Proximus : financial results – Second quarter 2017

Proximus continues robust commercial performance and posts financials broadly in line with its expectations

• Robust commercial performance continued in highly competitive setting
• 255,000 subscribers to all-in offers Tuttimus or Bizz All-in by end-June 2017
• Q2'17 underlying Domestic revenue stable; Domestic EBITDA up +1.1% to EUR 430 million

  Domestic is defined as Proximus Group excluding BICS. Domestic also includes subsidiaries in Luxembourg and the Netherlands.

• Q2'17 underlying Group EBITDA of EUR 464 million, +0.4% year-on-year
• For first-half 2017, Proximus posts Domestic underlying revenue growth of 1.7%, Group underlying EBITDA growth of 3.8% and reiterates its full-year outlook

I'm pleased to announce solid customer growth, proving the robustness of our domestic operations, in spite of the uptick in competition.

Our Consumer segment continued to grow and strengthen its Proximus customer base with its attractive convergent portfolio Tuttimus/Bizz All-in, reaching 255,000 customers end-June and solidly grew its mobile base. Scarlet obtained once again good traction in the low-end of the market. Proximus' Enterprise segment sustained its solid position, firmly grew its mobile customer base and saw ongoing take up for its flagship VPN solution Explore. At the same time, its revenue was impacted by the ongoing decline in legacy Voice services and by volatility in ICT product deals.

We achieved sustained Domestic EBITDA growth, up by 1.1% for the second quarter, with cost savings delivering in line with expectations. Including BICS, the Group EBITDA was up 0.4% in the second quarter.

Investments in the further deployment of simplification and transformation projects continued, contributing to a decreasing cost base. We further enhanced our 4G mobile network, kicked-off the commercial roll-out of 4.5G and increased the vectoring coverage to 77% of homes, providing 50% of the population access to 100 Mbps, while we also started our Fiber-for Belgium roll-out in four major Belgian cities.

The first-half 2017 financial results are broadly in line with our expectations, and we therefore re-affirm our full-year guidance of slight growth in Group EBITDA, and a nearly stable Domestic revenue. With Fiber investments expected to go up over the next two quarters, we also reiterate our Capex outlook for 2017 of around EUR 1 billion.

Going forward, we will maintain our focus on improving customer experience, through a comprehensive entertainment offer strengthened by the renewal of the Jupiler Pro League football rights and Netflix now available as TV option in Tuttimus. We will launch our increased data offers in our mobile and convergent bundles, in response to an enhanced mobile data consumption in Belgium and abroad.

As a final point, the consultation on the BIPT's market analysis has now started and currently proposes to deepen the cable regulation and extending it to fiber networks, with several modalities still to be defined. We strongly advocate for a non-regulated, open & future proof fiber network, based on flexible bitstream access, enabling a competitive gigabit market in Belgium. It guarantees fiber access for Belgian households in the quickest and most cost-effective way, taking into account the specific Belgian context. As already communicated, we are open to co-investments in fiber infrastructure, under acceptable technical and financial conditions.

Proximus completes another quarter with solid customer growth, resulting from successful commercial initiatives and improved churn levels

Many customers were attracted by Proximus' Mobile offers this quarter, supported by a new, more flexible joint offer approach, and by the success of the Samsung S8. Fitting within its content aggregator strategy, by offering a wide choice of content at reasonable pricing, Proximus renegotiated the non-exclusive broadcasting rights to Belgian's first division football, the Jupiler Pro League, for the next three seasons. Proximus also further enriched its TV content by adding VICELAND as a new TV channel in its basic offer. It also enhanced its high-end Tuttimus offers by including Netflix amongst the different content options customers can choose from. The subscriber base of Tuttimus/Bizz All-in continued its solid growth track, reaching 255,000 customers by end-June 2017. Proximus' low-cost brand Scarlet increasingly proved its competitive position in the lower end of the market, benefitting from higher brand-awareness, commercial campaigns and newly launched offers. In addition to its 3-Play offer TRIO, its standalone internet offers (Poco/Loco) gained good traction. Mid-June, Scarlet's offering was completed with 'HiFive', the first mobile subscription offering only mobile data, intended for millennials.

Proximus' Enterprise segment continued to maintain its solid position, to firmly grow its mobile customer base and continued the take-up for its flagship VPN solution Explore. At the same time, its revenue was impacted by the ongoing decline in Fixed voice and by lower ICT product deals.

