Intel under Gordon Moore and Andy Grove stayed ahead of the competition by always investing, even in the periodic slumps. It worked very well: except for the Japanese memory chip onslaught, no one caught Intel for 25 years. (No longer true.) Xavier Niel had a down first quarter this year, the first since 2002, and only a modest recovery in Q2.  His response: FTTH built ASAP, in order to pull ahead of the competition. 

Most dramatically, he is offering 10 gigabits for a 1 gig price at Salt in Switzerland. He just added 1.4M passings to his plan for Eir, the former Irish incumbent he recently bought. That will take Eir to ~1.7M, more than the country has households. Even including businesses, that easily over 90%.(Below)  In France, he is at 8M, going to 20M in 2022. Meanwhile, in Italy he has signed up 1.5M mobile customers in just a few months.

Most of that growth is being financed internally, with low debt levels.

Xavi has come in like a John Wayne hero to end the slump. See Jedi Xavier Returns After Orange Empire Strikes Back. His strategy has changed: rather than 30 euros for everybody's triple play and no promotions, he now prices from 25 to 45 euro and runs promotions. For 8M, 1/3rd of France, that price is for a gigabit.

Investors looking beyond the next 90 days will see his expansion is well balanced.

 

FIRST-HALF 2018 RESULTS

A new sales and marketing approach yielding the first positive results in the July/August period

A successful commercial launch in Italy

  • Landline business: a new sales and marketing approach following disappointing new subscriber figures in a fiercely competitive market.

  • Fiber business: Free confirms its position as France's leading alternative FTTH operator. A record six months, with 1.7 million new connectible sockets and 178,000 new subscribers.

  • Mobile business: 500,000 new subscribers on the Free Mobile Unlimited 4G Plan[1]. A 70,000 decrease in the total subscriber base (€0 and €2 subscribers only) due to heightened competition for entry-level offerings.

  • Landline and Mobile businesses once again began making new adds in the July/August period.

  • Italy: further outstanding commercial success, with the 1.5 million subscriber mark reached in early August.

  • Consolidated revenues stable at €2.4 billion, and profitability up in the French businesses.

  • A solid balance sheet and a strong liquidity position to help drive the Group's expansion in France and Italy.

IFRS 15, Revenue from Contracts with Customers, has been applicable since January 1, 2018. Iliad has therefore prepared its consolidated financial statements for the first half of 2018 in accordance with this new standard. 

DEPLOYMENT OF A NEW SALES AND MARKETING APPROACH

In a fiercely competitive environment, Iliad recorded a disappointing sales performance in the first half of 2018. In June 2018, the Group launched a new sales and marketing approach in order to re-boost growth, based on:

  • A series of sales and marketing measures in the Landline business:
    • A better-suited promotional policy: new offers in June 2018, at prices ranging from €9.99 to €19.99/month for the first 12 months (then €24.99 to €44.99/month).
    • A retention and loyalty policy.
    • Launch of new boxes in the near future.
  • A Mobile strategy focused on improving the subscriber mix:
    • A policy to encourage subscribers to move to higher-end plans.
    • Launch of a plan change offer at €8.99/month for the first 12 months, then automatic migration to the Free Mobile Unlimited 4G Plan (100 GB for non-Freebox subscribers).
  • A clear goal of consolidating the Group's position as France's leading alternative FTTH operator:
    • Record level of FTTH rollouts, with 1.7 million new connectible sockets.
    • Record level of connections, with 178,000 new FTTH subscribers.
    • Signature of numerous co-financing agreements in Public Initiative Network (PIN) areas.
    • Figures in line with the Group's objectives of connecting up between 300,000 and 500,000 subscribers this year and around 500,000 subscribers per year as from 2019. The one million mark for FTTH subscribers should be reached by early 2019.
  • A successful launch in Italy:
    • 1.5 million subscribers achieved by early August.

All of the above actions will enable the Group to re-boost its sales and begin a new growth cycle.

SIGNIFICANT EVENTS IN FIRST-HALF 2018

The Iliad Group is one of the leading electronic communications operators in France and Italy, with more than 20 million subscribers. In a fiercely competitive market, the Group generated €2.4 billion in revenues, stable compared with the same period of 2017.

