Iliad : Management Report & Analysis H1 2019

Société anonyme. Share capital: €13,105,191

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

Paris, France

Registered in Paris under no. 342 376 332

The Group has applied IFRS 16, Leases since January 1, 2019 using the retrospective approach, without restating comparative prior periods.

The income statement, balance sheet and segment information have been restated accordingly. Further to the application of IFRS 16, the Group has amended its key profitability indicator, which becomes EBITDAaL (EBITDA after leases) with effect from January 1, 2019.

ANALYSIS OF THE GROUP'S BUSINESS AND RESULTS

KEY CONSOLIDATED FINANCIAL DATA

In € millions		Six months to		Six months to
	June 30, 2019		June 30, 2018
INCOME STATEMENT
Total revenues		2,607		2,404
Services revenues		2,486		2,303
EBITDAaL		802		866
Profit from ordinary activities		243		406
Profit from recurring operations		91		232
BALANCE SHEET
Non-current assets		11,550		8,103
Current assets		1,620		1,920
Of which cash and cash equivalents		453		897
Assets held for sale		893		18
Total assets		14,063		10,041
Total equity		3,599		3,445
Non-current liabilities		6,904		3,996
Current liabilities		3,167		2,600
Liabilities held for sale		393		0
Total equity and liabilities		14,063		10,041
CASH FLOWS
Cash flows from operations		1,078		852
Impact of IFRS 16		(332)		-
Capital expenditure - France		(779)		(773)
Capital expenditure - Italy		(161)		(91)
Capital expenditure - frequencies1		(69)		(81)
Net change in cash and cash equivalents - Group (excluding change in net debt		(600)		(744)
and dividends)
Dividends		(53)		(40)
Net debt		4,610		3,257

1 Including €61 million in Italy for the first installment of the last payment to Wind/Tre.

2

1 OVERVIEW

Over the last 20 years, the Iliad Group (the "Group") has experienced very strong growth in France, with numerous technological and commercial developments. It has gone from being a landline narrowband Internet Service Provider to an integrated landline and mobile Ultra-Fast Broadband operator. It has some 20 million subscribers in France and is clearly focused on deploying the latest technologies and proposing straightforward commercial offerings. In 2018, the Group expanded its geographic reach to Italy, where it has since recruited 3.8 million subscribers. Consequently, in the space of 20 years, the Group has become one of the leading electronic communications players in France and Italy, with over 23 million subscribers, nearly 11,000 employees, and €2.6 billion in revenues in the first half of 2019.

Iliad S.A. is the parent company of the Iliad Group, which operates under the trade names of Free in France and Iliad in Italy. Iliad S.A. has been listed on Euronext Paris (ILD ticker symbol) since 2004.

Following the launch of its mobile business in Italy, the Group now has two geographic segments:

• France

Fueled by the success of its Broadband and Ultra-Fast Broadband offerings marketed under the Free brand, 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 both the landline (Broadband and Ultra-Fast Broadband) and mobile segments. The Group's success in these two segments has been built on the following fundamentals - straightforward offerings, excellent value for money and innovation.

• Italy

The Group launched its mobile telephony offering in Italy on May 29, 2018 and had 3.8 million subscribers at June 30, 2019. The Italian mobile business generated €177 million in revenues in the first six months of 2019.

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

EBITDAaL: profit from ordinary activities before depreciation, amortization and impairment of property, plant and equipment and intangible assets, and impact of stock option-/share-based payment expense.

Revenues invoiced to subscribers, which corresponds to revenues generated from the sale of services to subscribers.

3

1.1 Breakdown of revenues

France

Landline offerings (Broadband and Ultra-Fast Broadband)

In 2018, the Group put in place a new sales and marketing approach based on:

• a more streamlined pricing and promotions policy. The Group overhauled the pricing for its long-standingdeals by offering an automatic discount for the first 12 months. It also introduced a 12-monthcontract period and a €49 activation fee. Consequently, the Group now has four Internet access deals. All of these deals come with a Freebox and are priced at between €9.99 and €29.99 per month for the first 12 months and then €24.99 to €44.99 per month. A premium offering is also available, with no discount, priced at €49.99 a month;
• differentiation through innovation, with the launch of the Freebox Delta and the Freebox One in December 2018, aimed at achieving a better segmentation of the subscriber mix.

