Proximus Group financial results – First quarter 2017

Proximus Group off to a good start of the year, with robust customer growth for main products, while maintaining strong focus to deliver its cost saving ambition

• Robust customer growth in competitive market, with continued traction for new portfolio Tuttimus/Bizz All-In reaching 192,000 subscribers by end-March 2017
• Q1’17 underlying Domestic* revenue grew by 3.2% year-on-year in spite of roaming regulation impact *Domestic is defined as Proximus Group excluding BICS.
• Firm cost savings continued, well on track to deliver cost reduction ambition set for 2019
• Q1’17 Underlying Group EBITDA of EUR 449 million, +7.5% year-on-year
• Full-year 2017 outlook confirmed

Proximus outperforming the market with robust customer gains in Fixed Internet and TV, while maintaining its strong position in Mobile

With a continued success of the new product portfolio launched mid-October 2016, and Scarlet thriving as low-cost offer in the market, Proximus has firmly grown its customer base for Fixed Internet, TV and Mobile Postpaid.

Notwithstanding the intense competitive environment, Proximus achieved further progress in its market shares for Fixed Internet to 46.6% and for Digital TV to 36.3%, while for Mobile its market share was 38.5%, - 0.2pp from one year ago.

Proximus' new product portfolio continued successfully to move customers to 4-Play, improving the price tiering, and attracting new and more loyal customers. By end-March 2017, 192,000 customers signed up on either a Tuttimus or Bizz All-In offer.

As for the Enterprise business, the first quarter showed a strong growth in ICT and continued strong mobile customer growth, in a competitive market.

• Unique TV customers totaled 1,516,000 , with +27,000 new subscriptions in the first quarter of 2017 (+ 5.3% year-on-year).
• The total Fixed Internet customer base grew to 1,944,000 end March, with +24,000 Fixed Internet lines added over the first quarter (+3.5% year-on-year).
• Fixed Voice totaled 2,682,000 lines, a decrease of 6,000 lines in the first quarter of 2017 (-2.5% year-on-year).

• The total Mobile customer base stands at 6,080,000 (+3.0% year-on-year) end March , with +44,000 Mobile Postpaid, -64,000 Mobile Prepaid, and +12,000 M2M (machine-to-machine) in the first quarter.

• Group (Consumer, Enterprise, Tango) figure. As of 2017 Postpaid includes the 'Full Control' mobile offer, while free cards have been excluded. 2016 figures have been restated accordingly*

• 3- & 4-Play households and small offices* totaled 1,390,000 at the end of the first quarter, representing 47.2% of the total customer base, with +24,000 new customers in the first 3 months of the year (+5.1% year-on-year).

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

• 55.6% Convergent households and small offices , increased 2.4 p.p. year-on-year.

Strong Domestic financial performance

For the first quarter, Proximus posted EUR 1,111 million in Domestic underlying revenue, 3.2 % higher than the previous year . Revenue from Fixed was up by 3.7%, resulting from a higher ICT revenue (+14.7%), from the continued growth in Fixed Data (+2.3%) and TV (+9.2%). Mobile devices revenue increased versus a low comparable base. Mobile Services revenue for the Consumer and Enterprise segment combined ended 3.1% below the prior year, including an accelerated revenue erosion for Prepaid, triggered by the identification legislation in an already declining market.

Mobile Postpaid revenue remained fairly stable on a growing Postpaid customer base which offset the roaming regulation pressure.

Proximus' Domestic reported a fairly flat direct margin of EUR 834 million for the first quarter, -0.2% from the prior year. The roaming-out regulation negatively impacted the direct margin by an estimated EUR 17 million.

Domestic expenses for the first quarter 2017 were 7.8% lower on a high comparable base of 2016 which included a larger amount of regional pylon tax provisions. This year-on-year effect aside, Proximus Domestic posted a sequentially firm cost reduction of 4.9%.

Another solid quarter for its Domestic business which, the pylon tax effect aside, showed an underlying Domestic EBITDA increase of 4.9%, or +8.8% in total . The progress in Domestic EBITDA was driven by the ongoing strong reduction of operating expenses.

BICS accelerates its transformation into a global digital enabler

BICS posted a 3.5% erosion of its direct margin in the first quarter of 2017, totaling EUR 64 million . This mainly resulted from a decrease in the non-Voice direct margin driven by the impact of higher competition in some of its sub-segments.

In the first quarter, BICS reported an EBITDA of EUR 33 million , a year-on-year decrease by EUR 2 million or -6.4%. This resulted from the lower direct margin, while BICS first quarter expenses remained stable compared to the same period of 2016.

