Telenet Group Holding NV and Subsidiaries

Transcription

1 Telenet Group Holding NV and Subsidiaries Report for the Year ended December 31, % Senior Discount Notes due % Senior Notes due 2013 (issued by Telenet Communications NV)

2 TABLE OF CONTENTS Introduction and Use of Certain Terms... 4 Presentation of Financial and Other Information... 4 Information Regarding Forward Looking Statements... 7 PART I FINANCIAL INFORMATION Item 1. Not Applicable... 9 Item 2. Not Applicable... 9 Item 3. Key information... 9 A. Selected financial data... 9 B. Not applicable C. Not applicable D. Risk factors Item 4. Information on the company A. History and development of the company B. Business overview C. Organizational structure D. Property, plant and equipment Item 5. Operating and financial review and prospects A. Operating results B. Liquidity and capital resources C. Research and development, patents and licences, etc D. Trend information E. Off-balance sheet arrangements F. Tabular disclosure of contractual obligations Item 6. Directors, senior management and employees A. Directors and senior management B. Compensation C. Board practices D. Employees E. Share ownership Item 7. Major shareholders and related party transactions A. Major shareholders B. Related party transactions C. Not applicable Item 8. Financial information A. Consolidated Statements and Other financial information Item 9. Not Applicable Item 10. Additional information A. Not applicable B. Memorandum and articles of association C. Material contracts D. Exchange controls E. Taxation F. Not applicable G. Not applicable H. Not applicable I. Not applicable Item 11. Quantitative and qualitative disclosures about market risk (a) Quantitative disclosures about market risk Sensitivity analysis disclosures (b) Qualitative disclosures about market risk Item 12. Not applicable

3 Part II Item 13. Not applicable Item 14. Not applicable Item 15. Controls and Procedures Item 16A. Audit committee financial expert Item 16B. Code of Ethics Item 16C. Principal Accountant Fees and Services Item 16D. Not applicable Item 16E. Not applicable Part III Item 17. Financial Statements Item 18. Financial Statements... F-1 Balance sheet... F-2 Income statement... F-3 Statement of shareholder's equity... F-4 Cash flow statement... F-5 Notes to the financial statements... F-7 Item 19. Exhibits Annex A Summary of Certain Senior Credit Facility Covenants... A-1 Annex B Summary Guarantor Financial Information... B-1 Annex C First Time Adoption of EU GAAP... C-1 3

4 INTRODUCTION AND USE OF CERTAIN TERMS Telenet Group Holding NV (the "Company") is a company organized under the laws of Belgium. References to the "Senior Discount Notes" are to the 11.5% Senior Discount Notes due 2014 and references to the "Senior Notes" are to the 9.0% Senior Notes due 2013 issued by Telenet Communications NV. References to the "Notes" are to both the Senior Notes and Senior Discount Notes. Both the Senior Discount Notes and Senior Notes were issued on December 22, Unless otherwise stated herein: "EU" refers to the European Union; "Flanders" means the Flemish region of Belgium, excluding Brussels; "United States" or the "US" refers to the United States of America; "Belgian GAAP" refers to generally accepted accounting principles in Belgium; "EU GAAP" refers to International Financial Reporting Standards as adopted by the European Union; "US GAAP" refers to generally accepted accounting principles in the United States; "$," "US$" or "US dollars" refers to the lawful currency of the United States; " " or "euro" refers to the single currency of the participating Member States in the Third Stage of European Economic and Monetary Union of the Treaty Establishing the European Community, as amended from time to time; "we," "us," "our" and "Telenet" refer to Telenet Group Holding NV, together with its consolidated subsidiaries, except where the context otherwise requires; "Telenet Group Holding" refers to Telenet Group Holding NV, except where the context otherwise requires; IPO refers to the initial public offering of shares of Telenet Group Holding on October 11, 2005 by way of a Primary Offering of 13,333,333 new shares, a Secondary Offering of 33,609,938 existing shares and an Employee Offering of 14,269 new shares; and "Shares" refers to all shares of Telenet Group Holding. In addition, "Telenet Communications" refers to Telenet Communications NV, "Telenet Bidco" refers to Telenet Bidco NV, "Telenet Holding" refers to Telenet Holding NV, "Telenet Operaties" refers to Telenet Operaties NV, "Telenet Vlaanderen" refers to Telenet Vlaanderen NV, "MixtICS" refers to MixtICS NV, "Telenet Solutions" refers to Telenet Solutions NV and its subsidiaries, "Phone-Plus" refers to Phone-Plus SPRL and "PayTVCo" refers to PayTVCo NV. Telenet Operaties NV changed its name to Telenet NV on January 1, In July 2005, PayTVCo and MixtICS merged into Telenet NV, with effect from January 1, On December 30, 2005, Telenet Solutions merged into Telenet NV, with effect from January 1, On January 31, 2006, Telenet Holding was liquidated. PRESENTATION OF FINANCIAL AND OTHER INFORMATION The audited consolidated annual financial statements of Telenet Group Holding as of and for the years ended December 31, 2004 and 2005 have in each case been prepared in accordance with EU GAAP. In addition, as specified in guidelines set out by the United States Securities and Exchange Commission ( SEC ) with regard to the preparation of Form 20-F reports, we also provide selected historical financial information for our five most recent financial years in US GAAP, of which financial data for the 2005 financial year is presented on an unaudited basis and financial data for the 2001 to 2004 financial years was audited in accordance with US GAAP. The transition from US GAAP to EU GAAP does not affect our operating statistics. See Item 3, Key Information Risk factors Risks Related to Our Business We adopted new accounting standards, as required, commencing with our financial statements for the year 4

