Société anonyme. Share capital: 13,038,371 Registered office: 16, rue de la Ville l Evêque Paris, France Registered in Paris under no.

Transcription

1 Sciété annyme. Share capital: 13,038,371 Registered ffice: 16, rue de la Ville l Evêque Paris, France Registered in Paris under n

2 Sciété annyme. Share capital: 13,038,371 Registered ffice: 16, rue de la Ville l Evêque Paris, France Registered in Paris under n ANALYSIS OF THE GROUP S BUSINESS AND RESULTS KEY CONSOLIDATED FINANCIAL DATA In millins Year ended Dec. 31, 2016 Year ended Dec. 31, 2015 Year ended Dec. 31, 2014 INCOME STATEMENT Revenues 4, , ,167.6 EBITDA 1, , ,283.6 Prfit frm rdinary activities Other perating incme and expense, net (4.5) (4.2) (3.6) Operating prfit Finance csts, net (43.8) (58.0) (63.8) Other financial incme and expense, net (48.3) (24.5) (21.7) Crprate incme tax (245.6) (244.5) (202.0) Share f prfit f equity-accunted investees Prfit fr the perid BALANCE SHEET Nn-current assets 7, , ,266.4 Current assets , Of which cash and cash equivalents Assets held fr sale Ttal assets 8, , ,045.3 Ttal equity 3, , ,315.2 Nn-current liabilities 2, , ,209.1 Current liabilities 2, , ,521.0 Ttal equity and liabilities 8, , ,045.3 CASH FLOWS Cash flws frm peratins 1, , ,236.5 Capital expenditure 1 (1,757.8) (1,219.9) (968.3) Net change in cash and cash equivalents (excluding financing activities, payments fr frequencies in the 700 MHz 39.2 (76.1) (37.2) band and dividends) 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, , , Including the investment crrespnding t the first payments fr frequencies in the 700 MHz band ( 472 millin) 2 Including interest paid 2

3 1.1 OVERVIEW Fueled by the success f its Bradband and Ultra-Fast Bradband fferings marketed under the Free brand, the Iliad Grup (als referred t as the Grup ) has psitined itself as a majr player in the French landline telecmmunicatins market. In additin, since 2012 when it first launched its mbile fferings, the Grup has becme an integrated peratr present in the Bradband and Ultra-Fast Bradband and mbile segments. The Grup s success in these tw segments has been built n fur fundamentals straightfrward fferings, attractive prices, excellent service quality and technlgical innvatin. Just five years after it entered the mbile market, the Grup has becme ne f the leading telecmmunicatins peratrs in France, with mre than 19 millin subscribers, f which nearly 13 millin mbile subscribers and mre than 6 millin Bradband and Ultra-Fast Bradband subscribers. At December 31, 2016, it had market shares f 24% 3 fr Bradband and Ultra-Fast Bradband and 18% 4 fr mbile. In 2016, the Grup cntinued its prfitable grwth trajectry, generating ver 4.7 billin in revenues up 7% n As substantially all f its peratins are in France, the Grup nly has ne gegraphic segment. Hwever, this presentatin may change in the future, depending n perating criteria and the develpment f the Grup s businesses. The fllwing key perfrmance indicatrs are used thrughut this management reprt: - EBITDA, which crrespnds t prfit frm rdinary activities befre share-based payment expense, depreciatin, amrtizatin and prvisins fr impairment f nn-current assets. - Mbile services revenues, which crrespnds t mbile revenues excluding handset-related revenues (sales and rentals) Breakdwn f revenues (a) Landline fferings (Bradband and Ultra-Fast Bradband) Offerings and services available under the Free and Alice brands The Grup ffers its subscribers a number f different Internet access slutins (at prices ranging frm 9.99 t per mnth), with a bx prvided. Depending n the eligibility f the subscriber s line, the fllwing Bradband and Ultra-Fast Bradband ffers are available: Via ADSL, which allws subscribers t access the Internet at a speed f at least 2 Mbps and up t 22.4 Mbps in areas where the lcal lp is unbundled, and 17.6 Mbps in nn-unbundled areas, depending n whether a subscriber s line is eligible (IP speeds). Via VDLS2, which gives subscribers in unbundled areas and with shrt lines Internet access at speeds f up t 100 Mbps dwnlad and 40 Mbps uplad. Via ptical fiber (FTTH), which is available in selected areas cvered by Free and prvides subscribers with Ultra-Fast Bradband (up t 1 Gbps dwnlad and up t 200 Mbps uplad). 3 Cmpany estimate 4 Metrplitan France excluding M2M 3

4 Thrugh these fferings, depending n the package they chse, subscribers are prvided with the services described belw: Telephny. All subscribers are prvided with a telephne service under which they can make calls thrugh their mdem t landline numbers in Metrplitan France (apart frm shrt numbers and special numbers), as well as t 60 r ver 110 landline destinatins utside Metrplitan France depending n the terms f their package. Additinally, certain f the Grup s ffers include free calls r packaged deals fr calls t mbile numbers in Metrplitan France. Free prpses the largest televisin ffering in the market, cmprising mre than 500 channels (f which between 90 and almst 280 depending n the type f subscriptin are included in the basic packages), with ver 180 high definitin channels and a catch-up TV service cvering mre than 100 channels. Since September 2016, the Freebx Revlutin ffer includes the TV by CANAL Panrama package, therefre adding 50 channels t the ffer, f which 25 are exclusive t Freebx TV. Free als ffers its subscribers numerus value added services including Freebx Replay (its catch-up TV service), vide n demand (VOD r S-VOD), subscriptin t pay-tv channels (Canal+, bein Sprts, etc.) and vide games. The new TV by CANAL Panrama ffer gives subscribers access t ver 100 live channels and mre than 8,000 items f n-demand cntent n all types f screen (smartphne, tablet, Xbx 360, Xbx One and PC/Mac). When a subscriber signs up t ne f the Grup s fferings they are prvided with a bx. Tw main bxes are currently available: The Freebx Revlutin, which allws subscribers t cnnect all f their terminals and ffers ptimal Internet access. The Freebx Revlutin als includes many innvative services, such as the NAS server which has strage capacity f up t 250 GB accessible frm anywhere at any time, the Blu-Ray TM player, and calls t mbile numbers in Metrplitan France. It incrprates state-f-the-art technlgies including PLC (Pwer Line Cmmunicatin), a gyrscpic remte cntrl, a gamepad and speakers. The Freebx mini 4K, which is the Grup s entry-level ffering and has replaced the Freebx Crystal. The Freebx mini 4K is the wrld s first triple-play bx that has integrated AndridTV TM, the Ggle TM platfrm fr TV, and is cmpatible with 4K technlgy (Ultra High Definitin). It has Bluetth TM technlgy and ffers many ther innvative services, such as a remte cntrl with a vice search functin and the pssibility f using a mbile phne as the remte cntrl. It is als the mst cmpact bx n the market, measuring 11 x 15 cm. In additin, in 2016 the Grup carried ut specific prmtinal sales f the Freebx Crystal. The Freebx Crystal has nt featured within the Grup s cmmercial fferings since it was replaced by the Freebx mini 4K as the Grup s entry-level ffering. Hwever, in rder t reuse already-existing Freebx Crystals, in 2016 the Grup ffered a number f prmtinal deals n these bxes. Hsting ffers and services available under the Online, Dedibx, Iliad Datacenter and Iliad Entreprises brands Shared hsting services, which crrespnd t website hsting and the purchase and resale f dmain names. These services are inviced t custmers based n an annual subscriptin and are primarily targeted at private individuals and very small businesses that have relatively lw data strage requirements. 4

