Interim condensed financial statements for the half year ended June 30,2015

Transcription

1 Interim condensed financial statements for the half year ended June 30,2015 Numericable-SFR 1, Square Béla Bartók Paris

2 CONSOLIDATED STATEMENT OF INCOME (in millions of euros) Six months ended June 30 June restated 1 Revenues 5, Purchasing and subcontracting (1,904) (155) Other operating expenses (1,279) (149) Staff costs and employee benefit expenses (435) (58) Depreciation, amortization and impairment (1,170) (152) Other non-recurring income and expenses (70) (8) Operating income Financial income Cost of gross financial debt (323) (187) Other financial expenses (19) (95) Net financial income (expense) 310 (280) Share in net income (loss) of associates 4 - Income before taxes 976 (137) Income tax expense (income) (81) 54 Net income (loss) from continuing operations 895 (83) Net income (loss) from discontinued operations - - Net income 895 (83) - Attributable to owners of the company 891 (83) - Attributable to non-controlling interests 4 0 Earnings per share - basic 1,87 (0,67) - diluted 1,86 (0,67) 1 See Note 17 - Restated information 1

3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME June 30 June 30 (in millions of euros) restated Net income 895 (83) Items that may be subsequently reclassified to profit or loss: Foreign currency translation adjustments (2) - Cash flow hedges 13 (143) Related taxes (5) 54 Other items related to associates 2 - Items that will not be subsequently reclassified to profit or loss: Actuarial gain (loss) - - Related taxes - - Items of other comprehensive income 903 (172) Of which: Comprehensive income attributable to owners of the company 899 (172) Comprehensive income attributable to non-controlling interests 4-2

4 CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30 December 31 (in millions of euros) restated 1 ASSETS Goodwill 12,590 12,590 Intangible assets 4,391 4,558 Property, plant and equipment 5,657 5,897 Investments in associates Financial assets 1,723 1,003 Deferred tax assets Other non-current assets Non-current assets 24,904 24,724 Inventories Trade and other receivables 2,522 2,730 Current income tax receivable Other current financial assets Cash and cash equivalents Current assets 3,123 3,986 Total Assets 28,027 28,709 June 30 December 31 (in millions of euros) restated 1 LIABILITIES Share capital Additional paid in capital 7,849 9,748 Reserves (1,338) (2,270) Equity attributable to owners of the company 6,949 7,965 Non-controlling interests Total invested equity 6,962 7,975 Long term borrowings and financial liabilities 13,999 12,539 Other non-current financial liabilities Non-current provisions Deferred tax liabilities 2 43 Other non-current liabilities Non-current liabilities 15,048 14,302 Short-term borrowings and financial liabilities Other financial liabilities Trade payables and other liabilities 4,694 5,014 Current income tax liabilities Current provisions Other current liabilities Current liabilities 6,016 6,433 Total liabilities 28,027 28,709 1 See Note 17 - Restated information 3

5 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Equity attributable to owners of the company (in millions of euros) Capital Aditional paid in capital Reserves other comprehensive income 1 Total Noncontrolling interests Consolidated equity Position at December 31, ,108 (1,977) (2) Dividends paid Comprehensive income - - (84) (89) (172) - (172) Share-based compensation Share repurchases - - (1) - (1) - (1) Other movements Position at June 30, ,108 (2,059) (91) Dividends paid Comprehensive income - - (91) (19) (110) - (110) Issuance of new shares 266 4, ,720-4,720 Contributions of SFR shares 97 3, ,282-3,282 Share-based compensation Share repurchases Other movements - - (12) - (12) 9 (3) Position at December 31, ,748 (2,161) (109) 7, ,975 Dividends paid (2) (2) Comprehensive income Share-based compensation Capital reduction by cancellation of treasury shares (49) (1,899) 1, Share repurchases - - (1,947) - (1,947) - (1,947) Other movements Position at June 30, ,849 (1,236) (102) 6, ,962 1 See Note 11.3 for breakdown of reserves linked to items of other comprehensive income. 4

6 CONSOLIDATED STATEMENT OF CASH FLOWS Six months ended June 30 June 30 (in millions of euros) restated 1 Net income attributable to owners of the company 891 (83) Adjustments: Non-controlling interests 4 - Depreciation, amortization and impairment 1, Share in net income (loss) of associates (4) - Net income from sale of property, plant and equipment and intangible assets 18 (2) Net financial income (expense) (310) 280 Income tax expense (income) 81 (54) Other non-cash items Income tax paid (72) - Change in working capital (117) (37) Net cash flow provided by operating activities 1, Acquisitions of property, plant and equipment and intangible assets (817) (183) Acquisition of consolidated entities, net of cash acquired (2) - Price adjustment of SFR securities Acquisitions of other financial assets (3) (1) Disposals of property, plant and equipment and intangible assets 11 2 Disposal of consolidated entities, net of cash disposals (0) - Disposal of other financial assets 10 - Change in restricted cash - (8,894) Net cash flow used by investing activities (684) (9,077) Share repurchases (1,947) - Issuance of debt ,597 Repayment of debt 4 (24) (2,638) Interest paid (297) (90) Other flows from financing activities 78 (103) Net cash flow from (used by) financing activities (1,394) 8,766 Net increase (decrease) in cash and cash equivalents (405) (61) Exchange rate impact on cash in foreign currencies - - Net cash and cash equivalents at begining of period Net cash and cash equivalents at end of period of which cash and cash equivalents of which bank overdrafts (72) - 5

