Basis of Presentation
The following tables set forth summary selected Historical Consolidated Financial Information derived from the audited consolidated financial statements of Altice VII as of and for the year ended December 31, 2013, prepared in accordance with the IFRS, which have been audited by Deloitte Audit S.à r.l.
Altice VII is a holding company which, since its formation in 2008, has from time to time made significant direct and indirect equity investments in a number of cable and telecommunication businesses in various jurisdictions.
The following is a summary of the key investments and disposals made by Altice VII in the years ended December 31, 2011, 2012 and 2013, which have had a significant impact on the Historical Consolidated Financial Information.
During the year ended December 31, 2011, Altice VII made the following acquisitions that fundamentally changed the business undertaking: (i) in the first quarter of 2011, Altice VII increased its ownership in HOT-Telecommunication Systems Ltd. thereby acquiring a majority equity ownership in the HOT Telecom Group (as a result of which the financial information of the HOT Telecom Group is consolidated in the historical consolidated financial statements of Altice VII with effect from March 16, 2011). In addition, in the fourth quarter of 2011, MIRS Communications Ltd. was acquired by the HOT Telecom Group from a subsidiary of Altice VII and renamed HOT Mobile Ltd. The HOT Telecom Group and HOT Mobile Ltd. are collectively referred to herein as the “HOT Group”; and (ii) in the second quarter of 2011, Altice VII acquired a controlling equity interest in Coditel Brabant S.p.r.l, a company with cable television operations in Belgium and Coditel S.à r.l., a company with cable television operations in Luxembourg, in each case, through an intermediate holding company, Coditel Holding S.A. (the financial information of which is consolidated in the historical consolidated financial statements of Altice VII with effect from July 1, 2011).
The year ended December 31, 2012 was marked by the following two significant acquisitions by Altice VII:
(i) in the first quarter of 2012, Altice VII acquired approximately 60% of the equity interests in Cabovisão—Televisão por Cabo, S.A. (“Cabovisão”), a Portuguese telecommunications company (the financial information of which is consolidated in the historical consolidated financial statements of Altice VII with effect from February 29, 2012); and (ii) in the fourth quarter of 2012, Altice VII completed the take-private transaction of the HOT Group whereby it acquired substantially all of the equity interests in HOT-Telecommunication Systems Ltd. it did not previously own.
In the year ended December 31, 2013, Altice VII has added to its portfolio of holdings the following acquisitions: (i) in the first quarter of 2013, Altice VII acquired substantially all of the equity interests in Cabovisão that it did not already own; (ii) in the third quarter of 2013, Altice VII acquired a controlling equity interest in Groupe Outremer Telecom S.A., a telecommunications company with operations in the French Overseas Territories (the financial information of which is consolidated in the historical consolidated financial statements of Altice VII with effect from July 5, 2013); (iii) in the third quarter of 2013, Altice VII (through its subsidiary Cabovisão) acquired 100% of the equity interests in Winreason S.A., the owner of Portuguese telecommunications operator Oni SGPS S.A. and its subsidiaries (the financial information of which is consolidated in the historical consolidated financial statements of Altice VII with effect from August 8, 2013) and (iv) in November 2013, Altice VII acquired further equity interests in Coditel pursuant to the 2013 Coditel Acquisition. In addition, in 2013, Altice VII disposed of its interests in Valvision and acquired the content subsidiaries, Ma Chaîne Sport and Sportv. In addition, Altice VII initiated its equity investment in Wananchi, a Kenyan cable operator.
