Bouygues to Buy Telecom Services France - Catalysts for ... · France | Telecom Services 22 July 2015 Telecom Services France - Catalysts for Change; Upgrading Bouygues to Buy OPE

Mkt. Cap Price Cons. Current EPS Estimates Previous Est.Company Name Ticker (MM) Rating Price Target Next FY 2015 2016 2017 2016 2017 Bouygues EN FP €11,264.4 BUY▲ €33.52 €45.00▲ €0.78 €0.68 €1.70 €2.03 €1.55 €1.70Numericable-SFR NUM FP €21,690.9 HOLD €49.50 €51.00▲ €1.86 €1.90 €2.50 €2.80 €1.60 €1.80Orange S.A. ORA FP €40,350.7 BUY €15.33 €18.50▲ €0.92 €0.93 €1.00 €1.09 €0.95 €1.02Vivendi VIV FP €32,721.7 UNPF €24.22 €18.50▲ €0.53 €0.47 €0.52 €0.58 €0.52 €0.56

INDUSTRY NOTE

Rating |Target | Estimate Change

France | Telecom Services 22 July 2015

Telecom ServicesFrance - Catalysts for Change; UpgradingBouygues to Buy

EQU

ITY R

ESEARC

H EU

ROPE

Jerry Dellis *Equity Analyst

44 (0) 20 7029 8517 [email protected] Prys-Owen *

Equity Associate+44 (0) 20 7029 8044 [email protected]

Ulrich Rathe, CFA *Equity Analyst

44 (0) 20 7029 8286 [email protected] Thorne *

Equity Analyst+44 (0) 20 7029 8005 [email protected]

* Jefferies International Limited

Key Takeaway

In the scramble for volume, French operators are conceding the opportunityto use fibre for upsell. Now the Mobile oligopoly is looking unstable. Nov'sspectrum auction is engineered to disrupt, with Free most at risk of beingdenied a reasonable allocation. Logically Free should then compete on price,instigating disruption. That threat will focus minds, renewing impetus forconsolidation in early-2016 with interests aligned as never before.

Back to Combat. 2Q15 results will be a stark reminder of how French Telecoms coulduse a dose of market repair. In DSL, BYG continues to leverage its challenger status nowwith an improved TV service/better STB. FTTH/cable offerings from ORA and NUM-SFR areever more deeply discounted. The recent trend of weakening FBB ARPUs is likely to havebeen reinforced. In the scramble for volume, French operators are largely conceding theopportunity to use fibre to upsell their customer bases. In Mobile, we find developmentsthat don’t support the received wisdom of price stability: more ‘value’ in the bundle (data/content at no extra cost), narrowing price differentials vs. Free, SFR-brand now priced at adiscount, use of discount channels increasing.

Mobile oligopoly unstable. ORA/BYG leverage superiority in 4G while Free fights hardto add low-tier subs and NUM-SFR develops a plan to stem disconnections. The statusquo is not acceptable for Free or NUM-SFR indefinitely, and neither are sellers. Nov’s700MHz auction looks like the catalyst for change. To safeguard pricing, the spectrum-richincumbents might be well-advised to ensure Free picks up a reasonable allocation. Morelikely, competitive instincts will prevail and they will try to shut Free out. This might leaveFree with little choice but to instigate a fresh round of price disruption. With only 19% ofFrench subs migrated to 4G so far and 59% out-of-contract, opportunity beckons.

Renewed impetus for consolidation in early-2016. BYG famously rejected Altice’slatest advances on 23 June with reasoning that ranged from sentimental to perfectly logical.But completion of 700MHz auction is the pivotal event. Post-auction, market participantshave greater urgency to act or, in the case of Government, less reason to resist. Specificallywe highlight 5 factors: (1) threat of a new mobile price war if Free cannot secure the rawmaterials necessary to build 4G credibility – this is an outcome BYG may see some incentivein promoting, (2) NUM-SFR has considerable incentive to avoid a price disruption – it iscommercially less resilient than rivals but committed to the most ambitious targets, (3)Government’s ‘public interest’ objections could shift once auction proceeds are pocketedand threat to MVNOs is considered, (4) ORA not inclined to risk EBITDA stabilisation with aprice war, (5) Martin Bouygues should have reached the zenith of his negotiating power.

Upgrading Bouygues to Buy (from Hold) with €45 PT (from €36). BYG shares havepulled back from their €38 peak to within striking distance of our €31 ‘going concern’ value.But alignment of interests towards consolidation from early-2016 looks unprecedented. Weback up our conviction by shifting to a disposal basis for PT-setting (Telecom at €11bn).Standalone operating prospects benefit from completed mobile re-pricing (though FBBback-book still weighs) and Telecom cost reduction. Construction stands to benefit fromimproved macro, driving margin recovery and multiple expansion. We remain Buyers of ORA(forecasting EBITDA in 2Qe and a pick-up in cost-cutting), Hold on NUM-SFR, Underweighton Vivendi. 2Q15 previews for BYG, NUM-SFR, ORA and VIV are enclosed in this note.

Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflictof interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 66 to 69 of this report.

Contents 2Q15: BACK TO COMBAT ............................................................................................................. 3

Fixed Broadband in France ........................................................................................................... 3 Mobile in France ......................................................................................................................... 11

700MHZ AUCTION: ENGINEERED TO DISRUPT ........................................................................... 17 FRENCH CONSOLIDATION: DEFERRED TO 2016 .......................................................................... 21 BOUYGUES (27TH AUG) .............................................................................................................. 24 NUMERICABLE-SFR (29TH JULY) .................................................................................................. 36 ORANGE (22ND JULY) .................................................................................................................. 40 VIVENDI (2ND SEPTEMBER) ......................................................................................................... 48 APPENDIX ................................................................................................................................. 54

French Fixed Broadband – Key Charts ........................................................................................ 55 French Fixed Broadband – Key Tables ........................................................................................ 56 French Mobile – Key Charts ........................................................................................................ 57 French Mobile – Key Tables ........................................................................................................ 58 French – Current Front Book Tariffs ........................................................................................... 59

SUMMARY CHANGES TO ESTIMATES ......................................................................................... 61

Telecommunications

Rating | Target | Estimate Change

22 July 2015

page 2 of 69 , Equity Analyst, 44 (0) 20 7029 8517, [email protected] Dellis

Please see important disclosure information on pages 66 - 69 of this report.

2Q15: Back to Combat As consolidation prospects recede into 2016, forthcoming 2Q15 results will be another

stark reminder of how French telecoms really could use a dose of market repair.

In fixed broadband, BYG continues to leverage its ‘challenger’ status, now

benefitting from an improved TV service / set top box. Seeking to compensate for

BYG share gains in DSL, ORA and NUM-SFR are promoting their higher speed

FTTH/cable offerings more aggressively than ever. Price distinctions between DSL,

VDSL and FTTH had already evaporated but recently ORA has been promoting even

deeper discounts on FTTH. NUM-SFR appears more rather disciplined. Nonetheless

entry-level SFR price-points and the new RED sub-brand look carefully judged to

keep NUM-SFR fibre volumes competitive.

On the mobile side, we expect ORA and BYG to remain in the ascendant. SFR has

attached heavy first-year discounts attached to some of its new contract plans. But

the 4G coverage/quality shortcomings of SFR/Free relative to ORA/BYG remain

largely intact and these are well-known to consumers, in our view.

Competitive pressures are likely to inhibit much improvement in rates of revenue

decline. For ORA, we forecast service revenues (mobile and fixed) -2.9% y/y in 2Q15

(vs. -3.0% 1Q15). Whilst c.95% of ORA’s mobile base is now likely to have been re-

priced onto a post-Apr 2013 plan (from 91% in Mar 2015, +16% y/y), discounting

of FTTH and quad-play is preventing this from translating into revenue stability. In

fact it seems to us that the revenue trend improvement which ORA has delivered in

the last 12 months (service revs -4.2% back in 2Q14) is mostly attributable to the

step in commercial costs that occurred in 2H14. For BYG, we forecast service

revenues (mobile and fixed) -3.3% y/y in 2Q15 (vs. -3.5% 1Q15) as the clean-up of

its mobile back-book continues. Close to 90% of subs had been migrated to Nov

2014 offers as of end-March. Migration was guided to complete by end-2Q15.

NUM-SFR reported B2C revenues -6.1% in 1Q15 (vs. -4.5% FY14). Pro forma 2Q14

figures are not available. However, we don’t expect much sequential improvement

as headwinds (low-tier SFR churn / falling mobile ARPUs) continue to outweigh

areas where good progress is being made (eliminating discount FTTH plans within

the legacy SFR base / increasing fibre net adds across the NUM-SFR base).

Fixed Broadband in France The resurgence of BYG as a competitive force in fixed broadband is undermining price

discipline and stimulating churn. Disruption can be traced back to BYG’s launch of a

€16/month dual-play product on the B&YOU sub-brand (5 Nov 2013).

This created a new segment in the French fixed broadband market. Up until that

point, the entry-level tariff (across all operators) had been ~€30 for triple-play

(including 160-200 TV channels). BYG innovated by removing IPTV functionality

from its basic set-top box on the basis that an estimated 30% of French triple-play

subscribers were not using it (instead accessing TV via satellite, DTT or cable). It also

eliminated the requirement for a contract tie-in and included unlimited calls to

domestic mobile and domestic/international fixed numbers. Economics looked

challenging with BYG’s price-point (€13.37 ex-VAT) being only narrowly above the

FULL fee (€8.90/month at the time).

BYG’s decisive action was seemingly triggered by stagnation in its fixed broadband

performance. Retail market share had stalled at ~8% with the low-point coming in

2Q13 when it achieved only 10k net adds. Growth recovered to 72k in 4Q13 before

reaching in 1Q14 the ~100k/quarter run-rate that BYG has maintained ever since.

Challenger tactics were extended into DSL triple-play with new B&YOU and BYG

Sensation offers priced at €20/€26 (launched 3 Mar 2014). The Sensation plan

represented a ~€10 discount against comparable competitor offerings.

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22 July 2015



Since mid-2013, BYG has steadily gained fixed broadband market share, adding a

cumulative 1.9ppts (Chart 1). ORA and legacy-SFR have borne the brunt. Free has proved

much more resilient.

ORA’s response to seeing its competitive position eroded in DSL has been to promote

FTTH more aggressively. Between Jun 2013 and Mar 2015, ORA achieved only 34k xDSL

net additions cumulatively. This includes VDSL2, launched by ORA in Oct 2013, which

reportedly offers performance gains to ~5m households (~16% of total) outside the FTTH

footprint. By contrast, ORA achieved 399k FTTH net additions in the same period. Since

mid-2013, ORA’s retail market share in ‘high speed’ broadband segment (which for

reasons of available disclosure we define as FTTH and cable) has approximately doubled

to 23%, while the share of NUM retail cable has declined from ~64% to ~48% (Chart 2).

It is worth noting that ORA has not been alone in marketing FTTH. Legacy SFR was also

very active here prior its acquisition by NUM (27 Nov2014). In fact SFR discounted FTTH

so aggressively that, by 3Q14, its ARPU in this segment was 15% below its DSL ARPU. The

last-reported FTTH subscriber total from legacy was 249k as at 30 Sep 2014. This

compared against 481k for ORA at the same point and (based on ARCEP market

disclosure) implied that Free and BYG had ~70k FTTH customers in aggregate.

Chart 1: Cumulative Mkt Share Change since mid-2013 (pp)

Source: ARCEP, company data

Chart 2: ‘High Speed’ Broadband Retail Market Shares

Source: Jefferies estimates, company data

1Q15 results were shaped by the long history of sporadic discounting and under-

investment that NUM inherited at SFR.

Re-pricing and eliminating upfront discounts caused low-tier churn to spike. SFR lost

a net 105k DSL customers (vs. 62k net additions in 4Q14). Encouragingly, however,

NUM-SFR has been regaining momentum in fibre (Chart 4). Aggregating cable and

FTTH growth (no longer reported separately), NUM-SFR net additions have

improved from 11k in 3Q14 (a 15% share of net market intake in the ‘high speed’

segment) to 27k 4Q14 (16%) and 48k 1Q15 (35%).

ORA also continued to ramp up its FTTH intake in 1Q15. ORA management has

claimed to be adding ~7ppts of market share in areas where it is marketing fibre.

FTTH deployments to date are mostly found within the ‘very dense’ regions where

legacy competition from ULL and cable has been strongest. These are presumably

therefore the locations in which ORA has its lowest retail broadband market share.

Being the ‘first mover’ in stimulating FTTH as new coverage comes on stream

therefore provides ORA with a useful win-back opportunity. This is helping ORA to

stabilise its overall retail broadband market share at 40%. Aggressive FTTH

discounting is a signal to competitors of its determination to defend this level.

An interesting aspect of BYG’s recent performance has been the marked decline in

connections to ‘high speed’ cable broadband white labelled from NUM-SFR. BYG

says it is not proactively migrating white label customers (395k at end-Mar 2015).

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

BYG

Free

NUM

ORA

SFR10.5% 11.9% 13.1% 14.6% 15.9% 17.6% 19.8% 21.3% 23.0%8.1% 8.7% 9.3% 10.1% 12.0% 13.0% 13.1% 14.0% 14.5%

65.5% 63.6% 61.6% 58.7% 55.6% 53.9% 52.2% 49.9% 48.3%

15.9%15.9% 16.0% 16.6% 16.5% 15.5% 14.9% 14.8% 14.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

FTTH - ORA FTTH - other Cable - NUM Cable - BYG white label

Telecommunications


22 July 2015



This makes sense given the associated churn risk and the limited footprint of BYG

FTTH (1.5m homes). We suspect that an important driver of white label weakness

has been BYG’s preference to focus marketing effort on Bbox Miami. This Android-

based set top box greatly enhances the TV experience for BYG customers,

aggregating linear TV and internet-delivered content, and also introducing

recommendation features. Miami was launched on 28 Jan for existing BYG subs and

in March for new customers. It was made available on the Sensation triple-play plan

(with no increase on the €26 monthly fee) and BYG has been subsidising early

termination fees for customers leaving rival operators (up to €100).