• Unique TV customers totaled 1,533,000, with +17,000 new subscriptions in the second quarter of 2017 (+ 5.2% year-on-year).
• The total Fixed Internet customer base grew to 1,959,000 end June, with +15,000 Fixed Internet lines added over the second quarter (+3.5% year-on-year).
• Fixed Voice totaled 2,670,000 lines, a decrease of 12,000 lines in the second quarter of 2017 (-1.9% year-on-year).
• The total Mobile customer base stands at 6,092,000 (+1.3% year-on-year), with +60,000 Mobile Postpaid, -57,000 Mobile Prepaid, and +9,000 M2M (machine-to-machine) in the second quarter.

  Group (Consumer, Enterprise, Tango) figure.

• 3- & 4-Play households and small offices totaled 1,410,000 at the end of the second quarter, representing 47.7% of the total customer base, with +20,000 new customers in the second quarter (+5.6% year-on-year).

  Households/Small Offices, with Small Offices being all customers of Consumer-SE. These are small enterprises with up to 10 employees.

• 56.1% Convergent households and small offices, an increase of 2.6 p.p. year-on-year.

Domestic financial performance in second quarter marked by stable revenue and an EBITDA growth driven by continued structural cost reductions

For the second quarter of 2017, Proximus posted a fairly stable Domestic underlying revenue of EUR 1,105 million, i.e. +0.3% from the previous year. Owing to a continuously growing subscriber base, Proximus sustained revenue growth for Fixed Data, TV and Mobile Postpaid, in spite of regulatory roaming pressure. In addition, revenue from mobile devices was up from a low comparable base. This compensated for the steady erosion in Fixed Voice, the lower ICT revenue for the quarter and eroding Mobile Prepaid revenue.

Proximus Domestic posted a second quarter 2017 direct margin of EUR 834 million, -1.2% from the prior year. The higher margin contribution for TV, Fixed Data and ICT was offset by a EUR -10 million price effect from the roaming-out regulation, commercially-driven higher costs for mobile devices and the ongoing attrition of Fixed Voice.

Proximus keeps high focus on structurally improving its cost base, lowering its Domestic expenses by 3.6% in the second quarter 2017.

Including roaming regulation headwinds and facing a tougher comparable base, Proximus' Domestic operations posted a 1.1% growth in underlying EBITDA to EUR 430 million.

BICS posting stable direct margin while continuing its transformation into a global digital enabler

In spite of the revenue pressure, BICS posted a stable direct margin in the second quarter of 2017, totaling EUR 67 million. Its second-quarter EBITDA decreased to EUR 34 million (-8.4%) due to higher expenses.

Following the April 25 announcement of entering a definitive agreement to acquire Telesign, BICS expects to close the acquisition in the next weeks, creating the world's first end-to-end Communication Platform as a Service (CPaaS) provider.

Group underlying EBITDA progressing thanks to continued cost reduction focus

The Proximus Group generated an underlying revenue of EUR 1,417 million in the second quarter, 2.9% lower compared to the same period in 2016, impacted by BICS' revenue decline by 12.9%.

In the second quarter, the Proximus Group posted an underlying direct margin of EUR 901 million, down by 1.1% versus prior year.

The underlying expenses of the Proximus Group were down by 2.6% from the previous year, fitting its EUR 150 million net cost reduction plan, between 2015 and 2019.

Proximus' second-quarter 2017 underlying Group EBITDA progressed by 0.4% to EUR 464 million.

Proximus' Free Cash Flow for the first half year of 2017 totaled EUR 212 million, including significant higher legal income tax prepayments in the second quarter of 2017. This aside, the Free Cash Flow benefited from the growth in underlying EBITDA, a positive evolution in Business working capital and less cash used for Capex.

Further investments in the overall customer experience

Over the first-half of 2017, Proximus invested EUR 502 million, of which EUR 281 million in the second quarter. The increase on the same period of 2016 is explained by the capex related to the Jupiler League football broadcasting rights, acquired for the next three seasons. This aside, invested amounts mainly supported the further improvement in Proximus' Fixed and Mobile networks, including Fiber for Belgium which started in four cities, a comprehensive entertainment offer and the deployment of simplification and transformation projects that contribute to the decreasing cost base.

2017 outlook confirmed

Based on its results in the first half of 2017, and taking into account its best estimate for the remainder of the year, Proximus confirms its 2017 full-year outlook. Therefore Proximus expects to close the year with nearly stable Domestic revenue and slightly growing Group EBITDA, supported by its cost reduction plan. Proximus' Group capex for the year 2017 is expected to be around EUR 1 billion, excluding the Jupiler League football broadcasting rights