eircom Holdings (Ireland) Limited Third quarter and nine months Unaudited Results 31 March 2018

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1 Third quarter and nine months Unaudited Results 31 March 2018

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7 Unaudited third quarter and nine months results to 31 March 2018 Table of contents Page(s) Trading highlights for the third quarter ended 31 March KPIs for the third quarter ended 31 March Reconciliation of statutory financial statements to the results presented in the 10 management discussion and analysis section within this quarterly document Reconciliation of EBITDA to operating profit for the quarter and nine months ended 31 March Consolidated income statement for the quarter ended 31 March Consolidated income statement for the nine months ended 31 March Group statement of comprehensive income for the nine months ended 31 March Consolidated balance sheet as at 31 March Consolidated cash flow statement for the quarter ended 31 March Consolidated cash flow statement for the nine months ended 31 March Consolidated statement of changes in shareholders equity for the nine months ended 31 March Selected notes to the condensed interim financial information for the period ended 31 March Commentary on results of operations for the quarter ended 31 March Commentary on results of operations for the nine months ended 31 March

8 Trading highlights for the third quarter ended 31 March 2018* Revenue of 317 million decreased by 2 million or 1% compared to the corresponding prior year quarter; growth in mobile, bundling and TV revenues, was offset by a reduction in low margin eir business revenue and a decrease in retail voice traffic usage. Group adjusted EBITDA 3 of 137 million was 6 million or 4% higher than the corresponding prior year quarter driven by operating cost savings. Reported fixed line revenue, before intra-company eliminations, of 243 million decreased by 2% or 3 million compared to the corresponding prior year period. Bundling and TV growth was offset by lower retail traffic usage coupled with reductions in low margin eir business revenue. Fixed line adjusted EBITDA, of 109 million was 2 million or 2% lower when compared to the corresponding prior year quarter due to changes in the gross margin mix. The group broadband customer base 4 at 31 March 2018 was 919,000, an increase of 29,000 compared to the corresponding prior year period. The retail customer base remained stable while the wholesale base increased by 29,000 compared to the corresponding prior year period. At 31 March 2018, there were 620,000 customers availing of fibre based high speed broadband services, an increase of 90,000 compared to the corresponding prior year period. Group fixed access paths decreased by 22,000 compared to the prior year; growth in standalone broadband of 10,000 was partially offset by a reduction in fixed line access net losses of 32, The rate of fixed access line losses continues to reduce; fixed line access net losses for the twelve months ended 31 March 2017 were 38,000. Reported mobile revenue of 82 million increased by 1 million or 2% year on year and mobile EBITDA of 28 million increased by 8 million when compared to the corresponding prior year quarter. Total mobile customers at the end of the quarter were 1,053,000 6 including 534,000 postpay customers and 519,000 prepay customers. The postpay customer base increased by 20,000 year on year bringing the number of customers on postpay contracts to 51%. The prepay base reduced by 32,000 year on year mainly due to continued migrations to postpay as well as increased competition in the market. Group operating costs 7 of 118 million, reduced by 5 million or 4% compared to the corresponding prior year quarter. Total Full Time Equivalent (FTE) staff at the end of March were 3,145, a reduction of 151 FTE or 5% compared to the corresponding prior year quarter. Despite continued high levels of capital investment, the Group maintains strong liquidity with cash on hand of 128 million at 31 March *The figures presented above include amounts relating to the Groups 56% share in Tetra Ireland Communication Limited ( Tetra ). Following the adoption of IFRS 11, Joint Arrangements, Tetra is reported in the financial statements under the equity method as opposed to proportionate consolidation. The management discussion and analysis section of this quarterly report presents results on a management accounting basis and therefore includes the results of the Group s joint ventures on a proportionate basis, reflected in Group revenue, operating costs and EBITDA. 3 Adjusted EBITDA is earnings before interest, taxation, amortisation, depreciation, non-cash lease fair value credits, and non-cash pension charges, profit on disposal of Property, Plant and Equipment and exceptional items. 4 Combined retail and wholesale excluding LLU and line share, including SABB 5 Combined retail and wholesale access line losses including LLU 6 Mobile base is a combination of handset subscriptions, machine to machine and mobile broadband subscriptions 7 Operating costs are pay and non-pay costs before non-cash pension charge and lease fair value credits 8

9 KPIs for the third quarter ended 31 March 2018 (unaudited) As at and for quarter ended As at and for quarter ended 31 Mar Mar 2018 Better/ (Worse) % N1 Access Paths Base ('000) Retail Access Lines (5%) Retail SABB* (4%) Wholesale Access lines % Wholesale SABB* % Wholesale LLU** 9 4 (51%) Total 1,371 1,349 (2% ) Retail Voice traffic (minutes in quarter) (11%) Broadband Lines ('000) Retail Wholesale % Total % Net Growth in quarter 10 9 Mobile Customers ('000) Prepaid handsets (6%) Prepaid MBB % Total prepaid base (6%) Postpaid handsets (including M2M) % Postpaid MBB (4%) Total postpaid base % Total 1,065 1,053 (1% ) N2 & N3 ARPU'S Consumer Blended ARPU % WLR PSTN ARPU % Bitstream ARPU (including SABB) % Prepaid ARPU (including MBB) % Postpaid ARPU (including MBB/M2M) % Closing Headcount 3,296 3,145 5% *SABB - Standalone Broadband **LLU - Local Loop Unbundled 9