5 beginning January 1, 2005, which could impair the interpretation of our financial statements" and Annex C "First-time Adoption of EU GAAP." The financial information included in this annual report is not intended to comply with SEC reporting requirements. Compliance with such requirements would require the modification or exclusion of certain financial measures, including EBITDA, EBITDA margin, subscriber acquisition costs, average revenue per subscriber and the presentation of certain other information not included herein. EBITDA, EBITDA margin, average revenue per subscriber, cash interest expense, net cash pay debt and certain other items included herein are non-gaap measures and you should not consider such items as an alternative to the applicable GAAP measures. In particular, you should not consider EBITDA as a measurement of our financial performance or liquidity under EU GAAP or US GAAP, as an alternative to net income, operating income or any other performance measures derived in accordance with EU GAAP or US GAAP, or as an alternative to cash flow from operating activities as a measure of our activity. EBITDA is equivalent to operating profit plus depreciation of tangible fixed assets and amortization (including amortization of broadcasting rights) and impairment of goodwill and other intangible assets. Some of the limitations of EBITDA as a measure are: it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; it does not reflect changes in, or cash requirements for, our working capital needs; it does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA measures do not reflect any cash requirements for such replacements; and other companies in our industry may calculate EBITDA measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our EU GAAP results and using EBITDA measures only supplementally. Subscriber and Related Data In conducting our business, we distinguish between "subscribers" and unique "customers." Each service provided corresponds to one revenue generating unit ("RGU"), or subscriber. A unique customer may represent multiple RGUs to us. For example, a unique customer who receives from us basic cable television, broadband internet and telephony services (regardless of their number of telephony access lines) would be counted as three RGUs, or, three subscribers. The way in which we calculate our penetration rates differs for our basic cable television service compared to our premium cable television, internet and telephony services based in part on the network infrastructure over which we are able to provide the relevant service. For basic and premium cable television, our penetration rate is calculated based on the number of RGUs receiving that service at the end of the relevant period as a percentage of the number of homes and businesses, as applicable, passed by the network we own (the "Telenet Network") at the end of the relevant period. We also calculate the penetration rate for the premium cable television service that we provide over the network on which the pure intercommunales (municipal utility companies in Flanders) have granted us usage rights (the "Partner Network" and, together with the Telenet Network, the "Combined Network"), which is based on the number of RGUs receiving premium cable television from us at the end of the relevant period as a percentage of the number of homes and businesses passed by the Partner Network at the end of the relevant period. For periods stated as of or after December 31, 2003, our penetration rate for residential internet and telephony service is calculated based on the number of RGUs receiving the relevant service at the end of the relevant period as a 5