The key figures and significant events of first-half 2018 were as follows:

France

Operations review

  • Landline business: a new sales and marketing approach deployed since June 2018. As the landline market in France is now mature and competitive with many promotional offers, the Group has decided to focus on gradually building up the value of its subscriber base by (i) marketing new offerings through its website, (ii) introducing a subscriber loyalty policy and (iii) stepping up the pace of its FTTH migrations. Thanks to its new sales and marketing policy, the Group once again began to make net adds in the July/August period.
  • FTTH: the Group has clearly positioned itself as France's leading alternative FTTH operator, achieving a record half-year period in terms of subscriber connections with 178,000 new subscribers in the first six months of 2018. The Group continued its FTTH rollout drive during the period, with (i) 1.7 million new connectible sockets installed, bringing the total to 7.9 million at June 30, 2018, and (ii) 178,000 additional subscribers connected to fiber. This means that the Group's FTTH subscriber base increased by a third in the space of six months, and at June 30, 2018 it stood at 734,000.
  • Mobile business: 500,000 new subscribers signed up to the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers) in the first half of 2018, despite a higher level of promotional deals launched by competitors in the second quarter. Conversely, the total subscriber base declined by 70,000 over the period, due to a decrease in the number of subscribers to the €2/month plan (€0/month for Freebox subscribers). The steady growth in the number of subscribers signing up to the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers) demonstrates the strength of the Free brand, the fact that the Group has got its strategy right by regularly enriching its mobile offerings, and the effectiveness of the migrations policy (twofold increase in the net volume of migrations in first-half 2018 compared with the same period of 2017). At June 30, 2018, the Group had a total of 13.6 million mobile subscribers, of which 7.6 million were on the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers). The Mobile business once again began making net adds in the July/August period.
  • A sharp increase in monthly average data usage per 4G subscriber to 9.6 GB - one of the highest levels in Europe - demonstrating the quality of the Group's network. Thanks to the Group's large portfolio of frequencies dedicated to 4G and its gradual deployment of 700 MHz frequencies in authorized areas, the quality of its 4G network has reached its best level ever. This network once again scored well in the nPerf mobile connections performance survey for the second quarter of 2018, with an average download speed of 41.2 Mbps - 40% faster than the speeds recorded for two of the market's three other players. At June 30, 2018, the Group had 8.4 million 4G subscribers - 1.6 million more than one year previously and accounting for 62% of its total mobile subscriber base. The average monthly data usage per 4G subscriber was 9.6 GB representing a year-on-year increase of almost 50% and one of the highest volumes of data usage in Europe.
  • Ongoing capital spending drive for rolling out the Group's mobile network. In the first half of 2018, the Group deployed 1,151 new 3G sites bringing the total number of mobile sites to over 13,300 at end-June 2018 and giving it a 3G coverage rate of almost 96% of the French population. At the same time, it continued its drive to (i) densify its 4G network, which now covers nearly 90% of the French population and (ii) use fiber connections for almost all of its mobile sites (with over 90% of the Group's mobile sites in densely populated areas in France now fiber-connected, a prerequisite for launching 5G offerings).

Financial review

  • Revenues in France stable year on year, coming in at €2.4 billion in first-half 2018:
    • Mobile: revenues invoiced to subscribers up by more than 5%. Revenues invoiced to subscribers - which is the Mobile business's main margin generator - came in at almost €740 million, up by more than 5% year on year. This increase was attributable to a better subscriber mix. However, the overall figure was adversely affected by the measures taken to enrich the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers), notably the introduction of numerous new roaming destinations. Incoming revenues continued to decline as a result of fewer text messages being sent due to the increasing use of new communication platforms. Revenues from terminals also decreased during the period. Overall, revenues for the Mobile business rose 2.4% to €1,066 million in the first half of 2018.
    • Landline: revenues down 2.2% year on year to €1,334 million for first-half 2018. This decrease reflects (i) a competitive market, (ii) a higher VAT rate and (iii) the adverse effect of promotional deals introduced by the Group.
  • EBITDA - France up by almost €20 million to €894 million, representing 37.3% of revenues (up by nearly one point year on year). This performance reflects the sharp increase in profitability for the Mobile business since it was first launched, although this positive effect was offset by a succession of negative impacts that have adversely affected the Landline business in recent quarters. The strong improvement in the Mobile business's profitability is mainly due to the higher proportion of traffic carried directly on the Group's own network and a better subscriber mix, and has been achieved despite the Group constantly enriching its offerings, with numerous new roaming destinations added during the last 12 months. During first-half 2018, the Landline business continued to be weighed down by (i) the impact of promotional deals, (ii) a higher VAT rate and (iii) the signature of new audiovisual distribution contracts.
  • Major capex programs focused on rolling out the Group's landline and mobile Ultra-Fast Broadband networks, backed by a solid financial structure. During the period, it invested €773 million (excluding frequency payments) in its landline and mobile infrastructure in France, enabling it to become more autonomous and increase its profitability while at the same time enhancing its subscriber service.

Italy

Operations review

  • Robust commercial success, with 635,000 subscribers signing up in the space of just one month and a total of 1.5 million subscribers achieved by early August. Iliad's business model in Italy is based on a straightforward, transparent offering with no hidden costs. During the first half of 2018, the Group also (i) pursued its network capital expenditure, (ii) continued to hire new people for its local team, (iii) incurred advertising expenditure in order to anchor the brand in its new market, (iv) set up a physical distribution network of stores and kiosks with automatic SIM card dispensers, as well as the possibility for subscribers to sign up directly online via their mobile phone, tablet or computer, and (v) entered into partnerships with nationwide reseller networks (Sisal, Lottomatica) in order to create customer proximity and enable subscribers to easily top up their SIM cards.