5 Dedicated hsting services, which crrespnd t the prvisin f dedicated servers t private individuals and SMEs that wish t secure their data. This ffering is inviced based n a mnthly subscriptin. Cllcatin services, which cnsist f prviding physical space in a data center, as well as the assciated electrical capacity, in rder t huse bays and servers that generally belng t end-custmers. Clud cmputing, which is a mdel enabling cnvenient, n-demand netwrk access t a shared pl f cnfigurable cmputing resurces. The Scaleway ffering prvides such access, with small virtual servers that can be scaled up t dedicated physical servers. (b) Mbile fferings The Grup prpses tw straightfrward value-fr-mney mbile fferings: The 2/mnth plan ( 0/mnth fr Freebx subscribers), which includes 120 minutes f vice calls per mnth in Metrplitan France and t French verseas departments (départements d utre-mer DOM), as well as t 100 landline destinatins utside Metrplitan France and t mbiles in the United States (including Alaska and Hawaii), Canada, French verseas departments and China, plus unlimited SMS/MMS messages in Metrplitan France, 3G/4G mbile Internet access with 50 MB data vlume, and unlimited access t the FreeWifi netwrk. This n-cmmitment plan which als includes services such as vice mail, caller display and usage mnitring was primarily designed fr subscribers mainly wanting t make vice calls at cmpetitive prices. Under the plan, subscribers can pt fr extra minutes and data vlume as well as fr calls t additinal freign cuntries and frm abrad. The Free Mbile Plan at 19.99/mnth ( 15.99/mnth fr Freebx subscribers), which includes unlimited vice calls and SMS and MMS messages as well as Internet access f up t 20 GB fr 3G and 50 GB fr 4G (with speeds slwed in excess f these threshlds). All subscribers t this n-cmmitment plan can als make unlimited calls t landlines in 100 destinatins utside Metrplitan France and t mbiles in the United States (including Alaska and Hawaii), Canada, French verseas departments and China, and have unlimited access t the FreeWifi netwrk. Subscribers can als use their Free Mbile Plan, fr 35 days per year and per destinatin, when traveling in a large number f cuntries, including all Eurpean Unin cuntries, the United States, Canada, Israel, French Guiana, Reunin Island, Maytte and the French West Indies. In 2016, these raming destinatins were extended t cver Australia, Nrway, Iceland, Suth Africa and New Zealand. In tandem, the Grup ffers a selectin f the latest mbile phnes n the market. With a view t being as transparent as pssible, Free sells its phnes separately frm its subscriptins, which means that subscribers can pt fr whichever plan and phne they prefer, r can chse nt t purchase a phne at all. Several different slutins are available fr subscribers wh chse t btain their phne frm Free: Purchasing a phne and paying fr it upfrnt. Purchasing a phne and spreading the installments (fur interest-free installments r 24 installments, depending n the mdel). Renting a phne: subscribers can rent high-end smartphnes fr a minimum f 24 mnths. Depending n the type f phne chsen, the subscriber makes an initial payment f between 79 and 149 and then pays a mnthly rental fee f between 17 and 27 (again, depending n the phne) ver a perid f 24 mnths. At the end f this 5

6 perid, subscribers can either return their phne and get a latest-generatin phne under a new rental agreement, r extend the rental perid fr their existing phne. In all cases, the Grup recgnizes the crrespnding revenue when the phne is received by the subscriber The Grup s main perating csts (a) Main perating csts f the Grup s landline fferings Optin 1 (subscribers n an unbundled line), whereby the Grup markets services entirely n its wn netwrk (excluding the lcal lp). Under Optin 1, direct csts per subscriptin and per mnth, as set ut in the incumbent peratr s basic unbundling ffer, were as fllws at December 31, 2016: Operating csts (partial unbundling) Rental f the cpper pair and the ADSL splitter: Operating csts (full unbundling) Rental f the cpper pair: Optin 5 (subscribers nt n an unbundled line), representing a whlesale ffer prpsed by the incumbent peratr that is sld n t subscribers by Free and Alice. Under Optin 5, fr a subscriptin that is sld at the same price, csts per subscriptin and per mnth are made up f access csts and the csts f the IP transit service. Access csts The respective mnthly fees fr the DSL Access and DSL Access Only services are 4.79 (since April 1, 2015) and (since March 1, 2016). IP transit service csts Optin 5 csts als include IP transit service csts which vary depending n the bit rate used by all Optin 5 subscribers. The price terms applicable in 2016 were as fllws: Usage fee per Mbps: Access fees: Optin 1 grss margin and EBITDA margin are therefre significantly higher than Optin 5 margins. Cnsequently, the Grup s bjective is t maximize the prprtin f Optin 1 subscribers and, where technically feasible, t directly ffer Optin 1 t new subscribers living in an area where the lcal lp has been unbundled. 5 Fee applicable since March 1, 2016 (cmpared with 8.78 in 2015) 6

