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Investment Proposition

 
 

Reasons to invest

Reasons to invest

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Leading HFC and 4G+ converged network infrastructure, underpinned by a targeted and well-balanced investment strategy

Our hybrid fiber-coaxial (“HFC”) cable network spans the Flanders region, covers approximately 61% of Belgium by homes passed and includes the metropolitan centers of Antwerp and Ghent and approximately two thirds of Brussels following the acquisition of SFR Belux, which we acquired on June 19, 2017. Our cable network (the "Combined Network") consists of a dense fiber backbone with local loop connections constructed of coaxial cable with spectrum used up to 1.2GHz, powered by the EuroDocsis 3.0 and 3.1 technology with data downstream speeds of up to 1 Gbps across the entire footprint. We own around two-thirds of the cable network in Flanders and Brussels, while operating the remaining one-third through a long-term emphyotic lease with Fluvius until 2046.

Our mobile network consists of 3,200 macro sites, covering the whole of Belgium. we invested around €250 million since the acquisition of the third-largest mobile operator BASE in 2016 to modernize existing sites. On top of this, up to 1.000 additional relay sites will have been built by end-2020. This positions our mobile network as one of the best performing according to BIPT data from October 2019, with average down -and upload speeds of more than 70 Mbps and more than 25 Mbps respectively. We also successfully launched new Voice-over-WiFi -and Voice-over-LTE services, improving indoor coverage and delivering HD sound quality.

Proven ability to drive ARPU through strong brand equity and FMC-led growth

The ARPU per customer relationship, which excludes our mobile telephony revenue and certain other types of revenue, is one of our core operating statistics as we seek to obtain a larger share of our customers' telecommunication and entertainment spending. For the nine months ended September 30, 2020, the monthly ARPU per customer relationship reached €58.3, representing a healthy 2% increase compared to 9M 2019. Growth in the ARPU per customer relationship was underpinned by a higher proportion of multiple-play subscribers in our overall customer mix and a greater share of higher-tier broadband subscribers in our mix.

Over the first nine months of 2020, we attracted 73,900 net FMC subscribers, again underlining the growth potential of our fully integrated fixed-mobile offers. This brings the full convergence rate to 32%, an increase of 250 basis points year-on-year. In early August 2020, we launched "YUGO Connect" and "YUGO All-in", doubling the number of available bundles within the YUGO ecosystem. Both "YUGO Connect" and "YUGO All-in" include superfast fixed internet at 300 Mbps, up to 30 GB mobile data to be shared over a maximum of 2 SIM cards and 300 mobile minutes with our premium entertainment offer "Play" being bundled into "YUGO Connect". At September 30, 2020, our FMC customer base, which includes our "WIGO", "YUGO" and "KLIK" (B2B) customers, reached a total of 621,300 customers, representing a 22% year-on-year increase.

Disciplined cost control and continued focus on generating operating leverage through digital transformation

Our operating expenses, which include our (i) network operating expenses, (ii) direct costs, (iii) staff-related expenses, (iv) sales and marketing expenses, (v) outsourced labor and professional services and (vi) other indirect expenses, decreased nearly 2% on a reported basis for the nine months ended September 30, 2020 despite the inorganic impacts from the De Vijver Media acquisitions (fully consolidated as of June 2019) and the divestment of our Luxemburg cable business to Eltrona in which we currently hold a 50% minus 1 share shareholding (deconsolidated as of April 2020) and changes to the IFRS accounting outcome of certain content-related costs for our premium entertainment packages and the Belgian football broadcasting rights because of changes related to the underlying contracts.

On a rebased basis, our 9M 2020 operating expenses decreased 5% compared to the same period of last year. This is the result of continued tight cost control and our focus on digital transformation, which we see clearly accelerated now because of the COVID-19 pandemic impact. The average upload traffic on our fixed Gigabit HFC network increased with 40% on average, compared to pre-COVID. We also see a significant increase in the number of digital interactions with our customers and the proportion of online sales and self-installations.