7 See Note 17 Restated information. Corresponds, in the first half of 2014, mainly to the cost of extinguishing debt repaid in May 2014 in the amount of 89 million Corresponds, in the first half of 2014, mainly to debts subscribed as part of the acquisition of SFR in the amount of 11,653 million net of 77 million of related fees. At June 30, 2015, this mainly reflected the amount drawn on the Revolving Credit Facility. Corresponds, in the first half of 2014, mainly to debt extinguished as part of the May 2014 refinancing in the amount of 2,638 million. This amount was restated upwards by 37 million on January 1, 2015 to take into account (i) a change in the presentation of cash which now includes bank overdrafts so that the cash position reflected in the cash flow statement above is net of bank overdrafts and (ii) a reclassification to cash of commercial bill receivables. 6

8 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1 Basis of preparation of the Consolidated Financial Statements 8 2 Scope of consolidation 10 3 Significant events in the first half of Reconciliation of operating income to adjusted EBITDA 12 5 Segment information 12 6 Net Financial income (expense) 13 7 Income tax expense 13 8 Earnings per share 13 9 Goodwill Cash and cash equivalents Equity Financial liabilities Litigation Commitments and contractual obligations Related party transactions Consolidating entity Restated information Events after the end of the reporting period Condensed consolidated pro forma financial information 25 7

9 1 Basis of preparation of the Consolidated Financial Statements Numericable-SFR (hereafter the Company or the Group ) is a limited liability corporation (société anonyme) incorporated under French law in August 2013 with headquarters in France. Created as a result of the merger of Numericable and SFR, Numericable-SFR Group aims to become, on the back of the largest fiber optic network and a leading mobile network, the national leader in France in the convergence of very-high-speed fixed-line/mobile. A globalplayer, Numericable-SFR has major positions in all segments of the French telecommunications B2C, B2B, local authorities and wholesale market. This Note describes the changes in the accounting principles adopted by Numericable-SFR for the interim financial statements for the half-year ended June 30, 2015 since the annual consolidated financial statements for Basis of preparation of financial information The interim condensed consolidated financial statements for the half-year ended June 30, 2015 were approved by the Company s Board of Directors on July 28, The interim condensed consolidated financial statements as of June 30, 2015 were prepared in accordance with IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board (IASB) and adopted by the European Union (EU). They should be read in conjunction with the Group s 2014 annual consolidated financial statements. The interim condensed consolidated financial statements were prepared in accordance with the same principles as for December 31, 2014, subject to the specifics of IAS 34, a change in accounting method and harmonization of management rules presented below, and the adoption of the new standards mentioned in Note Change in accounting method To improve its financial reporting and to ensure uniformity of treatment among Altice Group companies, the Group has opted to capitalize, in accordance with IAS 38 and in coherence with future standards, its customer acquisition costs for packages with commitments beginning on or after January 1, This change of method has no material impact on the comparative financial information presented for the first half of However, the interim condensed pro forma financial information presented in Note 19 has been restated for the impact of that change. Furthermore, intangible assets with a net carrying amount of 91 million were recognized provisionally at December 31, 2014 under capitalized acquisition costs, as part of the allocation of goodwill related to the acquisition of SFR and Virgin Mobile. These impacts are disclosed in Note 17 - Financial Information. - Harmonization of management rules As part of the acquisition of SFR and to remain consistent with the principles adopted by Numericable-SFR Group, the Group has also harmonized its rules for estimating and capitalizing internal costs related to network and information systems development, costs for introducing Service Access Fees, and costs for the refurbishment of set-top boxes returned by customers. Accordingly, intangible assets with a net carrying amount of 271 million were recognized provisionally at December 31, 2014, as part of the allocation of goodwill related to the acquisition of SFR. These impacts are disclosed in Note 17 - Financial Information. - Changes in the presentation of the consolidated financial statements 8

10 To improve its financial reporting and ensure uniformity of presentation of financial statements among Altice Group companies, Numericable-SFR Group has changed the presentation of its financial statements. The transition from the old to the new format for comparative financial statements as of June 30, 2014 and December 31, 2014 is described in detail in Note Use of estimates and judgments In preparing the Group s financial statements, Management makes estimates insofar as many factors included in the financial statements cannot be measured accurately. The assumptions on which key estimates are based are the same as those described in Note 3 of the consolidated financial statements as of December 31, Management reviews such estimates as the circumstances on which they are based change or as a result of new information or additional experience. Consequently, the estimates made at June 30, 2015 may be significantly modified in subsequent periods, and actual amounts may differ from estimates. 1.3 New standards and interpretations Standards and interpretations applied from January 1, 2015 IFRIC Interpretation 21 Levies Charged by Public Authorities is applicable retrospectively from January 1, This interpretation clarifies IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and addresses specifically the recognition of duties and tax liabilities imposed on companies by public authorities in accordance with applicable laws and regulations, with the exception of income tax and VAT, among other things. Applying this interpretation may therefore lead to modifying the analysis of the obligating event as the activity that triggers the recognition of a liability. This interpretation had no material impact on the Group s interim condensed consolidated financial statements for the first half of fiscal year 2015 or the comparative financial information. The application from January 1, 2015 of the other mandatory standards and amendments (listed below) had no material impact on the Group s interim condensed consolidated financial statements: - Amendments to IAS 19: Employee contributions to defined benefit plans - Annual improvements to IFRSs published in December 2013 ( and Cycles). Standards and interpretations mandatory after June 30, 2015 and not adopted early The standards and interpretations likely to affect the Group are: - IFRS 15 Revenue from Contracts with Customers on the recognition of such revenue applicable from January 1, IFRS 9 Financial instruments, applicable to annual periods beginning on or after January 1, Management is currently assessing the potential impact of the application of these standards, interpretations and amendments on the statement of income, the statement of financial position, the statement of cash flows and the Notes to the Financial Statements. 9