7 The Grup als ffers its subscribers in eligible areas the pssibility f migrating t an FTTH ffering. Grss margin and EBITDA margin n FTTH fferings are much higher than Optin 1 margins as the Grup n lnger has t pay the perating csts related t renting the cpper pair frm the incumbent peratr. The Grup s bjective is therefre t maximize the prprtin f FTTH subscribers in eligible areas where technically feasible. (b) Mbile call terminatin charges These charges amunted t 0.76 eur cents in (c) Raming charges The Grup has t pay raming charges fr the raming services prvided t it, which are defined in a raming agreement signed with France s incumbent peratr during the first half f The agreement applies t 2G and 3G technlgies and has been amended since it was first signed ntably in relatin t intercnnectin capacity in rder t take int accunt the increase in mbile subscriber numbers. It had an initial term f six years cmmencing frm the cmmercial launch f the Grup s mbile fferings, but was extended n June 15, 2016 and nw expires at end The raming agreement allws the Grup t: - Offer a service t subscribers with a 2G phne. - Prvide mbile cverage in additin t that available under its wn netwrk, which is still in the expansin phase. Bth grss margin and EBITDA margin are significantly higher fr Free Mbile s wn-netwrk traffic than fr raming traffic. Margin levels als depend n (i) changes in subscriber usage patterns, particularly in relatin t data, and (ii) the prprtin f subscribers n the 19.99/mnth Free Mbile Plan (r 15.99/mnth fr Freebx subscribers). The Grup s bjective is therefre t maximize the prprtin f traffic carried directly n its wn netwrk, by pursuing the rllut targets described in sectin d belw, and t increase the prprtin f subscribers n the 19.99/mnth Free Mbile Plan (r 15.99/mnth fr Freebx subscribers), ntably by migrating subscribers n the 2/mnth plan (r 0 fr Freebx subscribers) t the 19.99/ plan. Achieving this bjective is being helped by the fact that peple are increasingly using mbile Internet n a daily basis. In accrdance with the new pwers assigned n August 6, 2015 t the French electrnic cmmunicatins regulatry authrity (Autrité de Régulatin des Cmmunicatins Electrniques et des Pstes ARCEP) under the Macrn Act (France s ecnmic refrm law), in 2015 ARCEP began wrk n analyzing the mbile netwrk sharing agreements in place in France (raming and RANsharing agreements). Fllwing this analysis, n January 12, 2016 ARCEP issued a wrking dcument fr public cnsultatin, which included draft guidelines n mbile netwrk sharing. The final guidelines which were published n May 25, 2016 ntably invited peratrs t set the dates fr gradually phasing ut their current raming arrangements. On June 15, 2016, Iliad and Orange annunced that they had signed an addendum t their 2G/3G raming agreement which runs until the end f The addendum prvides fr Free Mbile t gradually stp using the Orange netwrk fr natinal raming services in France, ntably by reducing the maximum Internet speeds prvided t raming subscribers as fllws: theretical maximum 7

8 dwnlad speeds f up t 1 Mbps (448 kbps uplad) fr 2017 and 2018; 768 kbps (384 kbps uplad) fr 2019 and 384 kbps (384 kbps uplad) fr On June 30, 2016, ARCEP decided that, based n the guidelines published n May 25, 2016, it was nt necessary t launch a frmal review f the raming agreement between Free Mbile and Orange using the pwers assigned t it under the Macrn Act f August 6, Capital expenditure and depreciatin (a) Bradband (i) Transmissin netwrk and unbundling the lcal lp Having laid ver 100,000 km f fiber in less than 15 years, Iliad has rlled ut ne f the largest IP netwrks in France, bth in terms f cverage and traffic vlumes. The Grup draws n this extensive netwrk t cnnect up subscriber cnnectin ndes and unbundle the lcal lp. In 2016, the Grup cntinued t extend its cverage by pening arund 1,200 new subscriber cnnectin ndes, which brught the ttal number f unbundled subscriber cnnectin ndes t nearly 9,300 at the year-end and gave Free a netwrk cverage rate f almst 90% f the French ppulatin. The ptical fiber used in the transmissin netwrk is depreciated ver perids ranging frm 10 t 27 years. The equipment installed in the subscriber cnnectin ndes (Freebx DSLAMs) is depreciated ver 5 r 6 years. (ii) Operating csts and capital expenditure by subscriber Just as perating csts differ significantly between Optin 1 and Optin 5, s d levels f capital expenditure. The main csts that the Grup capitalizes fr Optin 1 relate t the fllwing: The bxes prvided t subscribers. In 2016, the cst f a Freebx ranged frm a few dzen eurs (fr the Freebx Crystal) t 160 fr the Freebx mini 4K and 280 fr the Freebx Revlutin. Fees billed by the incumbent peratr fr access t unbundling services (als knwn as cabling csts r access fees), which amunt t 50 per subscriber fr full unbundling and 66 per subscriber fr partial unbundling. Lgistics and mdem dispatch csts. All f the abve items (Freebx mdems, access fees and lgistics csts) are depreciated ver a perid f five r seven years. Under Optin 5, ttal capital expenditure is lwer as the majrity f new subscribers are prvided with Freebx Crystal mdems, which nly cst a few dzen eurs. 8