Consequently, we generated Adjusted EBITDA of €1,041.1 million for the first nine months of 2020, up 2% year-on-year on a reported basis. Excluding the aforementioned inorganic effects, our Adjusted EBITDA increased modestly by less than 1% year-to-date driven by lower sales and marketing expenses as a result of the COVID-19 pandemic and continue tight cost control as mentioned above. We achieved a healthy Adjusted EBITDA margin of 54.5% over the first nine months, which was up 150 basis points compared to the same period of last year.

Targeting sustainable profitable growth of 6.5-8.0% OFCF CAGR 2018-2021
Over the past years, we have proven our ability to convert a stable and well-balanced top line into robust Adjusted EBITDA and Adjusted Free Cash Flow growth. We aim to deliver sustainable profitable growth over the 2018-2021 period, targeting an Operating Free Cash Flow CAGR of 6.5 to 8.0% over the 2018-2021 period. Our outlook excludes the recognition of capitalized football broadcasting rights and mobile spectrum licenses and excludes the impact of IFRS 16 on our accrued capital expenditures. The healthy growth in our Operating Free Cash Flow should drive sustained Adjusted Free Cash Flow growth over the period.
Strong liquidity and long-term debt maturity profile of 7.8 years

At September 30, 2020, we carried a total debt balance (including accrued interest) of €5,483.0 million, of which €1,393.1 million principal amount is related to the € and USD-denominated Senior Secured Fixed Rate Notes due March 2028 and €3,067.9 million principal amount is owed under our 2020 Amended Senior Credit Facility with maturities ranging from April 2028 through April 2029. Our total debt balance at September 30, 2020 also included a principal amount of €340.3 million related to our vendor financing program and €4.0 million for the outstanding portion of the 2G and 3G mobile spectrum licenses. The remainder primarily represents lease obligations associated with the Interkabel Acquisition and lease liabilities following the adoption of IFRS 16 as of January 1, 2019.

Excluding short-term liabilities related to our vendor financing program, we face no debt maturities prior to March 2028 with a weighted average maturity of 7.8 years at September 30, 2020. In addition, we also had full access to €555.0 million of undrawn commitments under our revolving credit facilities at September 30, 2020 with certain availabilities up to May 2026.

Committed to drive attractive shareholder value in 2020 and beyond, enabled through robust Adjusted Free Cash Flow conversion

Considering the robust underlying Adjusted Free Cash Flow conversion and the healthy Operating Free Cash Flow outlook for both FY 2020 and the 3-year period over 2018-2021, the board of directors has decided to firm up the existing shareholder remuneration policy. Our new policy aims to achieve a balance between attractive shareholder distributions on the one hand, while preserving optionality for value-accretive M&A opportunities in the future on the other hand. While the 4.0x net total leverage target has been reaffirmed in absence of any material acquisitions and/or significant changes in our business or regulatory environment, the board of directors has introduced a dividend floor of €2.75 per share (gross) going forward. This dividend floor assumes no significant changes in our business or regulatory environment and replaces the previously communicated 50-70% pay-out range. With that, the board of directors intends to commit a larger share of the Adjusted Free Cash Flow towards recurring dividends. The remainder of our Adjusted Free Cash Flow may still be considered for accretive acquisitions, extraordinary dividends, incremental share buy-backs, deleveraging or a combination thereof.

The board of directors intends to propose a total gross dividend of €2.75 per share (€300.2 million in aggregate1), up 47% from last year's level and representing the upper end of the aforementioned 50-70% range. The board of directors will propose to the Special Shareholders' Meeting in December 2020 to approve the payment of a gross intermediate dividend2 of €1.375 per share (€150.1 million in total1). If and when approved, the intermediate dividend will be paid on December 8, 2020 with the Telenet shares trading ex-dividend on Euronext Brussels as of December 4, 2020. The aforementioned intermediate dividend is intended to be paid in addition to a gross dividend of €1.375 per share subject to board and shareholder approval at the next AGM and assuming no significant changes in our business or regulatory environment. If and when approved, the latter dividend would then be paid early May next year.

1 Based on 109,153,814 dividend-entitled shares outstanding at the date of this release
2The distributable amounts for the intermediate dividend in December 2020 have been determined on the basis of the 2019 financial statements as per Belgian law.