As a result of the series of these significant acquisitions that have been consummated by Altice VII in the years ended December 31, 2011, 2012 and 2013, and the intra-year timing of such acquisitions, the Historical Consolidated Financial Information does not consolidate the results of operations of the entire business undertaking of the Group as it exists at the date of this Annual Report for any of the periods presented and the comparability of the Historical Consolidated Financial Information over each of the periods presented may be significantly limited. Therefore, in order to facilitate an understanding of the Group’s results of operations and financial condition, the tables set forth below include:
(i) summary Illustrative Aggregated Selected Financial Information as of and for the years ended December 31, 2011 and 2012 (which does not aggregate the results of ODO or Tricom);
(ii) summary selected Pre-Transaction Pro Forma Financial Information derived from the pro forma consolidated financial information of Altice VII (giving effect to each such significant acquisition as described above but excluding the ODO Acquisition, the Mobius Acquisition and the Tricom Acquisition as if such acquisitions had occurred on January 1, 2013 or December 31, 2013, as applicable) for the year ending December 31, 2013; and
(iii) summary selected Post-Transaction Pro Forma Financial Information derived from the pro forma consolidated financial information of Altice VII (giving effect to each such significant acquisition and the ODO Acquisition (but not the Mobius Acquisition or the Tricom Acquisition) as if such acquisitions had occurred on January 1, 2013 or December 31, 2013, as applicable) as of and for the year ending December 31, 2013.
For further details regarding the basis of preparation of the Illustrative Aggregated Selected Financial Information, the Pre-Transaction Pro Forma Financial Information and the Post-Transaction Pro Forma Financial Information, please see Note 1 to the Illustrative Aggregated Selected Financial Information, the Pre-Transaction Pro Forma Financial Information of Altice VII and the Post-Transaction Pro Forma Financial Information of Altice VII included elsewhere in this Annual Report. The Illustrative Aggregated Selected Financial Information, the Pre-Transaction Pro Forma Financial Information and the Post-Transaction Pro Forma Financial Information include the results of operations of Valvision even though Altice VII disposed of its interests in Valvision in 2013. In each of the years ended December 31, 2011, 2012 and 2013, Valvision contributed €2.5 million, €2.6 million and €1.3 million to aggregated and pro forma revenues and €0.9 million, €0.9 million and €0.5 million to aggregated and pro forma EBITDA.
Further, the Historical Consolidated Financial Information, the Illustrative Aggregated Selected Financial Information, the Pre-Transaction Pro Forma Financial Information and the Post-Transaction Pro Forma Financial Information include the results of operations of Green Datacenter and Auberimmo, which are subsidiaries of Altice VII however are have been designated as unrestricted subsidiaries under the terms governing our existing indebtedness. In each of the years ended December 31, 2011, 2012 and 2013, Green Datacenter contributed €4.3 million, €10.3 million and €12.4 million to aggregated and pro forma revenues and €3.5 million, €9.0 million and €10.9 million to aggregated and pro forma EBITDA and Auberimmo contributed €0.9 million, €0.9 million and €0.9 million to aggregated and pro forma revenues and €0.8 million, €0.8 million, €0.8 million to aggregated and pro forma EBITDA. On a standalone basis, Green Datacenter and Auberimmo had outstanding debt of €23.7 million and €5.3 million, respectively, as of December 31, 2013. The summary financial information presented below should be read together with Altice VII’s historical financial statements for the years ended December 31 2011, 2012 and 2013, the Illustrative Aggregated Selected Financial Information for the years ended December 31, 2011 and 2012, the Pre-Transaction Pro Forma Financial Information as of and for the year ended December 31, 2013 and the Post-Transaction Pro Forma Financial Information as of and for the year ended December 31, 2013, including the accompanying notes, included elsewhere in this Annual Report.
