Com Hem : Reports First Quarter Results 2017

First quarter summary

• Revenue saw a strong increase of 37.7% to SEK 1,757m while organic revenue rose by 3.5% to SEK 1,321m.
• Operating profit (EBIT) rose by 13.1% to SEK 232m.
• Underlying EBITDA saw a strong increase of 18.0% to SEK 712m and organic Underlying EBITDA rose by 4.3% to SEK 629m.
• Cash flow from operating activities increased by 7.6% to SEK 557m.
• Operating free cash flow increased by 12.4% to SEK 443m and organic operating free cash flow rose by 2.2% to SEK 402m.
• Net result rose by 26.2% to SEK 120m.
• Earnings per share: SEK 0.65.
• Unique consumer subscribers rose by 7,000 to record high 952,000.
• Strong volume growth in broadband, up 11,000 to record high 713,000 RGUs.
• Digital-TV RGU's totalled 644,000, with a continued growth of 6,000 TiVo customers (penetration rate of 39%).
• Consumer ARPU of SEK 368 (371 in Q4 2016).
• Consumer churn of 13.6%, only 0.5p.p. increase from Q4 2016 following successful price adjustments in the quarter.
• Boxer:
  - 3,000 broadband RGUs were added in the quarter.
  - Unique subscribers fell by 16,000 to 479,000 while RGUs fell by 13,000 to 498,000.
  - Boxer delivered SEK 436m of revenue and SEK 83m of Underlying EBITDA in the quarter.
  - ARPU rose by SEK 4 to SEK 297.

Comment from Anders Nilsson, CEO, Com Hem Group:

Strong quarter - Growth initiatives well on track
The Com Hem Group saw very strong growth in all financial KPIs as we consolidated Boxer. The Com Hem segment grew in-line with our expectations since Q1 is driven only by volume growth, whereas the price adjustments conducted in the quarter will translate into revenue growth in Q2 and onwards. In addition, the B2B integration is already improving Underlying EBITDA and operating free cash flow, and Boxer is realising cost synergies as we progress through the integration.

Improved customer satisfaction lays foundation for price and volume growth in the Com Hem segment
Price adjustments in the Com Hem segment were successfully implemented as customers are willing to pay more for higher quality of service. Despite price adjustments in the quarter our customer base grew by 7,000 in the segment. This was made possible by product improvements in 2016 such as the introduction of Com Hem Play as a core part of all of our DTV packages with added support for Chromecast, introduction of our new router and a speed upgrade for most of our customers with 50 Mbit/s. In addition, we have continued investing into network to maintain high speed and capacity. Com Hem is still the highest ranking amongst our peers according to external tests such as Netflix Speed Index and Google Video Index.

Trends across our product lines remain similar to previous periods with very strong growth in broadband, up 11,000 RGUs, modest growth in DTV, up 1,000 RGUs, and steady decline in telephony, down 5,000 RGUs. Our TiVo base grew by 6,000 customers, now at 39% of our DTV base.

Price adjustments had a limited impact on Q1 consumer ARPU in the Com Hem segment, down from SEK 371 in Q4 2016 to SEK 368. The sequential decline is largely due to weaker seasonality as well as a larger portion of group agreements. While group agreements have a positive absolute effect on revenue as we sell services to all tenants in a building, there is pressure on per-user revenue as each tenant generally comes in at lower ARPU. The full effect of the price adjustment will be seen in Q2 2017 revenue.

Consumer churn of 13.6% for the quarter was significantly better than our expectations, only 0.9 percentage points higher than the record low churn of 12.7% recorded in Q3 2016. We expect churn to return to the underlying declining trend in coming quarters.

Extending the scope of the fibre expansion
The SDU fibre expansion is proceeding well. We added 60,000 addressable households in the quarter resulting in a total of 400,000 added since the start of the expansion including 100,000 unique to Boxer. Given the initial positive signs from the Boxer fibre launch we believe that we can reach beyond the previously communicated 800,000 households and potentially address one million SDU households for the entire Group by 2020.