At June 30, 2019, therefore, the Group had five main landline offerings:

• the Freebox Delta - Free's premium offering (€49.99 per month) - which delivers the fastest possible speeds, whether via Fiber, through 10G Fiber technology, or DSL, by bonding xDSL and 4G. The Freebox Delta plan also includes 280 TV channels and calls to landlines and mobiles, as well as Netflix Essential for S-VOD(4K HDR possible if the subscriber has Netflix Premium), and LeKiosk for unlimited access to newspapers and magazines. Subscribers also become owners of a Player (invoiced at €480), which comes with a Devialet speaker, two voice assistants (OK Freebox and Amazon Alexa), a smart- home hub and a security pack (optional). Lastly, subscribers can store up to 1 TB of data via NAS (also optional). If subscribers wish to sign up for the Freebox Delta plan without purchasing the Free-DevialetPlayer, they can opt for the Freebox Delta S plan, which does not include TV services, OK Freebox and Amazon Alexa but has a lower monthly price than the full Freebox Delta offering;
• the Freebox One (€29.99 per month for one year and then €39.99 per month), which has a Server and a Player combined in a single box. The Freebox One plan includes Netflix Essential and provides access to 4K HDR download-to-owncontent through the Canal VOD platform. The standard services such as 220 channels with Freebox TV and 110 telephone destinations to landlines and mobiles are also included. And, of course, the Freebox One is compatible with Fiber and xDSL technologies;
• the Freebox Revolution (€19.99 per month for one year and then €44.99 per month), which allows subscribers to connect several 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, a Blu- RayTM player and calls to mobile numbers in Metropolitan France. It incorporates state-of- the-arttechnologies including PLC (Power Line Communication), a gyroscopic remote control, a gamepad and speakers;
• the Freebox mini 4K (€14.99 per month for one year and then €34.99 per month), which is the world's first triple-playbox 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;
• the Freebox Crystal (€9.99 per month for one year and then €24.99 per month), which was originally withdrawn from the Group's commercial offerings when it was replaced by

4

the Freebox mini 4K. However, when the Group overhauled its landline offerings, it decided to bring back the Freebox Crystal as an entry-level offering.

Depending on the eligibility of the subscriber's line, Free's offers are compatible with the following Broadband and Ultra-Fast Broadband technologies:

• optical fiber (Fiber), which gives access to Ultra-Fast Broadband (up to 10 Gbps download and up to 600 Mbps upload);
• 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;
• xDSL/4G, which enables the xDSL signal to be bonded with a 4G signal in areas with low speeds, so subscribers can have up to 10 times faster speeds than when using ADSL alone;
• 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).

Through the Group's offerings, depending on the plan they choose, subscribers are provided with the services described below:

• telephony: all subscribers have access to a telephone service under which they can make calls through their Freebox to landline numbers in Metropolitan France (apart from short numbers and special numbers), as well as to over 110 landline destinations outside Metropolitan France depending on the terms of their plan. Additionally, certain of the
  Group's offers include free calls or packaged deals for calls to mobile numbers in
  Metropolitan France;
• Free proposes the largest audiovisual offering in the market, enabling its subscribers to access a television service comprising some 600 channels in all. Freebox TV has 220 channels in its basic package and the TV by CANAL Panorama package adds 60 more, 30 of which are exclusive to Freebox TV. Around 240 high definition channels are also available as well as a catch-upTV service covering more than 100 channels;
• Free also offers numerous value added services including Freebox Replay (its catch-upTV service), video on demand (VOD), subscription video on demand, such as Netflix (S- VOD), subscription to pay-TVpackages and channels (Canal+, beIN Sports, etc.) and video games. The TV by CANAL offer gives subscribers access to over 100 channels on replay and 8,000 items of on-demandcontent on all types of screen (smartphone, tablet, Xbox 360, Xbox One and PC/Mac). Freebox Crystal and Freebox mini 4K subscribers can sign up to the Famille by CANAL offer and benefit from all of the above channels, except for sports channels;
• Free proposes new uses for households, such as unlimited access to newspapers and magazines via LeKiosk (Freebox Delta), Netflix (Freebox Delta and Freebox One) and voice-controlling their box using OK Freebox and Alexa (Freebox Delta) and Google assistant (Freebox mini 4K). Lastly, in 2018 the Group moved into the smart-home segment by adding a smart-home hub (Freebox Delta and Freebox Delta S) as well as a security pack for home surveillance.

5