With the recently announced strategic acquisition of TeleSign, BICS is also accelerating its transformation from a global wholesale carrier business to an international digital enabler, more specifically allowing real-time and secure digital communications through the integration of voice, messaging and identity solutions into any web or mobile applications. With this agreement it BICS is also significantly extending its strategic footprint in the Americas and expanding its customer reach to global over-the-top brands.

Continued strong Group underlying EBITDA growth thanks to firm cost reduction focus

The Proximus Group generated an underlying revenue of EUR 1,443 million in the first quarter, 0.7% higher compared to the same period in 2016. The Domestic revenue grew by 3.2% in Q1, while revenue from BICS ended 6.6% below the same period last year.

In the first quarter, the Proximus Group posted an underlying direct margin of EUR 898 million , slightly down by 0.4% versus prior year.

The underlying expenses of the Proximus Group were down by 7.3% from the previous year. With its Domestic expenses decreasing by 7.8% or EUR 35 million, on a high comparable base, Proximus is well on track to deliver upon its cost reduction plan, aiming for a EUR 150 million net decrease between 2015 and 2019. The positive year-on-year effect from regional pylons taxes aside, Proximus Domestic posted a stable sequential reduction in its expenses by 4.9%. BICS reported fairly flat operating expenses compared to the same period last year.

Proximus' first-quarter 2017 underlying Group EBITDA progressed by 7.5% to EUR 449 million . The regional pylon tax effect aside, the Group EBITDA grew by 4.0%, resulting from another solid quarter for its Domestic business driven by its ongoing firm reduction of operating expenses. BICS posted EBITDA of EUR 33 million, a EUR 2 million decrease from the prior year.

Proximus' Free Cash Flow (FCF) for the first quarter 2017 totaled EUR 173 million . This is EUR 40 million more than the FCF reported for the comparable period in 2016, mainly driven by the growth in underlying EBITDA, a positive impact from business working capital, less cash for capex and some timing benefits.

Further investments in the overall customer experience and start of 'Fiber for Belgium' national fiber roll-out program

In the first quarter of 2017 Proximus invested EUR 221 million , which compares to EUR 237 million for 2016. Proximus continued to invest in a comprehensive entertainment offer, further deployed simplification and transformation projects that contribute to the decreasing cost base, and a further improvement of its mobile and fixed network.

'Fiber for Belgium' - Proximus' accelerated Fiber roll-out program bringing a future-proof next-generation network to its customers – was announced in the first five Belgian cities, meaning Fiber related capex will grow over the coming quarters.

2017 outlook confirmed

Based on its first quarter results of 2017, and taking into account its best estimate for the remainder of the year, including the implementation of 'Roam-Like-At-Home' as of mid-June , 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.

In line with the previously announced three-year dividend commitment, Proximus expects to return over 2017-2019 a stable gross dividend per share of EUR 1.50.

^{Dominique Leroy, CEO of Proximus}

We started the year in good shape, with a solidly growing customer base for our main products

In an intense competitive setting we achieved the best customer growth for TV and Internet in the market and therefore further progressed our market shares, in all regions. This was supported by a continued good traction of the Proximus 4-Play offers Tuttimus and Bizz All-in, with 192,000 subscribers at the end of the first quarter. Our no-frills brand Scarlet realized a strong quarter as well with its growing customer base, proof of Scarlet' good position in the price seekers market.

We also maintained a strong position on the mobile Postpaid market, growing our mobile Postpaid base by 44,000 cards, while, as we expected, the decline in prepaid further accelerated.

Our first quarter financials clearly show that we managed to stay focused on improving our cost base. With a continued firm cost reduction for our Domestic business we are getting yet again one step closer to our cost ambition set for 2019. Notwithstanding the regulatory headwinds on roaming, we realized over the first 3 months of the year a sound EBITDA growth, well on track to achieve our ambition to close the year with nearly stable Domestic revenue and a slightly growing Group EBITDA. With our 'Fiber for Belgium' roll-out launched in the first quarter, we also reconfirm our 2017 capex expectation of around EUR 1 billion.

We will further deliver upon our Fit for Growth strategy, transforming Proximus into a Digital Service Provider, focused on innovative and meaningful technologies. In this view, we recently announced BICS' agreement to acquire TeleSign, becoming a robust provider leveraging traditional and digital communication, while reinforcing our footprint in the Americas and expanding our customer reach to global over-the-top Internet brands. In our Domestic market, we acquired Davinsi Labs, a young, rapidly growing Belgian cybersecurity company, market leader in the Benelux for Security Analytics and Vulnerability Management. This will reinforce our Enterprise segment in terms of ICT expertise and complete offering in Cyber Security.