Proximus : financial results – third quarter 2016

28/10/2016

Strong third quarter Domestic performance, with EBITDA up a solid 5.5%. Proximus revises its full-year Group underlying EBITDA outlook upwards.

• Q3 16 underlying Domestic revenue up 1.5% compared to the same period last year, in spite of roaming regulation impact and competitive setting
• Solid underlying Domestic EBITDA growth of 5.5%, driving a 4.7% increase in underlying Group EBITDA to EUR 474 million for Q3 16
• Strong free cash flow of EUR 555 million for the first 9 months of 2016
• 2016 full-year Group underlying EBITDA outlook revised upwards to a growth of 3 to 4%
• Interim dividend of 0.50 euro per share to be paid on 9 Dec 2016

Proximus reinforces its market position in a tough competitive quarter

In the third quarter 2016, Proximus continued to grow its Domestic customer base for Fixed Internet, TV and Mobile Postpaid, for both the Proximus and Scarlet brands. Proximus showed continued sequential growth for its Fixed market shares with 46.4% for Fixed Internet and 35.8% for Digital TV, maintaining its market share in Mobile at 40.7%.

The Consumer business strengthened its portfolio further, shifting towards high-value and low-churn triple- and quadruple-play households and small offices. As for the Enterprise business, the third quarter showed good mobile customer growth.

• TV subscriptions totaled 1,834,000, with +18,000 new subscriptions in Q3 (+6.9 % year-on-year).
• The total Fixed Internet customer base grew to 1,906,000 at end-Q3, with +14,000 Fixed Internet lines added in Q3 (+4.3% year-on-year).
• Fixed Voice totaled 2,696,000 lines at the end of the quarter, a decrease of 27,000 lines (-3.7% year-on-year).
• The total Mobile customer base stands at 6,567,000 an increase of +59,000 Mobile cards in Q3 (+34,000 Mobile Postpaid Voice, -38,000 Mobile Prepaid, and +63,000 M2M (machine-to-machine and Internet Everywhere cards) (+11.6% year-on-year).
• 3- & 4-Play households and small offices totaled 1,346,000 at end-Q3, representing 46% of the total customer base, with 11,000 new customers in this quarter (+5.5% year-on-year).
• 53.9% Convergent households and small offices, an increase of 1.5 p.p. year-on-year.

Proximus continues to deliver strong Domestic financial performance

In the third quarter of 2016, Proximus posted EUR 1,105 million in Domestic underlying revenue, 1.5% higher than the previous year, further improving from prior quarters. This was mainly driven by the growth of TV (+10.8%), Fixed Data (+4.1%) and higher Mobile device sales following the Back-to-School campaign in the Consumer segment.

Proximus' Domestic direct margin increased by 0.2% to a total of EUR 846 million for the third quarter of 2016, resulting from a favorable variance for the Consumer and Wholesale direct margins, slightly offset by the Enterprise direct margin, which was slightly down due to the roaming impact.

Executing Proximus' strategy to reduce its cost base, the third-quarter 2016 Domestic operating expenses decreased by 4.8%, with workforce expenses down by 7.6% from a high comparable base in 2015. Proximus' cost management is supported by the voluntary early leave plan prior to retirement, through which a first wave of employees left the company in July 2016.

Proximus' third-quarter 2016 underlying Domestic EBITDA increased by 5.5 % to EUR 435 million. The Domestic EBITDA margin improved by 1.5 p.p., reaching 39.3% for the third quarter. This was driven by lower expenses and a slightly higher Domestic direct margin.

BICS EBITDA growth showing good recovery in the third quarter, driven by a solid direct margin performance

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 third quarter 2016 direct margin of EUR 73 million, a stable performance against a high comparable base.

Following this solid direct-margin performance, BICS third quarter EBITDA of EUR 40 million was only 3.1% below the prior year, showing good recovery from the steep year-on-year decrease in the prior two quarters.

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

The Proximus Group generated an underlying revenue of EUR 1,487million in the third quarter of 2016, 1.4% lower compared to the same period of 2015. As expected, BICS' high comparable base partly offset the realized Domestic growth.

Over the third quarter of 2016, the Proximus Group posted a direct margin of EUR 918 million, slightly up by 0.2% versus the same period of 2015.

The Proximus Group reduced its operating expenses in the third quarter by 4.2% from the prior year, mainly driven by a decline in workforce expenses.

Proximus' third-quarter 2016 underlying Group EBITDA progressed by 4.7% to EUR 474 million, entirely driven by a 5.5% increase for Domestic.

Proximus posted a solid year-to-date Free Cash Flow of EUR 555 million. The level of Free Cash Flow was supported by a higher underlying EBITDA and lower cash needs for business working capital.

Network investments to improve customer experience

The Proximus Group invested EUR 183 million in the third quarter 2016, bringing the total over the first nine months of 2016 to EUR 635 million. In line with its Fit for Growth strategy, Proximus invested in further improving the customer experience for both Mobile and Fixed. With 4G outdoor and indoor coverage having reached top quality levels of 99.6% and 97.0% respectively, Proximus turned its attention to further improving the customer experience by boosting Mobile speeds. On its Fixed network, Proximus continued the roll-out of vectoring technology, increasing its coverage to 63% by end-September and remains well on track for its Fiber-to-the-Business roll-out.

Proximus revises its full-year underlying EBITDA outlook upwards

Proximusreiterates its outlook on slight Domestic revenue growth and revises its full-year Group underlying EBITDA outlook upwards to 3-4% growth. The CAPEX expectation remains at around EUR 950 million.

With the good progress we are making on our Fit for Growth strategy, the sound customer gain and the recent launch of our new and attractive converged product portfolio, we are raising our Group underlying EBITDA outlook for the year 2016 to a growth of 3% to 4%.
We maintained a good commercial performance in the third quarter, in spite of an intensified competitive environment. With our Back-to-School promotions in the Consumer segment and strong commercial results for our Enterprise segment, we delivered a solid mobile momentum, adding 34,000 mobile postpaid voice cards in the third quarter. Moreover, we further improved on our customer mix by shifting towards higher value 3-and 4-Play offers, now representing 46% of our Household/Small Enterprise base. We expect to accelerate this trend with the recent launch of our new commercial offering Tuttimus and Bizz All-in, bringing our customers a total experience that they can customize to their own personal liking, allowing them to call, surf, watch television and work without any worries, at home and on the move.

I'm pleased that our efforts to transform our company and reduce our costs are being translated into a strong Domestic EBITDA growth of 5.5%, in spite of the reduced roaming rates. This makes us confident about raising our full-year 2016 outlook for the Group underlying EBITDA.

1. Domestic is defined as Proximus Group excluding BICS.
2. Total number of set-top boxes.
3. 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.
4. Households/Small Offices, with Small Offices being all customers of Consumer-SE. These are small enterprises with up to 10 employees.
5. This corresponds to the working capital related to Trades Receivable, Inventory and Trades Payable.

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