10 Basis of preparation This financial information has been prepared to make available certain unaudited condensed consolidated financial information to the holders of the group's Senior Secured Notes. Accordingly, the group has not prepared this financial information in accordance with IAS 34 Interim Financial Information and has not carried out an impairment review of the carrying value of goodwill and other non-current assets as at 31 March This condensed interim financial information has been prepared on the going concern basis, which assumes that eircom Holdings (Ireland) Limited will continue in operational existence for the foreseeable future. The financial information, as at and for the period ended 31 March 2018, in respect of the group has been prepared using the same accounting policies as applied for the year ended 30 June For a more complete discussion of our significant accounting policies and other information, including our critical accounting judgements and estimates, this report should be read in conjunction with the financial statements of EHIL for the year ended 30 June Reconciliation of statutory financial statements (1) to the results presented in the management discussion and analysis section within this quarterly document In the quarter ended 31 March 2017 In the quarter ended 31 March 2018 Reported Adjusted Statutory Reported Adjusted Statutory Revenue 319 (4) (5) 312 Operating costs excluding non-cash pension charge and fair value lease credits (188) 1 (187) (180) 3 (177) Adjusted EBITDA 131 (3) (2) 135 Closing Cash 100 (4) (8) 120 In the nine months ended 31 March 2017 In the nine months ended 31 March 2018 Reported Adjusted Statutory Reported Adjusted Statutory Revenue 976 (12) (13) 942 Operating costs excluding non-cash pension charge and fair value lease credits (602) 4 (598) (571) 6 (565) Adjusted EBITDA 374 (8) (7) 377 Closing Cash 100 (4) (8) 120 (1) The statutory financial statements are prepared in accordance with IFRS accounting principles and include the results of the group s joint ventures using the equity accounting basis rather than on a proportionate consolidation basis. The management discussion and analysis section of this quarterly report presents results on a management accounting basis and therefore includes the results of the group s joint ventures on a proportionate basis, reflected in group revenue, operating costs and EBITDA. 10

11 Reconciliation of earnings before interest, taxation, amortisation, depreciation, non-cash lease fair value credits, non-cash pension charges, exceptional items and profit on disposal of property, plant and equipment to operating profit Third quarter ended March 2017 Third quarter ended March 2018 Nine months ended March 2017 Nine months ended March 2018 Operating profit Profit on disposal of property, plant and equipment ("PPE") - - (2) - Exceptional items Non-cash pension charge Operating profit before non-cash pension charges, exceptional items and profit on disposal of property, plant and equipment Depreciation Amortisation EBITDA before non-cash pension charges, exceptional items and profit on disposal of property, plant and equipment IFRS 3 unfavourable lease fair value adjustment (1) (1) (5) (5) Adjusted EBITDA before non-cash lease fair value credits, non-cash pension charges, exceptional items and profit on disposal of property, plant and equipment EBITDA of joint ventures using proportionate consolidation Reported EBITDA* before non-cash lease fair value credits, non-cash pension charges, exceptional items and profit on disposal of property, plant and equipment Reported EBITDA* before non-cash lease fair value credits, non-cash pension charges, exceptional items and profit on disposal of property, plant and equipment is split as follows: Fixed line Mobile * Reported EBITDA includes the results of the group s joint ventures on a proportionate basis. The statutory basis includes the results of the group s joint ventures using the equity accounting basis rather than on a proportionate consolidation basis. 11

12 Consolidated Income Statement unaudited For the third quarter ended 31 March March March 2018 Revenue Operating costs excluding amortisation, depreciation and exceptional items (190) (180) Amortisation (28) (25) Depreciation (68) (75) Exceptional items (17) (5) Profit on disposal of property, plant and equipment - - Operating profit Finance costs net (34) (25) Share of profit of joint venture 2 1 (Loss)/profit before tax (20) 3 Income tax credit/(charge) 2 (1) (Loss)/profit for the period (18) 2 12

13 Consolidated Income Statement unaudited For the nine-month period ended 31 March 2018 Notes 31 March March 2018 Revenue Operating costs excluding amortisation, depreciation and exceptional items (606) (571) Amortisation 3 (80) (75) Depreciation 3 (201) (215) Exceptional items 3, 4 (56) (23) Profit on disposal of property, plant and equipment 2 - Operating profit Finance costs net 5 (132) (75) Share of profit of joint venture 9 4 Loss before tax (100) (13) Income tax credit/(charge) 6 5 (2) Loss for the period (95) (15) Group statement of comprehensive income unaudited For the nine-month period ended 31 March March March 2018 Loss for the financial period attributable to equity holders of the parent (95) (15) Other comprehensive income/(expense): Items that will not be reclassified to profit or loss Defined benefit pension scheme remeasurement gains: - Remeasurement gain in period Tax on defined benefit pension scheme remeasurement gains (7) (19) Items that may be reclassified subsequently to profit or loss Net changes in cash flow hedge reserve: - Fair value loss in period - (2) - Transfer to income statement (1) (1) (1) (3) Other comprehensive income, net of tax Total comprehensive (expense)/income for the financial period (45) 117 The accompanying notes form an integral part of the condensed interim financial information. 13