6 percentage of the number of homes and businesses passed by the Combined Network at the end of the relevant period. For periods prior to December 31, 2003, we had not yet completed the upgrade of the Combined Network to provide the bi-directional capability required to provide internet and telephony service. To reflect the fact that the number of homes and businesses passed by the upgraded portion of the Combined Network was increasing as the upgrade progressed, our residential broadband internet and telephony penetration rates for those periods are based on the number of RGUs receiving the relevant service from us at the end of the relevant period as a percentage of the number of homes and businesses passed by the Combined Network at the end of December 31, 2003, the date by which the upgrade was substantially completed. Churn is calculated based on the total number of RGUs disconnected during a relevant period divided by the average number of RGUs for the period. Our churn statistics do not include customers who move within the areas of the Combined Network where we provide the relevant service and who elect to receive the same service from us that they previously received at their prior location. In addition, we exclude migrators between different service tiers from our churn statistics. We have estimated the number of homes passed by the Combined Network and its component parts in the data reported throughout this annual report. This information is based in part on network maintenance costs and records. In addition, in limited circumstances the subscriber data included herein are derived from management estimates, including penetration rates and market shares and, for the period between December 31, 2002 and March 31, 2003, average revenue per unique customer. With the exception of homes passed, we have indicated where such estimated data has been used in this annual report. The subscriber data included herein is not part of our financial statements and has not been audited or otherwise reviewed by our independent auditors or other outside auditor, consultant or expert. Industry Data Certain economic and industry data used throughout this annual report are derived from EU, Belgian government and various other industry data sources. We have accurately extracted this third-party data from published sources and, as far as we are aware and to the extent we can ascertain from information published by these sources, there are no omissions that would render such information in this annual report materially misleading. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified such data. Much of this information, including the market share of our competitors in Flanders and incremental changes in relative market shares, is reported only on a nationwide basis in Belgium, and we have derived estimated statistics for the Flanders region based in part on assumptions regarding the relevant population distribution among Flanders, Brussels and Wallonia and certain other factors. In addition, elsewhere in this annual report, statements regarding our industry, our position in the industry, and other cable operators are based solely on our experience, our internal studies and estimates, studies done by third parties at our request and our own investigation of market conditions, which we believe to be reliable. We cannot assure you, however, that any of these assumptions are accurate or correctly reflect our position in the industry, and none of our internal surveys or information has been verified by any independent sources. Other Data This annual report includes information with respect to the products and services that we and certain of our competitors offer. This information, including applicable tariffs and service descriptions, is subject to rapid change as providers introduce new products and services and modify their pricing strategies. As with all other information included in this annual report, neither the delivery of this annual report nor any sale made hereunder at any time after the date hereof shall, under any circumstances, create any implication that this information or the other information set forth herein is correct as of any time subsequent to the date of this annual report. On September 20, 2005, an extraordinary general shareholders' meeting of Telenet Group Holding approved a three-for-one stock split of the company's Shares. Except where otherwise noted and for certain historical information, for ease of reference we have adjusted the number of Shares reported in this annual report to reflect this split. Certain numerical figures included in this annual report have been subject to rounding adjustments; accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. 6

7 Numbers used in this annual report follow the US convention, whereby a comma separates the thousands and other greater increments and a full-stop separates decimals. Value Added Tax (VAT) charged on the products and services that we offer is currently 21%, except with respect to certain digital television services, for which VAT is assessed at a rate of 12%. INFORMATION REGARDING FORWARD-LOOKING STATEMENTS This annual report includes forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "aims," "expects," "intends," "may," "will," "would" or "should" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this annual report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this annual report. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this annual report, those results or developments may not be indicative of results or developments in future periods. Important factors that could cause those differences include, but are not limited to: competition from other companies in our industry and our ability to retain or increase our prices and our market shares, including following the introduction of Belgacom's interactive digital television service and competition from operators that offer a combination of television, internet and telephony services; increasing fixed to mobile substitution by telephony users; unfavorable market pricing conditions for our existing and planned services and for competing services; increasing subscriber acquisition costs; our ability to protect our brand name; our ability to successfully introduce new technologies or services, such as new applications for our interactive digital television services and our planned implementation of a mobile virtual network operation, or to respond to technological developments; our ability to market effectively our existing and planned services to current and new customers; delays in the timing of the development and launch of our planned services; our ability to obtain necessary equipment at anticipated costs, including equipment required to operate our network and provide our services; our ability to maintain and upgrade the networks we own or use; the occurrence of events that damage the networks that we own or use, and our response to such events; our ability to obtain premium content; our ability to integrate any future acquisitions; currency fluctuations and hedging risks resulting from our exposure to the US dollar; issues arising from our first time adoption of EU GAAP for the 2005 fiscal year; 7

8 conflicts of interest with our shareholders or the loss of any member of our executive management team; adverse regulatory, legislative, tax or other judicial developments; the outcome of the significant litigation in which we are involved with respect to interconnection fees; our substantial leverage and ability to generate sufficient cash to service our debt; restrictions and limitations contained in the agreements governing our debt, including obligations to repurchase debt in the event of any change of control; and factors that are not known to us at this time. The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we, or persons acting on our behalf, may issue. We do not undertake any obligation, and do not intend, to review or confirm expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this annual report. We urge you to read the sections of this annual report entitled Item 3, Key information Risk factors," Item 4, Information on the company Business overview and Item 5, Operating and financial review and prospects Operating results" for a more complete discussion of the factors that could affect our future performance and the industry in which we operate. In light of these risks, uncertainties and assumptions, the forward-looking events described in this annual report may not occur. 8