Since before the SDU expansion and Boxer acquisition the Group has expanded its footprint by 20% from 2.0m to 2.4m addressable households and we now believe that we can expand the total footprint for the Com Hem Group to over 3m households including both MDU and SDU by 2020. It is an additional growth opportunity of 25% from today's level and a 50% increase in footprint from before the SDU expansion and Boxer acquisition.

Another potential addition to the fibre opportunity is the new build project where trials are proceeding according to plan. We expect first delivery in the end of Q2 2017 and a decision to potentially scale up in Q3 2017. While we fine tune the economics of the initial trial we are scoping out additional areas which could be addressed should the trials be successful. The potential investment would be financed through debt. Given the high margins and initial connection fee revenue, this would not materially affect our leverage ratio, making it a unique and timely opportunity to gain profitable growth with no change to shareholder remuneration.

Transforming Boxer into a broadband-led operator
The largest marketing campaign in Boxer's history was launched in the quarter in order to reposition the company from a TV-centric to a broadband-led operator. The campaign has been well received and initial sales look promising with 3,000 broadband customers added in the quarter. The Boxer fibre rollout is running at full speed and we have expanded Boxer's fibre footprint to 700,000 addressable households including almost all of the Com Hem segment's current fibre footprint as well as 100,000 SDU households unique to Boxer.

The integration process is progressing according to plan and we already see cost synergies offsetting pressure on the top line. Churn started to decrease on a month-by-month basis during Q1, however remains elevated mainly due to competitor fibre rollout among the DTT customer base resulting in a decline of 16,000 unique subscribers. The RGU decline of 13,000 in the quarter was lower than decline in customers as we started adding broadband RGUs to existing DTT customers. By year-end we expect Boxer to have the brand, infrastructure, and operational platform needed to fully capitalise on the fibration of the Swedish SDU market.

Looking ahead
We are now entering the second quarter of a year that will be truly transformational for the Com Hem Group. Throughout the year we will set up the company to be able to optimise growth across multiple brands, infrastructures, and markets on a national level, all run centrally in the Com Hem Group. We look forward to continue executing on our plan which we are confident will secure delivery on our guidance for 2017, build long-term sustainable growth for the future and establish Com Hem as an important driver of the digitalisation of Sweden.

Notes to the editors:
You will find the complete report with tables in the attached PDF or at: http://www.comhemgroup.se/en/investors/financial-reports-presentations/

Conference call on April 25
Management will host a conference call for the financial community at 10:00 am CET today. The presentation will be held in English and the presentation material can be accessed on www.comhemgroup.com. An on-demand version is also available after the presentation.

Link to webcast: http://cloud.magneetto.com/comhem/2017_0425_Q1/view

Conference call dial-in numbers:
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To ensure that you are connected to the conference call, please dial in 10 minutes ahead of the conference call to register your attendance.

For queries, please contact:

Investors
Marcus Lindberg, Investor Relations Manager
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Petra von Rohr, Director IR & Corporate Communications
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Media
Fredrik Hallstan, Head of PR
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About Com Hem Group
Com Hem Group offers broadband, TV, play and telephony services to Swedish households and companies. Our powerful and future-proofed broadband network with speeds up to 1 Gbit/s, covers half of the country's households, making the Com Hem Group an important driver of creating a digital Sweden. We bring our 1.45 million customers the widest range of digital tv channels and play services via set-up boxes as well as on-the-go for tablets and smartphones. The company was founded in 1983 and has approximately 1,100 employees. Com Hem Group is headquartered in Stockholm and operates through four subsidiaries; Com Hem AB, Boxer TV Access AB, Phonera Företag AB and iTUX Communication AB. In 2016, Group sales totalled in 5,665 SEK million. Since 2014 the Com Hem share is listed on Nasdaq Stockholm.www.comhemgroup.com.