Chart 3: Retail Broadband Net Adds (000)


Chart 4: ‘High Speed’ Broadband Net Adds (000)


Recent commercial initiatives have sharpened the competitive edge of French broadband

even more. While ORA has been expressing confidence to investors in its capacity to

leverage pricing power, discounting to drive volume is likely to have remained the

market-wide prevalent theme of 2Q15.

While ORA’s website advertises entry-level Zen fibre triple-play at €25/month for the

first year (then €34), this tariff has been overtly promoted at €20/month in other

channels. Downstream speed may be capped at 100Mbps and there is no PVR but

this is still disruptive set against entry-level BYG fibre pricing of €26/month (up to

1Gbps downstream similar TV/telephony features, limited recording capacity on the

Miami box) and Free at €30/month (also up to 1Gbps but with a 250GB PVR). In

fact, ORA’s price-point is pitched in-line with NUM-SFR’s ‘no frills’ sub-brand.

At the start of 2Q, NUM introduced a new RED Fibre tariff as part of its re-launch of

the RED no frills sub-brand. Priced at €20/month for the first year (then €30), RED

Fibre offers downstream speeds up to 100Mbps but comes without set top box. TV

content is therefore limited to 25 channels (of which 10 HD) with a separate DTT

decoder required. While the functionality of this offer is therefore restricted, ORA’s

discounting might suggest it has still had some appeal. NUM-SFR has stated that its

fibre intake has continued to accelerate in the first two months of 2Q with an even

mix of legacy SFR customers migrating from DSL and customers new to NUM-SFR.

Free launched its ‘mini 4K’ box in early March. While the Freebox mini 4K is priced

below Freebox Revolution (€29.99/month vs. €37.97), it is really a different product,

not merely a cheaper one. Its Android TV platform allows new applications to be

installed and there is the (debatable) benefit of 4K support as well. However, various

reviews suggest the mini 4K’s menu is less smooth, and PVR/Bly-ray functionalities

are lacking. Discussions with Iliad’s rivals do not signal great concern about the new

Freebox’s impact on 2Q trends. Moreover, we don’t believe that Free promoted its

triple-play offers in the discount ‘Vente Privee’ channel at all in 2Q15. (It did launch

a mobile promotion for 11 days on 18 June.) Free’s most recent use of Vente Privee

for fixed broadband came in Jan when it discounted its older entry-level box – the

Freebox Crystal – presumably with the mini 4K launch in mind. That Vente Privee

(100)

(50)

-

50

100

150

200

250

300

350

400

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Other

BYG

Free

NUM-SFR

NUM

SFR

ORA

(20)

-

20

40

60

80

100

120

140

160

180

2Q133Q134Q131Q142Q143Q144Q141Q15

BYG (Cable)

Free/BYG (FTTH)

NUM-SFR

NUM (Cable)

SFR (FTTH)

ORA (FTTH)

Telecommunications


22 July 2015



promotion (which priced Freebox Crystal at €1.99/month for year 1) was probably

crucial in delivering a 42% share of broadband net additions for Free in 1Q15.

Finally, 2Q15 will be the first quarter in which Bbox Miami was fully available to new

customers. Given BYG’s recent commercial success in fixed broadband, the

disruptive potential of adding a competitive set top box (arguably for the first time)

should probably not be overlooked.

Intense competition during 2Q15 is likely to have reinforced the recent trend of

weakening broadband ARPUs, with FTTH-based triple-play commonly priced in-line with

equivalent ADSL and VDSL tariffs. In the scramble for volume, French operators are largely

conceding the opportunity to use fibre to upsell their customer bases.

At BYG, broadband ARPU is falling materially below competitor levels (Chart 5) and

the rate of decline has been accelerating (Chart 6). We are hopeful that, in 2Q15, a

first full-quarter contribution from Miami will reinforce the BYG’s intake mix enough

to ease the pace of broadband ARPU decline (we model ARPU -10% y/y on 95k net

additions). However, back-book pressure remains. Chart 7illustrates current retail

triple-play prices (we show discounted year 1 prices). The BYG plan shown is the

one that now comes with a Miami box (other BYG plans are not available with FTTH

and so we have excluded them). The €26 Miami price is ~25% below BYG’s VAT-

inclusive broadband ARPU of nearly €35.

Last quarter ORA traded a -1.5% y/y ARPU decline for a 2.8% increase in its

broadband base. We expect a similar pattern from 2Q15. With 40% broadband

market share, ORA is heavily exposed to BYG-stimulated churn in the DSL segment

and motivated to offset this with FTTH connections in the (mostly) very dense areas

where its retail share is materially lower. The comparison in Chart 8 shows how ORA

is undercutting rivals with its year 1 prices for both entry-level fibre triple-play and

also at the high-end. Moving into year 2, ORA customers will see their prices step-up

by €14/month. While some will take action to lock in fresh discounts, inertia among

the rest should ensure that back-book pressure is less acute than at BYG.

Free has attributed recent broadband ARPU decline to mix effects, which we

interpret as the impact of aforementioned Vente Privee promotions. The current

retail prices we have illustrated for Free do not have any year one discounts

attached. Marketing has emphasised superior set top box functionality rather than

promote fibre. In the year to 1Q15, Free played the volume game aggressively (subs

+4.1% y/y) but more innovation (including a refresh of the high-end Revolution box)

will be required to defend a premium-looking ARPU, in our view.

At NUM-SFR, the initiative of eliminating Legacy SFR’s undisciplined discounting is

likely to be the main reason why fixed ARPU grew last quarter. Among the c.250k

base of FTTH subs, we expect ARPU to continue to climb in 2Q15, nothwithstanding

the introduction of RED Fibre in March. There has been recent press discussion that

NUM-SFR could introduce a simple set top box on the RED plan (priced at

€2/month) to incorporate some connected TV capabilities. The premium brand, SFR,

continues to hold prices (overtly at least) materially above ORA. If France is to

remain a 4-player market for the foreseeable future, then gauging from NUM-SFR

how pricing can be maintained should be a key focus of 2Q15 reporting season.

Telecommunications


22 July 2015



Chart 5: Retail Broadband ARPU (€/month excl VAT)

Source: Company data. Note: Monthly ARPU in the quarter except for Free, which is on a 12-month rolling basis. Pro forma NUM-SFR ARPUs only available from 4Q13.

Chart 6: Y/Y Change in Retail Broadband APRU

Source: Company Data. Note: NUM-SFR trends only available for the last two quarters.

Chart 7: Current Retail 3-Play Prices (€/mth incl VAT)…

Source: Company Data. Note: Prices include discount and any STB rental fees, and relate to the first 12 months contracted.

Chart 8: …For Comparison, 1Q15 BB ARPUs (€ incl. VAT)

Source: Company Data. Note: we have added VAT at 20% to facilitate comparison with price=points in the left-hand chart.

At its Mar 2015 investor day, ORA reaffirmed that leveraging FTTH to win back retail

market share in very dense areas is a central objective for the next five years. Our

geographical analysis of fixed broadband market shares within France suggests that ORA

is far from dominant in the more urban areas where FTTH deployment is focused. ORA is

pursuing a more aggressive deployment than peers, backed by the ~15% increase in

group capex guidance (for 2015-18) that was revealed back in March. Modest win-back of

retail share is a credible objective, in our view. However, we are more sceptical about

ORA’s accompanying ambition to inflate broadband ARPUs by an average €7/month (in

2018) as customers are migrated to FTTH. Absent consolidation (and relief from current

levels of FTTH discounting), material ARPU growth seems like a distant hope.

Unbundling Coverage in France – Free and Legacy SFR have both invested

substantially in expanding their ULL footprints over recent years. Free reported

6,682 exchanges unbundled at end-2014, describing this as offering >87% POP

coverage. NUM-SFR had ~6,900 exchanges unbundled at the beginning of May

2015 (source: nextinpact, 6 May 2015). BYG lags far behind, having passed the

1,000 exchange mark ~3 months ago> its target of 1,700 by end-2015 would bring

~15.5m households (and rather more broadband-eligible lines) within reach. In

Table 1 we summarise the latest market unbundling figures reported by Stats-

Degroupage. We note that SFR and BYG figures look rather in line with company

disclosures, with Free figures rather higher.

27

29

31

33

35

37

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

ORA NUM-SFR Free BYG

-1.0% -1.1%-1.8% -1.5%

-0.2%

1.0%

-0.3%

-1.7%-2.5% -2.3%

-4.8%

-9.5%

-11.1%

-13.3%-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

2Q14 3Q14 4Q14 1Q15


-

5

10

15

20

25

30

35

40

45

ORA Free BYG RED SFR

0

5

10

15

20

25

30

35

40

45

ORA Free BYG NUM-SFR

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22 July 2015



Fixed BB Market Shares by Geography – To gauge the potential of ORA’s FTTH

win-back strategy we believe it is important to establish how polarised its current

retail position is between dominance in rural areas and more level-pegging against

rivals in France’s urban centres. More densely populated areas are, of course, where

ORA faced the fiercest competition, both from cable and unbundlers. We believe

that much of ULL coverage which Free and NUM-SFR hold today has been quite

recently developed, having not been in place when broadband adoption was at its

peak. Free, for example, reported 5,100 exchanges unbundled as recently as 31 Dec

2013 and its disclosures (of which 700/400 added in 2012/13 respectively) suggest

the figure was ~4,000 at end-2011. In Table 2 we divide the country into areas now

within BYG’s ULL footprint and those outside. We assume that cable coverage

mostly overlaps with BYG ULL. We also assume a relatively high proportion (65%) of

Legacy SFR and Free broadband subs are also inside the BYG coverage area. This

concentration reflects our sense that their own ULL footprints were less fully built

out when broadband market growth was at its height. We assume the fixed

broadband penetration is 98% with the (urban) BYG ULL footprint, and this implies

~71% penetration for the rest of the country. By deduction then we estimate ORA’s

retail broadband share at ~28% inside the BYG ULL footprint (also overlapping with

cable) but ~58% outside it. Narrowing the gap between broadband penetration

rates in the two geographies would (all else equal) result in ORA’s market shares

diverging even more widely.

Table 1: Unbundling Coverage in France TOTAL SFR Completel/Darty Free BYG

Exchanges 9,013 6,829 768 7,499 1,174

BB-eligible lines (million) 30.5 28.4 14.4 29.2 15.9

% lines unbundled 93.1% 47.3% 95.5% 52.1%

Source: Stats-Degroupage. Note: as at 7 Jul 2015.

Table 2: Estimated FBB Market Shares Inside/Outside BYG’s ULL Footprint

Nationwide Bouygues

ULL footprint

Rest of country In BYG footprint as

% whole country

Lines marketable (m) 30.55 15.91 14.64 52%

% national coverage 100% 52% 48%

FBB penetration 85.2% 98.0% 71.3%

FBB customers (m) 26.03 15.59 10.44 60%

FBB subs by operator (m)

Orange 10.42 4.37 6.05 42%

Free 5.95 3.86 2.08 65%

Legacy SFR 5.21 3.39 1.82 65%

Bouygues 2.52 2.50 0.02 99%

of which:

Retail DSL/fibre 2.13 2.13 0.00 100%

White label NUM cable 0.39 0.37 0.02 95%

Legacy NUM retail 1.31 1.24 0.07 95%

Other 0.62 0.22 0.40 35%

Market shares

Orange 40.0% 28.1% 57.9%

Free 22.8% 24.8% 19.9%

SFR 20.0% 21.7% 17.5%

Bouygues 9.7% 16.1% 0.2%

NUM 5.0% 8.0% 0.6%

Other 2.4% 1.4% 3.9%


Early evidence of win-back momentum – In the 12 months to Mar 2015, ORA

increased its retail FTTH base by 273k to reach 638k. Based on operator/ARCEP

disclosures, this represented ~52% of market growth in the ‘fibre’ segment

(including upgraded cable). In aggregate, NUM-SFR/Free/BYG added 127k FTTH

subs to reach ~400k at end-March. Free’s appearance in an ARCEP FTTH quality

survery last week indicated that it has just passed the 100k level.

Telecommunications


22 July 2015



‘Fibre’ coverage and plans – ORA’s 3.9m homes connectable to FTTH (end-

March) compares against 6.7m for NUM-SFR (combination of FTTB/H) and 1.5m

FTTH at BYG. By end-2018, ORA plans to have deployed FTTH across 12m homes (of

which 6m in ‘very dense’ areas and 6m in ‘medium density’ regions). Within this it

has targeted 100% deployment across 9 of the largest cities before end-2016.

Assuming these goals are met, ORA will within three years have FTTH capability

across most of the urban areas in which its retail broadband market share is weakest.

NUM-SFR also has significant deployment objectives, although BYG remains much

more circumspect.

Chart 9: Homes Connectable to Fibre (millions)

Source: Company Data

Chart 10: ORA Homes Connectable to FTTH by Region

Source: Company Data. Note: regions of ‘very dense’ comprises 6.0m homes in total, ‘medium dense’ is 14m homes.