9 PART I Item 1. Identity of directors, senior management and advisors Not applicable. Item 2. Offer statistics and expected timetable Not applicable. Item 3. Key information A. Selected financial data Because we are reporting our financial data in EU GAAP for the first time, we present selected financial data in both EU GAAP and US GAAP. The following table presents selected consolidated financial data as of and for each of the two years in the period ended December 31, 2005 in EU GAAP, which are derived from our audited consolidated financial statements for these periods, and should be read in conjunction with these financial statements, the related notes thereto and with Item 5, "Operating and financial review and prospects." Our audited consolidated financial statements as of December 31, 2005 and the related notes are included elsewhere in this annual report. For the years ended December 31, EU GAAP (Euro in millions, except per Share amounts) (Audited) Income Statement Information Revenues Costs and expenses Costs of services provided... (430.7) (459.0) Gross profit Selling, general and administrative costs... (145.8) (146.9) Operating Profit Finance costs, net... (161.8) (193.2) Net loss before income taxes... (57.2) (61.6) Income tax expense... (4.5) (15.1) Net loss... (61.7) (76.7) Basic and Diluted Net Loss per Share: Weighted-average shares outstanding... 86,527,257 89,503,387 Net loss per share... (0.71) (0.86) Expenses by Nature Employee benefits Depreciation Amortization Amortization of broadcasting rights Network operating and service costs Advertising, sales and marketing Other costs Total costs and expenses

10 For the years ended December 31, EU GAAP (Euro in millions) (Successor) (1) (Successor) (1) Other Financial Information EBITDA EBITDA margin % 45.8% Capital expenditure (1) Cash flow from operations Balance Sheet Information Cash and cash equivalents Current assets, excluding cash and cash equivalents Property and equipment, net Total assets... 2, ,571.4 Trade payables Total cash pay debt (2)... 1, ,250.9 Shareholders' equity (3) (1) Capital expenditure as presented here includes purchases of property and equipment, intangibles (including broadcasting rights), and other investments, but excludes the acquisition of network user rights under the Clientele Agreements and the Annuity Agreement. See Item 5, "Operating and financial review and prospects Liquidity and capital resources." (2) Total cash pay debt includes all debt instruments on which we pay interest on a current basis. Total cash pay debt currently includes our 9% Senior Notes, debt drawn under our Senior Credit Facility, the clientele and annuity fees and capital lease obligations, but excludes the 11.5% Senior Discount Notes due 2014, the principal amount of which accretes at the rate of 11.5% per annum on a semiannual basis until December 15, 2008, after which time cash interest on the notes will become payable at a rate of 11.5% per annum on a semiannual basis. Liquidated damages (due to non-registration with the U.S. Securities and Exchange Commission) equal to 1.0% per annum accrued on the Senior Discount Notes from June 30, 2005 to December 31, (3) On October 11, 2005, Telenet s shares were publicly listed on the Brussels Euronext Exchange following an initial public offering which consisted of primary, secondary and employee offerings of shares. The following table presents selected consolidated financial data as of and for each of the five years in the period ended December 31, 2005 in US GAAP. The selected consolidated financial data presented below as of and for each of the four years in the period ended December 31, 2004 are derived from our audited consolidated financial statements for these periods which we have previously reported. The selected considated financial data presented below for the year ended December 31, 2005 is presented on an unaudited basis. Neither the consolidated financial statements nor the related notes for this information are presented elsewhere in this annual report, but this information should be read in conjunction with Annex C First Time Adoption of EU GAAP. For the years ended December 31, US GAAP (Euro millions except ratios and percentages) (Predecessor and Successor) (1) (Successor) (1) (Successor) (1) (Successor) (1) (Successor) (1) (Unaudited) Statement of Operations Information Revenues Basic cable television Premium cable television (2) Residential broadband internet Residential telephony (3) Business services Total

11 For the years ended December 31, US GAAP (Euro millions except per share amounts and percentages) (Predecessor and Successor) (1) (Successor) (1) (Successor) (1) (Successor) (1) (Successor) (1) (Unaudited) Expenses Operating costs (excluding depreciation and amortization)... (107.2) (133.0) (164.1) (247.8) (275.9) Selling, general and administrative.. (83.7) (91.5) (108.1) (133.8) (130.9) Depreciation... (67.9) (109.4) (140.4) (159.3) (159.1) Amortization and impairment (4)... (114.5) (36.5) (368.5) (35.6) (39.1) Operating profit (loss)... (201.1) (63.3) (278.9) Interest expense, net... (125.8) (134.2) (172.3) (156.6) (140.8) Foreign exchange gain (loss), net... (0.9) 0.7 (3.3) (4.7) (12.4) Other income (expense), net (129.3) - (39.5) Income tax benefit (expense) (3.8) (12.8) Net loss before cumulative effect of accounting change... (327.8) (196.8) (583.8) (60.5) (72.8) Cumulative effect of accounting change... - (667.6) Net loss... (327.8) (864.4) (583.8) (60.5) (72.8) Basic and Diluted Net Loss per Share (7) Weighted average shares outstanding (8)... 20,985,006 50,454,396 85,331,493 86,527,257 89,503,387 Net loss per share (Euro) (8)... (13.50) (17.13) (6.84) (0.70) (0.81) Other Financial Information EBITDA... (18.6) EBITDA margin... (10.8%) 26.9% 45.8% 44.0% 44.8% Capital expenditure (5) Cash flow from (used in) operations... (35.6) Balance Sheet Information Cash and cash equivalents Current assets, excluding cash and cash equivalents Property and equipment, net , Total assets... 2, , , , ,613.9 Trade payables Total cash pay debt (6) , , ,250.9 Deferred payment obligations and subordinated shareholder loans Shareholders' equity (7) , (1) Telenet Holding is the predecessor company, Telenet Bidco is the successor company for the year ended December 31, 2001 (reflecting Telenet Bidco's acquisition of Telenet Holding in March 2001) and Telenet Group Holding is the successor company for the years ended December 31, 2002, December 31, 2003, December 31, 2004 and December 31, (2) We began to offer premium cable services following the completion of the Canal+ Acquisition, which had financial effect from December 1, (3) Includes interconnection fees from third-party carriers generated by calls terminating with residential and business customers. 11