Income Statement Data
Historical Consolidated Financial Information
For the year ended December 31,
Statement of Income Items 2011 2012 2013
€ in millions Revenue
Cable based services ... 560.3 873.3 923.1 Mobile services ... 180.6 172.7 256.2 B2B and others ... 43.3 46.4 107.4 Total revenue ... 784.2 1,092.4 1,286.8 Purchasing and subcontracting services ... (175.4) (302.1) (367.8) Gross profit ... 608.8 790.3 919.0 Other operating expenses ... (195.4) (248.9) (261.3) General and administrative expenses(1) ... (51.2) (58.1) (60.2) Other sales and marketing expenses ... (64.4) (80.1) (78.7) Operating income before depreciation and amortization(2)... 297.8 403.2 518.8 Depreciation and amortization ... (176.4) (266.3) (399.6) Goodwill impairment ... — (121.9) — Other expenses, net ... (5.6) (29.8) (15.1) Management fees ... (3.1) (6.2) (0.6) Restructuring and other non-recurring costs ... (7.6) (20.8) (61.2) Operating profit/(loss) ... 105.1 (41.7) 42.3 Gain arising on step acquisitions ... 134.8 — — Share of profit of associates ... 11.7 — — Finance income ... 16.6 30.5 93.6 Finance costs ... (111.6) (204.7) (336.8) Profit/(loss) before taxes on revenue ... 156.6 (215.8) (200.1) Income tax (expenses)/benefits ... (32.5) 26.0 (7.4) Profit/(loss) for the year/period ... 123.9 (189.8) (208.4)
(1) Also includes “staff costs and employee benefits expenses” which is presented as a separate line item on the Group’s consolidated statement of income.
(2) Further referred to as EBITDA.
Illustrative For the year ended December 31,
Statement of Income Items 2011 2012 2013
€ in millions
Revenue
Cable based services ... 941.2 945.7 953.1 Mobile services ... 306.5 304.4 322.8 B2B and others ... 178.5 191.6 184.7 Total revenue ... 1,426.2 1,441.8 1,460.6 Purchasing and subcontracting services ... (399.6) (444.4) (433.6) Gross profit ... 1,026.6 997.4 1,027.1 Other operating expenses ... (319.5) (315.2) (293.2) General and administrative expenses(3) ... (100.9) (85.1) (74.5) Other sales and marketing expenses ... (108.9) (102.8) (88.0) Operating income before depreciation and amortization(4) ... 497.2 494.2 571.4 Depreciation and amortization ... (426.7) Goodwill impairment ... — — — Other expenses, net ... — — (18.6) Management fees ... — — (1.5) Restructuring and other non-recurring costs ... — — (61.8) Operating (loss)/profit ... — — 62.8 Finance income ... — — 93.7 Finance costs ... — — (341.0) (Loss) before taxes on revenue ... — — (184.5) Income tax benefits/(expenses) ... — — (15.6) Profit for the year/period ... — — (200.0)
(1) The Illustrative Aggregated Selected Financial Information does not aggregate the financial information of Tricom and ODO. For details, see “Illustrative Aggregated Selected Financial Information of the Group”. We do not present any Illustrative Aggregated Selected Financial Information below the line item operating income before depreciation and amortization, or EBITDA.
(2) The Pre-Transaction Pro Forma Financial Information does not give pro forma effect to the acquisition of ODO or Tricom. For details, see
“Pre-Transaction Pro Forma Financial Information of the Group”.
(3) Also includes “staff costs and employee benefits expenses” which is presented as a separate line item on the Group’s consolidated statement of income.
(4) Further referred to as EBITDA.
Post-Transaction
Statement of Income Items 2013
€ in millions
Revenue
Total revenue ... 1,906.9 Purchasing and subcontracting services ... (555.2) Gross profit ... 1,351.7
Other operating expenses ... (337.2) General and administrative expenses(2) ... (103.7)
Other sales and marketing expenses ... (166.4) Operating income before depreciation and amortization(3) ... 744.4 Depreciation and amortization ... (491.0)
Goodwill impairment ... — Management fees ... (13.0)
Other expenses, net ... (18.5) Restructuring and other non-recurring costs ... (61.8) Operating profit ... 160.1 Gain arising on step acquisitions ... —
Share of profit of associates ... — Finance income ... 94.2
Finance costs ... (428.2)
Loss before taxes on revenue ... (173.9) Income tax benefits/(expenses) ... (15.8) Loss for the year/period ... (189.7)
(1) The Post-Transaction Pro Forma Financial Information, among other things, gives pro forma effect to the acquisition of ODO. It does not give pro forma effect to the acquisition of Tricom. For details, see “Post-Transaction Pro Forma Financial Information of the Group”.
(2) Also includes “staff costs and employee benefits expenses” which is presented as a separate line item on the Group’s consolidated statement of income.
(3) Further referred to as EBITDA.