9 The main capitalized csts under Optin 5 crrespnd t access fees billed by the incumbent peratr, which are as fllws: Fees fr access t the DSL Access service: Fees fr access t the DSL Access Only service: Fees fr access t the DSL Access Only service (where peratr access was already in place): Capitalized access fees are depreciated ver a perid f seven years as frm when the related services are prvided. (b) Rllut f ultra-fast netwrks (i) Migratin f the landline netwrk t VDSL2 technlgy In line with its pineering image, back in 2013 the Grup launched a large-scale plan fr migrating its netwrk equipment (Freebx DSLAMs) t VDSL2 technlgy. The Grup s landline netwrk is nw fully VDSL cmpatible, enabling eligible subscribers t increase their Internet speeds. (ii) Rllut f an FTTH netwrk Optical fiber which has lng been used by telecm peratrs fr lng-distance links has established itself as the fastest, mst reliable and mst pwerful transmissin technlgy available. It enables data t be transmitted at the speed f the light signal passing thrugh the fiber and cnsequently ffers speeds f several hundred Mbps and even much mre. It is the use f this technlgy that has driven the surge in Internet usage wrldwide. An ptical fiber netwrk with high uplad and dwnlad speeds enables a variety f multimedia services t be used simultaneusly. By rlling ut its wn ptical fiber lcal lp, the Grup directly wns all f its fiber-t-the-hme infrastructure and is therefre ttally independent frm the incumbent peratr. This means that it has cmplete cntrl ver its service quality and subscriber relatins, and can prvide its subscribers with access t a technlgy that fully meets their grwing bandwidth requirements. The FTTH rllut is a lgical extensin f Iliad s strategy f investing in the deplyment f its wn infrastructure with the aim f increasing margins and prfitability. The regulatry framewrk applicable t rlling ut the ptical fiber lcal lp differs depending n the gegraphic areas cncerned. Very densely ppulated areas In Decisin n dated December 10, 2013, ARCEP issued a list f 106 municipalities that it classified as very densely ppulated areas. In these areas, each peratr is respnsible fr rlling ut its wn netwrk up t shared access pints which are generally lcated inside buildings. The inbuilding cabling is then shared by the peratrs. T supprt the rllut f its FTTH (fiber-t-the-hme) ptical fiber netwrk, the Grup is making majr investments in netwrk infrastructure. The Grup is rlling ut its wn infrastructure in very densely ppulated areas, which requires: - Acquiring and fitting ut premises t huse ptical ndes (ONs). - Carrying ut hrizntal rlluts, which cnsist f laying ptical fiber cables between the ONs and the shared access pints. The Grup s hrizntal rllut phase is being undertaken using (i) the accessible galleries f the undergrund wastewater netwrk in Paris, and (ii) the 9

10 incumbent peratr s access ffer under which third parties can access its existing cable ducts in ther areas f France. - Cnnecting the hrizntal netwrk t the shared access pints. - Carrying ut the final cnnectin phase, which entails fitting an ptical fiber scket in the subscriber s hme and cnnecting it t the building s vertical fiber cables thrugh the flr distributin bx. Since 2016, in rder t accelerate its rlluts in very densely ppulated areas, the Grup has decided t use an EPON architecture in additin t its riginal pint-t-pint architecture. Outside very densely ppulated areas Outside very densely ppulated areas, in rder t ptimize fiber rlluts and peratrs capital expenditure, the applicable regulatry framewrk (as defined in ARCEP Decisin dated December 14, 2010), prvides fr mre extensive infrastructure sharing as it requires peratrs that rll ut netwrks t create shared access pints lcated utside private prperty bundaries which can each be used fr arund 1,000 lines. If an peratr creates a shared access pint gruping fewer than 1,000 lines, it is required t ffer a dark-fiber backhaul service between the shared access pint and a cncentratin pint with a larger number f lines. In this cntext, in August 2012, the Grup was the first peratr t (i) take up the incumbent peratr s third-party peratr access ffer fr its FTTH lines utside very densely ppulated areas and (ii) undertake t c-finance the FTTH netwrk in certain urban areas prpsed by the incumbent peratr. This ffer enables each peratr t access all f the lines deplyed and t c-finance the rllut nly t the extent f the lcal market share that the peratr is seeking t achieve. It enables the c-financing nt nly f the line between the shared access pint and the building but als the backhaul fibers between the shared access pint and the ptical nde. Based n its market share assumptins, the Grup believes that, t date, the cst per subscriber fr this prcess is less than 1,000. The Grup has participated in c-financing the rllut f the FTTH netwrk utside very densely ppulated areas since 2013, and at December 31, 2016 it had given netwrk financing cmmitments cvering sme 80 gegraphic areas, representing 4.5 millin hmes that will be prvided with FTTH cverage by In 2016, the Grup extended its c-financing cmmitments t all f the gegraphic areas in which the FTTH netwrk is being rlled ut by the incumbent peratr, which will ultimately give it access t an verall ptential FTTH subscriber base f 8.6 millin hmes. As in 2015, during 2016 the Grup cntinued t step up the pace f its FTTH capital expenditure drive. Cnsequently, during the year: - The number f cnnectible FTTH sckets almst dubled, reaching 4.4 millin at December 31,2016 (cmpared with arund 2.5 millin at end-2015). This ttal exceeds the Grup s initial bjective f having 4 millin cnnectible FTTH sckets by the end f The number f FTTH-cnnected subscribers rse by ver 100,000 t 310,000 at the year-end. This increase f mre than 50% in the space f ne year was due t three main factrs: French husehlds grwing appetite fr FTTH technlgy. The fact that the standardizatin f subscriber cnnectin prcesses has reached maturity. 10