14 Consolidated Balance Sheet unaudited As at 31 March 2018 Notes 30 June March 2018 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment 1,434 1,428 Investment in joint venture 3 4 Deferred tax assets 3 2 Other assets ,022 1,981 Current assets Inventories Trade and other receivables Restricted cash 18 5 Cash and cash equivalents Total assets 2,394 2,331 Liabilities Non-current liabilities Borrowings 8 2,236 2,242 Derivative financial instruments - 1 Trade and other payables Deferred tax liabilities Retirement benefit liability Provisions for other liabilities and charges ,776 2,632 Current liabilities Derivative financial instruments 5 2 Trade and other payables Current tax liabilities Provisions for other liabilities and charges Total liabilities 3,296 3,111 Equity Equity share capital - - Capital contribution Cash flow hedging reserve 2 (1) Retained loss (958) (839) Total equity (902) (780) Total liabilities and equity 2,394 2,331 The accompanying notes form an integral part of the condensed interim financial information. 14

15 Consolidated cash flow statement unaudited For the third quarter ended 31 March 2018 Notes 31 March March 2018 Cash flows from operating activities Cash generated from operations Interest paid (13) (15) Income tax refund/(paid) 9 (4) Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment (PPE) (60) (70) Purchase of intangible assets (13) (17) Proceeds from sale of PPE 2 - Dividend received from joint arrangement 5 - Restricted cash (12) - Net cash used in investing activities (78) (87) Cash flows from financing activities Net cash used in financing activities - - Net increase/(decrease) in cash, cash equivalents and bank overdrafts 3 (12) Cash, cash equivalents and bank overdrafts at beginning of period Cash, cash equivalents and bank overdrafts at end of period

16 Consolidated cash flow statement unaudited For the nine-month period ended 31 March 2018 Notes 31 March March 2018 Cash flows from operating activities Cash generated from operations Interest paid (68) (61) Income tax refund/(paid) 9 (8) Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment (PPE) (201) (209) Purchase of intangible assets (53) (51) Proceeds from sale of PPE 8 - Dividend received from joint arrangement 5 3 Restricted cash (11) 13 Net cash used in investing activities (252) (244) Cash flows from financing activities Dividends paid to equity shareholders (1) (1) Repayment on borrowings (252) - Proceeds from issuance of 4.5% Senior Secured Notes Premium on issuance of 4.5% Senior Secured Notes 3 - Debt issue costs (2) - Debt modification fees (4) - Net cash used in financing activities (56) (1) Net decrease in cash, cash equivalents and bank overdrafts (52) (22) Cash, cash equivalents and bank overdrafts at beginning of period Cash, cash equivalents and bank overdrafts at end of period The accompanying notes form an integral part of the condensed interim financial information. 16

17 Consolidated statement of changes in shareholders equity unaudited For the nine-month period ended 31 March 2018 Equity share capital Capital contribution Cash flow hedging reserve Retained loss Total equity m Balance at 30 June (836) (782) Loss for the period (95) (95) Defined benefit pension scheme remeasurement gain Tax on defined benefit pension scheme remeasurement gain (7) (7) Currency translation differences (1) (1) Total comprehensive expense (45) (45) Capital contribution in respect of MIP equity value event Dividends relating to equity shareholders (1) (1) Balance at 31 March (882) (822) Balance at 30 June (958) (902) Loss for the period (15) (15) Defined benefit pension scheme remeasurement gain Tax on defined benefit pension scheme remeasurement gain (19) (19) Cash flow hedges: - Fair value loss in year - - (2) - (2) - Transfer to income statement - - (1) - (1) Total comprehensive (expense)/income - - (3) Capital contribution in respect of MIP equity value event Dividends relating to equity shareholders (1) (1) Balance at 31 March (1) (839) (780) The accompanying notes form an integral part of the condensed interim financial information. 17