Revenue and EBITDA
Illustrative Aggregated Selected
Financial Information(1)
Pre-Transaction Pro Forma
Financial Information(2) For the year ended
December 31,
For the year December 31,
2011 2012 2013
€ in millions
Revenue
Israel ... 845.5 850.4 881.9 Belgium and Luxembourg ... 67.3 71.3 70.5 Portugal ... 238.8 235.4 209.4 French Overseas Territories ... 217.9 219.6 223.5 Others(6) ... 56.7 65.2 75.2 Total revenue ... 1,426.2 1,441.8 1,460.6 EBITDA(3)
Israel ... 327.2 305.2 363.0 Belgium and Luxembourg ... 41.0 45.6 45.0 Portugal ... 39.0 48.0 58.3 French Overseas Territories ... 72.4 75.1 84.6 Others(6) ... 17.7 20.3 20.6 Total EBITDA ... 497.2 494.2 571.4 Equity based compensation(4) ... 6.0 3.8 — Adjusted EBITDA(5) ... 503.2 498.0 571.4
(1) The Illustrative Aggregated Selected Financial Information does not aggregate the financial information of Tricom and ODO. For details, see “Illustrative Aggregated Selected Financial Information of the Group”. We do not present any Illustrative Aggregated Selected Financial Information below the line item operating income before depreciation and amortization, or EBITDA.
(2) The Pre-Transaction Pro Forma Financial Information does not give pro forma effect to the acquisition of ODO or Tricom. For details, see
“Pre-Transaction Pro Forma Financial Information of the Group”.
(3) EBITDA is defined as operating profit before depreciation and amortization, goodwill impairment, other expenses, net, management fees and restructuring and other non-recurring costs.
(4) Equity-based compensation consists of expenses pertaining to employee stock options provided to employees in Israel.
(5) Adjusted EBITDA is defined as EBITDA before equity based compensation expenses.
(6) Others include our B2B telecommunications solutions business and datacentre operations in Switzerland (Green and Green Datacenter), our datacentre operations in France (Auberimmo) and our content production and distribution businesses in France (Ma Chaîne Sport and Sportv). We disposed of our interests in Valvision in 2013 (which was included in Others) and have been designated Green Datacenter and Auberimmo as unrestricted subsidiaries under the terms governing our existing indebtedness. Green Datacenter and Auberimmo do not constitute Restricted Subsidiaries as of the date of this Annual Report. In each of the years ended December 31, 2011, 2012 and 2013, Valvision contributed €2.5 million, €2.6 million and €1.3 million to aggregated and pro forma revenues and €0.9 million, €0.9 million and
€0.5 million respectively to aggregated and pro forma EBITDA. In each of the years ended December 31, 2011, 2012 and 2013, Green Datacenter contributed €4.3 million, €10.3 million and €12.4 million to aggregated and pro forma revenues and €3.5 million, €9.0 million and €10.9 million to aggregated and pro forma EBITDA and Auberimmo contributed €0.9 million, €0.9 million and €0.9 million to aggregated and pro forma revenues and €0.8 million, €0.8 million and €0.8 million to aggregated and pro forma EBITDA.
Pro Forma Adjusted EBITDA
Post-Transaction Pro Forma Financial Information(1) For the year ended
December 31, 2013
€ in millions Revenue
Israel ... 881.9 Belgium and Luxembourg ... 70.5
Portugal... 209.5 French Overseas Territories ... 223.5 Dominican Republic(7) ... 446.3 Others(2) ... 75.2 Total revenue ... 1,906.9 EBITDA(3)
Israel ... 363.0 Belgium and Luxembourg ... 45.0
Portugal... 58.2 French Overseas Territories ... 84.5 Dominican Republic(12) ... 173.0 Others(2) ... 20.6 Total EBITDA ... 744.4
Equity based compensation(4)... — Adjusted EBITDA(5) ... 744.4
Green Datacenter and Auberimmo EBITDA(6) ... (11.7) Total Adjusted EBITDA excluding Green Data Center and Auberimmo ... 732.7
(1) The Post-Transaction Pro Forma Financial Information, among other things, gives pro forma effect to the acquisition of ODO (which is included under “Dominican Republic”). It does not give pro forma effect to the acquisition of Tricom. For details, see “Post-Transaction Pro Forma Financial Information of the Group”.