Financial review

  • First-half 2018 revenues amounted to €9 million, generated in just one month and mainly comprising (i) SIM card activations during the period (€9.99 per SIM card), and (ii) the subscription price (€5.99/month).
  • EBITDA came to a negative €28 million, primarily reflecting (i) roaming costs paid to Wind/Tre, (ii) marketing and advertising expenses related to the commercial launch and developing the brand's image in Italy, and (iii) overhead expenses, particularly payroll costs.
  • The Group incurred €164 million in capital expenditure in first-half 2018 in order to develop its Italian operations (including €73 million for frequencies purchased from Wind/Tre).

KEY INDICATORS

Operating performance indicators

 France

June 30, 2018

Dec. 31, 2017

June 30, 2017

       

Total mobile subscribers

13,625,000

13,695,000

13,140,000

-  Of which on the Free Mobile Unlimited 4G Plan*

7,550,000

7,060,000

-

 

   

Total mobile subscribers with 4G access

8,400,000

8,200,000

6,800,000

 

   

Average 4G data usage (in GB per month per subscriber)

9.6 GB

8.4 GB

6.6 GB

 

   

Total Broadband and Ultra-Fast Broadband subscribers

6,473,000

6,520,000

6,468,000

-  Of which FTTH

734,000

556,000

419,000

 

   

Total number of subscribers - France

20,098,000

20,215,000

19,608,000

 

Broadband and Ultra-Fast Broadband 
ARPU** (in €)

32.8

33.9

34.0

Freebox Révolution ARPU*** (in €)

>38.0

>38.0

>38.0

       

Number of connectible FTTH sockets

7.9m

6.2m

5.3m

   

Italy

June 30, 2018

Dec. 31, 2017

June 30, 2017

       

Total mobile subscribers

635,000

-

-

       

* 50/100 GB for non-Freebox subscribers

** €32.20 including the restatements related to IFRS 15

*** Excluding promotions

Financial performance indicators

 

After IFRS 15

Before IFRS 15

In € millions

Six months to June 30, 2018

Six months to June 30, 2017

% change

Six months to June 30, 2018

Six months to June 30, 2017

% change

Revenues - France

2,395

2,401

-0.2%

2,450

2,464

-0.6%

-  Landline

1,334

1,364

-2.2%

1,356

1,394

-2.7%

-  Mobile

1,066

1,041

+2.4%

1,098

1,075

+2.1%

-  Intra-group sales

(5)

(5)

-

(5)

(5)

-

Revenues - Italy

9

0

-

9

0

-

Consolidated revenues

2,404

2,401

+0.1%

2,459

2,464

-0.2%

       

 

 

 

EBITDA - France

894

875

+2.2%

894

875

+2.2%

EBITDA - Italy

(28)

-

-

(28)

-

-

Consolidated EBITDA

866

875

-1.0%

866

875

-1.0%

       

 

 

 

Profit from ordinary activities

406

430

-5.6%

406

430

-5.6%

       

 

 

 

Profit for the period from recurring operations

232

233

-0.4%

232

233

-0.4%

     

 

 

 

Leverage ratio

1.8x

1.0x

+0.8x

1.8x

1.0x

+0.8x

GROUP OBJECTIVES

France

  • Landline business:
    • Achieve a 25% share of the Broadband and Ultra-Fast Broadband market in the long term. 
    • Increase the FTTH subscriber base by between 300,000 and 500,000 subscribers in 2018 and then by some 500,000 subscribers per year as from 2019.
    • Reach a total of 1 million FTTH subscribers by the beginning of 2019.
    • Have 9 million connectible FTTH sockets by end-2018 and 20 million by end-2022.
       
  • Mobile business:
    • Open some 2,000 new sites in 2018.
    • Achieve a 25% share of the mobile market in the long term.
    • Finalize the migration of 4G sites to 1,800 MHz in 2018.
       
  • Financial targets:
    • Achieve EBITDA margin growth in France in 2018.
    • Generate consolidated EBITDA margin in France of over 40% by 2020.
    • Have capital expenditure in France (excluding purchases of frequencies but including the launch of new boxes) of around €1.55 billion in 2018.
    • Due to fierce competition and the lower profitability levels for its Landline business, the Group has decided to revise to around €1 billion its target for EBITDA less CAPEX in France as from 2020.

Italy

  • Achieve EBITDA break-even, with a market share of less than 10%.

INCOME STATEMENT - FRANCE

Revenues

Revenues generated in France in first-half 2018 were more or less stable compared with the same period of 2017 at €2.4 billion (down 0.2%). In a fiercely competitive market, the Group recorded a 2.2% decrease in Landline revenues (to €1,334 million) and a 2.4% rise in Mobile revenues (to €1,066 million).