Table 3: France Fixed Broadband – Summary 2Q15 forecasts y/e 31 Dec 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E

Retail BB Net Adds

Orange 39 42 71 55 37 35 86 95 67 76

NUM-SFR (18) 24 44 45 33 (5) (31) 89 (58) (10)

Bouygues 45 10 40 72 100 102 104 109 96 113

Market TOTAL 230 106 239 264 275 165 219 299 183 213

High Speed BB Net Adds

FTTH

Orange 30 33 34 46 46 50 66 82 75 90

NUM-SFR 15 14 17 25 24 17 11 16 20 45

Bouygues 3 1 1 - 3 4 5 8 7 8

Market FTTH 51 48 53 73 100 81 80 134 105 163

Cable

NUM-SFR (71) (6) 3 (1) (10) (1) (0) 11 28 45

Bouygues white label 16 7 14 28 14 (11) (4) 29 3 5

Market Cable (56) 1 18 27 5 (12) (4) 40 31 50

Broadband ARPU

Orange (BB ARPU) 33.9 33.6 33.5 33.8 33.4 33.2 33.1 33.2 32.9 33.1

y/y growth -2.5% -2.2% -1.8% -4.0% -1.5% -1.0% -1.1% -1.8% -1.5% -0.5%

NUM-SFR ('Fixed' ARPU, Quarterly) N/a N/a N/a 34.3 34.0 34.0 34.3 34.2 34.3 34.6

y/y growth N/a N/a N/a N/a N/a N/a N/a -0.2% 1.0% 1.8%

Bouygues (BB ARPU, Quarterly

Basis)

33.1 33.3 33.6 33.3 33.0 31.7 30.4 29.6 28.6 28.6

y/y growth -0.3% -4.8% -9.5% -11.1% -13.3% -9.8%

Fixed Service Revenue

Orange Fixed Service Revenue 2,662 2,645 2,653 2,654 2,620 2,647 2,638 2,631 2,578 2,624

y/y growth -4.3% -3.9% -2.6% -3.4% -1.6% 0.1% -0.6% -0.9% -1.6% -1.1%

NUMe-SFR Fixed Service Revenue N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a

y/y growth N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a

Bouygues Fixed Service Revenue 197 203 207 213 219 222 223 229 232 238

y/y growth 49.2% 46.0% 22.5% 13.9% 11.2% 9.4% 7.7% 7.5% 5.9% 7.1%


0

2

4

6

8

10

12

14

16

18

20

2014 2015 2016 2017 2018 2019 2020 2021 2022

ORA FTTH NUM-SFR FTTB/H BYG FTTH

0.75

6.0 6.0 2.9

6.0

14.0

0

2

4

6

8

10

12

14

16

18

20

Dec 2014 Dec 2018 Dec 2022

Medium dense

Very dense

Telecommunications


22 July 2015



Chart 11 and Chart 12 below show that quad-play subscribers now represent c.50% of

fixed subscribers for Orange and the Legacy SFR fixed base. Although Bouygues, who was

the first operator to launch quadplay with its Ideo offer back in 2009, has since 2013

stopped marketing a quad play offer (there are likely to still be a significant number of

Ideo subscribers within their base). Instead Bouygues has pursued a ‘multi-line’ strategy

where they offer a 10% discount to customers who own more than one line

(mobile/mobile or mobile/fixed), they claim this strategy has had a positive impact on

churn.

Chart 11: Orange Quad Play packages account for almost

50% of the fixed customer base…

Source: Jefferies estimates, company data, Note: Open Packages only before Q413, Data unavailable for Q213

Chart 12: …and over 50% of the legacy SFR fixed

customer base


Table 4 below (and Table 54 in the Appendix) compares frontbook pricing amongst the

operators. Pricing is less aligned than in mobile, perhaps because of the complexity of the

offers. However the packages still seem to be regularly adjusted. In the last week there

have been several changes to both SFR and Orange’s quad play offer, which may

demonstrate how each operator is watching the positioning of the competition.

Orange: Within the Open packages, more mobile data has been injected into

the bundles. In both the Open and SOSH tariffs, promotional prices have

increased by c.€5 across the board. For example, the Open Zen package has

increased from €44.99p/m to €49.99p/m with bundled mobile data rising from

0.5Gb to 1Gb.

Numericable-SFR: In the Red tariffs (shown below) , Numericable has

increased the data allowances from 3Gb to 6Gb and 20Gb to 25Gb respectively

whilst keeping pricing unchanged. Within the box fibre packages, Numericable

has begun marketing a wider range of mobile tariffs and increased the price of

certain higher end bundles by €5.

Table 4: Selected French No Commitment Quad Play Tariffs Product Current

Offer

Price

(€pm)

BB Type Download

Speed

Mobile

Data

Mobile Calls Mobile SMS Unlimited

Fixed Calls

Unlimited Fixed

Call Destinations

UnlimitedCalls

to French

Mobile

Intern’l

Mobile

included

Total No. of

Channels

o/w HD

Orange (SOSH)

mobile + Livebox 49.99 DSL*/Fibre 200Mbit/s 3 Unlimited Unlimited Yes >100 Yes No - -

mobile + Livebox 54.99 DSL*/Fibre 200Mbit/s 5 Unlimited Unlimited Yes >100 Yes No - -

Numericable-SFR

Red 39.98 DSL/Fibre 100Mbit/s 6 Unlimited Unlimited Yes >100 No No 25 10

Red 45.98 DSL/Fibre 100Mbit/s 25 Unlimited Unlimited Yes >100 No No 25 10

Free

Freebox Revolution 53.96 DSL/Fibre 1Gbit/s 20 Unlimited Unlimited Yes 108 Yes No >200 49

Freebox Mini 4K 45.98 DSL/Fibre 1Gbit/s 20 Unlimited Unlimited Yes 108 No No >200 49

Source: Jefferies estimates, company data, *€5 for customers not taking Fibre. Note: Orange has 160 channels available for €5 and 48 channels available via an App, Note: DSL offered where Fibre unavailable – pricing based on unbundled areas. In this table we have excluded tariffs with mobile data below 1Gb.

27%

33%

37%

40%41%

43%45%

47%

25%

30%

35%

40%

45%

50%

55%

Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115

% of Convergent Customers in Fixed Base

38%

42%44%

45%47%

48%49% 50%

53%

25%

30%

35%

40%

45%

50%

55%

Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115

% of Convergent Customers in SFR Fixed Base

Telecommunications


22 July 2015



Mobile in France While operating trends diverge sharply among France’s four mobile networks, we believe

that competition is actually less intense than in the fixed broadband market. Pricing has

been stable for more than two years. 2Q15 results are likely to mirror recent patterns.

But today’s oligopoly is inherently unstable since it is based on ORA and BYG leveraging

their superiority in 4G to capture high-tier market share while Free fights hard to add

mainly low-spending customers and NUM-SFR develops a plan to stem its worsening rate

of disconnections. The status quo is not acceptable for Free or NUM-SFR indefinitely. With

neither of them sellers, conditions are unlikely to stay this ‘easy’ for ORA and BYG forever.

In fact we believe that Nov’s 700MHz spectrum auction could be a catalyst for change. To

safeguard a stable pricing environment, the three spectrum-rich incumbents might be

well-advised to ensure that Free picks up a reasonable allocation. More likely, competitive

instincts will prevail and they will try to shut Free out. This might leave Free with little

choice but to embark on a fresh round of price disruption. It is worth noting that Free’s

4G capabilities should gradually improve as recent network build comes on stream

alongside new 1800MHz bandwidth being allocated to it this year.

The logical impact should be renewed impetus for consolidation. We believe that French

consolidation becomes a more feasible proposition from early-2016, with current

obstacles receding and greater urgency among the negotiating parties. We discuss

auction and consolidation prospects in the next two sections. To frame those

diuscussions, we summarise the state of play in French Mobile.

Chart 13: Postpay Market Share since Free Mobile Launch

Source: Jefferies estimates, company data. Note: Market Shares incl both MVNO & M2M subs except for ORA which excludes MVNO subs. SFR is the legacy entity ex Virgin Mobile acquired by NUM in Dec 2014. SFR 4Q14 & 1Q15 estimated based on PF NUM-SFR mkt share progression. ‘Other’ includes French overseas territories and is derived from ARCEP market total.

Chart 14: Postpay Net Adds ex M2M (000)

Source: Jefferies estimates, company data. Note: MVNO adds excl from ORA, incl in NUM-SFR and BYG. M2M adds excl from ORA and NUM-SFR (and minimal for Free). BYG disclosure allows us to strip out M2M back to 1Q14. ‘Other’ includes French overseas territories and MVNOs on ORA network. It is derived from ARCEP market total. Pre-1Q14, ‘other’ also includes BYG.

Customer trends became even more polarised in 1Q15 (Chart 14). In the growing

postpay segment (now 82% of Mainland France subs vs. 71% in 4Q11), net

disconnections from NUM-SFR escalated to -298k ex M2M (vs. -132k 1Q14). The

company attributed this deliberate re-pricing to eliminating ill-disciplined legacy SFR

discounting, distancing the RED sub-brand from Virgin Mobile. But re-pricing the whole

base takes time and, provided NUM-SFR persists, we can expect it to remain a substantial

net donor of postpay customers for the next several quarters. Meantime, Free continues

to gain postpay share and ORA’s improving share of net adds has mirrored its 3Q14

decision to reinvest more cost savings back into commercial effort. For BYG, however, 4G

superiority is not translating into postpay net adds.

39.7%

37.6% 36.4% 35.2% 34.2% 33.8% 33.5% 33.8%

33.8%

32.2% 30.8% 29.9% 29.7% 29.0% 28.5% 27.3%

5.2% 8.2% 10.8% 12.5% 13.9% 14.9% 15.9%

18.6%17.6% 17.1% 17.1% 16.4% 16.0% 15.6% 15.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other

BYG

Free

SFR

ORA

(300)

(150)

-

150

300

450

600

750

900

1,050

1,200

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Other

BYG

ORA

Free

NUM-SFR

Telecommunications


22 July 2015



Headline postpay net adds from ORA, NUM-SFR and BYG are all inflated by the inclusion

of (lower-value) wholesale MVNO and retail M2M customers. The effect is significant.

Across Mainland France, MVNOs accounted for 10% of total market subs and M2M for

11% (as at end-1Q15 according to ARCEP). Two-thirds of the postpay net adds achieved

by BYG in the last 12 months have been M2M. Historically, only ORA’s disclosure has

allowed MVNO and M2M adds to be separately identified. More recently, pro forma

disclosure from NUM-SFR allows M2M net adds to be stripped out back to 2Q13 while for

BYG the same adjustment can also be triangulated, but only back to 1Q14.

Chart 14 (above right) lays out quarterly postpay net adds as cleanly as possible from the

available operator and ARCEP disclosure, with M2M growth stripped out.

Chart 15: Cumulative Postpay Share Chg since 4Q11 (pp)

Source: Jefferies estimates, company data. Note: Includes M2M and MVNO (except ORA MVNO in ‘Other’). SFR is legacy entity ex Virgin Mobile acquired by Numericable in 4Q14. SFR 4Q14 & 1Q15 estimated based on PF NUM-SFR mkt share progression.

Chart 16: Cumulative Chg in Mobile Service Rev Share (pp)

Source: Jefferies estimates, company data. Note: ORA mobile service revs adjusted to remove national roaming estimate. Free mobile service revs disclosed to 4Q13, estimated subsequently with 23% growth reported in 1Q15.

In Chart 15 and Chart 16 above, we compare cumulative changes in postpay customer

market share since Free Mobile’s launch against changes in mobile service revenue share.

Whilst Free has gained c.16% postpay customer share, its mobile service revenue share

stood at c.9.5% by 1Q15 on our estimates. We believe that Free’s rate of revenue market

share gain has halved since its incumbent competitors launched 4G services in Oct 2013.

Hampered by the lack of a credible 4G proposition, Free has been marginalised with its

intake seemingly heavily reliant on its entry-level €2 plan (although migrations to the

€19.99 plan reportedly improved in 1Q15). Free has also used heavily-discounted Ventre

Privee promotions to drive volume from time to time.

ARCEP collects quarterly data on cancellation rates among French postpay subs (Chart

17). Figures are not distinguished by operator, but the market trend shows cancellation

rates having returned close to the levels that were in place before Free Mobile’s Jan 2012

launch. This is despite upward pressure from escalating disconnection volumes at SFR and

from an increasing proportion of the postpay segment that is not tied into a contractual

commitment. Against this backdrop, the cancellation data does seem to indicate that

Free’s discruptive impact has been reduced and that aggregate market churn is stable.

Mobile price-points have stabilised since the summer 2013. Divergence from the

estabilished levels has (for the most part) involved only time-limited promotions. ARCEP

tracks an index of mobile tariffs across all operators and all segments. Its latest update

(Chart 19) presents data upto Dec 2014. More recently there is an emerging trend of

tariffs being refreshed to increase mobile data allocations without an increase in the

monthly fee, and also of content being bundled into tariff plans. In the 3 years to Dec

2014, the proportion of postpay offers in France linked to subsidised handsets fell from

nearly 100% to c.40%. This reflects not only the emergence of a large SIM-only sub-

segment but also operator initiatives to separate service plans from handset lease plans.

(8)

(4)

0

4

8

12

16

4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14

Free

Other

BYG

ORA

SFR

(8)

(4)

0

4

8

12

16

4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14

Free

ORA

BYG

NUM-SFR

Telecommunications


22 July 2015



Chart 17: Postpay Cancellation Rates – France Market in Aggregate

Source: ARCEP, Jefferies

Chart 18: Retail Mobile Service Revs ex M2M – France Market in Aggregate

Source: ARCEP. Note: excludes interconnection and value-added services.

Chart 19: Retail Mobile Price Index – France in Aggregate

(base at 100 in Jan 2010)

Source: ARCEP, Jefferies

Chart 20: Proportion of Postpay Offer With/Without

Subsidised Handset Linked to Service Plan (y/e)

Source: ARCEP

Chart 21 compares frontbook pricing among the MNOs. Our selection incorporates both

4G SIM-only plans and 4G plans for which a subsidised handset is provided. In this latter

case, we isolate the monthly airtime fee (displayed on the vertical axis) by adding on any

handset payments (one-off and recurring) and deducting the estimated handset cost to

the operator (based on handset price for BYG and SFR prepay customers). Calculations are

2.2

1.71.9

2.3

3.6

2.5 2.4

3.0 2.9

2.5 2.4

2.7 2.52.1

2.4

2.9

2.4

2.12.3

2.82.5

4.9%3.7%

4.0% 4.8%

7.5%

5.0%4.7%

5.7% 5.3%4.4% 4.1%

4.6%

4.2%3.5% 3.9%

4.5%

4.6%3.9% 4.3%

5.0%

4.4%

0%

2%

4%

6%

8%

10%

12%

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Postpay cancellations (m) Postpay cancellations ex M2M (m)

Postpay cancellation rate Postpay cancellation rate ex M2M

4.53 4.44 4.35 4.22 4.04 3.93 3.86 3.73 3.60 3.60 3.64 3.60 3.49

-4.2%

-5.8%

-8.8%-9.4%

-10.9%

-11.5%-11.3%

-11.6%

-10.9%

-8.4%

-5.7%

-3.4%-3.2%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115

Mobile Service Revenue (Ex. M2M) (€bn) y/y Change (%)

0

10

20

30

40

50

60

70

80

90

100

110

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Postpay Prepay Blended

100% 100%

83%

55%40%

17%

45%60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

With Subsidised Handset Without Subsidised Handset

Telecommunications


22 July 2015



all modelled on the customer opting for a new iPhone 5S 16GB. Monthly fees shown in

the chart all include VAT. Aside from very low-tier segments, inclusion of unlimited cross-

net voice and SMS is commonplace. Accordingly, we have segmented along the

horizontal axis according to the size of the monthly data allowance.