11 1.4 Seasonality of business For B2C mobile activities, the year-end is an extremely sensitive sales period. For B2C fixed-line activities, revenues are mainly based on a fixed monthly fee and are thus not subject to seasonal fluctuations. The number of customers generally increases from September to January as households tend to make more purchases during back-to-school and end-of-year periods. The number of B2B customers usually increases in June and December when private and public companies establish their budget, whereas revenues arising from B2B telephony services tend to follow the cycle of school holidays, with especially low activity during summer and winter holidays as well as in May due to the many bank holidays, but this reduction is not material. 1.5 Management of financial risk The Group s targets and rules for managing financial risk (market risk, credit risk and liquidity risk) are identical to those adopted for the consolidated financial statements as of December 31, Scope of consolidation In the first half of 2015, there was no significant change in the consolidation scope as described in Note 35 to the Group s 2014 consolidated financial statements. 3 Significant events in the first half of Memorandum of Understanding signed with Vivendi on February 28, 2015 On February 18, 2015, Numericable-SFR and its majority shareholder Altice filed a firm offer to buy the 20% interest held by Vivendi in Numericable-SFR, at 40 per share, totaling approximately 3.9 billion. On February 27, 2015, Vivendi s Supervisory Board accepted Numericable-SFR s offer, signing final agreements to buy the 20% interest held by Vivendi. The acquisition was completed on May 6, 2015, half of it paid by Numericable-SFR as part of a share repurchase plan authorized by the Shareholders Meeting of April 28, 2015, combined with a cash payment, and the other half to be paid by Altice. The share repurchase plan by Numericable-SFR in the amount of 1,948 million was financed through an RCF drawdown of 1,050 million (the total amount available having been increased in 2015 from 750 million to 1,125 million) and the balance from the Group s available cash. At its meeting of May 28, 2015, the Board of Directors decided to cancel the treasury shares (48,693,922 shares), reducing consolidated equity by 1,948 million. Also as part of the agreement signed with Vivendi: (i) In early May 2015, Vivendi paid to Numericable-SFR 116 million under the price adjustment procedure agreed between the parties for the acquisition of SFR. The price adjustment was recognized as follows: 10

12 (ii) (iii) - in the Group s restated consolidated financial statements as of December 31, 2014: recognition of payment owed to Vivendi under Other current financial assets in the amount of 120 million (corresponding to the price adjustment as measured at the acquisition date) through a reduction of provisional goodwill recognized in the acquisition of SFR; - in the consolidated financial statements as of June 30, 2015: recognition of a financial expense in the amount of 4 million (shown in Other financial expenses ). Vivendi permanently waived the earn-out payment of 750 million which would have been owed by Numericable-SFR to Vivendi if EBITDA - Capex reached at least 2 billion in any given fiscal year by December 31, The Group reported net financial income of million (excluding tax effects) for the first half of 2015, corresponding to the discounted value of the earn-out in the Group s non-current financial liabilities at December 31, 2014, as well as deferred tax income of 40.5 million in the first half of The amount of million was recognized as financial income as there was no factor indicating that it formed part of the acquisition price of 10% of the acquired Numericable-SFR securities. Vivendi undertook to repay to SFR, should the tax authorities definitively disallow the merger of SFR and Vivendi Telecom International (VTI) signed in December 2011, up to 711 million that SFR had paid to it as part of its inclusion in Vivendi s tax consolidation group. 3.2 Service requirements by the Competition Authority for the Group s premises on April 2, 2015 Accused by some of its competitors that the Group and SFR anticipated the Competition Authority s decision of October 31, 2014 authorizing the Group s takeover of SFR, the Competition Authority, overseen by the data privacy commission, gathered data from Group locations to identify factors that may indicate that it had acted prematurely on the expectation that this concentration would be authorized. The Group disputes the facts put forward by its competitors. 11

