ILIAD 
By Paris, March 8, 2012
Free gains a record number of new subscribers, with net add market share of 35%
A faster pace of growth, driven by the success of the Freebox Revolution, with fourth-quarter revenues up by more than 6%
A stronger financial structure, with an increase of over €400 million in consolidated equity and a €500 million bond issue
4G license obtained in October 2011
Commercial success of the mobile business in early 2012
SIGNIFICANT EVENTS IN 2011
The year 2011 saw (i) the commercial success of the Freebox Revolution offer, enabling the Group to achieve a record market share with more than 27%* of the market's new subscribers, and (ii) a change in the VAT regime applicable to triple play offers. At the same time, the Group was able to maintain its solid financial structure and prepare for the launch of its mobile business.
A faster pace of growth, driven by the success of the Freebox Revolution offer
Against this backdrop of fiscal change and a new commercial offer, Iliad managed to step up its pace of growth, while maintaining high profitability levels. Consolidated revenues for the year as a whole climbed 4.1% to €2,122 million, buoyed by an increase of over 6% in the fourth quarter.
Free gained 407,000 new broadband subscribers in 2011 (net of terminations and excluding Alice subscriber migrations), with this high number reflecting both the very strong appeal of the Freebox Revolution offer and the Group's capacity to innovate and stand out from its competitors. This put Free's market share of net adds at 35%*, representing a record high for the brand.
High profitability levels maintained despite tax and pricing changes
The Group's high profitability levels in 2011 were achieved despite the dilutive impact of (i) calls to mobile numbers and to Algeria being included in the Freebox Revolution offer, (ii) the change in the VAT regime, and (iii) the losses incurred on the mobile business. By continuing to apply the virtuous business model focused on unbundling and implementing cost optimization measures across the Group's expense items, Iliad was able to post a consolidated EBITDA margin of 39.3%, slightly higher than the record level reported in 2010.
Profit from ordinary activities rose by just over 4% in 2011 to €498 million from €478 million the previous year. This increase was fueled by both the enhanced profitability mentioned above as well as the fact that the depreciation-to-revenues ratio remained stable.
Profit for the period before non-recurring items totaled €255 million, down 7% on 2010. The overall profit figure for 2010 was boosted by more than €39 million as a result of non-recurring income received during the year.
An extremely solid financial structure, enabling the Group to develop its mobile business
The overall consolidated cash flow figure climbed by more than 6% in 2011, driven by the Group's enhanced profitability levels.
ADSL-related capital expenditure (including network expenditure due to increased unbundling and subscriber-related expenditure for modems and other connection expenses) came to €570 million in 2011 compared with €326 million for the previous year, directly reflecting the commercial success of the Freebox Revolution offer launched in December 2010. Consequently, Free Cash Flow from ADSL operations amounted to €307 million in 2011, down on the 2010 figure of €436 million.
In spite of the Group's pro-active capital expenditure plan, its financial structure was extremely solid at December 31, 2011, with:
- a leverage ratio of 1.16x, among the lowest in the telecom industry in Europe;
- a near €200 million increase in consolidated equity due to the conversion of two thirds of the OCEANE bonds issued in 2006; and
- a successful first bond issue representing €500 million.
An effective organizational structure to ensure the successful launch of the Group's mobile offers
By putting in place a specific and effective organizational structure for the rollout of its mobile network, the Group was able to achieve direct coverage of more than 27% of the French population. On December 13, 2011, having verified Free Mobile's coverage, ARCEP confirmed that the Group had complied with the coverage obligation contained in its 3G license. This confirmation was renewed by ARCEP on February 28, 2012.
Based on the 1,000 sites that have already been set up and its rollout plan of 6,000 sites, the Group is standing by the objectives set in connection with Free Mobile's commitments to ARCEP, namely to achieve population coverage levels of 75% of the French population by 2015 and 90% by 2018.
