cash needed for capex and active working capital management.

Investments to the benefit of the overall customer experience

The Proximus Group invested EUR 949 million in 2016, fully in line with the provided capex outlook.

In line with its Fit for Growth strategy, Proximus invested to further improve its customer experience.
For mobile, Proximus offers the best quality thanks to a 4G indoor coverage at 97.7%; a 4G+ coverage at 39.4%, 38.3 Mbps average downlink speed on a 4G device and the launch of HD voice with VoLTE.
To improve the broadband experience, Proximus rolled-out Fiber-to-the-Business covering 80% of industrial zonings and offering more than 6000 enterprise customers the full advantage of Fiber. For the residential customers, Proximus further invested in Fiber roll-out to new residential zonings and continued the roll-out of Vectoring (+) with coverage reaching 72%. Through the combination of DLM and vectoring, Proximus is able to offer 100 Mbps on copper to 50% of the Belgian population. Thanks to Proximus' dense FTTC network (21,000km fiber in Belgium today) bringing optical fiber right to the street cabinet, and dedicated bandwidth per home, customers can enjoy an optimal in-home experience. Proximus also offers the best Wi-Fi extender and offers proactive advice during a Happy House visit to optimize the customer's connectivity.

Proximus has also enriched its wide and attractive entertainment offering, that now contains a comprehensive national and international sports offer (including football, cyclism and cyclo-cross), content for kids with a.o. Disney, Wanagogo and the French Studio 100 channel and a complementary offer of the best movies and series thanks to the Movies & Series Pass and Netflix.

Furthermore, Proximus also continued to invest in its IT-systems, in simplification and transformation which all contributed to a more efficient cost structure.

2017 outlook

In 2017, Proximus will execute its renewed 'Fit for Growth' strategy, aiming at delivering sustainable growth. Proximus will continue to grow a valuable and loyal customer base, and further deliver upon its cost reduction plan. Regulatory measures however, and especially Roam-like-at-Home, are expected to mitigate Proximus' financial growth in 2017, respectively by EUR -81 million in revenue, and EUR -69 million in EBITDA.

Although facing a greater negative regulatory impact and highly competitive market, Proximus expects its Domestic revenue for 2017 to remain nearly stable to the prior year. The Proximus Group EBITDA is expected to slightly grow compared to 2016, supported by its cost reduction plan. Proximus' Group capex for the year 2017 is expected to be around EUR 1 billion, in line with Proximus' 'Fiber for Belgium' announcement on 16 December 2016.

In line with the announced three-year commitment on 16 December 2016, Proximus expects to return over 2017-2019 a total gross dividend per share of €1.50.

We closed the year with another solid quarter and achieved EBITDA growth for the second year in a row.
In 2016, we continued to deliver our Fit for Growth strategy, transforming Proximus into a more customer oriented, agile and efficient organization. In an intensive competitive market with fast changing customer needs, we further grew our customer base. In the first 3 months since its launch mid-October, 124,000 customers were appealed by our new Tuttimus and Bizz All-In offer. This accelerated the penetration of 4-play in our customer base and further enriched it with more valuable and loyal multi-play customers. Moreover, our efforts to transform our company resulted into a solid reduction of our cost base. This translates in a fourth quarter underlying Group EBITDA growth of a solid 5.5%, ending 2016 with a 3.6% increase in Group EBITDA, in spite of a significant impact from roaming regulation. Delivering upon our plans, we invested EUR 949 million to upgrade our networks, improve customer experience and enrich our TV content. This all resulted in a very healthy free cash flow of EUR 559 million, up 23% versus 2015 on like-for-like basis.

Over the next three years we are strengthening our ambition and aim at accelerating our transformation towards a digital service provider, delivering superior customer experience. We will make our organization fitter, focusing on efficiency and simplification efforts to further structurally reduce our costs and hence finance our ambitious investment program. We will grow our core business offering convergent solutions and a large variety of entertainment to our customers. We will build the future by bringing Fiber to our customers, using the digital platforms and applications for better service and developing meaningful innovations such as Smart Mobility, Smart Retail, IoT and Security in partnership with start-ups. This will enable us to deliver sustainable, profitable growth and a stable shareholder return.

1. Domestic is defined as Proximus Group excluding BICS.
2. Including Voice and Data Mobile cards sold through Consumer, M2M cards in Enterprise and Mobile cards from the Tango, MVNO and Wholesale segment are included as well.
3. Households/Small Offices, with Small Offices being all customers of Consumer-SE. These are small enterprises with up to 10 employees.
4. Customers can consult their individual speed on www.proximus.be/internetspeed