(2) Others include our B2B telecommunications solutions business and datacentre operations in Switzerland (Green and Green Datacenter), our datacentre operations in France (Auberimmo) and our content production and distribution businesses in France (Ma Chaîne Sport and Sportv). We disposed of our interests in Valvision in 2013 (which was included in Others) and intend to designate Green Datacenter and Auberimmo as unrestricted subsidiaries under the terms governing our existing indebtedness. Green Datacenter and Auberimmo will not constitute Restricted Subsidiaries as of the date of this Annual Report. In each of the years ended December 31, 2011, 2012 and 2013, Valvision contributed €2.5 million, €2.6 million and €1.3 million to aggregated and pro forma revenues and €0.9 million, €0.9 million and
€0.5 million respectively to aggregated and pro forma EBITDA. In each of the years ended December 31, 2011, 2012 and 2013, Green Datacenter contributed €4.3 million, €10.3 million and €12.4 million to aggregated and pro forma revenues and €3.5 million, €9.0 million and €10.9 million to aggregated and pro forma EBITDA and Auberimmo contributed €0.9 million, €0.9 million and €0.9 million to aggregated and pro forma revenues and €0.8 million, €0.8 million and €0.8 million to aggregated and pro forma EBITDA.
(3) EBITDA is defined as operating profit before depreciation and amortization, goodwill impairment, other expenses, net, management fees and restructuring and other non-recurring costs.
(4) Equity based compensation consists of expenses pertaining to employee stock options provided to employees in Israel.
(5) Adjusted EBITDA is defined as EBITDA before equity based compensation expenses.
(6) The Group has designated Green Datacenter and Auberimmo as an unrestricted subsidiary in accordance with the terms governing our indebtedness. These entities are not be subject to the covenants under the terms governing our indebtedness.
(7) Includes ODO but excludes Tricom.
Capital Expenditures
Illustrative Aggregated Selected Financial Information(1)
For the year ended December 31, 2011 For the year ended December 31, 2012
Israel
Belgium and Luxembourg Portugal
French Overseas
Territories Others Total Israel
Belgium and (1) The Illustrative Aggregated Selected Financial Information does not aggregate the financial information of Tricom and ODO. For details,
see “Illustrative Aggregated Selected Financial Information of the Group”.
Pre-Transaction Pro Forma Financial Information
For the year ended December 31, 2012 For the year ended December 31, 2013
Israel(3)
Belgium and Luxembourg Portugal
French Overseas
Territories(2) Others(1) Total Israel(3)
Belgium and
(1) Excludes Tricom and ODO. For the years ended December 31, 2011, 2012 and 2013, ODO’s total capital expenditures were €70.8 million, € 73.2 million and €58.5 million, respectively. For the years ended December 31, 2012 and the year ended December 31, 2013, Tricom’s total capital expenditures were approximately $71 million (approximately €56 million) of which approximately €17.9 million (approximately
$23 million) was spent on 4G/LTE technology upgrades.