12 (4) Reported amortization for the year ended December 31, 2003 includes 336 million general impairment of goodwill. (5) Capital expenditure as presented here includes purchases of property and equipment, intangibles and other investments, but excludes the acquisition of network user rights under the Clientele Agreements and the Annuity Agreement. See Item 5, "Operating and Financial Review and Prospects Liquidity and Capital Resources." (6) Total cash pay debt includes all debt instruments on which we pay interest on a current basis. Total cash pay debt currently includes our 9% Senior Notes, debt drawn under our Senior Credit Facility, the clientele and annuity fees and capital lease obligations, but excludes the 11.5% Senior Discount Notes due 2014, the principal amount of which accretes at the rate of 11.5% per annum on a semiannual basis until December 15, 2008, after which time cash interest on the notes will become payable at a rate of 11.5% per annum on a semiannual basis. Liquidated damages equal to 1.0% per annum accrued on the Senior Discount Notes from June 30, 2005 to December 31, (7) On October 11, 2005, Telenet s shares were publicly listed on the Brussels Euronext Stock Exchange following an IPO which consisted of primary, secondary and employee offerings of shares. Prior to the IPO, we implemented a three-forone stock split. All shares and per share amounts are expressed taking into account the stock split. (8) Weighted average shares outstanding and net loss per share for 2001 are based on the successor company only. The following tables present selected consolidated financial data based on our fourth quarter 2005 results as calculated both in accordance with unaudited US GAAP and EU GAAP, and on an unaudited pro-forma basis: Annualized Information Based on Fourth Quarter 2005 Results presented in accordance with US GAAP Euro millions (except ratios) Prior to Senior Note prepayment (3) After Senior Note prepayment (3) Net cash pay debt (1)... 1, Annualized EBITDA (2) Pro forma annualized cash interest expense (1) Ratio of net cash pay debt to Annualized EBITDA x 2.86 x Ratio of net total debt to Annualized EBITDA x 3.55 x Ratio of Annualized EBITDA to pro forma annualized cash interest expense (1) x 4.41 x Annualized Information Based on Fourth Quarter 2005 Results presented in accordance with EU GAAP Euro millions (except ratios) Prior to Senior Note prepayment (3) After Senior Note prepayment (3) Net cash pay debt (1)... 1, Annualized EBITDA (2) Pro forma annualized cash interest expense (1) Ratio of net cash pay debt to Annualized EBITDA x 2.76 x Ratio of net total debt to Annualized EBITDA x 3.43 x Ratio of Annualized EBITDA to pro forma annualized cash interest expense (1) x 4.57 x (1) Cash interest expense excludes non-cash items such as amortization of debt discounts and debt issuance costs and excludes expenses such as currency hedging costs and other borrowing expenses, such as withholding tax and commitment fees. Cash pay debt includes third party debt on which cash interest is payable from the date of issuance, and excludes the Senior Discount Notes on which interest is accruing on a discounted basis and for which cash interest is not payable on issuance. Pro forma cash interest expense is calculated assuming the following pro forma cash pay debt balances were outstanding as of December 31, 2005, for an annual period at interest rates in effect or assumed to be in effect as at March 31, 2006, both with and without adjustment for the impact of the Senior Note prepayment on January 9, 2006: 12