11 The gradual start-up f marketing f Free s FTTH fferings utside very densely ppulated areas. By December 31, 2016, the Grup s Fiber fferings were available in arund 220 municipalities. Ging frward, the Grup intends t cntinue its rllut drive bth within and utside very densely ppulated areas, just as in 2016, and is aiming t have 9 millin cnnectible sckets by 2018 and 20 millin by In additin, in 2017 the Grup intends t further accelerate its FTTH subscriber cnnectins by cnnecting up mre than 200,000 new subscribers during the year. (c) A cmprehensive and enriched frequency prtfli Since it was awarded France s furth 3G mbile license in January 2010, the Grup has cntinuusly enriched its frequency prtfli. After being allcated 5 MHz duplex in the 900 MHz and 2,100 MHz frequency bands and 20 MHz duplex in the 2,600 MHz band when it launched its Mbile business in 2012, the Grup runded ut its prtfli in Metrplitan France in 2015 and 2016 by acquiring the fllwing frequencies: - 5 MHz duplex in the 1,800 MHz frequency band freed up by Buygues Telecm as part f the refarming prcess defined by ARCEP in its December 16, 2014 decisin. The frequencies cncerned gradually became available during the first half f 2015 and have been fully available thrughut Metrplitan France since July 1, An additinal 10 MHz duplex in the 1,800 MHz frequency band, after ARCEP authrized Orange and SFR t refarm their 1,800 MHz frequencies. This 10 MHz was freed up fr the Grup s use thrughut Metrplitan France n May 25, MHz btained n Nvember 17, 2015 fllwing the natinal auctin fr spectrum in the 700 MHz frequency band. This spectrum will be made available gradually n a regin by regin basis starting with the Ile de France regin in April 2016 and fllwed by a further regin each quarter frm January 1, 2018 thrugh July 1, 2019 (when the frequency in the final regin will be freed up). It was acquired fr a ttal f 933 millin, payable in fur installments between 2016 and The first tw installments were paid in 2016, as scheduled. Cnsequently, the Grup nw has a ttal prtfli f 55 MHz duplex with balanced cverage acrss Metrplitan France, enabling it t prvide high-perfrming services in bth 3G and 4G. In additin, n Octber 13, 2016 the Grup s bid fr 3G/4G mbile frequencies in Guadelupe, French Guiana, Reunin Island, Martinique, Maytte, Saint-Barthélemy and Saint Martin was selected. As a result, the Grup will be awarded, as a minimum, frequencies in the 1,800 MHz band fr all f the territries cncerned as well as lw frequencies fr 4G (800 MHz spectrum) in all f the territries except French Guiana. These spectrum awards will enable Iliad t prvide users in these territries with the same type f attractively priced fferings as it des in Metrplitan France. (d) Rllut f a netwrk f mbile masts Since it was awarded France s furth 3G mbile license, the Grup has implemented its mbile netwrk rllut strategy by drawing n its extensive landline transmissin netwrk (see paragraph (a) abve) and putting in place a specific rganizatinal structure t effectively manage and versee the netwrk rllut prcess (seeking ut sites, undertaking discussins with all types f lessrs, carrying ut administrative and regulatry prcedures, perfrming installatin wrks and ensuring cmpliance with the related safety rules, and mnitring the peratin and maintenance f radi equipment at sites where it has been installed). 11

12 Despite the mre restrictive regulatry framewrk nw applicable in France fr the installatin f mbile masts (fllwing the intrductin f the Abeille Act and the ALUR Act ), the Grup managed t keep up the strng pace f its mbile netwrk rllut in 2016, with ver 2,400 new sites deplyed during the year (including sites shared with ther peratrs utside densely ppulated areas), significantly exceeding its annual bjective f 1,500 new sites. At December 31, 2016, the Grup had almst 8,500 3G sites in service, giving it a direct 3G mbile cverage rate f 89% f the French ppulatin. The significant events f 2016 in terms f the Grup s mbile netwrk rllut drive were as fllws: - The pening f ver 2,400 new 3G sites, making 2016 a recrd year fr new site deplyments. - An acceleratin in the deplyment f 4G technlgy, which has been a pririty fr the Grup since it first launched its Mbile business was a particularly intense year in terms f 4G deplyment as (i) ver 1,900 new 4G sites were pened, giving the Grup a ttal f 7,566 4G sites in service at December 31, 2016, (ii) new 1,800 MHz frequencies were made available at 3,300 additinal sites, and (iii) the first 700 MHz frequencies were deplyed at 236 sites in the Ile de France regin. These new 700 MHz and 1,800 MHz frequencies were gradually brught int service during 2016, enabling the Grup t significantly imprve its cverage and the indr quality f its netwrk. Cnsequently, by end-2016 the Grup had a 4G cverage rate f 76% f the French ppulatin. - Cntinued investment in the fiber backhaul netwrk fr mbile sites. In view f everfaster Internet speeds and the grwing numbers f 4G users, the intercnnectin capacity f mbile sites is f critical imprtance t peratrs. In rder t be able t ffer its subscribers the best pssible speeds, the Grup has decided t use fiber t cnnect as many f its sites as pssible (mre than 80% in very densely ppulated areas at December 31, 2016). In view f the prgress achieved in its mbile rllut prcess, the Grup has set itself the fllwing bjectives: (i) t cntinue, and even further step up the pace f its rllut drive, with a target f having ver 12,000 mbile sites (including in sites shared with peratrs utside densely ppulated areas) by the end f 2017, (ii) t accelerate the cnversin f existing sites t 4G, ntably by bringing 1,800 MHz frequencies int service, in rder t achieve a 4G cverage rate f arund 85% f the French ppulatin by the end f the year, and (iii) t pursue the gradual deplyment f 700 MHz frequencies in eligible areas. The Grup has always respected its cverage cmmitments and by the beginning f 2017 it had already achieved all f its future bligatins, namely: 3G license: 90% f the French ppulatin cvered in January G license: 60% f the French ppulatin cvered by Octber 2019 and 75% by Octber The depreciatin/amrtizatin perids applied fr the main assets brught int service in 2016 are as fllws: Licenses: between 15 and 19 years. General equipment: 10 years. Mbile technical equipment: 6 and 18 years. Other equipment: 3 t 5 years. Other assets: 2 t 10 years. 12

13 (e) Rllut f the distributin netwrk: stres and dispensers During 2016 the Grup strengthened its physical presence in France by: Opening six new stres, raising the ttal number f Free Centers t 55 at end-december Cntinuing t rll ut self-service kisks fr mbile subscriptins that have an integrated SIM card dispenser, in partnership with the Maisn de la Presse and Mag Presse stre netwrk. At December 31, 2016, the Grup had arund 1,600 such kisks acrss France. 1.2 SIGNIFICANT EVENTS OF THE YEAR In millins % change Cnslidated revenues 4, , % - Landline 2, , % - Mbile 2, , % - Intra-grup sales (10.5) (11.4) -7.9% Cnslidated EBITDA 1, , % Prfit frm rdinary activities % Prfit fr the perid % Leverage rati 1.0x 0.8x +21.9% The mst significant events f 2016 were as fllws: The Grup became France s leading alternative landline Bradband and Ultra-Fast Bradband peratr with 6.4 millin subscribers, adding 247,000 new subscribers during the year, representing a net add market share f 32% 6. This gd subscriber recruitment level was achieved despite a persistently fiercely cmpetitive envirnment in which the Grup carried ut ne-ff targeted prmtinal campaigns. Free s strng sales perfrmance drve a further increase in revenues fr the Landline business, which climbed 3.6% year n year t just under 2.7 billin (up 5.3% in the furth quarter f 2016 alne). ARPU fr the Landline business swung up in the furth quarter f 2016, bsted by the TV by CANAL Panrama ffer, and came in at as f December Cmpany estimate 13