Current frontbook pricing looks quite closely aligned across the three incumbent French

MNOs. Free continues to offer cheaper pricing by virtue of €19.99 flat-rate plan. At first

glance, Chart 21 looks very similar to the equivalent analysis in our notes from 24 Sep

2013 and 24 June 2014). A closer look, however, reveals some interesting developments

which don’t quite support the received wisdom that French mobile pricing is stable.

More ‘value’ in the bundle – Across all the French operators, bundling calls to

international destinations into standard call allowances at no extra cost has become

widespread. Data allowances have also edged up. For the price of 3GB/8GB bundles

12 months ago, BYG-branded plans are now delivering 5GB/10GB. In the last

fortnight, ORA has injected more data into its Origami plans, now offering

allocations of 1/4/8/20GB (previously 0.5/3/7/10GB) with no fee increase. Content

has also been added. BYG, for example, has offering customers on 5GB+ plans a

choice of Spotfiy Premium, Gameloft or CanalPlay Start since Jan, and this was

extended to customers on 3GB plans in March. B&YOU-branded BYG customers

gained access to fully-fledged customer service last Nov, again at no extra cost.

Narrowing pricing differential vs. Free – Back in June 2014, the average

monthly airtime fee associated with a 3GB plan was €25-32 across the three

incumbent plans (vs. €20 for Free’s flat-rate with a 20GB data cap). To reach

5GB/month it would have been necessary to pay the incumbents €32-37 (ex-

handset). Roll forward a year and ORA/SFR/BYG all have 3GB plans in the range €20-

22. At the 5GB level, ORA/SFR/BYG pricing is now mainly in the range €25-30. In

the last few days, however, there has been a disruptive development with SFR RED

doubling data for no extra cost (now 6GB at €19.99, 10GB at €25.99). ORA and BYG

continue to offer on their ‘no frills’ brands 3GB at €20 and 5GB at €26. The SFR RED

offer has a deadline of 17 Aug attached, but with tariffs commonly refreshed every

month in France, that does not necessarily imply that pricing will revert.

Chart 21: Frontbook Pricing – Monthly Service Fee (€, vertical axis) vs. Data

Allowance (GB)

Source: Company Data, Jefferies. Note: underlying tariffs laid out in Table 51 in the Appendix Table 51: France Mobile - Selected ‘No Commitment’ Tariffs.

SFR-brand now priced at a discount – SFR’s mobile tariffs were thoroughly

overhauled post the acquisition by NUM. NUM-SFR now offers SFR-branded tariffs

that require a contractual tie-in (but include content and various handset financing

options) and RED-branded plans with no tie-in. RED-branded plans at the 3GB/5GB

levels are priced exactly in-line with ORA’s Sosh no-frills sub-brand. More interesting

is how SFR-branded plans have progressively drifted cheaper over the last 6 months.

0

5

10

15

20

25

30

35

40

45

50

0 2 4 6 8 10 12

BYG brand BYG B&YOU SFR brand SFR RED Free ORA ORA Sosh

Telecommunications


22 July 2015



A year ago, BYG occupied the discount position among the three incumbents. Now,

BYG is in-line with ORA and SFR-branded plans are visibly cheaper. In fact, the SFR

brand is even cheaper than Free for Apple iPhone 6 users requiring up to and

including 5GB/month. An important part of what makes the SFR proposition so

cheap is heavy discounting of the handset.

Use of discount channels increasing – Historically Free has run numerous

promotions on the Vente Privee for its triple-play products (four such promotions in

2014, for example). Last Dec, Free extended its use of Vente Privee to mobile, with a

promotion that discounted the €19.99 plan to €3.99. A similar promotion was run

last month (initially 18-23 June, but extended to the 29th) for new subs porting their

numbers to Free. This presumably provided a useful boost for 2Q mobile adds. SFR

has responded with a promotion of its own on the Showroom Privee site. The

0.2GB/month RED plan is discounted from €12.99 to €4.99 for 12 months and the

3GB version from €19.99 to €9.99. Previously RED customers have reportedly been

offered discounts up to €5/month by text after Free has announced promotions.

Chart 22: Airtime Fees, Dec14 (€/mth)

– SFR pricing in-line with ORA/BYG

Source: Jefferies, company data. Note: 24-mth 4G plans with cost of iPhone 5S stripped out. Airtime fee on vertical axis. Data allowance in GB/mth on horizontal.

Chart 23: Airtime Fees, Mar15 (€/mth)

– SFR brand prices drifting lower…

Source: Jefferies, company data. Note: 24-mth 4G price plans with cost of iPhone 5S stripped out. Airtime fee on vertical axis. Data allowance in GB/mth on horizontal.

Chart 24: Airtime Fees, Jul15 (€/mth) –

SFR at a clear discount to ORA/BYG

Source: Jefferies, company data. Note: 24-mth 4G price plans with cost of iPhone 6 stripped out. Airtime fee on vertical axis. Data allowance in GB/mth on horizontal.

This under-current of pricing activity reflects relative commercial positions. Superior 4G

coverage/quality may be what allows ORA/BYG to sustain price premia. Both have a

strong incentive to stimulate data consumption. NUM-SFR’s de-coupling from ORA/BYG

price levels seems sensible given its product lag. But the promotional activity and handset

discounting that NUM-SFR brands have engaged in YTD seem at odds with

management’s stated objective of price discipine. That said, when Free and NUM-SFR do

build 4G credibility, plenty of opportunity remains. Still only 19% of French customers are

on 4G plans (Chart 25) and 59% of postpay subs have no contractual commitment (Chart

26). ORA/BYG need to prepare for the threat of more credible discounted 4G competition

in due course, mindful that the customer base is well-placed to take advantage.

0

5

10

15

20

25

30

35

40

45

0 6 12

BYG brand SFR brand Free ORA

0

5

10

15

20

25

30

35

40

45

0 6 12


0

5

10

15

20

25

30

35

40

45

0 6 12


Telecommunications


22 July 2015



Chart 25: Active 3G & 4G Customers in France

Source: ARCEP

Chart 26: Out-of-Contract Residential Postpay Customers

Source: ARCEP

44% 46%49% 51%

55%59%

63%

5%8%

11%15%

19%

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

3G subs (m) 4G subs (m)

3G % Mkt 4G % Mkt

6.7 6.9

9.7

12.7

16.5

19.8

23.225.5

28.3

19% 19%25%

32%39%

45%50% 54%

59%

0%

20%

40%

60%

80%

100%

-

5

10

15

20

25

30

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

Out-of-contract resid postpay ex M2M % residential postpay base

Telecommunications


22 July 2015



700MHz Auction: Engineered to Disrupt On 9 July, the French Government endorsed a proposal for allocating 700MHz spectrum

which ARCEP had presented to it three weeks earlier. The auction, which is likely to take

place in Nov, has been deliberately structured to maximise competition. Spectrum is

packaged to ensure that, at most, three MNOs will go away satisfied with their allocations.

There is no special treatment for Free, which risks being crowded out. Revenue-raising

was a prime objective of government. This has been safeguarded with a hefty reserve

price, although competitive tension could push bids materially higher.

In the previous section we argued that today’s oligopoly in French mobile is inherently

unstable. Polarised operating trends are certainly not an acceptable long-term outcome

for Free and NUM-SFR. We believe that Nov’s auction could be a catalyst for change.

For spectrum-light Free it is the crucial opportunity to capture the raw materials

necessary to build 4G credibility over the next 3-4 years. Should Free find itself shut

out, we wonder if it would have much choice but to embark on a fresh round of

price disruption.

The logical impact of that would be renewed impetus for consolidation. Rejecting

Altice’s latest approach last month, BYG cited execution risk and lack of government

support. Having banked its auction proceeds, we suspect that the public interest

reservations which government raised last month might find a way of being

reconciled. Valuing BYG equity would become a more straightforward exercise.

Nine bids for six blocks

The sale that ARCEP is managing involves 2x30MHz of spectrum at 700MHz, split into six

equal blocks. The reserve price on each block is set at €416m. This is 2.5x the price that

Germany achieved in its own auction of 700MHz spectrum which concluded on 19 June.

It is more than 5x the reserve price that was set in Germany.

Operators will participate in a multi-round ascending auction structure. Each operator

starts by bidding the reserve price on the number of blocks it wants (or is allowed to

have). In the next round, the price of each block will increase by €5m. Each operator can

choose to stay in the bidding or back out of the process for one or more blocks. Operators

aren’t able to increase the number of blocks they’re bidding for during the auction. Once

an operator has backed out, there’s no return. When successive rounds have whittled the

number of bidders down to six (such that all bids can be fulfilled) , the auction will end.

Chart 27: Pricing for 2x5MHz block at 700MHz (€m)

Source: Regulators

Chart 28: Current sub-1GHz holdings (paired, MHz)

Source: ARCEP

ARCEP says that “to encourage the heavy use of this frequency band and to limit

imbalances between operators”, a single operator will not be permitted to acquire more

than three of the six spectrum blocks on sale and will also not be allowed to own more

75

167

416

German reserve price German auction

price achieved

French reserve price

10 10 10

10 10 9.8

5

ORA NUM-SFR BYG Free

900MHz

800MHz

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22 July 2015



than 2x30MHz in aggregate across 700, 800 and 900MHz. Since ORA, NUM-SFR and BYG

each already hold 2x20MHx of 800 and 900MHz spectrum, each of them is will be unable

to pick up more than two blocks in Nov. At present, Iliad’s sub 1GHz holding is just 2x

5MHz (at 900MHz). Hence it will be able to pick up a maximum of three blocks.

Despite its weaker legacy spectrum position, ARCEP has not guranteed any bandwidth for

Free. Presumably the view is that Free had the same opportunity as its rivals to secure

800MHz spectrum in the Jan 2012 award.

The likely scenario is therefore nine highly-motivated bidders for six blocks in a brutally

simple contest where price will determine the winners. A Les Echos article last month

suggested that the auction might involve eight rounds per day over 3-4 days. Obviously

duration is guesswork, but provided BYG is still fully engaged in telecoms come Nov,

there should be some decent competitive tension in the process. Based on 24-32 rounds,

total proceeds would be €3.2-3.5bn.

Post-auction, operators will bid for positions within the 700MHz band. With that done,

ARCEP intends to finalise allocations before year-end. At present, 700MHz spectrum is still

in use for broadcasting TV. Authority to use the frequencies will pass to telecom operators

in the Paris region in Apr 2016 but elsewhere not until 2017-19 (subject to legislation).

Operators will pay for the spectrum awarded to them in four equal annual payments, the

first of which will be at the time of allocation (end-2015). In addition, operators will be

liable for an ongoing spectrum fee, defined as 1% of revenue generated from the use of

700MHz spectrum. There are also tough coverage obligations, as illustrated below.

Chart 29: Coverage Obligations for French 700MHz Spectrum

Source: ARCEP

A catalyst for change

Limited network deployment, tight spectrum allocation and the lack of a 4G roaming deal

have consigned Free to competing for mainly low-tier customers in the last two years.

Earlier in this report we showed how Free’s momentum has slowed since incumbent rivals

deployed 4G starting in Oct 2013. A 16% market share of postpay customers contrasts

unfavourably against an estimated 9% of market service revenues. Free has evolved its

business model, diversifying beyond the SIM-only segment to offer handsets on hire

purchase terms. But, as its 2G/3G roaming deal approaches expiry in 2018, Free will

evolve into a more traditional mobile operator with a widely deployed network and a

heavy fixed cost base. In our view, the current run-rate of revenue growth looks

insufficient to deliver an acceptable economic return even if the company continues to be

run very efficiently. Gaining traction among higher-spending customers looks crucial. On

the bright side, the opportunity for Free is also significant. Nearly 80% of French

customers have yet to migrate to 4G and c.60% are not tied to any contract commitment.

There is plenty of market potential for Free to exploit, but only once it has the necessary

raw materials in place. Nov represents its big chance.

50%

60%

98%92%

100%

80%

99.6% 100% 97.7%90%

POP coverage

(Mainland

France)

Main roads Rural priority

areas (18%

POPs, 63%

Geog)

White Zones

(1% POPs, 3,300

towns)

Regional railway

network

17-Jan-22

17-Jan-27

End-2030

Telecommunications


22 July 2015



Free’s spectrum allocation has restricted network deployment. While Free

has a similar number of 4G cell sites in service to NUM-SFR (Chart 30), its coverage

metrics lag well behind (Chart 31). At the end of Dec 2014 (the last date for which

ARCEP data is available), Free covered 33% of POPs, against 53% for NUM-SFR. This

reflects Free’s much narrower allocation of sub-1GHz spectrum (2x5MHz vs.

2x20MHz for its incumbent rivals).

New 1800MHz bandwidth is coming on stream. In Mar 2013, ARCEP

published guidelines for the refarming of 1800MHz spectrum for 4G. To create a

more balanced allocation of bandwidth across the operators, ARCEP awarded Free a

2x5MHz block of 1800MHz spectrum, to be reallocated from BYG. The reallocation

took place on 1 Jan 2015 for mainland France ex Paris, Nice and Marseille, with

Marseille following on 1 Apr and Paris/Nice on 1 July. Free has additionally been

granted the right to use these frequencies for 4G. On 25 May 2016, Free is due to

receive an additional 2x10MHz block nationwide. The additional allocation will

come mostly from ORA and NUM-SFR (with a small amount from BYG). From May

2016, ORA, NUM-SFR and BYG will each be left with 2x20MHz at 1800MHz.