The table below shows the breakdown of revenues for France by category for first-half 2018 and first-half 2017 as well as the percentage change between the two periods.

 

After IFRS 15

Before IFRS 15

In € millions

Six months to June 30, 2018

Six months to June 30, 2017

% change

Six months to June 30, 2018

Six months to June 30, 2017

% change

       

 

 

 

Landline

1,334

1,364

-2.2%

1,356

1,394

-2.7%

 

   

 

 

 

Mobile

1,066

1,041

+2.4%

1,098

1,075

+2.1%

  • Revenues invoiced to subscribers

738

700

+5.4%

770

734

+4.9%

  • Terminals

105

112

-6.3%

105

112

-6.3%

  • Other

224

229

-2.2%

224

229

-2.2%

       

 

 

 

Intra-group sales

(5)

(5)

-

(5)

(5)

-

       

 

 

 

Total revenues - France

2,395

2,401

-0.2%

2,450

2,464

-0.6%

 

 

Landline revenues

 

Against a backdrop of heightening competition, revenues for the Landline business retreated 2.2% to €1,334 million. The main factors underlying this business's performance in first-half 2018 were:

  • Landline business: a new sales and marketing approach deployed since June 2018. As the landline market in France is now mature and competitive with many promotional offers, the Group has decided to focus on gradually building up the value of its subscriber base by (i) marketing new offerings through its website, (ii) introducing a subscriber loyalty policy and (iii) stepping up the pace of its FTTH migrations. Thanks to its new sales and marketing policy, the Group once again began to make net adds in the July/August period.
  • FTTH: the Group has clearly positioned itself as France's leading alternative FTTH operator, achieving a record half-year period in terms of subscriber connections with 178,000 new subscribers in the first six months of 2018. The Group continued its FTTH rollout drive during the period, with (i) 1.7 million new connectible sockets installed, bringing the total to 7.9 million at June 30, 2018, and (ii) 178,000 additional subscribers connected to fiber. This means that the Group's FTTH subscriber base increased by a third in the space of six months, and at June 30, 2018 it stood at 734,000.
  • Revenues down 2.2% year on year to €1,334 million for first-half 2018. This decrease reflects (i) a competitive market, (ii) a higher VAT rate and (iii) the adverse effect of promotional deals introduced by the Group.
  • Broadband and Ultra-Fast Broadband ARPU at €32.8 for the first half of 2018. The decrease in overall ARPU slowed in the second quarter with the figure coming in just €0.10 lower than for the three months ended March 31, 2018 thanks to the initial effects of the Group's new sales and marketing policy. ARPU for the Freebox Révolution offer once again exceeded €38[2].

Mobile revenues

 

Revenues generated by the Mobile business rose 2.4% to €1,066 million in first-half 2018 (with revenues invoiced to subscribers up 5.4%). The main factors that drove the Mobile business's performance during the period were as follows:

  • 500,000 new subscribers signed up to the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers) in the first half of 2018, despite a higher level of promotional deals launched by competitors in the second quarter. Conversely, the total subscriber base declined by 70,000 over the period, due to a decrease in the number of subscribers to the €2/month plan (€0/month for Freebox subscribers). The steady growth in the number of subscribers signing up to the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers) demonstrates the strength of the Free brand, the fact that the Group has got its strategy right by regularly enriching its mobile offerings, and the effectiveness of the migrations policy (twofold increase in the net volume of migrations in first-half 2018 compared with the same period of 2017). At June 30, 2018, the Group had a total of 13.6 million mobile subscribers, of which 7.6 million were on the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers). The Mobile business once again began making net adds in the July/August period.
  • A sharp increase in monthly average data usage per 4G subscriber to 9.6 GB - one of the highest levels in Europe - demonstrating the quality of the Group's network. Thanks to the Group's large portfolio of frequencies dedicated to 4G and its gradual deployment of 700 MHz frequencies in authorized areas, the quality of its 4G network has reached its best level ever. This network once again scored well in the nPerf mobile connections performance survey for the second quarter of 2018, with an average download speed of 41.2 Mbps - 40% faster than the speeds recorded for two of the market's three other players. At June 30, 2018, the Group had 8.4 million 4G subscribers - 1.6 million more than one year previously and accounting for 62% of its total mobile subscriber base. The average monthly data usage per 4G subscriber was 9.6 GB representing a year-on-year increase of almost 50% and one of the highest volumes of data usage in Europe.
  • Revenues invoiced to subscribers up by more than 5%. Revenues invoiced to subscribers - which is the Mobile business's main margin generator - came in at almost €740 million, up by more than 5% year on year. This increase was attributable to a better subscriber mix. However, the overall figure was adversely affected by the measures taken to enrich the Free Mobile Unlimited 4G Plan (100 GB for non-Freebox subscribers), notably the introduction of new roaming destinations. Incoming revenues continued to decline as a result of fewer text messages being sent due to the increasing use of new communication platforms. Revenues from terminals also decreased during the period. Overall, revenues for the Mobile business rose 2.4% to €1,066 million in the first half of 2018.