13 4 Reconciliation of operating income to adjusted EBITDA The following table shows the reconciliation of the operating income in the consolidated financial statements to adjusted EBITDA: June 30 June 30 (in millions of euros) restated Operating income Depreciation, amortization and impairment 1, SFR and Virgin acquisition expenses 14 6 Restructuring costs 15 4 Costs relating to stock option plans 4 3 CVAE (Cotisation sur la Valeur Ajoutée des Entreprises ), a French business value-added 42 6 contribution Other non-recurring costs 77 1 (1) Adjusted EBITDA 1, Includes costs related to litigation and the impact of contract renegotiation costs in the period. Adjusted EBITDA is the key indicator used by the Group to measure performance. This financial indicator is not defined in IFRS. Adjusted EBITDA excludes certain items that Numericable-SFR considers not relevant to its recurring operating activities. 5 Segment information The following tables show revenues and adjusted EBITDA broken down by the three operating segments defined by the Group: B2C/B2B/Wholesale. 5.1 Revenues June 30 June 30 (in millions of euros) restated B2C 3, B2B 1, Wholesale Total 5, Adjusted EBITDA June 30 June 30 (in millions of euros) restated B2C 1, B2B Wholesale Total 1,

14 6 Net Financial income (expense) The gross cost of debt corresponds to interest expense on Senior Facilities and derivatives. The gross cost of debt is reported directly in the statement of income. Financial income and other financial expenses are detailed below: June 30 June 30 (in millions of euros) restated Extinction of the earn-out liability to Vivendi Interest income on cash 3 1 Claim against Lehman Brothers - 1 Miscellaneous 6 - Interest income Cost of extinguishing debt (refinancing) - (89) SFR price adjustment (4) - Provisions and unwinding of discounting (5) (1) Interest on financial liabilities excluding Senior (6) (3) Facilities Miscellaneous (3) (3) Other financial expenses (19) (95) 7 Income tax expense For interim reporting, the tax expense or tax income on profit or loss is determined in accordance with IAS 34, based on the best estimate of the annual average tax rate expected for the full fiscal year, restated for non-recurring items in the period which are recorded as incurred. 8 Earnings per share (in millions of euros) Net income used for calculating basic earnings per share Impact of dilutive instruments: Stock option plans (a) Net income used for calculating diluted earnings per share June 30, June 30, (83) (83) 13

15 The following table shows the weighted average number of ordinary shares used for calculating basic and diluted earnings per share: (number of shares) Weighted average number of ordinary shares Impact of dilutive instruments: Stock option plans Weighted average number of shares outstanding - diluted June 30, June 30, ,061, ,942,012 5,209, ,270, ,942,012 9 Goodwill June 30 December 31 (in millions of euros) restated Net carrying amount Balance at beginning of year 12,590 1,484 Provisional goodwill on acquisition of - 11,457 SFR and Virgin Mobile Adjustment of initial recognition of - (5) goodwill in LTI Telecom Adjustment of initial recognition of - (345) goodwill in SFR Balance at end of year 12,590 12,590 The net carrying amount of goodwill can be broken down by segment as follows: June 30 December 31 (in millions) restated B2C Operations B2B Operations Provisional goodwill SFR and Virgin 11,112 11,112 Total 12,590 12,590 Given the completion dates of the acquisitions of SFR and Virgin (November 28, 2014 and December 4, 2014, respectively), the interim condensed consolidated financial statements for the half-year ended June 30, 2015 were prepared using provisional amounts for certain assets acquired and liabilities assumed for which the Purchase Price Accounting (PPA) analysis could not be completed in time. The PPA for both SFR and Virgin should be completed in the last quarter of Accordingly, as of June 30, 2015 and December 31, 2014, any difference between (a) the consideration transferred, measured in accordance with IFRS 3, and (b) the amount of the identifiable assets at the acquisition date less the liabilities assumed (corresponding at this stage to the amounts reported in the acquired companies historical financial statements), was allocated to goodwill. 14

16 As of December 31, 2014, a portion of the goodwill related to the SFR and Virgin acquisitions was provisionally allocated to intangible assets in the form of: - capitalization of customer acquisition costs for a net carrying amount of 91 million; this amount, net of deferred tax, was allocated to goodwill in the amount of 56 million; - capitalization of internal costs related to network development and information systems, costs for introducing Service Access Fees, and costs for the refurbishment of set-top boxes returned by customers, with a net carrying amount of 271 million; this amount, net of deferred tax, was allocated to goodwill in the amount of 168 million. The final allocations will be made on the basis of certain measurements and other analyses done by independent experts. Consequently, the amount of goodwill is provisional and will be subject to revision within the 12 months following the date of the acquisitions based on the final measurement of the fair value of the assets acquired and the liabilities assumed. Measuring the fair value of assets acquired and the liabilities assumed will lead to the recognition of certain identifiable assets such as licenses, brands and customer bases that will have a limited life and will be amortized. Therefore, future operating results may be significantly affected, mainly by impairment charges related to these identifiable assets acquired. The Group re-examines the values of the assets of its Cash Generating Units whenever events or changes in the economic environment pose an impairment risk. As of June 30, 2015 the Group had not identified any signs of impairment that would require a goodwill impairment test. 10 Cash and cash equivalents June 30 December 31 (in millions of euros) restated 1 Cash Cash equivalents (a) Cash and cash equivalents See Note 17 - Restated information a) Cash equivalents, as of June 30, 2015 and December 31, 2014, mainly consisted of money-market UCITS. 11 Equity As of June 30, 2015, following the cancellation of treasury shares as described in Note 3.1, Numericable SFR s share capital, based on the number of shares outstanding on that date, amounted to 438,245,303, comprising 438,245,303 ordinary shares with a nominal value of 1 each. 15