Roaming access to NUM-SFR 800MHz frequencies. A condition of the

800MHz block awarded to SFR in Jan 2012 was that it would need to offer roaming

access to Free once Free’s deployment at 2.6GHz reached 25% POP coverage.

However, Free’s right to roam only extends to less densely populated areas

(arguably not well covered by NUM-SFR at this point) and it must pay for access on

commercially negotiated terms (with little evident appetite from ORA/BYG to

compete with NUM-SFR as alternative access providers).

Free will need capacity to handle legacy 2G/3G traffic. To date, Free has

appeared heavily reliant on its national roaming deal to supply 2G/3G connectivity.

At the 1Q15 stage, ORA’s national roaming income had still not yet started to

decline. However, Free faces increased pressure from the French authorities to

terminate its use of roaming by 2018, although authorisation for 2G roaming access

may continue. Given its historic SIM-only model, Free is likely to have a large

proportion of customers still on legacy 2G/3G handsets. (In an interview last Dec,

the Chairman of ARCEP suggested that as many as 50% of Free Mobile subs could

still be using 2G devices.) So while the additional 1800MHz spectrum that Free is

bringing on stream should assist its 4G deployment, upside may be restricted by the

need to manage legacy 2G/3G demand. Free is authorised to use its 1800MHz

spectrum for 3G, and ARCEP has suggested that it might apply for a 2G licence.

Competitor 4G+ launches increase need for bandwidth. BYG’s LTE

Advanced (4G+) service aggregates bandwith to deliver a promise of halving

download times (based on BYG Tel advertising). Aggregation of three bands will get

underway in Sept, allowing BYG Tel to claim speeds up to 300Mbps. Meanwhile

ORA started its 4G+ deployment in July 2014 (Toulouse, Strasbourg), reaching Paris

in Oct and now covering 17 cities. It seems to us that 4G+ is fast becoming a

mainstream proposition as BYG/ORA seek to maintain product advantage. Free has

reportedly tested aggregating bandwidth at 1800MHz and 2.6GHz to deliver its

own 4G+ service.

Pressures to compete in the emerging 4G+ segment, to accommodate persistently high

2G/3G demand and to extract itself from reliance on roaming providers all seems to be

pointing Free in the direction of needing to secure more spectrum. At its FY14 results,

management asserted that 700MHz will “strengthen our portfolio”. That sounds like a

statement of intent to us.

To safeguard a stable pricing environment, the three spectrum-rich incumbents might be

well-advised to ensure that Free picks up a reasonable allocation. More likely, competitive

instincts will prevail and they will try to shut Free out. 2Q15 results should bring into

sharp focus once again the commercial pressures facing NUM-SFR. We forecast -120k

postpay net losses from NUM-SFR across B2B and B2B (vs. –166k 1Q15). Net of M2M

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22 July 2015



additions, the underlying run-rate could be around -250k (vs. –298k 1Q15). That said,

visibility is low and NUM-SFR’s 2Q15 could quite conceivably come in even weaker. BYG

management is presumably well aware of the crucial importance to Altice of

demonstrating solid execution against its guidance for NUM-SFR integration, notably

delivering on the promised €10bn synergy target. Altice’s leverage model depends on

investor comfort in the ability to achieve and sustain strong organic EBITDA growth.

Cornering Free, such price disruption becomes an imminent threat, would of course

undermine investor confidence in forecasts across all the French operators. But NUM-SFR

arguably has the most exacting targets to achieve. BYG may therefore believe it can

engineer a situation in which NUM-SFR management attaches more urgency to

consolidating BYG Telecom away.

Chart 30: 4G Cell Sites in Service (000)

Source: ANFR, 1 July 2015.

Chart 31: 4G Coverage – Area and Population

Source: ARCEP, Dec 2014.

Chart 32: French Mobile Spectrum Positions (paired, in MHz, pro forma for

scheduled 1800MHz reallocation)

Source: ARCEP. Note: Free is receiving 1800MHz spectrum in accordance with ARCEP 4G re-farming authorisations. 5MHz allocated now, reaching 15MHz in May 2016.

4.4

5.4

9.8

3.2

0.9

4.2

1.7

6.1

1.1

8.8

3.7 3.7

800MHz 4G Sites

in Service

1800MHz 4G Sites

in Service

2600MHz 4G Sites

in Service

Total 4G Sites in

Service

Orange NUM-SFR Bouygues Free

72%

71%

53%

33%

22%

23%

14%

3%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Orange

Bouygues

SFR

Free

Area Coverage (%) Population Coverage (%)

10 10 10

10 10

5

9.8

19.8 20

15

19.8

19.6 19.8

5

14.8

20 15

20

15


2600

2100

1800

900

800

Telecommunications


22 July 2015



French Consolidation: Deferred to 2016 BYG famously rejected Altice’s latest advances on 23 June with reasoning that ranged

from the sentimental to the perfectly logical. In our 24 June note, BYG Rejects NUM In

Terms That Undermine Prospects Of An Improved Offer, we argued that the categorical

nature of BYG’s statement made it difficult to envisage any improved offer succeeding

until next year.

A month on, no new offer has materialised and speculation in the French press has died

down. BYG’s share price has slipped back close to our ‘going concern’ valuation.

However, it remains quite logical to envisage (yet) another bid for BYG Telecom

succeeding in 2016. Completion of the 700 MHz auction, scheduled for Nov, is the pivotal

event. Post-auction, all of the entities invoved in the process should have the strongest

motivations yet to force open the file once again. Motivations will range from urgent

concern about the status quo to satisfaction that a stronger negotiating position has been

achieved. From early-2016, we believe the chances of securing agreement become much

greater than they have been in the past.

Before we lay out in a bit more detail the factors that should bring matters to a head in

early-2016, it is worth highlighting our previous (published) reservations about getting

too bound up in French consolidation fervour. In our June 2014 note, Orange – Geared

Upside With or Without Consolidation, we suggested ORA could comfortably live with a 4-

player market in which 4G network quality was increasingly valued by consumers,

blunting Free Mobile’s disruptive capacity. More recently in our 19 June 2015 note, French

Auctions Proposals – High Entry Price, No Special Treatment, we argued that whilst any

potential acquirer of BYG Tel has an incentive to act ahead of the auction, the Nov

timescale made it impractical for a takeover to be launched, agreed and accepted. We

suggested that BYG would not want to take the risk of standing aside in the 700 MHz

auction and then find that any proposed takeover fails to secure approval. In our 22 June

note, we considered the prospects of the latest Altice offer just then confirmed. We

highlighted the difficulty for BYG of knowing exactly what equity value it would secure

given the uncertain (but probably high) outlay that the auction will entail.

There are five factors relevant to the BYG Telecom negotiation that we think shift

materially between now and early-2016. They basically boil down to the various market

participants having greater urgency to act or, in the case of Government, less reason to

resist. We back up our conviction by upgrading BYG (from Hold to Buy) following the

stock’s recent underperformance.

1. Free could embark on a new mobile price war post-auction. For spectrum-

light Free, Nov’s 700 MHz auction it is the crucial opportunity to capture raw

materials necessary to build 4G credibility over the next 3-4 years. Should Free find

itself shut out, we wonder if it would have much choice but to embark on a fresh

round of price disruption. To safeguard a stable pricing environment, the three

spectrum-rich incumbents might be well-advised to ensure that Free picks up a

reasonable allocation. More likely, competitive instincts will prevail and they will try

to shut Free out. BYG may reason that a more aggressive Free Mobile would

damage SFR the most, hence it may see some incentive in promoting that outcome.

NUM-SFR will presumably want to bank as much spectrum as possible, since this

will make upgrading its mobile network to more acceptable levels of

coverage/quality a cheaper process than making do with a narrower spectrum

allocation. ORA aims to differentiate on network quality and will be highly reluctant

to make do with anything other than its maximum permissible allocation.

2. NUM-SFR has considerable incentive to avoid another price war.

Deteriorating commercial performance from the SFR mobile business last quarter

was (quite reasonably) attributed to beginning the clean up of strategic mis-steps by

previous owners (ill-disciplined discounting, under-investment in network). 2Q15 is

likely to register similar trends. For the time being, NUM-SFR shareholders take

comfort from strong cost-cutting momentum. And while margin expansion goals

Telecommunications


22 July 2015



are unprecedented, management has not committed itself to exacting revenue

targets. That said, if commercial traction does not visibly improve in the second half,

harder questions might start to be asked about just how much revenue contraction

can be accommodated within EBITDA growth guidance. A key component of NUM-

SFR’s strategic playbook is delivering a product good enough to be able to leverage

pricing power. That might look a more distant prospect if another mobile price war

is looming 4-5 months from now. We are not suggesting that ORA or BYG would

escape a price war unscathed. But for NUM-SFR the downside risk looks much

greater: already commercially less resilient, facing the most challenging financial

targets and France an important test-case for Altice’s ability to translate the historic

success of its business model into larger markets.

3. Government perspective shifts post-auction. The 700 MHz award is an

important revenue-raising exercise for the French State, as evident in the high

reserve price and an auction structure designed to maximise bidding tension. No

surprise that ministerial objections last month were vocal. Moreover, it is intriguing

that news of Altice’s latest approach to BYG Tel broke publicly some 18 days after

the offer had reportedly been lodged but only a couple of days after ARCEP had

managed to race out draft proposals for how the 700 MHz auction will be

conducted. We wonder whether the Government’s ‘public interest’ objections will

be quite so fierce once auction proceeds have been pocketed. When rejecting

Altice’s offer on 24 June, BYG expressed concern that government might use its

powers under Article 96 of the 2008-776 Law of Modernisation of the Economy to

block a deal even if approved by the Competition Authority. That might be a valid

concern pre-auction. But with lines of communication now fully open between

operators and Government, any fresh approach in early-2016 will be the product of

at least six months of discussion. Political risk should be much reduced. To justify a

more amenable attitude to consolidation post-auction, the Government could draw

attention to mobile wholesale market. In our view, a new price push by Free could

spell the end of the road for France’s MVNOs. And this is not an irrelevance. MVNOs

account for 7.2m customers in France (10.5% market share ex M2M) and ~10% of

gross postpay connections in the market. This is despite a tough last four years,

being heavily impacted by Free’s initial price disruption and then by difficulty in

securing access to 4G from their networks. The MVNO trade federation is already

actively campaigning for 4-to-3 consolidation in the hope of securing stricter

regulation in the wholesale market.

Chart 33: MVNO customers in Mainland France (m)

Source: ARCEP. Note: NUM-SFR acquisition of Virgin Mobile closed on 5 Dec 2014.

Chart 34: MVNO market share in Mainland France

Source: ARCEP

4. ORA not inclined to risk EBITDA stabilisation with another price war. In

previous research we have highlighted how ORA could be reasonably content with

the 4-player status quo. The ‘wrong sort’ of consolidation, a deal that gives Free

access to 4G network/spectrum without eroding its challenger economics, was

7.3 7.6 7.8 7.7 7.7 7.8 7.9 8.0

8.4 8.6 8.9

7.3 7.2

1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

0%

2%

4%

6%

8%

10%

12%

14%

16%

1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

MVNO mkt share ex M2M Share of gross postpay intake

Telecommunications


22 July 2015



something to be avoided. While these points remain valid, ORA’s comfort in the

status quo could be diminishing for two reasons. First, the consequences of another

price war become more concerning as Free gradually deploys more network and

builds up its holding of 1800 MHz spectrum. Second, the progress that ORA is

making in reducing its pace of domestic revenue decline seems to have become

increasingly reliant on market share gains. Recent revenue trend improvement can

be traced back to ORA’s publicly-discussed decision to reinvest more of its domestic

cost savings in commercial effort starting in 3Q14 (more detail in the Orange section

later in this note). Taking share from rivals stores up competitive tension, of course.

At some point, ORA needs to operate in an environment that permits customers to

be charged more. A mobile price war would not help.

5. Martin Bouygues should have the reached the zenith in his negotiating

power. Bidding aggressively at Nov’s auction, BYG stands a good chance of

securing an even stronger spectrum position for itself whilst also helping to obstruct

Free from securing a meaningful improvement in its currently sub-scale allocation

sub-1GHz. As previously discussed, that brings the risk of another Free-instigated

price war, elevating competitive tensions. Whatever urgency Altice felt when tabling

offers for BYG Telecom last Feb and June, may be significantly heightened by the

start of next year. We take the view that the BYG board is a potential seller of the

telecom asset. This issue has been much-debated in the wake of BYG’s rejection of

the latest offer which, after all, did value BYG Telecom at ~15x 2015e EV/EBITDA.

However, BYG statements have not ruled out a disposal per se, instead arguing that

valuation was insufficient (both in Feb and June) and that Government opposition

left execution risks too high (in June). Local press reports suggest that there was a

long cycle of exchanges in the run-up to the 3 June offer, involving not only Altice

and BYG management teams but also Free and the Competition Authority. BYG

appears to have been actively engaged in the process, even if was ultimately

dissatisfied with valuation and timing. Valuing BYG Telecom becomes a lot more

straightforward of course once the auction outlay is known. And the ‘social risks’

that BYG referred as its third reason for rejecting the June offer seem capable of

being worked around over six months of further discussion, with Government also

fully engaged this time.

Telecommunications


22 July 2015



Bouygues (27th Aug) Upgrading to Buy (from Hold); PT €45 (from €36)

Bouygues shares have pulled back from their €38 peak to within striking distance of our

€31 ‘going concern’ value. But alignment of interests towards consolidation from early-

2016 looks unprecedented. We back up our conviction by shifting to a disposal basis for

PT-setting (with Telecom valued at €11bn - Table 5). Standalone operating prospects

benefit in the next few quarters from completed mobile re-pricing (though FBB back-book

still weighs) and Telecom cost reduction. Construction activities stand to benefit from

improved macro, driving margin recovery and multiple expansion. We value BYG’s

construction activities at 10.5x 2016e EV/EBIT, which is in-line with where its comps are

currently trading (Table 7).