13 Euro millions Prior to Senior Note prepayment (3) Principal outstanding Annual pro forma cash interest expense Pro forma Principal outstanding After Senior Note prepayment (3) Annual pro forma cash interest expense Senior Credit Facility (4) Tranches at Euribor +1.50% (a) Tranche at Euribor +2.50% (a) Senior Notes (b) Other long term obligations (c) Finance lease obligations Total cash pay debt 1, , (a) The interest rate is calculated using the EURIBOR rate at March 31, 2006 of 2.797% plus the applicable margin, excluding withholding tax, commitment fees on undrawn facilities and other borrowing expenses. (b) Based on the coupon rate of 9.0% for the Senior Notes. (c) Interest is calculated using a blended rate of 7.9%, reflecting the profile of the components of these obligations which include capital leases and clientele and annuity fees. (2) Annualized EBITDA is calculated by multiplying by four our EBITDA of 80.0 million (as presented using US GAAP) or 82.8 million (as presented using EU GAAP), as appropriate, for the three months ended December 31, This is a measure commonly used by other companies in our sector. (3) On January 9, 2006, Telenet Communications repaid million outstanding principal of its Senior Notes, together with accrued interest of 0.7 million and a prepayment premium of 11.2 million. (4) See Capitalization, Item 10, Additional information Material contracts Senior Credit Facility and Annex A for information on our Senior Credit Facility. 13

14 Consolidated Operating Information (Unaudited) As of and for the years ended December 31, (RGUs and homes passed in thousands) Homes HFC Upgraded (1)... 2,144 2,423 2,484 2,484 2,508 HFC Upgrade (% completion)... 87% 99% 100% 100% 100% Homes Passed Telenet Network (2)... 1,653 1,683 1,683 1,683 1,699 Homes Passed Partner Network RGUs (3) Basic cable television (CATV) (2)(5)... 1,544 1,564 1,587 1,583 1,589 Premium and premium-enabled CATV Telenet Network (4)(5) Premium CATV Partner Network (4)(5) Residential broadband internet (5) Residential telephony (5)(6) Business services (7) Total, excluding basic idtv RGUs... 1,926 2,052 2,385 2,538 2,663 Total, including basic idtv RGUs... 1,926 2,052 2,385 2,538 2,738 Unique Customers (in thousands) (8) Telenet Network... 1,564 1,587 1,583 1,589 Partner Network (9) Combined Network (9)... 1,681 1,746 1,781 1,824 RGUs per unique customer Telenet Network Partner Network (9) Combined Network (9) Penetration Basic CATV (2)(10) % 92.9% 94.3% 94.1% 93.5% Premium and premium-enabled CATV Telenet Network (4)(11) % 5.7% 7.6% Premium CATV Partner Network (4)(11) % 5.5% 4.6% Premium and premium-enabled CATV Combined Network (4)(11).. 5.9% 5.6% 6.5% Residential broadband internet (12) % 12.2% 16.8% 21.3% 24.9% Residential telephony (12) % 9.1% 10.4% 12.0% 14.5% ARPU (in euro) (13) Basic CATV (14) Premium and premium-enabled CATV (4) Residential broadband internet Residential telephony (15) Average monthly revenue per unique customer (in euro) (8) Telenet Network Partner Network (9) Combined Network (9) Churn (16) Basic cable television (2) % 5.1% Premium and premium-enabled cable television (4) (17) % 12.1% 25.0% Residential broadband internet (18) % 8.2% 7.3% 9.2% 8.5% Residential telephony (19) % 11.2% 13.1% 13.6% 11.3% (1) See Item 4, Information on the company Business overview The Combined Network HFC Upgrade" for a discussion of the upgrade of homes served by the Combined Network to the HFC standard. (2) Includes historic statistics for MixtICS prior to the MixtICS Acquisition in August

