Iliad : Management Report & Analysis FY 2016

1

Société anonyme. Share capital: €13,038,371

Registered office: 16, rue de la Ville l'Evêque - 75008 Paris, France

Registered in Paris under no. 342 376 332

Société anonyme. Share capital: €13,038,371 Registered office: 16, rue de la Ville l'Evêque - 75008 Paris, France

Registered in Paris under no. 342 376 332

1. ANALYSIS OF THE GROUP'S BUSINESS AND RESULTS

KEY CONSOLIDATED FINANCIAL DATA

In € millions	Year ended Dec. 31, 2016	Year ended Dec. 31, 2015	Year ended Dec. 31, 2014
INCOME STATEMENT
Revenues	4,722.1	4,414.4	4,167.6
EBITDA	1,675.7	1,489.9	1,283.6
Profit from ordinary activities	744.1	666.2	569.5
Other operating income and expense, net	(4.5)	(4.2)	(3.6)
Operating profit	739.6	662.0	565.9
Finance costs, net	(43.8)	(58.0)	(63.8)
Other financial income and expense, net	(48.3)	(24.5)	(21.7)
Corporate income tax	(245.6)	(244.5)	(202.0)
Share of profit of equity-accounted investees	0.7	-	-
Profit for the period	402.7	335.0	278.4
BALANCE SHEET
Non-current assets	7,262.3	5,755.3	4,266.4
Current assets	947.8	1,432.7	744.6
Of which cash and cash equivalents	238.5	720.1	137.4
Assets held for sale	21.4	26.0	34.4
Total assets	8,231.5	7,214.0	5,045.3
Total equity	3,001.8	2,637.2	2,315.2
Non-current liabilities	2,882.1	1,899.1	1,209.1
Current liabilities	2,347.6	2,677.7	1,521.0
Total equity and liabilities	8,231.5	7,214.0	5,045.3
CASH FLOWS
Cash flows from operations	1,603.8	1,472.7	1,236.5
Capital expenditure1	(1,757.8)	(1,219.9)	(968.3)
Net change in cash and cash equivalents (excluding
financing activities, payments for frequencies in the 700 MHz band and dividends)2	39.2	(76.1)	(37.2)
Net change in cash and cash equivalents (excluding financing activities and dividends)2	(432.3)	(76.1)	(37.2)
Dividends	(24.1)	(23.0)	(21.7)
Net debt	1,642.8	1,191.4	1,084.1

1 Including the investment corresponding to the first payments for frequencies in the 700 MHz band (€472 million)

2 Including interest paid

1.1 OVERVIEW

Fueled by the success of its Broadband and Ultra-Fast Broadband offerings marketed under the Free brand, the Iliad Group (also referred to as the "Group") has positioned itself as a major player in the French landline telecommunications market. In addition, since 2012 when it first launched its mobile offerings, the Group has become an integrated operator present in the Broadband and Ultra-Fast Broadband and mobile segments. The Group's success in these two segments has been built on four fundamentals - straightforward offerings, attractive prices, excellent service quality and technological innovation.

Just five years after it entered the mobile market, the Group has become one of the leading telecommunications operators in France, with more than 19 million subscribers, of which nearly 13 million mobile subscribers and more than 6 million Broadband and Ultra-Fast Broadband subscribers. At December 31, 2016, it had market shares of 24%3 for Broadband and Ultra-Fast Broadband and 18%4 for mobile. In 2016, the Group continued its profitable growth trajectory,

generating over €4.7 billion in revenues - up 7% on 2015.

As substantially all of its operations are in France, the Group only has one geographic segment. However, this presentation may change in the future, depending on operating criteria and the development of the Group's businesses.

The following key performance indicators are used throughout this management report:

- EBITDA, which corresponds to profit from ordinary activities before share-based payment expense, depreciation, amortization and provisions for impairment of non-current assets.

- Mobile services revenues, which corresponds to mobile revenues excluding handset-related revenues (sales and rentals).