Table 5: Bouygues Base Case Valuation (Telecom 11bn Take out) Stake Equity market Net cash/ EV EV % EV Basis

value, 100% (debt), 100% 100% prop

Telecom 89.5% 9,791 (1,209) 11,000 9,845 49% Take-Out EV

Colas 96.6% 4,546 672 3,874 3,742 19% 10.5x EBIT, 2016E

Construction 100.0% 6,784 2,900 3,884 3,884 19% 10.5x EBIT, 2016E

Immobilier 100.0% 1,680 203 1,477 1,477 7% 10.5x EBIT, 2016E

TF1 43.5% 3,414 204 3,210 1,397 7% Market value

HoldCo 100.0% (200) (1%) PV of costs taxed

Prop EV of Controlled Operations 20,144 100%

Less prop net debt (3,322)

Advances/downpayments received (1,120)

Spectrum fees outstanding at 31 Dec 2015 (1,125)

Add equity value of Alstom stake 29.4% 1,462 Market value adj for spec div

Group Equity Value 16,039

Conglomerate discount (5%)

Adjusted Equity Value 15,237

Shares in issue (m) 336

Value per share (€) 45


Table 6: Bouygues Base Case Valuation (Going Concern Valuation) Stake Equity market Net cash/ EV EV % EV Basis

value, 100% (debt), 100% 100% prop

Telecom 89.5% 4,864 (1,209) 6,072 5,435 35% 7.5x EBITDA, 2016E

Colas 96.6% 4,546 672 3,874 3,742 24% 10.5x EBIT, 2016E

Construction 100.0% 6,784 2,900 3,884 3,884 25% 10.5x EBIT, 2016E

Immobilier 100.0% 1,680 203 1,477 1,477 9% 10.5x EBIT, 2016E

TF1 43.5% 3,414 204 3,210 1,397 9% Market value

HoldCo 100.0% (200) (1%) PV of costs taxed

Prop EV of Controlled Operations 15,734 100%

Less prop net debt (3,322)

Advances/downpayments received (1,120)

Spectrum fees outstanding at 31 Dec 2015 (1,125)

Add equity value of Alstom stake 29.4% 1,462 Market value adj for spec div

Group Equity Value 11,629

Conglomerate discount (10%)

Adjusted Equity Value 10,466

Shares in issue (m) 336

Value per share (€) 31


Table 7: Bouygues Construction Valuation Comps Company Share Price

(EUR)

Mkt Cap

(EURm)

EV

(EURm)

EBIT

(FY14)

Cons. EBIT

(FY15e)

Cons. EBIT

(FY16e)

EV/EBIT

(14)

EV/EBIT

(15e)

EV/EBIT

(16e)

Vinci SA 56.5 25,235 45,594 3,308 3,689 3,837 13.8x 12.4x 11.9x

Eiffage SA 52.3 3,754 17,712 1,234 1,390 1,446 14.4x 12.7x 12.2x

Actividades de Construccion y Servicios SA 31.1 8,915 18,936 510 1,567 1,634 37.1x 12.1x 11.6x

Compagnie de Saint-Gobain SA 43.2 19,742 32,314 2,711 3,003 3,417 11.9x 10.8x 9.5x

Skanska AB Class B 19.9 7,281 8,710 522 678 726 16.7x 12.8x 12.0x

ABB Ltd. 19.2 39,716 44,865 2,900 3,586 4,027 15.5x 12.5x 11.1x

Carillion PLC 5.1 1,862 2,450 200 323 330 12.2x 7.6x 7.4x

Hochtief AG 76.7 4,007 7,037 (164) 698 732 -43.0x 10.1x 9.6x

Average 9.8x 11.4x 10.7x

Source: Jefferies, Factset

Telecommunications


22 July 2015



Colas

We forecast 2Q15 sales -3.0% y/y (vs. -8.6% 1Q15, -3.7% 4Q14).

This quarter’s trend should benefit from lapping a sharp downturn in spending on

roads by French local authorities which took effect after municipal elections last

spring. (This can be seen in the sales trend for the France segment: -12.4% y/y in

2Q14 after +2.0% in 1Q14 and +0.9% FY13.)

FX should be a strong tailwind again this quarter. We estimate that the weakening

Euro bolstered sales growth by 3-4pp in 1Q15. As the table below illustrates, the

Euro has continued to soften against key Colas operating currencies (USD, GBP,

AUD) at a similar y/y rate. Based on current spot rates, the FX tailwind would only

progressively diminish through 3Q and 4Q15. The hard North American winter

tends to limit 1Q activity at Colas. Hence the currency to sales in Euro million terms

could actually be greater in 2Q than 1Q.

Deconsolidation of the Dunkirk refinery depressed sales by c.€90m y/y in 1Q15. We

expect a similar drag in 2Q. BYG is guiding to a €330m impact for FY15 as a whole.

Table 8: Colas – sales growth in EUR alongside currency trends 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E FY13 FY14 FY15E FY16E FY17E

Sales growth in EUR 5.1% -7.9% -4.1% -3.7% -8.6% -3.0% -3.0% -3.1% 0.1% -3.5% -4.0% 0.0% 1.5%

France 2.0% -12.4% -14.4% -14.7% -14.4% 0.9% -10.9%

International 11.3% -1.4% 7.4% 10.7% 1.8% -1.0% 6.5%

Average FX rates

GBP EUR 1.208 1.227 1.260 1.267 1.344 1.385 1.410 1.410 1.178 1.241 1.387 1.410 1.410

USD EUR 0.728 0.729 0.754 0.801 0.887 0.904 0.895 0.895 0.753 0.753 0.895 0.895 0.895

AUD EUR 0.654 0.680 0.698 0.685 0.698 0.702 0.685 0.685 0.730 0.679 0.693 0.685 0.685

EUR stronger(weaker) y/y

GBP EUR -3% -4% -7% -6% -10% -11% -11% -10% 5% -5% -11% -2% 0%

USD EUR 4% 5% 0% -8% -18% -19% -16% -11% 3% 0% -16% 0% 0%

AUD EUR 20% 12% -1% 0% -6% -3% 2% 0% 10% 7% -2% 1% 0%

1Q14 1H14 9M14 FY14 1Q15

Sales growth LFL/const FX 6% -2% -3% -3% -12%


Looking out to 2H15, our base case is that sales remain on a -3% y/y trend. There is plenty

of uncertainty, however. Aside from the pace of recovery in domestic demand and

currency effects, other opaque variables include bitumen pricing (which is passed directly

onto customers) and demand outside France. As Chart 35 illustrates, demand outside

Mainland France constitutes more than half the Colas order book (58% at Mar 2015). But

growth in international orders has slowed sharply in the last two quarters (Chart 36),

notwithstanding the weakening Euro.

In 2016, Colas should not be suffering the combined headwinds of Dunkirk refinery

deconsolidation and weak domestic local authority demand that management guides will

drag 2015 by ~€0.6bn (equivalent to -5% revs). However, on the assumption that FX rates

remain in-line with current spot, this year’s c.3pp currency tailwind would also drop

away. Hence we model flat sales for 2016 and cautious 1.5% growth in 2017, consistent

with BYG’s guidance of mid-term recovery across its construction businesses.

Telecommunications


22 July 2015



Chart 35: Colas order book (€ billion)


Chart 36: Colas order book growth (y/y)


For 2Q15, we model current operating margins stable y/y at 3.5%. We forecast margins

+20bp y/y for FY15 as a whole as the weight of Dunkirk losses reduces (guided €20-25m

less y/y). Looking ahead to 2016, a further €40-45m of Dunkirk loss should be eliminated.

We forecast operating margins recovering to 3.5% by 2017, their highest level since F11.

Table 9: Colas – we forecast a return to modest sales growth twinned with operating margins recovering to 3.5% In € millions 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E FY14 FY15E FY16E FY17E FY18E

Sales 2,165 3,129 3,890 3,212 1,979 3,035 3,773 3,113 12,396 11,900 11,900 12,079 12,381

y/y growth 5.1% -7.9% -4.1% -3.7% -8.6% -3.0% -3.0% -3.1% -3.5% -4.0% 0.0% 1.5% 2.5%

EBITDA (176) 197 418 331 (173) 191 415 328 770 762 809 846 867

margin -8.1% 6.3% 10.7% 10.3% -8.7% 6.3% 11.0% 10.5% 6.2% 6.4% 6.8% 7.0% 7.0%

Current op profit (235) 108 293 166 (244) 106 302 181 332 345 393 423 433

margin -10.9% 3.5% 7.5% 5.2% -12.3% 3.5% 8.0% 5.8% 2.7% 2.9% 3.3% 3.5% 3.5%

Capex 46 99 104 207 38 97 102 180 456 417 405 387 396

% sales 2.1% 3.2% 2.7% 6.4% 1.9% 3.2% 2.7% 5.8% 3.7% 3.5% 3.4% 3.2% 3.2%


Construction

There is a well-established trend of weak activity in domestic building and civil works

partly compensated for by stronger demand outside France. BYG Construction reported

that its French order book was down 9% y/y at the end of March. The International order

book was +27%, albeit with the value of those orders boosted by a weaker Euro. Over the

last two years, BYG Construction’s order book has become a little more long-dated.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Mainland France International

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Overall Mainland France International

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22 July 2015



Chart 37: Construction order book (€ billion) – France in

decline, International bolstered by weaker Euro


Chart 38: Construction order book analysed by year of

execution – becoming a little more long-dated


We forecast 2Q15 sales +6.0% y/y (vs. +7.0% 1Q15, +4.0% 4Q14).

The acquisition of Plan Group, a Canadian engineering company, on 1 Sep 2014

boosted headline sales growth by 2.3pp in 4Q14 (€70m sales contribution) and

3.5pp in 1Q15 (€90m). For 2Q15, we forecast Plan sales of €70m. This is more in-

line with the level of FY13 sales (€242m/CAD361m) which BYG disclosed when

announcing the acquisition than the higher 1Q15 result. Accordingly, Plan accounts

for 2.4pp of our BYG Construction sales growth target.

BYG Construction reported that LFL/constant FX sales growth was -2% y/y in 1Q15.

Deducting from headline sales growth in EUR (the aforementioned +7.0%) this LFL

growth and the inorganic growth from Plan, implies that the weaker Euro

contributed sales growth of ~5.6pp last quarter. For 2Q15, we expect the FX effect

to be similar. As we show at the bottom of the table below, the rate of Euro

weakening against GBP and the USD is at the same sort of level. (The UK is an

especially significant market for BYG Construction.) Accordingly, our 2Q15 forecast

for sales growth in EUR comprises assumptions of -2% LFL/constant FX growth (the

same as 1Q15), another 5.6pp currency tailwind and a 2.4pp impact from Plan.

Look ahead to 2H15, forecast sales growth slows as the currency tailwind and inorganic

impact of Plan both wear off. We model sales growth of ~5%/2% in 3Q/4Q15.

In 3Q15 we again forecast Plan sales of €70m but this time we lap €24m booked

post-acquisition in Sep 2014. Accordingly, the Plan contribution to BYG

Construction sales growth slips to 1.5pp. We assume that it unwinds completely in

4Q15. Provided today’s spot rates hold, the currency tailwind in 3Q15 could be

similar to 1H15 and remain significant in 4Q15 (~4pp on our estimates).

We appreciate, of course, that the exact currency impact in a given quarter depends

on how BYG recognises sales across its portfolio on projects worldwide. Our

assertion is simply that currency has been an important driver of EUR sales growth in

the last 2-3 quarters and that, all else equal, it will remain so throughout 2015.

9.8 9.4 8.6

7.5 8.8 11.2

1Q13 1Q14 1Q15

International

France

41% 40% 37%

29% 28%28%

15% 18% 22%

15% 14% 13%

1Q13 1Q14 1Q15

Beyond Y+5

Y+2 to Y+5

Y+1

Execution in Y

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22 July 2015



Table 10: Construction – sales growth in EUR alongside impact of Sep 2014 acquisition and currency trends 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E FY14 FY15E FY16E FY17E

Sales (EUR m) 2,596 2,962 2,934 3,234 2,779 3,140 3,081 3,301 11,726 12,301 12,424 12,734

France 1,365 1,544 1,453 1,597 1,389 - - - 5,959 - - -

International 1,231 1,418 1,481 1,637 1,390 - - - 5,767 - - -

o/w Plan acqn (Canada, Sep 2014) - - 24 70 90 70 70 90 94 320 320 320

Sales growth in EUR 6.0% 6.6% 6.2% 4.0% 7.0% 6.0% 5.0% 2.1% 5.6% 4.9% 1.0% 2.5%

France 3.6% -2.5% -2.8% -0.7% 1.8% -0.8%

International 8.8% 18.6% 16.7% 9.1% 12.9% 13.2%

Sales growth ex Plan in EUR 6.0% 6.6% 5.3% 1.8% 3.6% 3.6% 3.5% 1.5% 4.8% 3.0% 1.0% 2.5%

International ex Plan 3.6% -2.5% -4.4% -5.1% -4.8% 11.3%

EUR stronger(weaker) y/y

GBP EUR -3% -4% -7% -6% -10% -11% -11% -10% -5% -11% -2% 0%

USD EUR 4% 5% 0% -8% -18% -19% -16% -11% 0% -16% 0% 0%

AUD EUR 20% 12% -1% 0% -6% -3% 2% 0% 7% -2% 1% 0%

1Q14 1H14 9M14 FY14 1Q15

Sales growth LFL/const FX 6% 7% 6% 4% -2%


Chart 39: Construction – components of sales growth (in EUR)


BYG management has noted the first signs of potential improvement in the French

construction market starting in 2016. The Pinel buy-to-let was already stimulating some

improved demand for residential reservations in 1Q15 although there should be a c.1 year

lag before this translates into construction work. And with presidential elections

scheduled for 2017, the construction sector may be a useful lever for politicians to create

employment and stimulate economic activity. We forecast sales growth of 1.0% in 2016

and 2.5% in 2017+, a pick-up from the -2% LFL/constant FX growth that was achieved in

1Q15 and which we expect to persist throughout 2015.