15 (3) Each service provided corresponds to one revenue generating unit ("RGU") or subscriber. However, a customer who receives from us basic cable television, broadband internet and telephony services (regardless of their number of telephony access lines) would be counted as three RGUs. RGUs and unique customers are presented as of the relevant period end date. (4) We began to offer premium cable services following the completion of the Canal+ Acquisition, which had financial effect from December 1, In November 2005, we terminated premium services broadcast in analog format to subscribers in the Telenet Network, resulting in the loss of 8,000 former premium cable television subscribers receiving broadcasts in analog format who did not take up our offer of a replacement set top box enabled for our new idtv services. (5) Our residential cable television, broadband internet and telephony RGUs include households and small businesses with between one and four employees ("SoHos") that receive our services through a coaxial connection. (6) These amounts exclude RGUs that use our carrier pre-selection services. We no longer report these RGUs because they are no longer significant nor represent part of our core telephony offering. We had 8,000 RGUs that used our carrier preselection services at December 31, Subscribers of Phone-Plus, the residential business acquired as part of the Telenet Solutions Acquisition, are not included in these statistics. (7) Consists of small to medium sized enterprise ("SME") RGUs that receive our broadband internet and telephony services through a coaxial connection. We had 5,000, 14,000, 18,000, 22,000 and 23,000 SME broadband internet subscribers, and 1,000, 3,000, 5,000, 6,000 and 6,000 SME telephony subscribers, respectively, as at the years ended December 31, 2001, 2002, 2003, 2004 and 2005, respectively. Neither SME and corporate RGUs that receive our services using a fiber connection, nor those business customers acquired through the Telenet Solutions Acquisition, are included in the above RGU statistics. (8) Due to limitations in the availability of historical data prior to the introduction of our ERP system in April 2004, we are not able to provide data for certain periods. Estimates have been used to derive the proportion of internet and telephony RGUs that took up both services between December 31, 2002 and March 31, (9) These statistics exclude subscribers to our premium pay television service in the Partner Network area. We had approximately 46,000, 44,000 and 37,000 of these subscribers as of December 31, 2003, December 31, 2004 and December 31, 2005, respectively. (10) Number of RGUs at the end of the relevant period as a percentage of the number of homes and businesses, as applicable, passed by the Telenet Network at the end of the relevant period. Penetration rates estimated where limited data available. (11) Number of RGUs at the end of the relevant period as a percentage of the number of homes and businesses, as applicable, passed at the end of the relevant period by (a) the Telenet Network, in the case of "Premium and premium enabled CATVt Telenet Network;" (b) the Partner Network, in the case of "Premium CATV Partner Network" or (c) the Combined Network, in the case of "Premium and premium enabled CATV Combined Network." Penetration rates estimated where limited data available. (12) For periods after December 31, 2003, penetration rates are calculated based on the number of RGUs at the end of the relevant period as a percentage of the number of homes and businesses, as applicable, passed by the Combined Network at the end of the relevant period. For periods prior to December 31, 2003, we had not yet completed the upgrade of the Combined Network to provide the bi-directional capability required to provide internet and telephony services. To limit distortions arising from the upgrade, residential broadband internet and telephony penetration rates for those periods are calculated based on the number of RGUs at the end of the relevant period as a percentage of the number of homes and businesses, as applicable, passed by the Combined Network at December 31, See "Presentation of Financial and Other Data Subscriber and Related Data." Includes SMEs that receive our broadband internet and telephony services through a coaxial connection. (13) Revenue earned for the period divided by the number of months in the period and divided by the average number of RGUs for the period (which average number of RGUs may vary from the number of RGUs presented above at the period end date). (14) Average monthly revenue per subscriber includes copyright fees and, from January 1, 2003, excluded other revenue earned from carriage fees. (15) Average monthly revenue per subscriber excludes interconnection revenues and installation fees, and revenue generated by RGUs that use our carrier preselection services. See footnote 6. (16) Total number of RGUs disconnected during the period divided by the average number of RGUs for the period. Churn statistics do not include customers who move within areas of the Combined Network where we provide the relevant service 15

16 who elect to receive the same service from us that they previously received at their prior location. We exclude migrators between different tiers of a service from churn calculations. (17) Premium and premium-enabled cable television churn excludes premium subscribers migrating from the former Canal+ premium service to our new idtv premium service. (18) Includes SMEs that receive our services through a coaxial connection. Churn calculation excludes subscribers who migrate to our narrowband internet service, FreeSurf. Statistics for FreeSurf are not disclosed. (19) Excludes RGUs that use our carrier preselection services and includes SMEs that receive our services through a coaxial connection. See footnotes 6 and 7. We exclude RGUs that use our carrier preselection services from our residential telephony churn statistics because, for the most part, these customers subscribe to our direct access telephony services upon ceasing to subscribe to our carrier preselection services. 16

17 Capitalization The following table sets forth our historical cash and cash equivalents, and our capitalization, as of December 31, This table should be read in conjunction with our EU GAAP financial statements included elsewhere in this annual report. As at December 31, 2005 (Euro in millions) Cash and cash equivalents Debt: Senior Credit Facility (1) Senior Notes (2) Other long-term obligations (3) Total cash pay debt... 1,250.9 Senior Discount Notes (4) Total debt... 1,471.7 Equity: Contributed capital... 2,572.3 Other reserves Hedging reserve Retained loss... (1,867.6) Total shareholders' equity Total capitalization... 2,180.8 (1) As of December 31, 2005, excludes million of unused capacity under the revolving tranche and million under the tranche C term loan. Tranche C is an uncommitted loan facility. (2) On January 9, 2006, we applied million of funds raised in our IPO to partially redeem the outstanding balance of the Telenet Communications Senior Notes. Including 0.7 million accrued interest and the 11.2 million prepayment premium, the total redemption payment amounted to million. (3) Includes 26.5 million of capital lease obligations, and 42.4 million and 53.8 million due under the Clientele Agreements and the Annuity Agreement, respectively. (4) Accreted balance of the Senior Discount Notes, converted to Euros at the accounting rate for December 31, 2005 of US$ per Except as noted above there has been no material change in our capitalization since December 31,