Intra-group sales

 

Intra-group sales correspond to sales between companies from the Group's two different businesses and mainly consist of billings of interconnection operations. They are eliminated in consolidation.

Gross profit

Gross profit for France amounted to €1,372 million in first-half 2018, up 5% year on year.

As a percentage of revenues, gross profit climbed almost three points to 57.3%, driven by the sharp increase in profitability for the Mobile business which was achieved thanks to the improved subscriber mix and an increase in traffic volumes carried directly on the Group's own network.

EBITDA

EBITDA generated in France advanced some €20 million year on year to €894 million and the EBITDA margin widened by almost one point to 37.3%. The EBITDA figure for the first half of each year is negatively affected by IFRIC 21, which requires certain tax charges for the whole twelve-month period to be recognized in full at January 1.

The main factors affecting EBITDA generated in France in first-half 2018 were as follows:

  • Further economies of scale achieved for the Mobile business's fixed costs. The continued significant growth in the Mobile business's margin-generating revenues enabled the Group to achieve further economies of scale in terms of its fixed cost base (network, advertising and administrative costs, etc.) and to capitalize on its status as an integrated operator (landline/mobile), despite the extension of roaming services to numerous new countries and the end of roaming charges in Europe since June 2017.
  • Better mobile network coverage for the population. Thanks to the intense rollout of new mobile sites, the Group has considerably improved its mobile network coverage over the past 12 months (with the coverage rate up by 5 percentage points to almost 96% for the 3G network and by 8 points to almost 90% for 4G). This has enabled it to increase the volume of traffic carried directly on its own network.
  • 7.6 million subscribers are now signed up to the Free Mobile Unlimited 4G Plan (50/100 GB for non-Freebox subscribers), representing over 55% of Free Mobile's total subscribers. At June 30, 2018 the number of subscribers on the €2/month plan (€0/month for Freebox subscribers) was 6.1 million.
  • A further decrease in profitability for the Landline business, due to (i) the impact of promotions, (ii) the higher VAT rate and (iii) the signature of new audiovisual distribution contracts.

Profit from ordinary activities

Profit from ordinary activities rose by €7 million to €437 million. This rise was fueled by the higher EBITDA figure although this positive effect was partly offset by a 1.6% increase in depreciation/amortization expense resulting from the continued rollout of the Group's FTTH and mobile networks.

INCOME STATEMENT - ITALY

 

Iliad's Italian operations made only a small contribution to the Group's consolidated financial results for the first half of 2018. The following table presents a simplified income statement for the Italy segment for the six-month periods ended June 30, 2018 and June 30, 2017.

In € millions

Six months to June 30, 2018

Six months to June 30, 2017

% change

 
 
         

Revenues - Italy

9

-

-

 

Gross profit

1

-

-

 

EBITDA

(28)

-

-

 

as a % of revenues

-

-

-

 

Profit/(loss) from ordinary activities

(31)

-

-

 

Operating profit

(31)

-

-

 

Revenues

As the commercial launch of the Group's Italian mobile business took place on May 29, 2018, it only contributed one month of operations in the first half of 2018. Its main results are described below.

Iliad's operations in Italy reported robust commercial success, with 635,000 subscribers signing up in the space of just one month and a total of 1.5 million subscribers achieved by early August. Iliad's business model in Italy is based on a straightforward, transparent offering with no hidden costs. During the first half of 2018, the Group also (i) pursued its network capital expenditure, (ii) continued to hire new people for its local team, (iii) incurred advertising expenditure in order to anchor the brand in its new market, (iv) set up a physical distribution network of stores and kiosks with automatic SIM card dispensers, as well as the possibility for subscribers to sign up directly online via their mobile phone, tablet or computer, and (v) entered into partnerships with nationwide reseller networks (Sisal, Lottomatica) in order to create customer proximity and enable subscribers to easily top up their SIM cards.

In Italy, Iliad has put in place:

-       An effective and inexpensive distribution network.

-       A brand which already has a strong image.

-       A very high-quality mobile service.

First-half 2018 revenues amounted to €9 million, generated in just one month and mainly comprising (i) SIM card activations during the period (€9.99 per SIM card), and (ii) the subscription price (€5.99/month).

EBITDA

EBITDA came to a negative €28 million, primarily reflecting (i) roaming costs paid to Wind/Tre, (ii) marketing and advertising expenses related to the commercial launch and developing the brand's image in Italy, and (iii) overhead expenses, particularly payroll costs.

Profit/(loss) from ordinary activities

The Group's Italian operations generated a €31 million loss from ordinary activities in the first half of 2018, including the depreciation/amortization expense for the network's initial components and frequencies.