14 Mbile business: The Grup was France s leading recruiter f mbile subscribers fr the fifth year in a rw, ntching up ver 1,000,000 net adds in 2016, thanks t its strategy f always ffering mre fr the same price. At December 31, 2016, it had nearly 13 millin mbile subscribers, giving it a market share f 18% 7. Cnslidated revenues increased nce again, advancing 7% versus 6% in 2015 (and 8.6% in the furth quarter f 2016 alne), despite a highly cmpetitive perating cntext marked by numerus prmtinal ffers by ther peratrs. Mbile revenues tpped the 2 billin mark fr the first time since the Grup launched its mbile fferings in 2012, with verall revenues fr the Mbile business climbing nearly 12% year n year and Mbile services revenues advancing by mre than 13%. This rbust grwth fr Mbile services was directly attributable t the better subscriber mix, with mre subscribers chsing the per mnth ffer ( per mnth fr Freebx subscribers). The success f 4G, with the number f 4G subscribers rising sharply nce again (up 60%) and ttaling sme 6 millin at December 31, Average mnthly data usage per 4G subscriber which was already amng the highest in Eurpe als cntinued t rise, reaching 4.9 GB (representing an increase f mre than 50% year n year). A recrd year fr mbile site deplyments. In 2016, the Grup stepped up its rllut drive by (i) pening ver 2,400 new 3G sites, (ii) equipping 3,300 4G sites fr 1,800 MHz frequencies, and (iii) pening 236 sites using 700 MHz frequencies. The high number f sites pened during the year enabled the Grup t extend and enhance the quality f its netwrk, ntably by bradening its 3G and 4G cverage. At December 31, 2016, the Grup s full cverage rate (i.e., bth indr and utdr) was 89% f the French ppulatin fr 3G and ver 76% fr 4G (exceeding its target f achieving a 4G cverage rate f arund 75%). An acceleratin in FTTH rlluts and cnnectins, with (i) sme 2 millin new cnnectible sckets, bringing the ttal t 4.4 millin at December 31, 2016, and (ii) mre than 100,000 subscribers cnnected t fiber in 2016, including 45,000 in the furth quarter alne. This means that the Grup s FTTH subscriber base increased by mre than 50% in the space f a year and at December 31, 2016 it std at 310,000. A rise in the Grup s prfitability. Fr the first time since it launched its Mbile business, the Grup s EBITDA margin rse back abve the 35% mark, widening by 1.7 pint. Cnslidated EBITDA came t 1,676 millin in 2016, up 12.5% year n year, fueled by an increase in the vlume f mbile traffic carried directly n the Grup s wn netwrk. Prfit fr the perid amunted t ver 400 millin, up by mre than 20% n 2015 despite an increase in depreciatin charges (ntably due t the faster pace f netwrk rlluts). A pr-active capital expenditure strategy fr Ultra-Fast Bradband netwrks, backed by a slid financial structure. The Grup invested sme 1.3 billin in its landline and mbile infrastructures in France in 2016, enabling it t becme mre autnmus and augment its prfitability while at the same time enhancing its subscriber service. Als during the year, the Grup made the first tw payments (ttaling 472 millin) fr its purchase f frequencies in the 700 MHz band. Despite this utlay, the Grup s financial structure remained strng, and with a leverage rati f less than 1.0x EBITDA at December 31, 2016, it was nce again ne f the Eurpean telecm peratrs with the least amunt f debt. 7 Metrplitan France excluding M2M 14

15 Furth mbile netwrk peratr in Italy: a unique pprtunity fr the Grup. In early July 2016, the Grup signed an agreement with the Hutchisn and VimpelCm grups, as part f the plan t merge their respective H3G and Wind subsidiaries, with a view t acquiring assets that will enable the Grup t becme the furth mbile peratr in Italy. This agreement which was apprved by the Eurpean Cmmissin n September 1, 2016 invlves (i) the transfer f a brad set f 35 MHz frequencies fr 450 millin, (ii) an undertaking t acquire macr sites f the merged netwrk, (iii) a pssibility either t bring int frce a RAN-sharing agreement cvering rural areas r t acquire macr sites in thse areas, and (iv) an all-technlgies raming agreement n the merged netwrk, effective fr a perid f five years and renewable by Iliad fr a further five-year perid. These different assets, cmbined with the Grup s knw-hw, mean that it can implement an efficient cst mdel in view f achieving balanced EBITDA with a market share f less than 10%. 15

16 1.3 COMPARISON OF RESULTS FOR 2016 AND 2015 In millins % change Revenues 4, , % Purchases used in prductin (2,323.0) (2,238.8) +3.8% Grss prfit 2, , % as a % f revenues 50.8% 49.3% +1.5 pts Payrll csts (242.9) (222.5) +9.2% External charges (342.1) (288.5) +18.6% Taxes ther than n incme (82.1) (57.9) +41.8% Additins t prvisins (49.6) (96.9) -48.8% Other incme and expenses frm peratins, net (6.8) (19.9) -65.8% EBITDA 1, , % as a % f revenues 35.5% 33.8% +1.7 pts Share-based payment expense (2.0) (3.3) -39.4% Depreciatin, amrtizatin and prvisins fr impairment f nn-current assets (929.6) (820.4) +13.3% Prfit frm rdinary activities % Other perating incme and expense, net (4.5) (4.2) +7.1% OPERATING PROFIT % Finance csts, net (43.8) (58.0) -24.5% Other financial incme and expense, net (48.3) (24.5) +97.1% Crprate incme tax (245.6) (244.5) +0.4% Share f prfit f equity-accunted investees PROFIT FOR THE PERIOD % 16