18 Selected notes to the condensed interim financial information unaudited 1. General information eircom Holdings (Ireland) Limited ("the company or EHIL") and its subsidiaries together ( the group or eircom Holdings (Ireland) Limited group or EHIL Group ), provide fixed line and mobile telecommunications services in Ireland. This condensed consolidated interim financial information was approved for issue on 11 May Basis of preparation This financial information has been prepared to make available certain unaudited condensed consolidated financial information to the holders of the group's Senior Secured Notes. Accordingly, the group has not prepared this financial information in accordance with IAS 34 Interim Financial Information and has not carried out an impairment review of the carrying value of goodwill and other noncurrent assets as at 31 March This condensed interim financial information has been prepared on the going concern basis, which assumes that eircom Holdings (Ireland) Limited will continue in operational existence for the foreseeable future. The financial information, as at and for the period ended 31 March 2018, in respect of the group has been prepared using the same accounting policies as applied for the year ended 30 June For a more complete discussion of our significant accounting policies and other information, including our critical accounting judgements and estimates, this report should be read in conjunction with the financial statements of EHIL for the year ended 30 June Segment information The group provides communications services, principally in Ireland. The group is organised into two main operating segments: fixed line and mobile. The segment results for the nine-months period ended 31 March 2018 are as follows: Fixed line m Mobile m Inter-segment m Reported* m Adjusted m Statutory* m Revenue (25) 955 (13) 942 EBITDA ** (7) 377 Non-cash lease fair value credits Non-cash pension charges (11) - - (11) - (11) Amortisation (59) (16) - (75) - (75) Depreciation (196) (22) - (218) 3 (215) Exceptional items (23) - - (23) - (23) Operating profit (4) 58 The segment results for the nine-months period ended 31 March 2017 are as follows: Fixed line m Mobile m Inter-segment m Reported* m Adjusted m Statutory* m Revenue (27) 976 (12) 964 EBITDA ** (8) 366 Non-cash lease fair value credits Non-cash pension charges (13) - - (13) - (13) Amortisation (62) (18) - (80) - (80) Depreciation (178) (21) - (199) (2) (201) Exceptional items (56) - - (56) - (56) Profit on disposal of PPE Operating profit/(loss) (10) 23 * Reported EBITDA includes the results of the group s joint ventures on a proportionate basis. The statutory basis includes the results of the group s joint ventures using the equity accounting basis rather than on a proportionate consolidation basis. ** EBITDA is earnings before interest, taxation, amortisation, depreciation, non-cash lease fair value credits, non-cash pension charges, exceptional items and profit on disposal of property, plant and equipment. 18

19 Selected notes to the condensed interim financial information unaudited (continued) 4. Exceptional items 31 March March 2018 Restructuring programme costs 13 4 Management incentive plan 6 6 Transaction related costs 5 12 Onerous lease contracts 27 - Other exceptional items The group has adopted an income statement format which seeks to highlight significant items within group results for the period. The group believe that this presentation provides additional analysis as it highlights significant or one-off items. Judgement is used by the group in assessing the particular items, which by virtue of their scale and nature are disclosed in the group income statement and related notes as exceptional items. Restructuring programme costs The group included an exceptional charge of 4 million for restructuring programme costs in respect of staff exits in the period ended 31 March 2018 (31 March 2017: 13 million). The exceptional charge of 4 million at 31 March 2018 is an IAS 19 (Revised) defined benefit pension charge in relation to past service costs. Management incentive plan During the period ended 31 March 2018, the group recognised a charge of 6 million (31 March 2017: 6 million) in its income statement, with a corresponding increase in equity, in respect of contractual rights under the MIP awarded by the holding company, eircom Holdco S.A., to the group's employees, for which the group has no obligation to make any payment. Transaction related costs The group recognised an exceptional charge of 12 million relating to costs incurred by the group, in connection with the acquisition by NJJ Telecom Europe ( NJJ ), alongside Iliad SA ( Iliad ), to acquire a major stake in the eir group, and for strategic review and other project related costs (31 March 2017: 5 million) incurred in the period ended 31 March Onerous lease contracts During the period ended 31 March 2017, the group recognised an exceptional charge of 27 million in respect of onerous contracts on its leasehold properties. The group no longer requires these properties as a result of the rationalisation of the group s accommodation requirements and provision has been made in respect of the estimated cash flow required to meet the future lease payments net of any sub-lease income for these leases. Other exceptional items During the period ended 31 March 2018, the group recognised an exceptional charge of 1 million for the deferred consideration arrangement following the acquisition of a subsidiary undertaking in April During the period ended 31 March 2017, the group included an exceptional charge of 4 million in respect of certain legal matters arising in the period and 1 million for the deferred consideration arrangement following the acquisition of a subsidiary undertaking in the prior year. 19

20 Selected notes to the condensed interim financial information unaudited (continued) 5. Finance costs net 31 March March 2018 (a) Finance costs: Interest payable on bank loans and other debts Interest amortisation on non-current borrowings 18 4 Net interest cost on net pension liability 5 4 Amortisation of debt issue costs and debt modification fees 3 2 Other unwinding of discount 1 1 Amortisation of Cash Flow Hedge Reserve derivatives 1 (1) Fair value movements on derivatives not qualifying for hedge accounting (7) (4) Loss on extinguishment of debt 26 - Write off of debt issue costs and debt modification fees (b) Finance income: Interest income Finance costs net Income tax (credit)/charge The tax on the group s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the loss of the group as follows: - 31 March March 2018 Loss before tax (100) (13) Tax calculated at Irish standard tax rate of 12.5% (12) (2) Effects of:- Non-deductible expenses 8 5 Income taxable at higher rate - 1 Utilisation of losses carried forward (1) (1) Adjustments in respect of prior periods - (1) Tax (credit)/charge for the period (5) 2 7. Trade and other receivables During the period ended 31 March 2018, the group recognised a provision for impaired receivables of 6 million (31 March 2017: 6 million), reversed provisions for impaired receivables of Nil (31 March 2017: Nil) and utilised provisions for impaired receivables of 7 million (31 March 2017: 6 million). The creation and reversal of provisions for impaired receivables have been included in operating costs in the income statement. 20