1.1.1 Breakdown of revenues (a) Landline offerings (Broadband and Ultra-Fast Broadband)

Offerings and services available under the Free and Alice brands

The Group offers its subscribers a number of different Internet access solutions (at prices ranging from

€9.99 to €39.99 per month), with a box provided.

Depending on the eligibility of the subscriber's line, the following Broadband and Ultra-Fast Broadband offers are available:

n Via ADSL, which allows subscribers to access the Internet at a speed of at least 2 Mbps and up to 22.4 Mbps in areas where the local loop is unbundled, and 17.6 Mbps in non-unbundled areas, depending on whether a subscriber's line is eligible (IP speeds).

n Via VDLS2, which gives subscribers in unbundled areas and with short lines Internet access at speeds of up to 100 Mbps download and 40 Mbps upload.

n Via optical fiber (FTTH), which is available in selected areas covered by Free and provides subscribers with Ultra-Fast Broadband (up to 1 Gbps download and up to 200 Mbps upload).

3 Company estimate

4 Metropolitan France excluding M2M

Through these offerings, depending on the package they choose, subscribers are provided with the services described below:

n Telephony. All subscribers are provided with a telephone service under which they can make calls through their modem to landline numbers in Metropolitan France (apart from short numbers and special numbers), as well as to 60 or over 110 landline destinations outside Metropolitan France depending on the terms of their package. Additionally, certain of the Group's offers include free calls or packaged deals for calls to mobile numbers in Metropolitan France.

n Free proposes the largest television offering in the market, comprising more than 500 channels (of which between 90 and almost 280 - depending on the type of subscription - are included in the basic packages), with over 180 high definition channels and a catch-up TV service covering more than 100 channels. Since September 2016, the Freebox Revolution offer includes the TV by CANAL Panorama package, therefore adding 50 channels to the offer, of which 25 are exclusive to Freebox TV.

n Free also offers its subscribers numerous value added services including Freebox Replay (its catch-up TV service), video on demand (VOD or S-VOD), subscription to pay-TV channels (Canal+, beIN Sports, etc.) and video games. The new TV by CANAL Panorama offer gives subscribers access to over 100 live channels and more than 8,000 items of on-demand content on all types of screen (smartphone, tablet, Xbox 360, Xbox One and PC/Mac).

When a subscriber signs up to one of the Group's offerings they are provided with a box. Two main boxes are currently available:

n The Freebox Revolution, which allows subscribers to connect all of their terminals and offers optimal Internet access. The Freebox Revolution also includes many innovative services, such as the NAS server which has storage capacity of up to 250 GB accessible from anywhere at any time, the Blu-RayTM player, and calls to mobile numbers in Metropolitan France. It incorporates state-of-the-art technologies including PLC (Power Line Communication), a gyroscopic remote control, a gamepad and speakers.

n The Freebox mini 4K, which is the Group's entry-level offering and has replaced the Freebox Crystal. The Freebox mini 4K is the world's first triple-play box that has integrated AndroidTVTM, the GoogleTM platform for TV, and is compatible with 4K technology (Ultra High Definition). It has BluetoothTM technology and offers many other innovative services, such as a remote control with a voice search function and the possibility of using a mobile phone as the remote control. It is also the most compact box on the market, measuring 11 x 15 cm.

n In addition, in 2016 the Group carried out specific promotional sales of the Freebox Crystal. The Freebox Crystal has not featured within the Group's commercial offerings since it was replaced by the Freebox mini 4K as the Group's entry-level offering. However, in order to reuse already-existing Freebox Crystals, in 2016 the Group offered a number of promotional deals on these boxes.

Hosting offers and services available under the Online, Dedibox, Iliad Datacenter and Iliad Entreprises brands

n Shared hosting services, which correspond to website hosting and the purchase and resale of domain names. These services are invoiced to customers based on an annual subscription and are primarily targeted at private individuals and very small businesses that have relatively low data storage requirements.