17 1.3.1 Analysis f cnslidated results (a) Key indicatrs Subscriber numbers Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Ttal mbile subscribers 12.7m 11.7m 10.1m - Of which 4G 5.9m 3.7m 1.7m Ttal Bradband and Ultra-Fast Bradband subscribers 6.4m 6.1m 5.9m Ttal number f subscribers 19.1m 17.8m 16.0m Other indicatrs Bradband and Ultra-Fast Bradband ARPU (in ) Freebx Revlutin ARPU* (in ) >38.00 >38.00 >38.00 Number f cnnectible FTTH sckets 4.4m 2.5m - Average 4G data usage (in GB per mnth per subscriber) 4.9 GB 3.2 GB 1.8 GB * Excluding prmtins (b) Revenues In 2016, the Grup nce again reprted slid year-n-year grwth, with revenues up by mre than 300 millin, r 7.0%, t ver 4.7 billin (up 8.6% in the furth quarter f 2016 alne). The Grup managed t accelerate its revenue grwth despite persistently fierce cmpetitin, thanks t anther gd perfrmance frm the Landline business (with revenues up 3.6% t almst 2.7 billin) as well as a further duble-digit revenue increase fr the Mbile business (up 11.7% t ver 2 billin). The table belw shws the breakdwn f cnslidated revenues by categry fr 2016 and 2015 as well as the percentage change between the tw years. In millins % change Landline 2, , % Mbile 2, , % Intra-grup sales (10.5) (11.4) -7.9% Ttal cnslidated revenues 4, , % 17

18 Landline revenues Against a backdrp f nging fierce cmpetitin, grwth fr the Landline business picked up pace even further in 2016, with revenues climbing 3.6% year n year (5.3% in the furth quarter f 2016 alne) t almst 2.7 billin. The main factrs that drve this perfrmance were as fllws: The end-september launch f the new Freebx Revlutin ffer including the TV by CANAL Panrama package and the mycanal service. This package adds 50 channels (f which 25 are exclusive) t the 226 channels already included in the Freebx TV ffer, fr per mnth. 247,000 new Bradband and Ultra-Fast Bradband subscribers, representing a net add market share f 32% 8. In a highly cmpetitive envirnment and despite numerus prmtinal ffers by ther peratrs, the Grup s net add market share was nce again higher than its verall market share. This achievement was due t (i) the strng reputatin f the Free brand and the quality f the Freebx, (ii) the measures taken t enrich the Grup s fferings, ntably by including new landline destinatins in the Freebx plan, (iii) the intrductin f the TV by CANAL Panrama ffer, (iv) the quality f subscriber relatins (which wn it first place in the survey cnducted by the majr French cnsumer magazine, 60 millins de cnsmmateurs, with a 92% satisfactin rate fr landline Internet access services), and (v) ne-ff prmtinal ffers. At December 31, 2016, the Grup had a ttal f almst 6.4 millin Bradband and Ultra-Fast Bradband subscribers, making it France s leading alternative Bradband and Ultra-Fast Bradband peratr. Bradband and Ultra-Fast Bradband ARPU rse t in the furth quarter f 2016, driven by the inclusin f the TV by CANAL Panrama package in the Freebx Revlutin ffer. This ffer cntinued t prve very ppular, with its ARPU nce again exceeding Mbile revenues The Mbile business reprted strng grwth in 2016 reflecting the success f its cmmercial fferings with revenues up almst 12% year n year and tpping the 2 billin mark fr the first time. This rise stemmed primarily frm an excellent shwing frm mbile services, whse revenues advanced 13%. Just five years after it was launched, the Mbile business nw accunts fr 43% f the Grup s ttal revenues. At December 31, 2016, the Grup had 12.7 millin mbile subscribers, i.e., ver ne millin mre than at the previus year-end. The main factrs that drve the Mbile business s perfrmance in 2016 were as fllws: Slid sales perfrmances thanks t cnstantly-enriched and attractive ffers. By cntinuing t stand ut frm the cmpetitin fr the depth and breadth f its fferings and unchanged prices, Free was nce again France s leading recruiter f mbile subscribers in 2016 (and fr the 20 th quarter in a rw), with mre than ne millin net adds during the year. Free is the nly peratr in France t ffer a plan csting less than 20 per mnth that includes (i) 50 GB f 4G internet, and (ii) raming frm all Eurpean Unin cuntries, Suth Africa, Australia, Canada, the United States, Iceland, Israel, Nrway and New Zealand. At December 31, 2016, the Grup had 12.7 millin mbile subscribers, representing a market share f 18% 10. Faster take-up f Free s per mnth plan ( per mnth fr Freebx subscribers), primarily due t an increase in 4G usage and subscriber migratins frm the 2 per mnth plan ( 0 per mnth fr Freebx subscribers). In 2016, 75% f the Mbile business s net adds were signed up t the per mnth plan ( per mnth fr Freebx subscribers). This imprved subscriber mix drve up Mbile services 8 Cmpany estimate 9 Excluding prmtins 10 Metrplitan France excluding M2M 18