In addition, in October 2011, the Group was allocated a license for 20MHz of spectrum in the new generation 4G (2.6 GHz) frequency band for a cost of €274.5 million. Thanks to the frequencies allocated under this license, Free Mobile will be able to propose its mobile telephony services to a greater number of subscribers and rapidly build up a 4G mobile web offering. It will also be able to meet the growing demand for ever-higher transmission speeds by offering the highest speeds available in the market, and to strengthen its technical and pricing innovation capacity over the long term. The network currently being rolled out by Free Mobile is already 4G compatible.
KEY INDICATORS
| December 31, 2011 | December 31, 2010 | December 31, 2009 | |
| Total broadband subscribers | 4,849,000 | 4,534,000 | 4,456,000 |
| - Free | 4,461,000 | 3,969,000 | 3,778,000 |
| of which migrations from Alice to Free | 85,000 | - | - |
| - Alice | 388,000 | 565,000 | 678,000 |
| Percentage of unbundled subscribers | 92.2% | 89.2% | 85.4% |
| In € millions | 2011 | 2010 | % change |
| Consolidated revenues | 2,122 | 2,038 | 4% |
| EBITDA | 833 | 798 | 4% |
| as a % of revenues | 39.3% | 39.2% | |
| Profit from ordinary activities | 498 | 478 | 4% |
| Profit for the period | 252 | 313 | -20% |
| Profit for the period before non-recurring items | 255 | 273 | -7% |
| Free Cash Flow from ADSL operations | 307 | 436 | -30% |
| Leverage ratio | 1.16x | 0.87x |
GROUP OBJECTIVES
In light of its strong 2011 results the Group is standing by its short- and medium-term objectives, which are as follows:
(a) Operational objectives:
- Landline business
- 25% share of the landline Broadband market in the long term.
- FTTH business
- Step-up in the pace of subscriber connections;
- Ongoing horizontal rollouts.
- Mobile business
- Intensified rollout, with the aim of having 2,500 equipped sites at the end of 2012.
(b) Financial objectives:
- Landline business
- Revenue growth of over 5% in 2012;
- Free Cash Flow from ADSL operations in excess of €1.1 billion between 2010 and 2012.
- Group
- Robust revenue growth in 2012;
- Revenues of over €4 billion by 2015.
CONSOLIDATED INCOME STATEMENT
| In € millions | 2011 | 2010 | % change |
| Revenues | 2,122.1 | 2,038.3 | 4.1% |
| Purchases used in production | (951.7) | (899.5) | 5.8% |
| Gross profit | 1,170.4 | 1,138.8 | 2.8% |
| as a % of revenues | 55.2% | 55.9% | |
| Payroll costs | (129.0) | (104.4) | 23.6% |
| External charges | (147.3) | (144.1) | 2.2% |
| Taxes other than on income | (17.3) | (37.3) | -53.6% |
| Additions to provisions | (29.6) | (29.0) | 2.1% |
| Other income and expenses from operations, net | (13.8) | (25.9) | -46.7% |
| EBITDA | 833.4 | 798.1 | 4.4% |
| as a % of revenues | 39.3% | 39.2% | |
| Share-based payment expense | (10.0) | (8.1) | 23.5% |
| Depreciation, amortization and provisions for impairment of non-current assets | (325.2) | (312.1) | 4.2% |
| Profit from ordinary activities | 498.2 | 477.9 | 4.2% |
| Other operating income and expense, net | (4.6) | 61.0 | - |
| OPERATING PROFIT | 493.6 | 538.9 | -8.4% |
| Finance costs, net | (46.8) | (41.7) | 12.2% |
| Other financial income and expense, net | (34.0) | (7.8) | - |
| Corporate income tax | (161.0) | (176.3) | -8.7% |
| Profit for the period | 251.8 | 313.1 | -19.6% |
| PROFIT FOR THE PERIOD BEFORE NON-RECURRING ITEMS | 254.8 | 273.2 | -6.7% |
Revenues
Consolidated revenues climbed €83.8 million or 4.1% in 2011, topping the €2 billion mark once again due to ongoing growth in the Broadband segment. This increase primarily reflects the combined effects of the following:
- An excellent sales performance, fueled by the success of the Freebox Revolution offer. Free gained 407,000 new subscribers in 2011 (net of terminations and excluding Alice subscriber migrations), with this high number reflecting both the very strong appeal of the Freebox Revolution offer and the Group's capacity to innovate and stand out from its competitors. This put Free's market share of net adds at 35%, representing a record high for the brand.