17 11.1 Change in share capital Date Transaction Number of shares outstanding December 31, ,939,225 May 28, 2015 Cancellation of treasury shares (48,693,922) June 30, ,245, Treasury shares As indicated in Note 3.1, in early May 2015 the Group launched the buyback of 48,693,922 of its own shares from Vivendi. These shares were then cancelled on May 28, In addition, in early 2014, the Group signed a liquidity contract with Exane BNP Paribas in order to improve the liquidity of its securities and the regularity of their prices on NYSE Euronext Paris. As of June 30, 2015 the Group held 8,288 treasury shares as part of the liquidity contract Reserves related to items of other comprehensive income Attributable to owners of the company Hedging instruments Actuarial gains and losses Other items Deferred taxes Total items of other comprehensive income (in millions of euros) Balance at December 31, (2) - - (2) Change (143) (89) Balance at June 30, 2014 (143) (2) - 54 (91) Change (26) (3) - 10 (19) Balance at December 31, 2014 (169) (5) (0) 64 (109) Change 14 - (2) (5) 8 Balance at June 30, 2015 (154) (5) (2) 59 (102) 16

18 12 Financial liabilities Financial liabilities break down as follows: (in millions of euros) June 30, 2015 Current Non-current Total December 31, 2014 restated June 30, 2015 December 31, 2014 restated June 30, 2015 December 31, 2014 restated Bonds ,116 8,572 9,290 8,735 Bank borrowing ,883 3,967 4,944 3,983 Derivative instruments Borrowings and financial debt ,999 12,539 14,235 12,718 Finance lease debts Perpetual subordinated notes ("TSDI") Deposits received from customers Bank overdrafts Vivendi earn-out Other Other financial liabilities Total financial liabilities ,186 13,348 14,610 13,626 1 As of June 30, 2015, they included a residual 800 million of the RCF, which requires the Group to honor certain financial covenants (Net Debt/Adjusted EBITDA ratio). As of that date the Group was in compliance with its terms. Taking into account the refinancing measures in progress and disclosed in Note 18, the 800 million residual RCF is shown under non-current financial debt at June 30, As of June 30, 2015, they included a 58 million debt related to the implementation, in the first half of the year, of a receivables securitization contract Net financial debt Net debt as defined and utilized by the Group can be broken down as follows: June 30 December 31 (in millions of euros) restated Bonds 9,199 8,670 Bank borrowing 5,003 4,047 Finance lease debts Other financial liabilities Liability items contributing to net financial debt (a) 14,425 12,856 Cash and cash equivalents Derivative instruments 1, Asset items contributing to net financial debt (b) 1,886 1,532 Net financial debt (a) - (b) 12,539 11,325 (a) Liability items correspond to the nominal value of financial liabilities (excluding accrued interest, impact of EIR, perpetual subordinated notes, operating debts and Vivendi earn out). All these liabilities are translated at the closing price. (b) Asset items consist of cash and cash equivalents, and the value of derivatives, which, as of June 30, 2015, show a positive currency translation impact of 1,769 million and an interest rate loss of 134 million. The corresponding figures at December 31, 2014 were a positive translation impact of 1,063 million and an interest rate loss of 151 million. 17

19 12.2 Fair value hierarchy of financial assets and liabilities No significant events occurred in the first half of 2015 to affect the fair value of financial assets and liabilities (including no transfers into or out of a fair level value and no change in the measurement methods used). 13 Litigation In the normal course of business, the Group is drawn into a number of lawsuits and governmental, arbitration and administrative proceedings. This Note discloses all significant disputes that have arisen or developed since the publication of the December 31, 2014 consolidated financial statements that may have a material impact on the Group s financial position DSP 92 A disagreement arose between the Hauts-de-Seine department ( CG92 ) and Sequalum regarding the terms of performance of a public service concession ( THD Seine ) signed on March 13, 2006 between Hautsde-Seine Department and the business consortium consisting of Numericable, SFR Collectivités and Eiffage. The purpose of the concession was to create a very-high-speed fiber optic network in the Hauts-de- Seine region. Sequalum succeeded to the rights of the group of signatories. As of June 30, 2015, the net carrying amount of the network built by Sequalum was approximately 140 million in the statutory financial statements and the company had received 27 million in subsidies from the General Council. At its meeting of October 17, 2014, the Hauts-de-Seine General Council decided to terminate the public service concession with Sequalum for misconduct by the contractor effective June 30, In September 2014, the Hauts-de-Seine General Council submitted a demand for penalty payments in the amount of 45 million, for alleged delays in rolling out fiber optics and connecting buildings. As part of the enforcement of the contract and after sending the demand for payment, the General Council also asked the relevant financial institution to enforce the first-demand guarantee agreed by Sequalum of up to 10 million set forth in the agreement. To date, the financial institution has not met this request, on the grounds that the request was not in the required form and did not include the documentation needed to invoke the guarantee; the Nanterre Commercial Court to which this matter has been referred has dismissed the payment request. The demand for payment was contested in a motion filed with the Administrative Court of Cergy Pontoise on September 3, Its enforcement and therefore the payment of the sums requested have been suspended pending a ruling on the merits. An additional demand for payment was issued on May 7, 2015 by the Hauts-de-Seine General Council for further delays cited by the contracting authority. The new demand, in the amount of 51 million, added to the initial demand for payment issued in September 2014 for 45 million, was also challenged in form and substance in the Administrative Court. The General Council also again invoked the first-demand guarantee in the amount of 10 million. The Nanterre Commercial Court is expected to hand down its ruling on this petition in September. 18