We understand that Plan has no visible impact on BYG Construction margins. But an

increasing proportion of sales from early-stage projects (notably in HK) could slightly

depress current year margins. We model operating margins tightening 20bp y/y to 2.7%

in 2015. Beyond 2015, margins should expand as the weight of early-stage projects

declines. Historically, BYG Construction has achieved operating margins above our 3.3%

forecast for 2017+. However we doubt that the level of highly profitable public sector

work on grand projects in France will return to historic level in the foreseeable future.

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

FX tailwind/(headwind)

Plan acquisition (Sep 2014)

LFL/const FX

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22 July 2015



Table 11: Construction – sales forecasts assume currency tailwind unwinds in FY16 and that operating margins expand In € millions 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E FY14 FY15E FY16E FY17E FY18E

Sales 2,596 2,962 2,934 3,234 2,779 3,140 3,081 3,301 11,726 12,301 12,424 12,734 13,053

y/y growth 6.0% 6.6% 6.2% 4.0% 7.0% 6.0% 5.0% 2.1% 5.6% 4.9% 1.0% 2.5% 2.5%

EBITDA 76 130 143 280 72 135 151 282 629 640 683 739 757

margin 2.9% 4.4% 4.9% 8.7% 2.6% 4.3% 4.9% 8.5% 5.4% 5.2% 5.5% 5.8% 5.8%

Current op profit 81 92 67 95 71 94 71 96 335 332 373 420 431

margin 3.1% 3.1% 2.3% 2.9% 2.6% 3.0% 2.3% 2.9% 2.9% 2.7% 3.0% 3.3% 3.3%

Capex 40 47 52 33 32 50 55 47 172 185 224 267 274

% sales 1.5% 1.6% 1.8% 1.0% 1.2% 1.6% 1.8% 1.4% 1.5% 1.5% 1.8% 2.1% 2.1%


Immobilier

Around three-quarters of BYG’s property development business is in the residential

segment. Demand here has been depressed for several years but recent government

stimulus has encouraged a pick-up in reservations for the last two quarters (Chart 40). The

practicalities of planning and coordination of work programmes result in a time lag

between reservation and associated revenue.

Chart 40: Immobilier – residential reservations (€ millions)


We forecast 2Q15 sales -4.5% y/y (vs. -4.3% 1Q15, +4.1% 4Q14, +32% 3Q14).

Sales growth in 2H14 was distorted by two receipts which are outside the ‘normal’

trend. In 3Q14, BYG registered revenue of €150m from the sale of land as part of a

€300m project to construct a headquarters building for SMA, an insurance

company. Then, in 4Q14, €90m of revenue was registered in respect of the

completion of the ‘Green Office’ for Unilever. In Table 12 below, we adjust for these

items. ‘Normalised’ sales growth was around +6% in 3Q14 and -7% in 4Q14.

The analysis in our table shows that residential sales were still in decline at the 1Q15

stage and that the ‘normalised’ trend in commercial sales was falling at an

accelerating rate.

It can be seen that our sales forecasts for 2Q-4Q15 imply a ‘normalised’ decline of around

4% y/y, in-line with 1Q15. We return to (very modest) growth in 2016, consistent with

BYG’s guidance that its construction businesses should get back to growth by then.

Looking down to Table 13, we forecast some recovery in margins as market conditions

improve with operating margins returning to 7.5% by 2018. A decade ago (pre-

recession), BYG Immobilier was achieving low double digit margins.

-

100

200

300

400

500

600

700

800

900

1,000

1Q 2Q 3Q 4Q

2010

2011

2012

2013

2014

2015

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22 July 2015



Table 12: Immobilier – sales growth adjusting for exceptional SMA/Green Office receipts in 2H14 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E FY14 FY15E FY16E FY17E FY18E

Sales 536 656 750 833 513 626 574 712 2,775 2,425 2,450 2,499 2,574

Residential 440 546 498 636 427 2,120

Commercial 96 110 252 197 86 655

Sales outside

normal trend

- - 150 90 - - - - 240 - - - -

Sales growth in EUR 1.9% 6.3% 32.3% 4.1% -4.3% -4.5% -23.5% -14.5% 10.6% -12.6% 1.0% 2.0% 3.0%

Residential -0.9% 3.2% 5.5% -6.9% -3.0% -0.4%

Commercial 17.1% 25.0% 165.3% 68.4% -10.4% 71.5%

Normalised sales

growth in EUR

1.9% 6.3% 5.8% -7.1% -4.3% -4.5% -4.4% -4.2% 1.0% -4.3% 1.0% 2.0% 3.0%

Norm. Commercial 17.1% 25.0% 7.4% -8.5% -10.4% 8.6%

Source: Jefferies estimates, company data. Note: ‘sales outside normal trend’ reflects SMA sales 3Q14 and Green Office 4Q14.

Table 13: Immobilier – we expect an improving residential market to restore sales growth from 2016 In € millions 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E FY14 FY15E FY16E FY17E FY18E

Sales 536 656 750 833 513 626 574 712 2,775 2,425 2,450 2,499 2,574

y/y growth 1.9% 6.3% 32.3% 4.1% -4.3% -4.5% -23.5% -14.5% 10.6% -12.6% 1.0% 2.0% 3.0%

EBITDA 22 42 48 61 15 38 35 50 173 138 165 189 212

margin 4.1% 6.4% 6.4% 7.3% 2.9% 6.1% 6.1% 7.0% 6.2% 5.7% 6.8% 7.6% 8.3%

Current op profit 28 41 54 51 27 36 33 45 174 141 147 170 193

margin 5.2% 6.3% 7.2% 6.1% 5.3% 5.7% 5.8% 6.3% 6.3% 5.8% 6.0% 6.8% 7.5%

Capex 4 2 3 4 2 3 2 3 13 10 10 10 10

% sales 0.7% 0.3% 0.4% 0.5% 0.4% 0.4% 0.4% 0.4% 0.5% 0.4% 0.4% 0.4% 0.4%


Telecom

Service revenue declines are easing progressively (-3.5% y/y 1Q15 vs. -9.1% 1Q14). This is

in spite of the mobile re-pricing currently underway, following the simplification of back

book tariffs initiated in 3Q14. The headwind from mobile re-pricing is being rapidly dealt

with. BYG disclosed that ‘close to 90%’ of affected customers had already been migrated

by its 1Q15 results in mid-May. In fixed broadband, the Miami box (available to new

customers only since March), is enabling BYG to access customers beyond the purely low-

spending niche. This should sustain fixed revenue momentum, although we think the

back book will continue to weigh. In the discussion of the French fixed broadband market

earlier in this report, we illustrated BYG’s declining BB ARPUs and highlighted how front

book pricing (even on the Miami plan) stands well below the blended ARPU of the base.

We have argued in this note that Free could renew price disruption in Mobile if it emerges

from Nov’s spectrum auction dissatisfied with the allocation it has achieved. Another

mobile price war clearly poses forecast risk across all operators. However, in contrast to

the last price war in 2012, we think BYG’s downside is limited by the substantial rebasing

of its mobile ARPUs in the last 3-4 years. Back in Dec 2011, BYG mobile ARPU was

~€35/month. Nowadays it stands slightly below €21.

Management is extremely confident that Telecom EBITDA will return to growth in FY2015.

In its statements rejecting the latest Altice bid, BYG committed itself to returning EBITDA

margins to historic 25% levels (based on service revenues) over the next few years (exact

timeframe not defined). We model margins edging up from 16% (on total revenues) in

2015 to 20% by 2017 (equates to 23% on service revenues). This relies on a return to

revenue growth post-2015 (+2-3% pa) and a fairly flat cost base (+1-2% pa). BYG is in the

midst of a €300m pa cost saving plan due to complete in 2016. The savings target

equates to ~8% of BYG Telecom’s 2013 cost base.

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22 July 2015



Table 14: Bouygues Telecom – we expect a return to revenue growth post-2015 In € millions Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015E Q3 2015E Q4 2015E 2014 2015E 2016E 2017E 2018E

Service revenues 966 974 975 954 932 942 950 931 3,869 3,755 3,898 4,016 4,127

y/y change n/a n/a n/a n/a -3.5% -3.3% -2.6% -2.4% -7.5% -2.9% 3.8% 3.0% 2.7%

Other revenues 119 118 142 184 131 130 150 189 563 600 600 600 600

Total revenues 1,085 1,092 1,117 1,138 1,063 1,072 1,100 1,120 4,432 4,355 4,498 4,616 4,727

y/y change n/a n/a n/a n/a -2.0% -1.8% -1.5% -1.6% -5.0% -1.7% 3.3% 2.6% 2.4%

EBITDA 118 184 221 171 118 174 214 191 694 697 810 923 945

margin 10.9% 16.8% 19.8% 15.0% 11.1% 16.2% 19.5% 17.0% 15.7% 16.0% 18.0% 20.0% 20.0%

Capex 180 157 157 190 207 172 176 208 684 762 720 692 709

% sales 16.6% 14.4% 14.1% 16.7% 19.5% 16.0% 16.0% 18.5% 15.4% 17.5% 16.0% 15.0% 15.0%


Alstom

Consensus anticipates that BYG will receive a dividend of ~€1bn from Alstom in 4Q15.

Alstom is due to receive €12.4bn from the sale of its power equipment business to GE.

BYG’s prospective cash windfall comes at a very convenient time with the group gearing

up for a 700MHz spectrum auction in Nov that has been structured to sharpen

competition. Even the reserve price on the two blocks which BYG is likely to covet has

been set at €832m (more than 5x the reserve price of corresponding frequencies in the

recent German spectrum auction). Moreover, BYG’s dividend has been flat since 2008 but

has not been covered by group equity FCF post-minorities since 2012. When

management committed to paying the 2015 dividend in cash at the start of the year (not

repeating last year’s scrip offer), the likelihood of a special dividend of Alstom was

highlighted as an important enabling factor.

However, the Alstom-GE transaction requires EU approval. Competition Commissioner,

Margrethe Vestager, has a 21 Aug deadline to make her decision. Press reports in recent

weeks have suggested that EU officials are concerned that the transaction would leave GE

dominant in the gas turbine market and that this might distort competition. The EU could

reject the deal or propose remedies. Any proposed remedies might or might not be

acceptable to GE. To be clear, we don’t have any expertise in this process. Judging from

the intense lobbying being played out in the media, however, it seems to us not entirely

certain that BYG will secure its cash windfall.

Telecommunications


22 July 2015



Table 15: Bouygues P&L Forecasts 2014 2015E 2016E 2017E 2018E 2019E 2020E

SALES

Construction 11,726 12,207 12,329 12,637 12,953 13,277 13,609

Immobilier 2,775 2,345 2,345 2,392 2,464 2,537 2,614

Colas 12,396 11,900 11,900 12,138 12,502 12,877 13,264

TF1 2,243 2,051 2,072 2,092 2,113 2,134 2,156

Telecom 4,432 4,355 4,498 4,616 4,727 4,832 4,922

HoldCo & other 128 131 133 136 139 143 146

Intra-group elimination (562) (561) (566) (578) (593) (609) (624)

Group sales 33,138 32,429 32,710 33,433 34,305 35,192 36,086

EBITDA

Construction 629 635 678 733 751 770 789

Immobilier 173 134 145 167 190 195 201

Colas 770 762 809 850 875 901 928

TF1 178 226 249 272 211 256 280

Telecom 694 697 810 923 945 966 984

HoldCo & other (26) (25) (26) (26) (27) (28) (28)

Intra-group elimination - - - - - - -

Group EBITDA 2,418 2,427 2,665 2,919 2,946 3,062 3,155

EBITDA MARGIN

Construction 5.4% 5.2% 5.5% 5.8% 5.8% 5.8% 5.8%

Immobilier 6.2% 5.7% 6.2% 7.0% 7.7% 7.7% 7.7%

Colas 6.2% 6.4% 6.8% 7.0% 7.0% 7.0% 7.0%

TF1 7.9% 11.0% 12.0% 13.0% 10.0% 12.0% 13.0%

Telecom 15.7% 16.0% 18.0% 20.0% 20.0% 20.0% 20.0%

HoldCo & other -20.3% -19.4% -19.4% -19.4% -19.4% -19.4% -19.4%

Group EBITDA margin 7.3% 7.5% 8.1% 8.7% 8.6% 8.7% 8.7%

D&A, impairments, provisions

Construction (294) (305) (308) (316) (324) (332) (340)

Immobilier 1 2 (5) (5) (5) (5) (5)

Colas (438) (440) (440) (449) (438) (451) (464)

TF1 (35) (41) (41) (42) (42) (43) (43)

Telecom (759) (801) (818) (843) (857) (893) (892)

HoldCo & other (5) (11) (11) (11) (11) (11) (12)


Group D&A (1,530) (1,596) (1,624) (1,666) (1,677) (1,735) (1,756)

CURRENT OPERATING PROFIT

Construction 335 330 370 417 427 438 449

Immobilier 174 136 141 163 185 190 196

Colas 332 321 369 401 438 451 464

TF1 143 185 207 230 169 213 237

Telecom (65) (104) (9) 80 88 73 93

HoldCo & other (31) (36) (36) (37) (38) (39) (40)


Current operating profit 888 831 1,042 1,253 1,269 1,327 1,399

CURRENT OP PROFIT MARGIN (%)

Construction 2.9% 2.7% 3.0% 3.3% 3.3% 3.3% 3.3%

Immobilier 6.3% 5.8% 6.0% 6.8% 7.5% 7.5% 7.5%

Colas 2.7% 2.7% 3.1% 3.3% 3.5% 3.5% 3.5%

TF1 6.4% 9.0% 10.0% 11.0% 8.0% 10.0% 11.0%

Telecom -1.5% -2.4% -0.2% 1.7% 1.9% 1.5% 1.9%

Current operating profit margin (%) 2.7% 2.6% 3.2% 3.7% 3.7% 3.8% 3.9%

Other operating income/expense 245 (200) - - - - -

OPERATING PROFIT 1,133 631 1,042 1,253 1,269 1,327 1,399

Financial income 54 41 40 40 40 40 40

Financial expenses (365) (367) (377) (393) (404) (404) (392)