- Ongoing implementation of the loyalty and retention program for Alice subscribers. In early 2011 the Group launched a program offering Alice subscribers the possibility of migrating to Free's offers (including the Freebox Revolution). A total of 85,000 Alice subscribers took up this option during the year and moved to one of Free's offers.
- A decrease in the Traditional Telephony segment's contribution concerning value added services, as a result of (i) a reduction of some 31% in landline call termination charges over the year, (ii) the incorporation of new international destinations in the basic package, and (iii) the inclusion within the Freebox Revolution and Freebox offers (in non-unbundled areas) of calls to mobiles on the networks of all mainland France's national operators.
Based on the factors described above, the Group's Average Revenue Per User (ARPU) came in at €35.5 at end-2011. ARPU for Freebox Revolution subscribers stood at more than €38, in line with the Group's expectations.
EBITDA
Consolidated EBITDA climbed 4.4% year on year to €833.4 million. The EBITDA margin edged up to 39.3%, primarily reflecting the combined impact of:
- The positive effect of lower operating costs and a rise in the unbundling rate.
- Pro-active management of the fixed costs base.
- The dilutive effect on gross profit of calls to mobile numbers and to Algeria being included in the Freebox Revolution offer. As the Group expected, the success of the Freebox Revolution offer and the high number of calls made to mobile numbers weighed slightly on the Group's gross margin. This impact should taper off in line with the announced reductions in call termination charges.
- The negative impact of the change in VAT regime for triple play offers, which took effect on January 1, 2011 whereas the Group only started billing subscribers using the new pricing structure in February 2011.
- The negative effect of losses arising due to the launch of the mobile business, mainly in the second half of the year.
Profit from ordinary activities
Profit from ordinary activities increased by 4.2% to €498.2 million in 2011 from €477.9 million the previous year, propelled by (i) the above-described increase in EBITDA, and (ii) the fact that the depreciation-to-revenues ratio remained stable at 15.3% in 2011, unchanged from 2010.
Cash flows and capital expenditure
| In € millions | 2011 | 2010 | % change |
| Consolidated cash flow | 828.9 | 778.6 | 6.5% |
| Change in working capital requirement | 47.9 | (17.1) | - |
| ADSL-related capital expenditure | (569.7) | (326.0) | 74.8% |
| Free Cash Flow from ADSL operations | 307.1 | 435.5 | -29.5% |
| FTTH-related capital expenditure | (156.1) | (193.7) | -19.4% |
| Mobile-related capital expenditure | (416.9) | (262.3) | 58.9% |
| Hosting-related capital expenditure | (11.8) | - | - |
| Other | (135.2) | 53.5 | - |
| Consolidated Free Cash Flow | (412.9) | 33.0 | - |
| Net cash generated from/(used in) financing activities | 425.9 | (326.0) | - |
| Net change in cash and cash equivalents | 13.0 | (292.9) | - |
| Cash and cash equivalents at year-end | 350.5 | 337.5 | 3.8% |
Free Cash Flow from ADSL operations
The overall consolidated cash flow figure climbed by more than 6% in 2011, driven by the Group's enhanced profitability levels.