Cash flows and capital expenditure

 

In € millions

Six months to June 30, 2018

Six months to June 30, 2017

% change

 
 

 

 

 

Consolidated cash flows from operations

852

855

-0.3%

 
 

   

Change in working capital requirement

(81)

(47)

+72.3%

 
         

Operating Free Cash Flow

771

808

-4.6%

 
 

   

Capital expenditure - France (excluding payments for frequencies)

(773)

(710)

+8.9%

 

Capital expenditure - Italy (excluding payments for frequencies)

(91)

(7)

-

 

Income tax paid

(154)

(103)

+49.5%

 

Other

(415)

(15)

-

 
         

Consolidated Free Cash Flow (excluding payments for frequencies, financing activities and dividends)

(662)

(27)

-

 

 

Capital expenditure - payments for frequencies - France

(8)

(4)

-

 

Capital expenditure - payments for frequencies - Italy

(73)

(51)

+43.1%

 

Consolidated Free Cash Flow (excluding financing activities and dividends)

(744)

(82)

-

 
         

Dividends

(40)

(26)

+53.8%

 
         

Cash and cash equivalents at period-end

871

84

-

 

 

 

In the first six months of 2018, the Group pursued its major capex programs focused on rolling out its landline and mobile Ultra-Fast Broadband networks, backed by a solid financial structure. During the period, it invested €773 million (excluding frequency payments) in its landline and mobile infrastructure in France, enabling it to become more autonomous and increase its profitability while at the same time enhancing its subscriber service.

The year-on-year change in consolidated Free Cash Flow mainly reflects the following:

  • €852 million in consolidated cash flows from operations.
  • An €81 million negative change in working capital requirement, due to negative contributions of €20 million for Italy and €61 million for France.
  • €773 million in capital expenditure for France. During the first half of 2018 the Group pursued its capital expenditure drive for its Ultra-Fast Broadband networks both for Landline (with 178,000 new subscribers connected up to FTTH) and Mobile (with some 1,151 new sites deployed). The Group invested almost €300 million in its FTTH operations during the period.
  • €164 million in capital expenditure for Italy, including €73 million relating to the purchase of frequencies from Wind/Tre.
  • €154 million in income tax paid.
  • Other: includes the outflow for the acquisition of the Group's interest in eir, the partial buyback of minority interests in Free Mobile and interest paid.

BALANCE SHEET

The Group is not subject to any liquidity risk as a result of acceleration clauses contained in loan agreements entered into by Group companies or as a result of any breaches of financial covenants (ratios, targets, etc.).

At June 30, 2018, the Group had gross debt of €4,154 million and net debt of €3,257 million. The Group maintained its solid financial structure during the period and its leverage ratio at June 30, 2018 was 1.8x EBITDA. At the same time, it also had a very strong liquidity position.

The Group ended the first half of 2018 with €871 million in available cash and cash equivalents.

GLOSSARY

 

The definitions of the main terms used by Iliad are set out below:

Alternative operator: An operator that entered the market subsequent to the incumbent State operator losing its monopoly.

Broadband and Ultra-Fast Broadband ARPU (Average Revenue Per Broadband and Ultra-Fast Broadband User): Includes revenues from the flat-rate package and value-added services but excludes one-time revenues (e.g., fees for migration from one offer to another or subscription and cancellation fees), divided by the total number of Broadband and Ultra-Fast Broadband subscribers invoiced for the period.

Broadband and Ultra-Fast Broadband subscribers: Subscribers who have signed up for the Group's ADSL, VDSL or FTTH offerings.

Connectible FTTH socket: A socket for which the link between the shared access point and the optical splitter has been put in place by the building operator, which the Group can access in accordance with its co-financing commitments, and for which the connection to the Group's network has been completed or is in progress.

EBITDA: Profit from ordinary activities before share-based payment expense, depreciation, amortization and provisions for impairment of non-current assets.

FCF: Free Cash Flow

Freebox Révolution ARPU (Average Revenue Per Freebox Révolution Subscriber, excluding promotions): Includes revenues from the flat-rate package and value-added services but excludes one-time revenues (e.g., fees for migration from one offer to another or subscription and cancellation fees), divided by the total number of Freebox Révolution subscribers invoiced for the period.

FTTH (fiber-to-the-home): Data delivery technology that directly connects subscribers' homes to an optical node (ON).

Gross profit: Corresponds to revenues less purchases used in production.

Leverage ratio: Represents the ratio between net debt (short- and long-term financial liabilities less cash and cash equivalents) and EBITDA.

M2M: Machine to machine communications.

Net adds: Represents the difference between total subscribers at the end of two different periods.

Net debt: Difference between short- and long-term financial liabilities, and available cash and cash equivalents as presented in the balance sheet.

Profit for the period from recurring operations: Profit for the period excluding the impact of non-recurring items such as the Group's share of restructuring and acquisition costs related to the eir transaction and non-recurring income tax charges.

