Interim Report
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Altice S.A. (Société anonyme) Interim Financial Report L-2449 Luxembourg, 3, boulevard Royal R.C.S. Luxembourg number B 183.391 Table of contents Interim Management Report 2 Statement of Responsible Persons 23 Condensed consolidated financial statements as of and for the three and six month periods ended June 30, 2014 24 Condensed Consolidated Statement of Income 25 Condensed Consolidated Statement of Other Comprehensive Income 26 Condensed Consolidated Statement of Financial Position 27 Condensed Consolidated Statement of Changes in Equity 29 Condensed Consolidated Statement of Cash Flows 31 Notes to the Condensed Consolidated Financial Statements 33 Review Report of the Réviseur d’Entreprises Agréé 77 1 INTERIM MANAGEMENT REPORT (AS AND FOR THE 6 MONTHS ENDED JUNE 30, 2015) Introduction The Board of Directors of Altice S.A. (the “Company” or “Altice”) has the pleasure in presenting its interim report, which constitutes the interim management report (“Interim Management Report”) as defined by the Luxembourg law dated 10 August 1915 concerning commercial companies as amended, together with the audited condensed consolidated financial statements of the Company and its subsidiaries (the “Group”) as at and for the three and six months periods ended June 30, 2015. This report, along with the condensed consolidated financial statements, form the Interim Financial Report of the Company. The Creation of Altice Altice is a public limited liability company (Société Anonyme) incorporated in the Grand Duchy of Luxembourg whose head office is in Luxembourg and was formed on January 3, 2014. On January 31, 2014, the Company successfully listed its shares on the Amsterdam stock exchange (Euronext Amsterdam) at an offer price of € 28.25, for a total primary offering amount of € 750 million and a secondary offering of € 555 million (not including a green shoe of approximately €196 million). The shares of the Company are traded under the ticker symbol ATC:NA. Altice S.A. has its registered office at 3, boulevard Royal, L-2449 Luxembourg and is registered with the Luxembourg Register of Commerce and Companies under the number B183.391. Principal Activities of the Group The Company, though its various subsidiaries, provides mainly cable and mobile based telephony, internet and television services to residential and B2B customers in Western Europe (France, Portugal, Belgium & Luxembourg and Switzerland), Israel, the French Antilles and Indian Ocean territories and the Dominican Republic. As used herein, (i) the Altice International Group refers to Altice International S.à r.l. and its subsidiaries (which operate in Western Europe, which comprise Portugal, Belgium and Luxembourg and Switzerland), Israel and the Overseas Territories (including the Dominican Republic and some French Overseas Territories in the Caribbean and the Indian Ocean regions). DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS OF THE GROUP Significant Events Affecting Historical Results A summary of the significant events since the last balance sheet date (December 31, 2014), that had a material impact on the condensed consolidated financial statements as of June 30, 2015, are given below: Acquisition of Portugal Telecom: On January 22, 2015, an extraordinary general meeting of the shareholders of PT S.G.P.S voted in favour of the sale of PT S.G.P.S’s Portuguese assets to Altice. On February 2, 2015, the new debentures and loans issued by the Company and its subsidiaries to finance the acquisition were received and held in escrow. On June 2, 2015, the Company, through its indirect subsidiary, Altice Portugal, successfully completed the previously announced acquisition of a 100% stake in the Portuguese assets of PT Portugal S.G.P.S (“PT”). PT is the incumbent telephone operator in Portugal and the largest operator of fixed and mobile services in the country and an industry leader in fixed-mobile convergence. Through this acquisition, the Group has further strengthened its position in the Western European market and especially its reputation as a leader in fixed-mobile convergence. Since June 2, 2015, PT contributed €200.9 million to Group revenues and €32.3 million to Group operating profit for the six months ended June 30, 2015. As part of the conditions attached to the acquisition of PT, the Group is required to dispose of its previously acquired assets in Portugal (Cabovisao and ONI). The assets and liabilities of these two companies were held for sale as of June 30, 2015 and the sale process was on-going as of the date of this report. 