Cash Flow Data
Historical Consolidated Financial Information
For the year ended December 31,
2011 2012 2013
€ in millions
Cash and cash equivalents at beginning of year/period ... 18.2 19.8 129.7 Net cash provided by/(used in) operating activities ... 306.4 464.5 439.2 Net cash provided by/(used in) investing activities ... (576.2) (574.2) (1,552.6) Net cash provided by/(used in) financing activities ... 272.4 219.3 1,044.7 Effects of exchange rate changes on the balance of cash held in
foreign currencies ... (0.9) 0.2 — Cash and cash equivalents at end of year/period ... 19.8 129.7 61.3
Balance Sheet Data
Total current assets ... 150.8 324.5 1,560.6 Total non-current assets ... 2,352.9 2,395.5 2,935.4 Total assets ... 2,503.7 2,720.0 4,496.0 Total current liabilities ... 558.5 546.0 704.9 Total non-current liabilities ... 1,211.6 1,888.3 4,052.0 Total liabilities ... 1,770.1 2,434.3 4,756.9 Total equity ... 733.6 285.7 (261.2)
Pre-Transaction Pro Forma
Financial Information(1)
Post-Transaction Pro Forma
Financial Information(2) As of
December 31,
As of December 31,
2013 2013
€ in millions
Total current assets ... 1,560.6 1,676.3 Total non-current assets ... 2,935.4 3,982.6 Total assets ... 4,496.0 5,658.6 Total current liabilities ... 704.9 721.0 Total non-current liabilities ... 4,052.0 4,238.3 Total liabilities ... 4,756.9 4,959.4 Total equity ... (261.2) (261.3)
(1) The Pre-Transaction Pro Forma Financial Information does not give pro forma effect to the acquisition of ODO or Tricom. For details, see
“Pre-Transaction Pro Forma Financial Information of the Group”
(2) The Post-Transaction Pro Forma Financial Information, among other things, gives pro forma effect to the acquisition of ODO. It does not give pro forma effect to the acquisition of Tricom. For details, see “Post- Transaction Pro Forma Financial Information of the Group”.
30 Key Operating Measures
As of and for the year ended December 31, 2011 in thousands except percentages and as otherwise
indicated
As of and for the year ended December 31, 2012 in thousands except percentages and as otherwise
indicated
As of and for the nine months ended December 31, 2013 in thousands except percentages and as otherwise
indicated
** Excludes Tricom and ODO.
(1) Cable Customer Relationships represents the number of individual end users who have subscribed for one or more of our cable based services (including pay television, broadband Internet or fixed-line telephony), without regard to how many services to which the end user subscribed. It is calculated on a unique premises basis. Cable Customer Relationships does not include subscribers to either our mobile or ISP services.
(2) RGUs relate to sources of revenue, which may not always be the same as customer relationships. For example, one person may subscribe for two different services, thereby accounting for only one subscriber, but two RGUs. RGUs for pay television and broadband Internet are counted on a per service basis and RGUs for fixed-line telephony are counted on a per line basis.
(3) Penetration rates for our pay television, broadband Internet and fixed-line telephony services are presented as a percentage of homes passed.
(4) ARPU is an average monthly measure that we use to evaluate how effectively we are realizing revenue from subscribers. ARPU is calculated by dividing the revenue for the service provided after certain deductions for non-customer related revenue (such as hosting fees paid by channels) for the respective period by the average number of customer relationships for that period and further by the number of months in the period. The average number of customer relationships is calculated as the number of customer relationships on the first day in the respective period plus the number of customer relationships on the last day of the respective period, divided by two. For Israel, cable based ARPU has been calculated by using the following exchange rates: (i) average rate for the year ended December 31, 2011 €0.2009 = NIS 1.00, (ii) average rate for the year ended December 31, 2012 €0.2018 = NIS 1.00, and (iii) average rate for the year ended December 31, 2013, € 0.2086 = NIS 1.00.
(5) Mobile subscribers are equal to the net number of lines or SIM cards that have been activated on our mobile network. In Israel, the total number of mobile subscribers for our iDEN and UMTS services were as follows:
As of December 31,
2011 2012 2013
in thousands
Mobile Subscribers
iDEN ... 444 325 218 UMTS... — 441 592 Total ... 444 766 810
(6) In Israel, Homes Passed is the number of total Israeli Homes. Our cable network passes a vast majority of Israel’s 2.2 million households.
(7) Only relates to the cable based services (pay television, broadband Internet and fixed-line telephony) we provide in Guadeloupe and Martinique and excludes the xDSL based broadband Internet (including IPTV) and fixed- line telephony services we provide in Guadeloupe,
(7) Only relates to the cable based services (pay television, broadband Internet and fixed-line telephony) we provide in Guadeloupe and Martinique and excludes the xDSL based broadband Internet (including IPTV) and fixed- line telephony services we provide in Guadeloupe,