20 The General Council s decision to terminate the concession was challenged in a lawsuit requesting damages. Should the competent courts consider the termination justified based on the grievances cited by the General Council, Sequalum would not only have to repay the public subsidies received for the DSP 92 project, amounting to the unamortized amount of subsidies, but it would also be liable for any consequential damages alleged by the General Council. Moreover, the Hauts-de-Seine Department would also regain full ownership of the returnable DSP assets. In consideration for that and even if the judge finds the termination wrongful, the Department must in addition pay damages to Sequalum amounting to at least the net value of said assets. It should be noted that on October 16, 2014, Sequalum filed a motion in the Administrative Court of Cergy Pontoise requesting that the public service concession be terminated because of force majeure residing in the irreversible disruption of the structure of the contract. Following the termination of the DSP 92 agreement, the Group s management carried out a risk assessment of these procedures and found that there were too many uncertainties to be able to evaluate the potential risk to the Group. Under such conditions, the accounting criteria for recognizing a provision were not met. Numericable states that it also has its own fiber optics in the Hauts-de-Seine Department to service its customers. Furthermore, DSP 92 accounts for a relatively insignificant percentage of Group revenue Disputes related to the white label contract between Numericable and Bouygues Telecom On July 24, 2015, Bouygues Telecom had a summons and complaint served on NC Numericable and Completel regarding the basis of the very-high-speed contract signed between the three companies on May 14, 2009, and a complaint by Bouygues Telecom against those companies made in November Bouygues Telecom alleged that NC Numericable and Completel had breached various contractual and precontractual provisions and asked the Commercial Court not only to annul certain contractual terms but also to order those companies to pay a minimum of 53 million in restitution. NC Numericable and Completel intend to challenge all the demands by Bouygues Telecom Tax audit regarding the SFR/VTI merger Under the agreement signed on February 27, 2015 between Vivendi, Altice France and Numericable-SFR, Vivendi agreed to repay to SFR any taxes and levies charged to SFR for fiscal year 2011 that SFR had paid to Vivendi at that time, subject to a maximum of 711 million covering the entire period that SFR was part of the Vivendi tax group, if the 2011 merger of SFR and VTI is ruled invalid in tax terms. Vivendi and Altice/Numericable-SFR have agreed to work together to challenge the tax authorities. 14 Commitments and contractual obligations The main changes to the commitments relating to the acquisition of SFR are disclosed in Note 3 on significant events in the period. The Competition Authority has asked the Group to sell Completel s DSL network. In the absence of an acceptable offer, the Group has decided to record an impairment, over the course of the first half of 2015, against the entire carrying amount of those assets, this having however no material impact on the Group s financial statements. 19

21 No other significant event impacted the commitments and contractual obligations received or given as described in the 2014 financial statements. 15 Related party transactions In the first half of 2015, the type of related party transactions did not significantly differ from those reported as of December 31, Consolidating entity The consolidated financial statements of Numericable-SFR are included in the consolidated financial statements of Altice SA, a company listed in the Netherlands. 17 Restated information 17.1 Consolidated statement of financial position The consolidated statement of financial position as of December 31, 2014 has been restated: - for the price adjustment related to the takeover of SFR as described in Note 3.1 ( 120 million reduction in Goodwill through the Other current financial assets line item) in accordance with IFRS 3; - for the recognition of intangible assets as disclosed in Note 9 ( 224 million reduction in Goodwill after deferred tax) in accordance with IFRS 3; - for several reclassifications as a result of the change in the presentation of the statement of financial position explained in Note 1.1. The following table shows the reconciliation of the consolidated statement of financial position as of December 31, 2014 to the restated statement of financial position: 20

22 December 31 IFRS 3 Reclassifi December 31 (in millions of euros) 2014 Adjustments cation 2014 published restated Goodwill 12,935 (345) - 12,590 Intangible assets 4, ,558 Property, plant and equipment 5, ,897 Investments in associates Other non-current financial assets 1,049 - (1,049) 1 - Financial assets - - 1, ,003 Deferred tax assets 634 (137) Other non-current assets Non-current assets 24,840 (120) 4 24,724 Inventories Trade and other receivables 2,812 - (82) 4 2,730 Corporate income tax receivables Cash and cash equivalents Other current financial assets Current assets 3, (8) 3,986 Total Assets 28,714 - (5) 28,709 Consolidated equity 7, ,975 Non-current financial liabilities 13,349 - (13,349) 2 - Long term Borrowings and other financial liabilities , ,539 Other non-current financial liabilities Non-current provisions Deferred tax liabilities Other non-current liabilities Non-current liabilities 14, ,302 Current financial liabilities (283) 2 - Short-term borrowings and financial liabilities Other current financial liabilities /4 99 Trade payables and other current liabilities 5,621 - (5,621) 3 - Trade payables and other liabilities - - 5, ,014 Corporate income tax liabilities Current provisions Other current liabilities Current liabilities 6,438 - (5) 6,433 Total liabilities 28,714 - (5) 28,709 1 Non-current operating assets (other than financial) reclassified under a new dedicated caption titled Other noncurrent assets ). 2 Financial liabilities reclassified into two separate categories: i) borrowing and financial liabilities and ii) other financial liabilities. The breakdown of the two captions is presented in Note Trade payables and other current liabilities reclassified as i) trade and other payables and ii) current liabilities. Other current liabilities as of December 31, 2014 include short-term deferred income ( 591 million). 4 Reclassification of cash and cash-equivalent receivables ( 77 million) and current financial liabilities (- 5 million). 21