21 Selected notes to the condensed interim financial information unaudited (continued) 8. Borrowings The maturity profile of the carrying amount of the group s borrowings is set out below. Within Between Between After 1 Year 1 & 2 Years 2 & 5 Years 5 Years Total m As at 31 March 2018 Bank borrowings (Facility B) ,600 1,600 Unamortised fair value difference on borrowings (40) (40) Debt modification fees (11) (11) ,549 1, % Senior Secured Notes due Debt issue costs - - (7) - (7) ,549 2,242 As at 30 June 2017 Bank borrowings (Facility B) ,600 1,600 Unamortised fair value difference on borrowings (44) (44) Debt modification fees (13) (13) ,543 1, % Senior Secured Notes due Debt issue costs - - (7) - (7) ,543 2,236 At 31 March 2018, the group has Senior Bank borrowings of 1,600 million with a maturity date of 19 April 2024 and 4.5% Senior Secured Notes of 700 million with a maturity date of 31 May The borrowings under the Senior Facilities Agreement were recognised initially in accordance with IAS 39 at their fair value on the date of recognition, 11 June 2012, which was estimated to be 77% of the par value of the liability. The difference between the fair value on initial recognition and the amount that was payable on the maturity date is being amortised over the expected life of the borrowings through finance costs in the income statement using the effective interest method under IAS 39. The remaining unamortised amount at 31 March 2018 was 40 million. Interest accrued on borrowings at 31 March 2018 is 14 million (30 June 2017: 6 million). This is included in trade and other payables. 21

22 Selected notes to the condensed interim financial information unaudited (continued) 9. Pensions The group's pension commitments are funded through separately administered Superannuation Schemes and are principally of a defined benefit nature. The group undertakes a full review of the retirement benefit liability at each quarter end in accordance with IAS 19 (Revised). The balance sheet presented as at 31 March 2018 reflects the IAS 19 (Revised) deficit of 127 million as at 31 March Pension scheme obligation The status of the principal scheme at 31 March 2018 is as follows: 30 June March 2018 Present value of funded obligations 4,455 4,460 Fair value of scheme assets (4,197) (4,333) Liability recognised in the Balance Sheet Assumptions of actuarial calculations The main financial assumptions used in the valuations were: At 30 June 2017 At 31 March 2018 Rate of increase in salaries 1.55% 1.55% Rate of increase in pensions in payment 1.55% 1.55% Discount rate 2.10% 2.10% Inflation assumption 1.65% 1.75% Mortality assumptions Pensions in payment Implied life expectancy for 65 year old male 88 years 88 years Mortality assumptions Pensions in payment Implied life expectancy for 65 year old female 90 years 90 years Mortality assumptions Future retirements Implied life expectancy for 65 year old male 91 years 91 years Mortality assumptions Future retirements Implied life expectancy for 65 year old female 93 years 93 years The above assumptions reflect the imposition of a cap on the increases in pensionable pay to the lower of CPI, salary inflation or agreed fixed annual rates. 22

23 Selected notes to the condensed interim financial information unaudited (continued) 10. Provisions for other liabilities and charges TIS Annuity Restructuring Onerous Asset Retirement Deferred Scheme Costs Contracts Obligations consideration Other Total m At 30 June Charged to consolidated income statement: - Additional provisions Unused amounts reversed (1) (1) Transfer to receivables Increase in provision capitalised as asset retirement obligation Utilised in the financial period (3) (21) (7) - - (3) (34) At 31 March Provisions have been analysed between non-current and current as follows: 30 June March 2018 Non-current Current Cash generated from operations 31 March March 2018 Loss after tax (95) (15) Add back: Income tax (credit)/charge (5) 2 Share of profit of joint venture (9) (4) Finance costs net Operating profit Adjustments for: - Profit on disposal of property, plant and equipment (2) - - Depreciation and amortisation Non-cash lease fair value credits (5) (5) - Non cash retirement benefit charges Restructuring programme costs Non cash exceptional items Other non cash movements in provisions 1 2 Cash flows relating to restructuring, onerous contracts and other provisions (35) (38) Cash flows relating to construction contracts (1) (1) Changes in working capital Inventories (1) 2 Trade and other receivables (5) (24) Trade and other payables (5) (18) Cash generated from operations