Revenues invoiced to subscribers: Revenues generated from services invoiced directly to subscribers (services included in subscribers' mobile plans as well as additional services).

Total Broadband and Ultra-Fast Broadband subscribers: Represents, at the end of a period, the total number of subscribers, identified by their telephone lines, who have signed up for a Free or Alice Broadband or Ultra-Fast Broadband offering, excluding those recorded as having requested the termination of their subscription.

Total mobile subscribers: Represents, at the end of a period, the total number of subscribers, identified by their telephone lines, who have subscribed to a Free mobile offering, excluding those recorded as having requested the termination of their subscription.

Unbundled subscribers: Subscribers who have signed up for the Group's ADSL, VDS or FTTH offerings through a telephone exchange unbundled by Free.

 

 

 

EIR FULL YEAR 2018

RESULTS ANNOUNCEMENT

 

Results in line with expectations with continued growth

in broadband, postpay mobile, TV & product bundles

Extensive multi-year investment plan for broadband and mobile

 

Full Year Financial Performance

EBITDA of €531m, up €11m or 2% year on year [1]

Revenue of €1,270m, down €24m or 2% year on year [2]

Operating costs reduced by €21m or 4% year on year [3]

Cash on balance sheet of €203m, up €56m year on year [4]

 

 

Business Update

Completion of NJJ-led acquisition of majority stake in eir with a new Irish majority board of directors

Appointment of new Irish-led management team, with Carolan Lennon as CEO and Stephen Tighe as CFO

1.8m premises passed with high speed fibre technology

  • 195,000 rural premises passed as part of FTTH rollout
  • 76% of premises now passed with fibre technology

635,000 fibre broadband connections, 69% of total broadband base

29% of customers now on triple or quad play bundles

(Issued Tuesday, 04 September 2018) eir today announced results for the full year ended 30 June 2018 that were in line with expectations, with EBITDA before storm costs increasing by €11 million or 2% year on year, while operating costs declined by €21 million or 4% before storm costs. eir saw continued improvement in its underlying performance indicators, as more customers continue to connect to eir’s fibre broadband, increasingly bundle products, and consume more of eir’s TV content than ever before.

Carolan Lennon, eir CEO, said: “The acquisition led by NJJ, a telco group with a track record of investment in infrastructure and enhanced customer propositions, is now complete. A new senior management team, with an equal gender split, is now in place, with almost all promoted from within eir. eir’s transformational journey to become a leaner, more agile organisation, focused on capital investment, growth and the provision of the best mobile and broadband services in the country, is well and truly underway.”

Historical investment in Ireland

Historically, eir has invested more in telecoms infrastructure in Ireland than any other telecoms company. In the past five years, eir has invested €1.5bn in telecoms infrastructure across the country. As a result, eir’s overall fibre broadband rollout has now passed 1.8 million premises or 76% of all Irish homes and businesses. eir’s mobile network currently delivers 4G coverage to 96% of the Irish population.

Current investment

We have now completed almost two thirds of our fibre-to-the-home (FTTH) rural rollout, an investment programme funded entirely by eir. An additional 30,000 premises will also be passed as part of this rollout, meaning that by June 2019, eir will have passed 330,000 rural homes and businesses with super-fast broadband directly to the premises.

eir withdrew from the NBP tender process in early 2018, but remains committed to supporting the remaining bidder enet in making eir’s infrastructure ready and available for the delivery of the NBP. We are allocating significant resources in order to provide this support and will continue to do so, to help realise the shared ambition of high speed broadband for all homes and businesses as soon as possible.

We also announced recently a move away from our current corporate HQ in central Dublin. This is part of an overall strategy to enable eir to develop as a modern dynamic telecoms company with state of the art technology at various locations across the country. These savings will allow us to invest more in our network and deliver even more value to customers on products and services.

Forthcoming projects

eir is planning substantial investment programmes in the coming years for both broadband and mobile. We are embarking upon a €1 billion capital investment program over the next five years which will see an expansion of our high-speed fibre-to-the home (FTTH) rollout to a further 1.4 million homes and businesses across the country. We will also make a significant investment in our mobile network by developing more eir sites with top of the range equipment and enhancing our coverage for voice and 4G data experience in both urban and rural Ireland. We will also invest in a 5G mobile network, delivering the most technologically advanced mobile data services starting in 2019. We have also started bringing outsourced customer-facing functions back in house, in order to help build a world-class customer experience.

Carolan Lennon, CEO of eir, said: “I look forward to driving forward eir’s transformative journey, alongside our new shareholders, staff and our customers. Despite these changes, our objective remains the same: to provide the best mobile and broadband network in the country through multi-year investments in innovative yet simple solutions.”