23 17.2 Consolidated statement of income The statement of income for the half-year ended June 30, 2014 was restated following the change in presentation explained in Note 1.1. The following table shows the reconciliation of the published statement of income for the half-year ended June 30, 2014 to the restated statement of financial performance: June 30 Reclassifi- June 30 (in millions of euros) 2014 cation 2014 published restated Revenues Purchasing and subcontracting - (155) 1 (155) Other operating expenses (1) (148) 1 (149) Staff costs and employee benefit expenses (80) 22 2 (58) Depreciation, amortization and impairment (152) - (152) Other non-recurring income and expenses - (8) 3 (8) Purchases and subcontracting services (312) Taxes and duties (16) Provisions (5) Other operating income 44 (44) 2 - Operating income Interest income 2-2 Cost of gross financial debt (138) (49) 5 (187) Other financial expenses (144) 49 5 (95) Net financial income (expense) (280) - (280) Share in net income (loss) of associates Income before taxes (138) - (138) Income tax income (expense) Net income (loss) from continuing operations (83) - (83) Net income (loss) from discontinued operations Net income (83) - (83) - Attributable to owners of the company (83) - (83) - Attributable to non-controlling interests The purchasing and subcontracting caption combines the direct costs related to sales (TV, telephony, DATA, etc.) and outsourcing costs. Other operating expenses include the following costs: Customer Service, Marketing, Network, Selling, general and administrative expenses, Taxes and levies. These costs were previously combined for the most part under the External purchasing and Taxes and levies captions. 2 Staff costs and employee benefit expense is now shown net of capitalized payroll, previously presented under Other operating income in the published financial statements. 3 This category combines Group income/expenses considered non-recurring. 4 Provisions are now broken down in the new cost expense captions. 5 The cost of gross debt corresponds to the interest expense on the Group s Senior Facility Agreement and now includes the amortization of borrowing expenses (using the effective interest method), exchange rate gains/losses on the Senior Facility, and the fair value impact of derivatives related to the Senior Facility. These items had previously been included in Other financial expenses. 22

24 17.3 Statement of cash flows The statement of cash flows as of June 30, 2014 was restated following the change in presentation explained in Note 1.1. The following table shows the reconciliation of the published statement as of June 30, 2014 to the restated statement: June 30 Reclassification June 30 (in millions of euros) published restated Net income attributable to owners of the company (83) - (83) Adjustments: Depreciation, impairment and provisions Share of net income (loss) of associates Gain (loss) on asset disposals (2) - (2) Net financial income (expense) Income tax expense (income) (54) - (54) Cost of gross financial debt 138 (138) 1 - Change in fair value of interest rate derivatives 14 (14) 1 - Foreign currency differences, net 10 (10) 1 - Other non-cash operating gains and losses 30 (28) 1 2 Income tax paid Change in working capital requirement 8 (44) 1 (37) Net cash flow from operating activities Acquisitions of property, plant and equipment and intangible assets (164) (19) 2 (183) Acquisition of entities, net of cash acquired Acquisition of held-for-sale financial assets (1) - (1) Disposals of tangible and intangible assets 2-2 Change in restricted cash (8,894) - (8,894) Subsidies and grants received 1 (1) 2 - Net cash flow used by investing activities (9,056) (20) (9,077) Issuance of debt 11, /3 11,597 Repayment of debt (2,652) 14 3 (2,638) Change in other financial liabilities - (11) 3 (11) Other cash flows from financing activities - (92) 1 (92) Interest paid (136) 46 1 (90) Net cash flow from (used by) financing activities 8,792 (26) 8,766 Net increase (decrease) in cash and cash equivalents (61) - (61) Net cash and cash equivalents at begining of period Net cash and cash equivalents at end of period Adjustments now include the entire interest income whereas previously only the cost of gross debt, the change in the fair value of derivatives, and foreign currency differences were neutralized. As a result of these reclassifications: 23