ADSL-related capital expenditure (including network expenditure due to increased unbundling and subscriber-related expenditure for modems and other connection expenses) came to €570 million in 2011 compared with €326 million for the previous year, directly reflecting the commercial success of the Freebox Revolution offer launched in December 2010. Consequently, Free Cash Flow from ADSL operations amounted to €307 million in 2011, down on the 2010 figure of €436 million.
Consolidated Free Cash Flow
In line with the Group's expectations, consolidated Free Cash Flow came in at a negative €413 million in 2011, as a result of:
- The commercial success of the Freebox Revolution offer (as described above).
- Ongoing capital expenditure for the rollout of the FTTH project. During the year the Group invested €156 million in its FTTH project. This figure was lower than in 2010 reflecting (i) delays experienced in 2011 in implementing the agreements signed with other operators for pooling the vertical rollout phase, and (ii) sales of real estate assets that are held for sale and are not being used for the FTTH rollout.
- A sharp rise in mobile-related capital expenditure, including the purchase of the 4G license for €274.5 million and the acceleration of the mobile network rollout (which represented an outlay of €142.4 million in 2011 versus €20 million in 2010).
- The payment of a €97 million tax charge.
Net change in cash and cash equivalents
The €13 million net increase in cash and cash equivalents in 2011 was primarily due to the successful €500 million bond issue carried out during the year.
BALANCE SHEET
At December 31, 2011 the Group had gross debt of €1,326.9 million and net debt of €969.4 million. Despite its pro-active capital expenditure plan implemented during the year (due to the Freebox Revolution launch and FTTH and mobile rollouts) the Group maintained a solid financial structure:
- The Group's leverage ratio stood at 1.2x at December 31, 2011 (compared with 0.9x one year earlier), confirming its position as one of the European telecom operators with the lowest debt levels.
- Consolidated equity rose by almost €200 million due to the partial conversion of the Group's OCEANE bonds.
*Based on a total market of 1,147,000 net ADSL adds (source: ARCEP)
GLOSSARY
Broadband ARPU (Average Revenue Per User): includes revenues from the flat-rate package and value-added services but excludes one-time revenues (e.g. migration from one offer to another or subscription start-up and termination fees), divided by the total number of broadband subscribers invoiced for the period.
Broadband subscribers: subscribers who have signed up for the Group's ADSL or FTTH offer.
Free Cash Flow from ADSL operations: represents EBITDA plus or minus changes in working capital requirement and minus investments made in connection with property, plant and equipment and intangible assets acquired for the Group's ADSL operations.
FTTH (fiber-to-the-home): data delivery technology that directly connects subscribers' homes to an optical node (ON).
Leverage ratio: represents the ratio between net debt (short- and long-term financial liabilities less cash and cash equivalents) and EBITDA.
Net adds: represents the difference between total broadband subscribers at the end of two different periods.
Total broadband subscribers: represents, at the end of a period, the total number of subscribers identified by their individual telephone lines who have signed up for Free's or Alice's broadband service, excluding those recorded as having requested the termination of their subscription.
Unbundled subscribers: ADSL subscribers who have signed up for the Group's ADSL or FTTH offerings through a telephone exchange unbundled by Free.
The Iliad Group is a leading operator in the French telecommunications and Internet access market via Free and Alice (4,849,000 Broadband subscribers at December 31, 2011), Onetel (landline telephony operator) and Free Mobile. Iliad is listed on Eurolist by Euronext Paris under the ticker symbol ILD.
| Exchange: Euronext Paris | Market place: Eurolist A of Euronext Paris (SRD) |
| Ticker symbol: ILD | ISIN Code: FR0004035913 |
| FTSE ranking: 974 Internet | Member of Euro stoxx, SBF 120, Next 150, CAC mid 100 |
This Press Release, the Slideshow, the Management Discussion & Analysis and the Consolidated Accounts are available (PDF) on www.iliad.fr/en
http://hugin.info/143743/R/1592293/500711.pdf
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Iliad via Thomson Reuters ONE