18 Exchange Rate Information The following table sets forth, for the years indicated, the high, low, average and year-end noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York ("Noon Buying Rates") for US dollars per Year ended December 31, High Low Average (1) End of Period $ $ $ $ (1) The average of the Noon Buying Rates on the last business day of each month during the period indicated. The following table sets forth, for the previous six months, the high and low Noon Buying Rates expressed in US dollars per High Low $ $ October November December January February March On April 27, 2006, the Noon Buying Rate was 1.00 = US$ These rates may differ from the actual rates used in the preparation of our financial statements and other financial information appearing in this annual report. 3.B. Capitalization and indebtedness Not applicable. 3.C. Reasons for the offer and use of proceeds Not applicable. 3.D. Risk factors You should carefully consider all the information in this annual report, including these material Risk factors. The risks we face are not limited to the risks listed here. Some risks are not yet known to us and some of the risks that we currently do not believe to be material to our operations could prove to be material at a later date. All of these risks can materially affect our business, financial condition and results of operations. This annual report also contains forwardlooking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere. See "Information Regarding Forward-Looking Statements". 18

19 Risks Related to Our Business Our financial condition and results of operations could decline if the cable television, broadband internet and telephony markets in Flanders deteriorate. Our business is focused on providing cable television, broadband internet and telephony services to residential customers in Flanders and broadband internet, data and voice products to business customers throughout Belgium and parts of Luxembourg. As a result, substantially all of our revenues are derived from Belgium and, more specifically, Flanders. Many of the markets in which we operate, including the cable television and telephony markets, already have very high penetration rates. In general, over the past five years, the overall number of fixed telephony lines in Flanders has been decreasing, in part because of the substitution of mobile telephone lines for fixed lines. In addition, the residential broadband internet market in Flanders is linked to the penetration of personal computers in the country that can support a broadband connection, which, based on recent external research estimates, restricts the addressable market for broadband internet services to approximately 60% of the households in Belgium. These limitations may make it difficult for us to increase our current level of subscribers and to grow our business. In addition, any downturn in the cable television, broadband internet or telephony markets in Belgium would have a disproportionate impact on our financial condition and results of operations. The Belgian internet, data and telephony industries are highly competitive and the television industry is likely to become more competitive in the future, which could result in higher content costs and marketing expenses, lower subscription rates and the loss of subscribers. We face significant competition from established and new competitors who provide internet, data and telephony services. In some instances, we compete against companies with easier access to financing, more comprehensive product ranges, greater personnel resources, wider geographical coverage, greater brand name recognition and experience or longer-established relationships with regulatory authorities and customers. These companies may in some cases have fewer regulatory burdens with which they are required to comply because, among other reasons, they use different technologies to provide their services, do not own their own direct access network, or are not subject to obligations applicable to operators with significant market power. Such obligations may include pricing restrictions or the obligation to provide access to the network. Depending on the specific service provided, competitors include Belgacom, Tele2, Mobistar, Versatel and Scarlet. This competition can make it difficult to attract new customers and retain existing customers, thereby increasing churn levels. Increased competition, tiered offerings that include lower-priced entry-level products, and special promotions and discounts for customers who subscribe for multiple services from us may contribute to increased average revenue per unique customer, but will likely reduce our average revenue per user on a per-service basis, especially for our telephony services and, to a lesser extent, for our broadband internet services. We expect competition to increase following the recent implementation of new legislation in Belgium that permits certain service providers to market a combination of television, internet and telephony products and services (a "bundle") for an aggregate price which is lower than the price of the individual products and services in the bundle. In addition, we expect additional competitive pressure to result from the convergence of broadcasting and communication technologies, as a result of which other participants in the Belgian media and telecommunications industries may seek to offer a package of fixed and mobile voice, internet and video broadcast services in competition with us. For example, Belgacom, the incumbent operator, has started to introduce a comprehensive interactive digital television ("idtv") broadcast service in certain parts of its existing telecommunications network. With the introduction of this product, Belgacom will be able to offer a combination of television, broadband internet, fixed-line telephony and, through a subsidiary, mobile telephony services not only in Flanders where we operate, but across Belgium. Similarly, Tele2, which currently offers internet and telephony services, has announced its intention to acquire Versatel, a provider of residential and business internet and data services, subject to competition authority approval. Tele2 has also announced its intention to offer a mobile virtual network service and has stated that it may consider entering the television market in the future, and other operators are planning to offer similar services. These competitive forces may create downward pressure on prices similar to that experienced elsewhere in Europe, which may result in a decrease of our average revenue per subscriber. These forces could also increase the rate at which we lose subscribers, and increase our cost of providing content for our cable television subscribers as we compete with new entrants in the broadcast market. In addition, we may bear higher costs if we introduce new products or services to maintain or improve our competitive positioning and reduce subscriber churn. Internet. Our residential high-speed broadband internet service competes with companies that provide lowercost (or even free), slower connections to the internet over traditional telephone lines as well as with competitors, 19