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Iliad Free 1H 2008 Results and Strategy Presentation

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1H 2008 Results & Strategy Presentation
August 28th, 2008
2
Disclaimer
This document has been prepared by ILIAD S.A. (the « Company ») and is being furnished to you
personally solely for your information.
This presentation includes only summary information and does not purport to be comprehensive.
The information contained in this presentation has not been subject to independent verification.
No representation, warranty or undertaking, express or implied, is made as to, and no reliance
should be placed on, the fairness, accuracy, completeness or correctness of the information or
opinions contained herein. None of ILIAD S.A., its affiliates or its advisors, nor any
representatives of such persons, shall have any liability whatsoever (in negligence or otherwise)
for any loss arising from any use of this document or its contents or otherwise arising in
connection with this document or any other information or material discussed.
This presentation contains forward-looking statements relating to the business, financial
performance and results of ILIAD S.A. These statements are based on current beliefs,
expectations or assumptions and involve unknown risks and uncertainties that could cause
actual results, performance or events to differ materially from those described in such
statements. Factors that could cause such differences in actual results, performance or events
include changes in demand and technology, as well as the ability of ILIAD S.A. to effectively
implement its strategy. Any forward-looking statements contained in this presentation speak only
as of the date of this presentation. ILIAD S.A. expressly disclaims any obligation or undertaking to
update or revise any forward-looking statements contained in this presentation to reflect any
change in events, conditions, assumptions or circumstances on which any such statements are
based unless so required by applicable law.
3
June
2007
Key Performance Indicators (KPIs)
ADSL Subscribers 2,626,000 2,904,000 3,134,000
Unbundling Ratio 78.4% 81.5% 83.4%
ARPU (end of the period) €35.0 €36.3 €36.3
% Subscribers using Free 57% 64% 71%
as Sole Telecom Provider*
Churn < 1% / month << 1% / month << 1% / month
* Full Unbundling + IP Only (naked ADSL)
December
2007
June
2008
4
French ADSL Market Consolidation
Benefits Free
Dec. 2006
19.8%
49.6%
Others
1.1%
Source: ARCEP and France Telecom
15.8 M. Subscribers
June 07
Market Shares
June 08
Market Shares
5.7%
19.5%
48.9%
25.1% Others
1.0%
13.5 M. Subscribers
5.5%
23.8%
5
Leading Unbundling in France
1,850 Central Offices equipped
with DSLAMs at end June 2008
vs. 1,500 COs at end 2007
100% with ADSL2+ DSLAMs
Objective to reach 2,200 COs
at end 2008
Over 70% of subscribers using Free
as unique Telecom Provider *
60% of subscribers equipped
with Freebox HD
1st unbundler with 45.7% market share at end June 2008
ADSL Subscribers
Unbundled Subscribers (Partial and Full ULL) in %
Unbundled Subscribers (Partial and Full ULL)
(ADSLSubscribers)
June 07 Dec. 07
In thousand subs
81.5%
2,626
2,904
78.4%
3,134
June 08
83.4%
* Full Unbundling + IP Only (naked ADSL)
6
Free: A Lot More Than an Access
Provider!
