Outlook

Over the past three years, Telenet has proven its ability to convert a stable and well-balanced top line into robust Adjusted EBITDA and Adjusted Free Cash Flow growth. Having delivered robust financial growth in 2018 on the back of accelerated MVNO-related synergies and tight cost control, we were also able to deliver against our 2015-2018 plan with a rebased Adjusted EBITDA growth of just over 6%, which is around the mid-point of what we guided for back in April 2016 during our previous Capital Markets Day.

As announced at the December 2018 Capital Markets Day, we aim to deliver sustainable profitable growth over the 2018-2021 period, targeting a healthy Operating Free Cash Flow CAGR(a) of 6.5 to 8.0% over the next three years (excluding the recognition of football broadcasting rights and mobile spectrum licenses, and excluding the impact of IFRS 16 on our accrued capital expenditures). Having achieved robust financial growth in 2018, we need to overcome certain challenges and headwinds in 2019. Both our top line and Adjusted EBITDA performance in 2019 will be impacted by (i) the loss of the MEDIALAAN MVNO contract, (ii) continued regulatory headwinds, which we expect to abate as of next year, (iii) the full achievement of BASE-related synergies by end-2018 and (iv) higher commercial costs to reignite growth in 2020 and 2021.

We anticipate our rebased revenue CAGR to remain stable over the 2018-2021 period despite an estimated top line contraction in 2019, implying an improved trend in 2020 and 2021. In addition to the aforementioned trends, our 2019 revenue performance will be impacted by changing consumer trends and a continued competitive market environment, putting pressure on certain aspects of our revenue such as our out-of-bundle revenue, amongst other factors. As such, we expect a revenue decrease of around 2.5% year-on-year on a rebased basis in 2019. Excluding the lower contribution from our MVNO business, our anticipated revenue performance in 2019 would have been broadly stable on a rebased basis.

In 2018, we managed to convert a modest declining rebased top line into robust rebased Adjusted EBITDA growth driven by a double-digit decline in our direct costs from substantially lower MVNO-related costs and a high single-digit decrease in our other indirect expenses. While we anticipate certain parts of our cost base to continue to show a declining trend thanks to our continued focus on generating operating leverage and increased digitalization in our core processes, we deliberately plan to invest to seed future growth. Against the backdrop of a declining top line and the achievement of substantially all MVNO-related synergies as part of the BASE acquisition in 2018, we anticipate our Adjusted EBITDA(b) to contract between 1 and 2% year-on-year in 2019 on a rebased basis. Excluding the lower contribution from our MVNO business, our anticipated Adjusted EBITDA performance in 2019 would have been broadly stable on a rebased basis.

As mentioned before, 2018 represented the peak in our investment cycle given the continued upgrade of both our fixed and mobile infrastructure. Relative to 2018, when the underlying accrued capital expenditures to revenue ratio (excluding the recognition of the 2G mobile spectrum license) reached around 26%, we anticipate our accrued capital expenditures (excluding the recognition of football broadcasting rights and mobile spectrum licenses, and excluding the impact of IFRS 16) to substantially decrease in 2019. Hence, we target robust Operating Free Cash Flow(a) growth of 16-18%(c) year-on-year in 2019.

Relative to €421.9 million of Adjusted Free Cash Flow, which we generated in 2018, we anticipate our 2019 Adjusted Free Cash Flow performance to be impacted by (i) a substantially lower contribution from our vendor financing platform as we aim to stabilize our platform relative to a €93.7 million net positive contribution in 2018, (ii) a negative working capital impact from the reduced capital intensity, (iii) higher cash taxes given our higher pre-tax profitability and (v) higher cash interest expenses relative to 2018 as a result of last year's extraordinary dividend and as 2018 was impacted by phasing of our cash interest and derivative payments. For 2019, we anticipate Adjusted Free Cash Flow(d) between €380.0 and €400.0 million.

(a) A reconciliation of our Operating Free Cash Flow CAGR over the 2018-2021 period to a EU IFRS measure is not provided as not all elements of the reconciliation are projected as part of our forecasting process, as certain items may vary significantly from one period to another.

(b) A reconciliation of our Adjusted EBITDA guidance for 2019 to a EU IFRS measure is not provided as not all elements of the reconciliation are projected as part of our forecasting process, as certain items may vary significantly from one period to another.

(c) Excluding the recognition of football broadcasting rights and mobile spectrum licenses and excluding the impact from IFRS 16 on our accrued capital expenditures.

(d) A reconciliation of our Adjusted Free Cash Flow guidance for 2019 to a EU IFRS measure is not provided as not all elements of the reconciliation are projected as part of our forecasting process, as certain items may vary significantly from one period to another.

(e) Assuming certain payments are made on our current 2G and 3G mobile spectrum licenses in Q4 2019 and the tax payment on our 2018 tax return will not occur until early 2020.