2 Sale of mobile activities in La Reunion and Mayotte Following the French Competition Authority’s conditional approval to the purchase of SFR by the Group, the Group has agreed to dispose of OMT’s mobile business in the Reunion Islands and Mayotte. OMT’s Indian Ocean assets are included in the reporting segment French Overseas Territories (FOT) in note 3 – Segment analysis. On March 6, 2015, Altice announced that it has entered into exclusive negotiation with the Hiridjee Group, controlling shareholder of Telma, the leading telecom operator in Madagascar, for the sale of its mobile activities in La Reunion and Mayotte in order to comply with the aforesaid requirement of the French antitrust authority. The acquisition was completed on July 31, 2015, for an enterprise value (excluding any eventual purchase price adjustments) of € 80 million, which represents a substantial premium over the net asset value, thus ruling out any impairment of the assets held for sale. Buyback of Vivendi’s stake in NSFR On May 6, 2015, the Company, through its subsidiaries Altice France S.A., and Numericable-SFR successfully concluded the acquisition of an additional 20% stake in Numericable-SFR, for a price of €40 per share. Numericable-SFR (“NSFR”) acquired half of Vivendi's stake through a share buyback program while the remainder of Vivendi's stake was acquired by Altice France Bis S.à r.l., a wholly owned subsidiary of Altice France S.A. NSFR financed its portion of the share purchase partly using cash on balance sheet for an amount of €897 million and drawing on its revolving credit facility for the remainder (€1,050 million). The purchase of the Numericable-SFR shares by Altice France Bis S.à r.l. is being financed by a vendor loan franchised to Altice France Bis S.à r.l.. for an amount of €1,948 million. This vendor loan bears interest at 3.8% annually. In connection with this acquisition, the Group has obtained commitments from a syndicate of financial institutions to underwrite or place up to €2,025 million of common share equity linked securities of the Company at a price to be determined by the Company and such financial institutions acting reasonably and in good faith and in light of prevailing market conditions. This transaction will in particular result in the termination of the shareholders' agreement and the call options agreements entered into between Altice France and Vivendi in connection with the SFR acquisition. Upon this transaction, Altice France's direct and indirect stake in the share capital and voting rights of NSFR increased from 60.4% to 70.4% (i.e. 78.2% excluding treasury shares held by NSFR). The Board of Directors of Numericable-SFR has elected to cancel the treasury shares acquired on May 28, 2015. Furthermore, the Group and Vivendi agreed on a purchase price adjustment (as per the sale and purchase agreement) of €120 million payable by Vivendi (related to net debt adjustments at closing), related to the acquisition of SFR. As part of this agreement, the earn-out of €750 million due to Vivendi and contingent upon the completion of certain financial and operational KPIs was extinguished resulting in a gain of €643.5 million. The transfer of the Numericables-SFR’ shares also causes the extinguishment of the call options held by Altice France S.A. on the Numericable-SFR shares held by Vivendi as well as the shareholder agreement between the parties. Acquisition of Suddenlink Communications: On May 19, 2015, Cequel Corporation (together with its subsidiaries, “Suddenlink”), entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Altice, certain other direct or indirect wholly- owned subsidiaries of Altice (the “Purchasers”), direct and indirect stockholders of Cequel Corporation (the “Sellers”), and Cequel III, LLC, a Delaware limited liability company, with respect to the sale of equity interests in Cequel Corporation. As of the date hereof, Cequel Corporation is directly or indirectly owned by investment funds advised by BC Partners Limited (“BCP”), CPPIB-Suddenlink LP, a wholly owned subsidiary of Canada Pension Plan Investment Board (“CPPIB” and together with BCP, the “Sponsors”), and IW4MK Carry Partnership LP (the “Management Holder” and together with the Sponsors, the “Stockholders”). Pursuant to the Purchase Agreement, the Purchasers will purchase from the Sellers approximately 70% of the total outstanding equity interests in Cequel Corporation (the “Suddenlink Acquisition”). The consideration for the acquired equity interests is based on a total equity valuation for 100% of the capital and voting rights of Cequel Corporation of $4,132.0 million, which includes $2,908.9 million of cash consideration, $723.2 million of retained equity held by the Sponsors and $500 million funded by the issuance by a subsidiary of Altice of a senior vendor note that will be subscribed by the Sponsors. Following the closing of the Suddenlink Acquisition, the Sponsors will retain equity 3 interests in Cequel Corporation representing, in the aggregate, 30% of Cequel Corporation’s outstanding capital stock on a post-closing basis. In addition, the Purchase Agreement provides that the carry interest plans of the Stockholders will be cashed out based on an agreement between the Sponsors and the Management Holder whereby payments will be made to participants in such carry interest plans, including certain officers and directors of Cequel and Cequel Corporation.