24 Selected notes to the condensed interim financial information unaudited (continued) 12. Post Balance Sheet Events Acquisition led by NJJ consortium On 19 December 2017, the majority shareholders of the company, Eircom Holdco S.A. ( EHSA ), entered into a definitive agreement with Toohil Telecom Holdings Limited ( Toohil ) to acquire 100% of EHSA. Toohil is majority owned and controlled by NJJ Telecom Europe ( NJJ ) and Iliad SA. Current EHSA shareholders, Anchorage Capital Group, LLC and Davidson Kempner Capital Management LP, will hold a minority investment interest in Toohil. The transaction was conditional upon the satisfaction of certain conditions, including obtaining EU Commission Competition clearance from the European Commission, Media Merger consent from the Minister for Communication, Climate Action and Environment in Ireland and Broadcasting Authority of Ireland consent, all of which were received by March The transaction subsequently completed on 9 April As of 31 March 2018, the acquisition had not been completed and therefore has no impact on the financial statements as of and for the period ending 31 March Restructuring (VL) In April 2018, the group launched a voluntary leaving scheme, which is designed to facilitate employees to leave the organisation on a voluntary basis. The group plans to reduce its workforce by approximately 750 employees. The cost of the scheme, including the cash cost and any related pension curtailment cost, will directly affect the income statement after the period end. There have been no other significant events affecting the group since the period ended 31 March Contingent liabilities There have been no material changes in our contingent liabilities since the publication of the financial statements of EHIL in the bondholder s report for the year ended 30 June Guarantees There have been no material changes in our credit guarantees and in derivatives since the publication of the financial statements of EHIL in the bondholder s report for the year ended 30 June Seasonality Fixed line The group does not believe that seasonality has a material impact on our fixed line business. Mobile The group s mobile business tends to experience an increase in sales volumes in the weeks approaching Christmas due to the seasonal nature of its retail business. The group s mobile business experiences significant postpay and prepay subscriber growth and related costs of handset subsidies and commissions in November and December. Visitor roaming revenues are also seasonally significant because Ireland is a popular tourist destination during the summer months. 16. Commitments Operating lease commitments The group s operating lease contractual obligations and commitment payments were 304 million at 31 March 2018 (30 June 2017: 327 million). The payments due on operating leases are in respect of lease agreements in respect of properties, vehicles, plant and equipment for which the payments extend over a number of years. Capital commitments The group s capital contractual obligations and commitment payments were 30 million at 31 March 2018 (30 June 2017: 53 million). 17. Related party transactions Management incentive plan The management incentive plan ("MIP") was introduced in the year ended 30 June 2013 by the group s parent company, eircom Holdco SA, for certain directors and senior executives in the group. During the period ended 31 March 2018, the group recognised a charge of 6 million (31 March 2017: 6 million) in its income statement, with a corresponding increase in equity, in respect of contractual rights under the MIP awarded by the parent company, eircom Holdco S.A., to the group's employees, for which the group has no obligation to make any payment. There have been no material changes in our related party transactions since the publication of the financial statements of EHIL in the bondholder s report for the year ended 30 June

25 Management discussion and analysis on results of operations for the quarter ended 31 March 2018 The amounts and commentary presented in the management discussion below include the results of the group s joint venture in Tetra Ireland Communications Limited ( Tetra ) on a proportionate consolidation basis. In accordance with IFRS 11 Joint Arrangements the EHIL consolidated financial statements for the quarter ended 31 March 2018 applies the equity method of accounting for the investment in Tetra. Certain comparative figures have been re-grouped and re-stated where necessary on the same basis as those for the current financial quarter. Revenue The following table shows a segmental split of revenues for the period from our fixed line and mobile businesses: For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) % Change 2017/2018 Fixed line services and other revenue (2) Mobile services revenue Total segmental revenue (1) Intracompany eliminations (8) (8) (2) Total revenue (1) Fixed line services and other revenue The following table shows revenue from the fixed line segment, analysed by major products and services, and the percentage change for each category, for the periods indicated: For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) % Change 2017/2018 m m Access (Rental and Connections) (2) Voice Traffic (including Foreign Inpayments) Data Services (3) Other Products and Services (5) Total fixed line services and other revenue (2) Total fixed line services and other revenues for the quarter ended to 31 March 2018, before intra company eliminations, decreased by 2% compared to the corresponding prior year period. The decrease was driven by traditional access revenue declines as well as a decrease in low margin ICT/managed services revenues within eir business. 25

26 Access (rental and connections) The following table shows rental, connection and other charges and the percentage changes for the periods indicated: For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) % Change 2017/2018 Total access revenue Retail PSTN/ISDN rental and connection (4) Wholesale PSTN/ISDN/LLU rental and connection Broadband rental and connection (2) Total access revenue (2) Access paths (in thousands at period end, except percentages) Retail Access Lines (5) Wholesale Access Lines Wholesale LLU 9 4 (51) SABB Total PSTN/ISDN/LLU/SABB 1,371 1,349 (2) Broadband and Bitstream (in thousands at period end, except percentages) Retail Broadband Wholesale Broadband Total Broadband (including SABB) Access revenues for the quarter ended 31 March 2018 of 118 million decreased by 2% compared to the corresponding prior year quarter. Retail line rental and connection revenues decreased by 4% in the quarter ended 31 March 2018, compared to the corresponding prior year quarter, mainly due to continuing declines in PSTN and ISDN lines. Retail access lines at 31 March 2018 were 655,000, a reduction of 5% compared to 31 March Wholesale access lines and revenue increased by 1% year on year when compared to the prior year quarter ended 31 March Broadband revenue for the quarter of 42 million was down 2% compared to the corresponding prior year quarter. Revenue gains in wholesale were offset by increased promotional offerings in the consumer division. The wholesale broadband base of 475,000 at 31 March 2018, increased by 29,000 compared to the corresponding prior year period while the retail broadband customer base remained stable for the same period at 444,000. We continue to address retail fixed line losses and broadband churn with a number of programmes, including rolling out high speed broadband and offering bundled telecommunications services including broadband, TV, mobile, telephony and eir sport content. As at 31 March 2018, the rollout of our high speed fibre network had passed 75% of Irish premises and 620,000 retail and wholesale customers were connected to high speed broadband services, up 90,000 customers when compared to the corresponding prior year period. In the same period, 75,000 customers were availing of TV, up 8,000 subscriptions year on year and over 50% of the consumer broadband base was availing of exclusive eir sport content. As of 31 March 2018, 28% of eir s consumer households were taking 3 or more services, an increase of 4 percentage points compared to the corresponding prior year period. 26