Trading Update

 

Solid broadband growth

  • 923,000 broadband connections, up 27,000 or 3% year on year

 

Continued growth in TV / eir sport

  • eir Vision base at 75,000 customers, up 4,000 year on year
  • 29% TV take up by consumer fibre base
  • More than 255,000 eir sport users across all platforms

                                                                                 

More mobile customers opting for bundles

  • 1,047,000 total mobile customers
  • 52% of customers are on postpay, up 4p.p. year on year
  • 24% of households include mobile in a bundle, up 3p.p. year on year

 

Household Revenue Generating Units (RGUs) growing

  • 31 RGUs per household, up from 2.19 RGUs in the previous year

Stephen Tighe, eir CFO, said: “Our results for the year reflect another robust performance, in line with expectations. Before adjusting for the impact of Storm Ophelia, full year EBITDA of €531m increased by €11m or 2% year on year. As the NJJ philosophy beds down in eir and we refocus our efforts on what we do best, we have seen an expected decline in our low margin business as well as traditional access line decreases, driving a revenue decline of 2% for the year. Our gross margin percentage increased from 78% to 79% year on year, and our operational costs decreased by 4% for the year, thanks to reductions in both pay and non-pay costs, leading to an increase in EBITDA margin.

“Our attractive new propositions and competitive pricing models are bringing more customers to eir, with continued rises seen in broadband, TV, and postpay mobile subscriptions. More customers than ever are bundling multiple products with us; 75% of customers now enjoy bundles of two or more eir services at home and on the go.

“Our cash generation has been robust this year, with a closing balance of €203 million at 30 June 2018, an increase of €56 million year on year, reflecting our increased focus on cost reductions and efficiencies.”

Full year reported revenue of €1,270 million decreased by 2% or €29 million compared to last year, and includes a €5 million year on year impact due to Mobile Termination Rate (“MTR”) reductions. Excluding the impact of MTR reductions, revenue decreased by €24 million. For the fourth quarter, revenue of €315 million decreased by 2% compared to the corresponding prior year quarter. Growth in broadband and bundling was offset by reductions in low margin eir business revenues and traditional access line revenues.

Operating costs for the full year of €472 million reduced by 4% or €18 million compared to the prior year. Excluding storm costs of €3 million due to Storm Ophelia, operating costs declined by €21 million year on year. Operating costs for the fourth quarter were €110 million, a reduction of 1% compared with the same quarter last year.

EBITDA before storm costs of €531 million for the full year increased by 2% year on year. Adjusting for €3 million of storm costs, EBITDA increased by €8 million or 2% compared to the prior financial year. EBITDA for the fourth quarter was €144 million, decreasing by €2 million or 1%.

In the fixed line segment, full year reported revenue (before intracompany eliminations) of €965 million decreased by 3% or €28 million compared to the prior year.   Excluding MTR, underlying revenue decreased by €26 million. Reported revenue for the fourth quarter was €241 million, a 3% decrease when compared to the corresponding prior year period. These declines were driven by reductions in low margin managed services and data centre revenues, coupled with traditional access line losses and new introductory offers to support retail broadband customer growth.

Fixed line EBITDA for the full year and quarter of €443 million and €114 million decreased by €9 million and €8 million respectively.

The total group broadband customer base was 923,000 at 30 June 2018, growing by 27,000 in the full year and 4,000 in the fourth quarter, compared to the prior year. Wholesale broadband connections increased by 21,000 in the full year and decreased by 2,000 during the quarter, bringing the total wholesale broadband lines to 473,000 lines at the end of June 2018. The retail broadband base increased by 6,000 in the quarter to a total of 450,000 customers, an increase of 6,000 or 1% compared to the prior year.

635,000 customers were using our fibre based high-speed broadband service at the end of June 2018, representing an increase of 84,000 customers for the full year and 15,000 customers during the quarter, compared to the prior year. 69% of our broadband customers are connected to our fibre network, which represents a 36% penetration of fibre premises passed. Fixed line net access losses were 23,000 for the year ended 30 June 2018.

In the mobile segment, reported revenue (before Intracompany eliminations) for the year of €338 million decreased €3 million or 1% compared to the prior year. Adjusting for the impact of MTR regulatory price changes, underlying mobile revenue increased by €2 million or 1% year on year. Reported revenue for the quarter was €82 million, a decrease of €2 million or 2% when compared to the prior year.

Mobile EBITDA for the full year was €85 million, which increased by 25% compared to the prior year. The mobile EBITDA margin of 25% for the year was higher than expectations, an increase of 5 percentage points year on year. Mobile EBITDA for the quarter of €30 million increased by 28% when compared to the prior year quarter.

The Group mobile customer base decreased by 14,000 compared to the prior year, to a total of 1,047,000 customers. Postpay customers now represent 52% of our total mobile base, up 4 percentage points year on year.

In summary, the Group has delivered another robust set of financial and operational results for the full year to 30 June 2018. The results achieved are in line with expectations and the guidance issued at the beginning of the financial year.