Dec. 07June 06 June 07
2.0%
June 04 Dec. 04 Dec. 05 Dec. 06June 05
138.3
183.9
251.4
309.2
377.4
441.6
551.1
598.8
5.9%
10.9%
15.4%
19.5%
20.4%
21.8%
23.9%
In M€
(BroadbandSector)
ISP Revenues
Value-Added Services in % of ISP Revenues
VOIP
Pay-TV Services
Value-Added Services
25.4%
665.0
June 08
7
Beyond Traditional TV
A Strong Partnership
Launch of the 1st Catch Up TV Service in France
€10 / month during the first year (vs. €20.90)
Films / Series Major Sporting EventsChannels
Leading HD Experience
Leading the On-Demand Concept
2,883,000 VoD and S-VoD features
purchased during 1H 2008
Consumption x3 in 2 years
Strong take-up on new S-VoD offers
A catalog of more than 10,000 VoD features
NOUVEAUTE
S
ACTUALITES
8
24/7
Still at the Cutting Edge
Freebox HD:
The Most Advanced Technologies
Users are now able to broadcast
their website on TV
New Generation WiFi
802.11n
Freeplugs 200 Mbps
(PLC)
More speed for ADSL 2+ customers
in non unbundled areas
Canal + Group Catch Up TV service
available for the first time on TV
More bandwith
New Services
New Contents
Intégral
ATM speeds
9
Always Improving Pre- and After-Sales
Services
New Website
New subscription site launched at end
of May
After-Sales
A free of charge on-site Technical Support
Free engineer sent within 2 hours
if problem not solved on-line
Service available nationwide
(more than 70 cities)
On-line Technical Support
100% in-house hotline teams
10
FTTH: A Clearer Regulatory Framework
Ducts
France Telecom second ducts offer under review
Technicalities agreed / Compatible with P2P technology
Pricing and operational process to be improved
Clearer Regulatory FrameworkFTTH law passed
Create a right to fiber
Regulate vertical roll-out
Vertical deployment mutualized between Operators
Network sharing point will be on Public Domain
Ease buildings’ access
11
FTTH Focus
Free FTTH offer is becoming a reality
Paris: FTTH offer available in some buildings in Paris
Outside Paris: Service opened in various areas of Montpellier
Investment program confirmed
A total CapEx plan of €1 bn by 2012
70% of Paris covered horizontally over 2H 2009
€1,500 per existing subscriber confirmed
FTTH project on track:
Free is leading FTTH deployment in Paris
Vertical roll-out improved with the FTTH law
12
Mobile
ARCEP’s Consultancy: 3 Different Scenarios
Single block attribution 15 Mhz of the 2.1 Ghz frequencies to a new entrant
Partitioning the license into several blocks of frequencies
• 3 blocks of 5 Mhz put to tender to all players
• 3 blocks of 5 Mhz with part of them allotted to new entrants only
Next steps
ARCEP is to announce its conclusions at end September 2008
Decision to reset a new tender has to be taken by Government
Attribution of the 4th License / blocks unlikely before mid-2009
Iliad confirms its objective to become the 4th Mobile Operator
Uncompetitive market with only 3 players
Strong assets that can be redeployed
Low break-even point
Unlimited offers jeopardize MVNO’s positioning
Outcomes acceptable to Iliad:Outcomes acceptable to Iliad:
Either 15Either 15 MhzMhz at a discounted price,at a discounted price,
Or 10Or 10 MhzMhz for 15 years (instead of 20 years) at a reduced pricefor 15 years (instead of 20 years) at a reduced price
Alice
14
Rationale for Alice Acquisition
Acquisition completed on August 26th
Iliad will become the 1st Alternative Operator in France
Ca. 850,000 active subscribers
Around 4 million subscribers at closing
A market share close to 25.5%
No premium paid for the last strategic asset available
Price paid : €760 M (debt free / cash free)
• €350 M: Tax asset
• €410 M: Subscriber base
Submitted to significant downward adjustment clauses
Improving the economics of:
FTTH investment plan
Content agreements
Mobile
Permanently enhancing Iliad strategic positioning
15
Combined KPIs
Alice
estimates
Active ADSL Subs. ca. 850,000 3,134,000 3,984,000
Market Share 5.7% 19.8% 25.5%
ARPU (end of the period) ca. €27.0 €36.3 €34.2
Unbundling ratio 45.8% 83.4% 75.3%
Iliad
June 08
Proforma
estimates
16
Summary Views on Synergies / Tax
Savings
ARPU Enhancement
Alice’s ARPU at ca. €27.0 in 1H 2008
Rationalization of commercial offers
Increasing VAS take-up
Revenues
Increasing the unbundling ratio of Alice subscriber base
Streamlining of Alice network and related cost
Marketing expenses cut
Network: 700 Central Offices redundant
Rationalization of IT and G&A
Profitability
Substantial tax losses carried-forward within Liberty Surf Group
(estimated value of ca. €350 M)
Immediate use of tax losses by Iliad reducing tax charges
Tax-shield
Targeting a yearly incremental EBITDA of €90 M as of 2H 2010
17
Gearing Balance Sheet for Alice
New Facilities of €1.2 bn
12 banks
Refinancing of existing Facilities
Leverage should be around 2x EBITDA at Closing
Strong deleveraging: Targeting 1x EBITDA in 2010
Tax shield
Synergies
Alice acquisition: 100% financed by bank debt
Financials
19
Strong Financial KPIs
Revenues 574.1 692.2 +20.6%
EBITDA 206.5 256.9 +24.4%
EBITDA Margin 36.0% 37.1%
EBIT 101.4 128.0 +26.2%
EBIT Margin 17.7% 18.5%
Net Income 65.0 82.9 +27.5%
Profit from discontinued operations 13.9 -
ADSL FCF (52.7) 74.7
VAR.