27 Traffic The following table shows total traffic revenue and volumes and the percentage changes for the periods indicated: For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) % Change 2017/2018 Revenue Retail traffic Wholesale traffic (including Foreign Inpayments) N.M Total traffic revenue Traffic (in millions of minutes, except percentages) Retail (11) Wholesale (including Foreign Terminating Minutes) 1, (11) Total traffic minutes 1,438 1,284 (11) Overall Group traffic revenue was broadly flat in the quarter ended 31 March 2018 compared to the corresponding prior year period. Reduction in traffic usage was offset by price increases implemented in quarters two and three of financial year Data communications The following table shows information relating to revenue from data communications products and services and the percentage change for the periods indicated: For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) % Change 2017/2018 Data services revenue Leased lines (5) Switched data services 5 4 (14) Next generation data services Total data services revenue (3) Revenue from data communications remained broadly stable compared to the corresponding prior year period. Revenue increases from next generation services were offset by a decrease in leased lines and switched data services. 27

28 Other products and services Other products and services revenue includes our 56% share of revenue from Tetra, eir sports, our operations in UK/NI, operator services, managed services, data centres and other revenue. The following table shows information relating to revenue from other products and services, and the percentage change for the periods indicated: For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) m m % Change 2017/2018 Operator services 2 2 (13) Managed services and solutions (21) Tetra UK 9 8 (12) Data centre 2 2 (12) Other revenue Other products and services revenue (5) Revenue from other products and services for the quarter ended 31 March 2018, decreased by 5% compared to the corresponding prior year quarter. Operator Services revenue decreased by 13% as a result of reduced calls to our directory enquiries service. Managed services revenue decreased by 21% due to a reduction in low margin revenue related to eir Business. Other revenue increased by 16% driven in part by TV growth. Tetra, UK/NI revenue and Datacentre revenues remained broadly stable when compared to the prior year quarter. 28

29 Mobile services revenue The following table shows revenue from Mobile services, analysed by major products and services: For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) % Change 2017/2018 Prepay handset Postpay handset (incl. M2M) Mobile broadband 3 2 N.M Roaming 1 1 (44) Other Total mobile services revenue Total subscribers ( 000) Prepay handset customers (6) Postpay handset customers (incl. M2M) Mobile broadband customers Of which are prepay customers Of which are postpay customers (4) Total subscribers 1,065 1,053 (1) Mobile services revenue comprises prepay and postpay revenues including interconnect, mobile broadband and machine to machine. Other revenue is derived mainly from device sales and wholesale foreign roaming revenue. Reported mobile revenue of 82 million for the quarter ended 31 March 2018 increased by 2% compared to the corresponding prior year quarter. Postpay handset revenue increased by 3% compared to the corresponding prior year period mainly due to a year on year increase in postpay subscribers of 4%. Reported prepay handset revenue increased by 2% when compared to the corresponding prior year period due to changes in pricing propositions at the beginning of the financial year At 31 March 2018 there were 1,053,000 total mobile subscribers. While the overall base reduced by 12,000 compared to the prior year due to increased competition in the prepaid market, the mix of customers continues to improve. The proportion of postpay customers (including mobile broadband and M2M) within the base has increased from 48% at 31 March 2017 to 51% at 31 March 2018, representing an increase of 20,000 net additional postpay subscribers (including mobile broadband and M2M). 29

30 Operating costs before amortisation, depreciation and exceptional items The following table shows information relating to our operating costs before amortisation, depreciation, and exceptional items, and the percentage change for the periods indicated. For the quarter ended Mar 31, Mar 31, (unaudited) (unaudited) % Change 2017/2018 Cost of sales Foreign outpayments Interconnect (14) Equipment cost of sales (3) Other including subsidiaries and new business (3) Total cost of sales (5) Pay costs Wages and salaries and other staff costs (3) Social welfare costs Pension cash costs defined contribution plans Pension cash costs defined benefit plans 4 4 (10) Pay costs before non-cash pension charge and capitalisation (3) Capitalised labour (17) (18) - Total pay costs before non-cash pension charge (4) Non pay costs Materials and services Other network costs 5 4 (8) Accommodation (8) Sales and marketing (3) Bad debts Transport and travel 3 2 (15) Customer services Insurance and compensation Professional and regulatory fees 3 2 (23) IT costs Other non-pay costs 4 2 (53) Total non-pay costs (4) Operating costs before non-cash pension charge, amortisation, depreciation, and exceptional items (4) Non cash pension charge/(credit) Non cash fair value lease credits (1) (1) - Operating costs before, amortisation, depreciation, and exceptional items (4) Total operating costs for the quarter ended 31 March 2018 before non-cash pension charge, non-cash lease fair value credits, amortisation, depreciation and exceptional items, decreased by 4% compared with the corresponding quarter of the prior year. Cost of Sales Cost of sales decreased by 5% or 3 million in the quarter ended 31 March 2018 compared to the corresponding prior year quarter driven by a decrease in Interconnect payments of 3 million or 14% related in part to changes to EU roaming rates and a reduction in traffic usage. 30