19 revenues by ver 13% during the year a figure which is even mre impressive when cmpared against the 8.7% grwth rate fr the verall subscriber base. The grwing success f 4G. The number f 4G subscribers rse sharply nce again, up 60% year n year, and ttaled sme 6 millin at December 31, Average mnthly data usage per 4G subscriber which was already amng the highest in Eurpe als cntinued t rise, reaching 4.9 GB (representing an increase f mre than 50% year n year). Custmer satisfactin recgnized and rewarded. Free was ranked the best peratr in France in the mst recent custmer satisfactin survey carried ut by the majr French cnsumer magazine, 60 millins de cnsmmateurs, with an verall 95% satisfactin rate fr mbile telephny services. In additin, Free nce again btained the best scre fr 4G cnnectins in France in the nperf mbile cnnectins perfrmance survey fr the furth quarter f Intra-grup sales Intra-grup sales crrespnd t sales between cmpanies frm the Grup s tw different businesses and mainly cnsist f billings f intercnnectin peratins. They are eliminated in cnslidatin. (c) Grss prfit At 2,399 millin, cnslidated grss prfit was 223 millin higher than in 2015, representing a year-n-year increase f 10.3%. As a percentage f revenues, it climbed 1.5 percentage pints t 50.8%, reflecting the cmbined impact f tw ppsing factrs: (i) the psitive effect f higher prfitability fr the Mbile business (althugh its grss margin is still lwer than that f the Landline business), thanks t the better subscriber mix and the increase in vlumes f mbile traffic carried directly n the Grup s wn netwrk, and (ii) a lwer grss margin fr the Landline business due t a rise in unbundling fees and the impact f the TV by CANAL Panrama ffer n the last tw mnths f the year. (d) Payrll csts The Grup created mre than 1,000 direct jbs in France in 2016 (permanent cntracts), raising its ttal headcunt in France t 7,142 at December 31, This increase mainly reflects the Grup s pr-active strategy f accelerating the rlluts f its FTTH and mbile netwrks as well as the expansin f its subscriber relatins teams. In view f these develpments, payrll csts (excluding emplyee benefits and capitalized csts) rse t just under 243 millin during the year, representing 5.1% f revenues (stable cmpared with 2015). (e) External charges The Grup s external charges increased by 54 millin t 342 millin. This item mainly includes netwrk csts (maintenance, rental f mbile sites etc.) and the csts f equipment hsting, insurance, advertising and sub-cntracting. The year-n-year rise chiefly reflects the higher number f mbile sites in service in (f) Taxes ther than n incme Taxes ther than n incme rse by 42% t 82 millin, primarily due t (i) mbile rlluts (IFER tax), (ii) the grwth in cnslidated revenues (COPE tax, UMTS tax and COSIP tax) and (iii) the increase frm 0.9% t 1.3% f the COPE tax rate. 19

20 (g) Additins t prvisins Additins t prvisins which include prvisins fr bad debts, impairment f inventries and cntingencies and charges ttaled 50 millin in 2016, dwn 47 millin n This decrease was mainly attributable t lwer additins t prvisins fr bad debts recgnized by the Grup in cnnectin with its landline and mbile fferings as a result f better debt cllectin prcesses. (h) Other incme and expenses frm peratins, net This item represented a net expense f 7 millin in 2016 cmpared with a net expense f 20 millin in (i) EBITDA Cnslidated EBITDA advanced by 12.5% in 2016 t 1,676 millin. EBITDA margin als increased sharply, widening by 1.7 pint and tpping 35% fr the first time since the Grup launched its Mbile business, mainly reflecting the rise in prfitability reprted by this business. The Grup s EBITDA perfrmance in 2016 was fueled by the Mbile business s higher margin as the Landline margin narrwed slightly during the year. The main factrs affecting EBITDA in 2016 were as fllws: Better mbile netwrk cverage. Thanks t the Grup s extensin f its mbile netwrk cverage in 2016, it was able t increase the vlume f traffic carried directly n its wn netwrk. An imprved subscriber mix fr the Grup s mbile ffers, with the majrity f new subscribers signing up t the per mnth ffer ( per mnth fr Freebx subscribers). Ecnmies f scale achieved fr the Mbile business s fixed csts. The cntinued significant grwth f the Mbile business enabled the Grup t achieve further ecnmies f scale in terms f its fixed cst base (netwrk, advertising csts, administrative csts, etc.) and t capitalize n its status as an integrated peratr (landline/mbile). In additin, the Mbile business s EBITDA margin rse nce again in 2016 despite the extensin f raming services t additinal cuntries and the terminatin f airtime revenue frm premium numbers as frm end Onging measures t ptimize the Grup s landline netwrks (unbundling, migratin and rllut f the FTTH netwrk). During 2016, the Grup pursued its measures t (i) cntinue the rllut f its directly-wned FTTH netwrk and the FTTH netwrks deplyed in accrdance with c-financing arrangements with the incumbent peratr, and (ii) extend its ADSL netwrk, by pening sme 1,200 new subscriber cnnectin ndes. Dilutive impacts fr the Landline business resulting frm (i) an increase in certain taxes, particularly the COPE tax, (ii) a rise in unbundling fees, and (iii) the dilutive effect f the TV by CANAL Panrama ffer fr the last tw mnths f the year. (j) Prfit frm rdinary activities Prfit frm rdinary activities amunted t 744 millin, up 12% n the 2015 figure due t the abve-described rise in EBITDA. Depreciatin/amrtizatin expense increased t 930 millin as a result f the beginning f depreciatin/amrtizatin fr landline and mbile netwrk cmpnents brught int service during the 20

21 year, particularly due t (i) the migratin f mbile sites t 4G technlgy fr the 700 MHz, 1,800 MHz and 2,600 MHz frequency bands, and (ii) the FTTH netwrk rllut. (k) Prfit fr the perid Prfit fr the perid advanced by mre than 20% t 403 millin frm 335 millin in Cash flws and capital expenditure In millins % change Cnslidated cash flw frm peratins 1, , % Change in wrking capital requirement 25.6 (23.4) - Operating Free Cash Flw 1, , % Capital expenditure (excluding the purchase f 700 MHz frequencies) (1,286.3) (1,219.9) +5.4% Incme tax paid (239.4) (229.7) +4.2% Other 11 (64.5) (76.0) -15.1% Cnslidated Free Cash Flw (excluding 700 MHz frequencies and dividends) Cnslidated Free Cash Flw (excluding financing activities and dividends) 39.2 (76.1) - (432.3) (76.1) - Dividends (24.1) (23.0) +4.8% Cash and cash equivalents at year-end Cnslidated Free Cash Flw The Grup kept up the brisk pace f its landline and mbile netwrk rlluts during 2016, which pushed up its capital expenditure (excluding purchases f frequencies) by 5% t 1.3 billin in line with frecasts. The year-n-year change in cnslidated Free Cash Flw mainly reflects the fllwing: A 9% increase in cnslidated cash flws frm peratins t ver 1.6 billin. A 26 millin psitive change in wrking capital requirement. A sustained high level f capital expenditure, which amunted t 1.3 billin (excluding the purchase f 700 MHz frequencies). Significant capital utlay was incurred during the year fr bth the Mbile and Landline businesses, mainly as a result f (i) the cntinued brisk pace f the mbile netwrk rllut, (ii) site migratins, and (iii) the acceleratin f the fiber netwrk deplyment. 11 Including interest paid 21