25 - the Other non-cash items caption represents the non-cash expense of stock option plans, in the amount of 2 million; - the Interest paid line item presents the cash impact of interests on the Senior Facilities; - the Other cash flows from financing activities line item mainly includes the cost of extinguishing debt repaid in May 2014 in the amount of 89 million. 2 Asset acquisitions now include finance-lease based acquisitions in the amount of 21 million net of subsidies received ( 1 million) through a change in other financial liabilities. 3 The Issuance of debt and Repayment of debt line items correspond only to Senior Facilities, as changes in other financial liabilities are now posted to a separate line item (accordingly, 3 million of the Issuance of debt line item was reclassified to the Change in other financial liabilities line item and 14 million of the Repayment of debt line item was reclassified to the Change in other financial liabilities line item). 18 Events after the end of the reporting period In July 2015, the Group launched the placement of further tranches of its Term Loan denominated in US dollars and in euros amounting to a total amount equivalent to 800 million. The new tranches will mature in July 2022 (7-year maturity). This Loan should permit the RCF to be repaid, of which 800 million had been drawn down as of June 30, In early July 2015, the Company entered into swap agreements with top-tier banks for the purpose of cancelling the hedging of coupons over the period for 2022 and 2024 Bonds, against payment of a premium to Numericable-SFR. 24

26 19 Condensed consolidated pro forma financial information 19.1 Condensed consolidated pro forma statement of income for the half- year ended June 30, 2014 Numericable- Numericable- SFR June June June 2014 Adjustments SFR June pro historical forma consolidated (in millions of euros) SFR Virgin Pro forma financial financial Amount Note information statements Revenues 664 4, (52) 19.2.a 5,722 Operating expenses (521) (4,549) (198) (27) 19.2.b (5,296) Operating income (79) 426 Financial income (expense) (280) (123) (1) (67) 19.2.c (470) Income tax income (expense) 54 (105) (1) d 2 Share of net income (loss) of associates - (4) - - (4) Net income (83) (91) (45) - Attributable to owners of the company (83) (91) 19.2.e (50) - Attributable to non-controlling interests e 4 Basis of preparation 19.2 Notes to the condensed consolidated pro forma financial statements as of June 30, 2014 The condensed consolidated pro forma financial information presented below was prepared in accordance with Article of the AMF General Regulations and AMF Instruction relating to pro forma financial information. These financial statements include a condensed pro forma statement of income for the six months ended June 30, 2014, intended to present the impact of the acquisitions of SFR Group (SFR SA, SIG 50 and their subsidiaries, including Telindus, acquired by SFR Group on April 30, 2014) and of Virgin Mobile Group (Omer Telecom Limited and its subsidiaries) and the associated financing, as if these Transactions (acquisitions, financing of acquisitions and refinancing transactions connected with the acquisitions) had occurred on January 1, The pro forma financial information is presented by way of example only and does not reflect the transactions or financial position that Numericable-SFR would have conducted or attained had the Transactions occurred on January 1, The pro forma financial information does not reflect Numericable-SFR s future operating results or its future financial situation either. It does not include the restructuring and/or consolidation costs that could be incurred following the Acquisitions, and which should not have a sustained impact on the Group. The pro forma financial information does not include tax income/expense that would result from a tax restructuring of the Group. The condensed consolidated pro forma financial information is based on preliminary estimates and assumptions that Numericable-SFR considers to be reasonable. In particular, the value of goodwill calculated on the acquisitions of SFR and Virgin Mobile was still provisional at June 30, 2015 and will be 25

27 reviewed on the basis of the final measurement of the fair value of the assets acquired and liabilities assumed, which will be reflected by the recognition of certain identifiable acquired assets such as licenses, trademarks and customer bases that have a limited lifetime and will be amortized. Therefore, future operating results may be significantly affected by amortization charges related to these identifiable assets acquired. Only adjustments that can be documented and reliably estimated on the date that the condensed consolidated pro forma financial information is prepared are taken into account. For example, the condensed consolidated pro forma financial information does not reflect potential cost savings or synergies. The change in the fair value of derivatives in the pro forma information was calculated on the basis of the market conditions and hedges existing in May 2014 when financing the Acquisitions, which is why there are no pro forma adjustments in that respect. The condensed consolidated pro forma financial information does not reflect any specific item such as provisions relating to contractual provisions for change in control or any consolidation costs that could be incurred as a result of the Acquisitions. Non-recurring items that are directly attributable to the Transactions and that can be documented and reliably estimated are included in the pro forma adjustments. Historical financial information The condensed consolidated pro forma financial information should be read in conjunction with the Notes to these financial statements. They have been prepared on the basis of: - The Numericable-SFR interim condensed consolidated financial statements for the half-year ended June 30, 2014; - The interim condensed combined financial statements for SFR S.A., SIG 50 S.A. and their subsidiaries for the half-year period ended June 30, 2014; - Virgin Mobile s consolidated financial information for the half-year period ended June 30, As Virgin Mobile's previous fiscal year ended on March 31, 2014, the financial information for the half-year period ended June 30, 2014 has been reconstituted from: o the consolidated financial statements as of March 31, 2014; o the consolidated financial information for the nine-month period ended December 31, 2013 (which has not been audited or subjected to review); o the consolidated financial information for the three-month period ended June 30, 2014 (which has not been audited or subjected to review); Intragroup transactions Following the Acquisitions, all transactions between Numericable-SFR, the SFR Group and the Virgin Mobile Group are considered to be intragroup transactions. Accordingly, all transactions between Numericable-SFR, the SFR Group and the Virgin Mobile Group have been eliminated when preparing the pro forma financial information. Pro forma adjustments Unless otherwise indicated, the pro forma adjustments are determined before any tax impact. 26