31 Pay costs Total pay costs, before non-cash pension charges, decreased by 4% or 2 million in the quarter ended 31 March 2018 compared to the corresponding prior year quarter. The decrease is mainly due to a combination of lower FTE headcount, lower contractor costs and savings from outsourcing of activities in the group which was partially offset by overtime required as part of adverse winter conditions. FTE headcount at 31 March 2018 was 3,145 FTE, representing a net reduction of 151 FTE compared to 31 March Total non-pay costs Non-pay costs decreased by 4% or 3 million in the quarter ended 31 March 2018 compared to the corresponding prior year quarter. Key movements included the following: Accommodation costs decreased by 8% or 2 million compared to the corresponding prior year quarter primarily due to lower rent costs through optimisation of our property portfolio. Materials and service costs increased 1 million when compared to the prior year quarter due to timing of network activity. Professional and regulatory fees were 1 million lower due to lower consultancy costs. IT costs were 2 million higher driven mainly by upgrades to IT systems. Other non-pay costs decreased by 2 million due to organisational simplification and restructuring. The remaining costs in the quarter ended 31 March 2018 were broadly in line with the corresponding prior year period. Non-cash pension charge/ (credit) The non-cash pension charge represents the difference between the amount of cash contributions that the company has agreed to make to the fund during the period, on an accruals basis, and the accounting charges recognised in operating profit in accordance with IAS 19 (Revised). The IAS 19 (Revised) accounting charge is not aligned with the principles that the company applies in measuring its EBITDA. Therefore the non-cash pension charge is included as an adjustment in the reconciliation of EBITDA to operating profit. Non-cash lease fair value credits The non-cash lease fair value credit included in the income statement during the period is in respect of the unfavourable lease fair value adjustment which arose on acquisition of eircom Limited. At the date of acquisition, the group was required to recognise a liability for the difference between the amount of future rental payments that had been contractually committed to and the market rent that would have been payable if those contracts had been entered into at that date. The liability is released as a credit to the income statement over the period of the relevant leases. The IFRS accounting treatment is not aligned with the principles that the company applies in measuring its EBITDA. Therefore an adjustment for the non-cash fair value credit is included in the reconciliation of EBITDA to operating profit. Amortisation Amortisation charges for the quarter ended 31 March 2018 were 25 million, 3 million lower than the prior year quarter, due to lower amortisation on computer software. Depreciation of property, plant and equipment The depreciation charges for the quarter ended 31 March 2018 were 76 million, 7 million higher than the prior year quarter, due to higher depreciation on Next Generation Assets (fibre) and IT assets. Exceptional costs The exceptional charges in the quarter ended 31 March 2018 of 5 million includes 3 million for the management incentive plan ( MIP ), 1 million for restructuring programme costs and 1 million for the deferred consideration arrangement following the acquisition of a subsidiary undertaking in April The restructuring programme costs of 1 million are in relation to the IAS 19 (Revised) defined benefit pension past service costs on staff exits. 31

32 Exceptional costs (continued) The exceptional charges in the quarter ended 31 March 2017 of 17 million includes 8 million for restructuring programme staff exits, 5 million for strategic review costs, 2 million for the management incentive plan ( MIP ) and 2 million for certain legal matters arising in the quarter ended 31 March Finance costs (net) The group s net finance costs for the quarter ended 31 March 2018 of 25 million were 9 million lower than the prior year corresponding quarter, due to lower finance costs on amortisation on the fair value debt adjustment of 5 million and lower interest costs on bank borrowings and other debt of 4 million as a result of the various refinancing of Facility B borrowings in the year ended 30 June Taxation The tax charge for the quarter ended 31 March 2018 was 1 million, compared to the prior year corresponding quarter tax credit of 2 million. The increase in tax reflects the reduction in operating charges, finance costs and deductible exceptional items coupled with a reduction in the deferred tax credit year on year. Liquidity Net cash generated from operating activities Our primary source of liquidity is cash generated from operations, which represents operating profit adjusted for non-cash items which are principally depreciation, amortisation, impairment, non-cash pension charge, non-cash lease fair value credits and certain non-cash exceptional items. Cash flows from operating activities are also impacted by working capital movements and restructuring and other provision payments. During the quarter ended 31 March 2018, net cash generated from operating activities was 81 million compared with 78 million in the prior year corresponding quarter, an increase of 3 million. The increase is mainly due to improvements in net working capital offset by tax payments of 4 million in the quarter compared to tax refunds of 9 million in the prior year quarter. Cash flows from investing activities Total cash used in investing activities was 88 million for the quarter ended 31 March 2018, compared with 83 million for the prior year corresponding quarter, an increase of 5 million, due to higher capital expenditure payments. Cash flows from financing activities There were no financing activities in the quarter. 32