In € million
1H 20081H 2007
20
1H 2007 1H 2008
+ 61%
1H 2007 1H 2008
+ 22%
Broadband Revenues
Revenues(1) Value Added Services Revenues
In € million
(1) Excluding intersegment
676.4
555.1
120.1
168.4
Broadband ARPU of €36.3 at end 1H 2008
VAS revenues at 25% of BB revenues
vs. 22% at end June 07
+ 40%
21
1H 2007 1H 2008
Broadband: Record EBITDA Margin
EBITDA
In € million
1H 2008 EBITDA’s drivers:
+ Unbundling ratio: from 81.5% to 83.4%
+ Take-up of VAS
+ Telephony: Lower interconnection charges –
thanks to a denser network
+ Economy of scale
- Implementation of the COSIP Tax
202.1
254.4
+ 26%
36.4%
37.4%
EBITDA Margin
22
1H 2007 1H 2008
+ 29%
Broadband: EBIT up by 29%
In € million
Stabilization of amortization at c. 18%
of Revenues
Freebox cost per sub. at €180
(incl. CPL device)
126.0
97.4
18.5%
17.5%
EBIT Margin
EBIT
23
1H 2008 CAPEX Breakdown
DSL Network CAPEX DSL Growth CAPEX
In € million
27.0
22
1H 081H 07
FTTH CAPEX
156
122
1H 081H 07
6
32
1H 081H 07
- 21% - 22 % x 5
190
175
1H 081H 07
- 7 %
Total CAPEX
Fiber IRU + Trans. Eq. FT Room Freebox + DSLAMs FT Cabling Fees + Portability
22
5
17
5
110
46
90
32
24
ADSL Business: Strong Free Cash Flow
Generation in 1H 2008
1H 08
FCF
1H 08
ADSL
FCF
1H 08
ADSL
CapEx
1H 08
Cash from
Ops prior to
Tax & WCR
1H 08
FTTH
CapEx
1H 08
WCR
1H 08
Tax
payment
In € million
Positive ADSL FCF of €75 M in 1H 2008
Positive Group FCF of €43 M (vs. €- 49 M in 1H 2007)
253 (44)
(32)
9
(143)
75
43
1H 07
FCF
(49)
1H 2007
1H 08
Others
25
2008 Outlook without Alice
3.25 million subscribers by end 2008 (excluding Alice)
& 5 million by end 2011 (including Alice)
84% unbundled subscribers by end 2008
> €20 average gross margin per ULL subscriber
Strengthen Iliad’s Unique Position in French Telecom Market
FCF significantly higher than €100 M on ADSL activity in 2008
FTTH: 70% Paris covered horizontally over 2H 2009
28
Appendice 1 : Free’s Offer:
The ‘Best-Value for money’ Offer
Access
up to 28 Mbps
DSL Safe
IPV6
PHONE
INTERNET Free phone
calls to 70
destinations
SIP Protocol
Ring Back Tone
Fax
Voice
message
sent by mail
Filtering
incoming
calls
250 TV channels
DTT
PVR (40 Gbits Hard drive)
VoD features
S-VoD offer
TV Perso
HD Contents
TV / VIDEO
WiFi MiMo 802.11n
HDMI connection
Freeplugs
CONNECTIVITY
ATM speeds
29
Appendice 2: More than 20 exclusives
services in the package
A service is considered exclusive when it is not proposed, or charged for by a competitor