COST OF NET DEBT (311) (326) (337) (353) (364) (364) (352)

Pre-tax profit 822 305 705 900 905 963 1,047

Other financial income and expenses 10 8 6 5 4 3 3

Income tax expense (188) (110) (249) (317) (318) (338) (367)

Share of profit from associates 420 100 200 200 200 200 200

NET PROFIT (Cont. Operations) 1,064 304 662 788 791 828 882

Attributable to non-controlling interests 257 76 92 107 86 102 113

NET PROFIT attrib to the Group 807 228 570 681 705 726 770

Basic EPS (€) 2.41 0.68 1.70 2.03 2.10 2.16 2.29


Telecommunications


22 July 2015



Table 16: Bouygues Balance Sheet Forecasts 2014 2015E 2016E 2017E 2018E 2019E 2020E

Non-current assets 18,504 17,685 17,823 17,920 18,040 17,763 17,498

Current assets 16,364 16,754 16,954 17,054 17,154 17,254 17,354

TOTAL ASSETS 34,868 34,439 34,777 34,974 35,194 35,017 34,852

Shareholders' equity 9,455 8,919 8,923 9,053 9,185 9,354 9,578

Non-current liabilities 8,308 8,238 8,108 7,978 7,848 7,718 7,588

Current liabilities 17,105 17,282 17,746 17,943 18,161 17,944 17,686

TOTAL LIABILITIES & SE 34,868 34,439 34,777 34,974 35,194 35,017 34,852


Table 17: Bouygues Cash Flow Statement Forecasts 2014 2015E 2016E 2017E 2018E 2019E 2020E

Net profit from continuing operations 1,064 304 662 788 791 828 882

Share of profit reverting to associates (120) (60) (120) (120) (120) (120) (120)

Elim of divis from non-consol companies (16) (10) (10) (10) (10) (10) (10)

Charges to D&A, impairments 1,490 1,596 1,624 1,666 1,677 1,735 1,756

Gain/loss on asset disposals (658) - - - - - -

Other non-cash charges (1) - - - - - -

Add back cost of net debt 311 326 337 353 364 364 352

Income tax expense 188 110 249 317 318 338 367

Cash flow 2,258 2,265 2,742 2,994 3,020 3,135 3,228

Income tax paid in the period (319) (110) (249) (317) (318) (338) (367)

Changes in working capital 8 (300) (200) (100) (100) (100) (100)

Net cash from operating activities 1,947 1,855 2,293 2,577 2,602 2,697 2,761

Purchase of PPE and intangibles (1,502) (1,777) (1,762) (1,762) (1,798) (1,458) (1,491)

Proceeds from disposal of PPE/intangibles 140 - - - - - -

Net liabilities relating to PPE/intangibles (32) - - - - - -

Purchase of non-consol companies (16) - - - - - -

Proceeds from non-consol companies 16 - - - - - -

Net liabilities relating to non-consol companies (6) - - - - - -

Purchase of invts in consol activities (147) - - - - - -

Proceeds from consol activities 1,084 1,000 - - - - -

Net liabilities relating to consol activities 1 - - - - - -

Other cash effect of chg in scope of consol 46 - - - - - -

Other cash flow relating to investing activities 101 - - - - - -

Net cash used in investing activities (315) (777) (1,762) (1,762) (1,798) (1,458) (1,491)

Capital increases, acqn of treasury shares 21 - - - - - -

Dividends paid to parent co shareholders (110) (538) (538) (538) (538) (538) (538)

Dividends paid to minority shareholders (88) (302) (121) (121) (121) (121) (121)

Change in debt (517) 177 464 197 218 (217) (259)

Cost of net debt (311) (326) (337) (353) (364) (364) (352)

Other cash flows relating to financing (11) - - - - - -

Net cash used in financing activities (1,016) (988) (531) (815) (804) (1,239) (1,269)

Effect of FX fluctuations 110 - - - - - -

Change in net cash position 726 90 - - - - -

Net cash b/fwd 3,184 3,910 4,000 4,000 4,000 4,000 4,000

Net cash c/fwd 3,910 4,000 4,000 4,000 4,000 4,000 4,000


Telecommunications


22 July 2015



Table 18: Bouygues Changes to Estimates FY15E

Old

FY15E

New

% change FY16E

Old

FY16E

New

% change FY17E

Old

FY17E

New

% change

Sales 31,348 32,429 3.4% 31,792 32,710 2.9% 32,376 33,433 3.3%

Construction 11,374 12,207 7.3% 11,772 12,329 4.7% 12,067 12,637 4.7%

Immobilier 2,303 2,345 1.8% 2,303 2,345 1.8% 2,338 2,392 2.3%

Colas 11,776 11,900 1.1% 11,776 11,900 1.1% 11,953 12,138 1.6%

TF1 2,062 2,051 -0.5% 2,082 2,072 -0.5% 2,103 2,092 -0.5%

Telecom 4,247 4,355 2.5% 4,279 4,498 5.1% 4,344 4,616 6.3%

HoldCo & other 127 131 3.4% 129 133 2.9% 131 136 3.3%

Intra-group elimination (542) (561) 3.4% (550) (566) 2.9% (560) (578) 3.3%

Check - - - - - -

EBITDA 2,211 2,427 9.7% 2,277 2,665 17.1% 2,387 2,919 22.3%

Construction 512 635 24.0% 530 678 28.0% 543 733 35.0%

Immobilier 145 134 -7.9% 145 145 0.2% 164 167 2.3%

Colas 707 762 7.8% 730 809 10.8% 765 850 11.1%

TF1 223 226 1.3% 233 249 6.6% 246 272 10.5%

Telecom 650 697 7.2% 663 810 22.1% 695 923 32.8%

HoldCo & other (25) (25) 3.4% (25) (26) 2.9% (25) (26) 3.3%

Current operating profit 736 831 12.9% 825 1,042 26.3% 929 1,253 35.0%

Construction 341 330 -3.4% 400 370 -7.6% 410 417 1.6%

Immobilier 134 136 1.8% 134 141 5.3% 152 163 7.0%

Colas 318 321 1.1% 342 369 8.0% 371 401 8.1%

TF1 157 185 17.8% 167 207 24.4% 179 230 28.8%

Telecom (184) (104) -43.3% (187) (9) -95.3% (153) 80 -152.6%

HoldCo & other (29) (36) 22.8% (30) (36) 22.1% (30) (37) 22.5%

Intra-group elimination - - 0.0% - - 0.0% - - 0.0%

Operating profit 536 631 17.8% 825 1,042 26.3% 929 1,253 35.0%

Net Profit 290 304 4.5% 584 662 13.4% 643 788 22.7%

Net profit attributable to Group 231 228 -1.2% 520 570 9.7% 571 681 19.3%

Basic EPS 0.69 0.68 -1.2% 1.55 1.70 9.7% 1.70 2.03 19.3%

Basic EPS before exceptionals 0.69 0.68 1.55 1.70 1.70 2.03

DPS 1.60 1.60 0.0% 1.60 1.60 0.0% 1.60 1.60 0.0%


Table 19: Bouygues - JEFe vs BBG Consensus 2015 2016 2017 2018

JEFe Cons Var JEFe Cons Var JEFe Cons Var JEFe Cons Var

Sales 32,429 31,839 1.9% 32,710 32,119 1.8% 33,433 32,584 2.6% 34,305 33,089 3.7%

EBITDA 2,427 2,354 3.1% 2,665 2,479 7.5% 2,919 2,640 10.6% 2,946 2,715 8.5%

EBIT 631 703 -10.2% 1,042 988 5.5% 1,253 1,159 8.2% 1,269 1,214 4.5%

EPS 0.68 1.08 -37.2% 1.70 1.85 -8.4% 2.03 1.89 7.3% 2.10 1.94 8.4%

Source: Jefferies estimates, Bloomberg

Telecommunications


22 July 2015



Table 20: Bouygues Q215 Divisional Forecasts Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015E

SALES

Construction 2,596 2,962 2,934 3,234 2,779 3,104

Immobilier 536 656 750 833 513 613

Colas 2,165 3,129 3,890 3,212 1,979 3,035

TF1 556 619 438 630 475 508

Telecom 1,085 1,092 1,117 1,138 1,063 1,072

HoldCo & other 38 32 28 30 37 35

Intra-group elimination (135) (149) (116) (162) (115) (156)

Group sales 6,841 8,341 9,041 8,915 6,731 8,211

SALES GROWTH

Construction 7.0% 4.8%

Immobilier -4.3% -6.5%

Colas -8.6% -3.0%

TF1 -14.6% -18.0%

Telecom -2.0% -1.8%

HoldCo & other -2.6% 10.0%

Group sales growth -1.6% -1.6%

EBITDA

Construction 76 130 143 280 72 161

Immobilier 22 42 48 61 15 37

Colas (176) 197 418 331 (173) 182

TF1 26 7 24 121 26 22

Telecom 118 184 221 171 118 174

HoldCo & other (12) (3) (5) (6) (14) (3)

Intra-group elimination - - - - - -

Group EBITDA 54 557 849 958 44 573

EBITDA MARGIN

Construction 2.9% 4.4% 4.9% 8.7% 2.6% 5.2%

Immobilier 4.1% 6.4% 6.4% 7.3% 2.9% 6.1%

Colas -8.1% 6.3% 10.7% 10.3% -8.7% 6.0%

TF1 4.7% 1.1% 5.5% 19.2% 5.5% 4.3%

Telecom 10.9% 16.8% 19.8% 15.0% 11.1% 16.2%

HoldCo & other -31.6% -9.4% -17.9% -20.8% -37.8% -8.5%

Group EBITDA margin 0.8% 6.7% 9.4% 10.7% 0.7% 7.0%

D&A, impairments, provisions

Construction 5 (38) (76) (185) (1) (78)

Immobilier 6 (1) 6 (10) 12 (2)

Colas (59) (89) (125) (165) (71) (106)

TF1 (7) 21 (14) (35) 2 24

Telecom (182) (191) (191) (195) (180) (194)

HoldCo & other 5 (2) (2) (6) - (3)


Group D&A (232) (300) (402) (596) (238) (359)

CURRENT OPERATING PROFIT

Construction 81 92 67 95 71 84

Immobilier 28 41 54 51 27 35

Colas (235) 108 293 166 (244) 76

TF1 19 28 10 86 28 46

Telecom (64) (7) 30 (24) (62) (20)

HoldCo & other (7) (5) (7) (12) (14) (6)


Current operating profit (178) 257 447 362 (194) 214


Telecommunications


22 July 2015



Numericable-SFR (29th July) 2Q15 estimates

We forecast group revenues of €2,764m and adj. EBITDA of €968m. In B2C mobile we

forecast -220k net customer losses (incl. -100k postpay). This compares against -422k (-

144k) in 1Q15, the first full-quarter for which SFR was under NUM’s control. We model

mobile ARPU -0.9% y/y at €22.4 (postpay -4.0% at €25.7). The 1Q15 run-rates were -

3.7% y/y blended and -5.3% for postpay. In B2C fixed we forecast net adds from FTTB/H

combined improving to 90k this quarter (vs. 48k in 1Q15). We model fixed ARPU

increasing +1.8% y/y (at €34.6), benefiting from the better intake mix. We forecast the

white label on base on legacy NUM stable q/q as BYG Tel focuses promotional activity on

retail but without actively incentivising its higher-speed customers to churn.

A feature of the adjusted EBITDA reported last quarter was that NUM-SFR added back

€23m of cost savings which had been negotiated with suppliers by the end of the quarter

as if they had been implemented since 1 Jan. Also added back was NUM-SFR’s €22m CVAE

tax liability accrued in the quarter. NUM management only took charge of SFR at the end

of Nov last year. As supplier renegotiations gather pace, it seems feasible the quantum of

savings secured but yet to be implemented could trend higher, at least for the next few

quarters. We have estimated the evolution of this effect in our updated model.

Updated forecasts

We reflect current year guidance in our forecasts as well as management’s assertion at last

May’s strategy update that SFR synergies are now expected to surpass the previously

disclosed target of €1.1bn gross benefit by the end of 2017. We model 2015 adjusted

EBITDA of €3,744m. This would represent pro forma growth of 21% (guidance: above

20%). Our forecast includes a €140m adjustment related to savings negotiated but not

yet implemented and a €70m CVAE tax liability. On a pro forma basis, adjusted EBITDA

grew 21% y/y in 1Q15, having declined by 11% y/y in FY2014. We model EBITDA minus

capex of €1,926m (guidance: €1.9-2.0bn).

Our FY2015 forecast equates to an adjusted EBITDA margin of 34% (up from 27% in

2014). When the SFR acquisition was announced, management targeted 40% margins

mid-term, but raised this to above 45% back in May. We model 41% margins in 2017 and

42% by 2020. We believe that firmer revenue prospects are necessary to justify more

ambitious margin estimates. Pro forma revenues declined -5.0% y/y in FY2014 and -4.6%

in 1Q15. We forecast a -3.6% decline to €11.0bn across FY2015 with revenues stabilising

not until 2017. However, as discussed in the front sections of this report, the competitive

and pricing environment in French telecoms looks increasingly fragile. Discounting is

already very prevalent in the fixed broadband segment and (we think) is becoming more

so in mobile as well. Nov’s spectrum auction looks engineered to disrupt and could

instigate the most abrupt price-cutting that French Mobile has experienced since 2012-13.

With SFR integration still in its early stages, NUM-SFR revenue forecasts look particularly

susceptible to any deterioration in the market backdrop, in our view.

Hold rating retained

Our new €51 price target (from €47) is based on a SOP valuation (WACC 6.8%, terminal

growth 1.0%). At target, NUM-SFR would trade on 9.4x EV/EBITDA in 2015e, 7.1x by

2018e. EV/OpFCF multiples would stand at 18.4x in Dec 2015e, 11.4x by 2018e.

Contracting multiples reflect the substantial margin growth factored into our forecasts

and leaves the stock trading in-line in the sector on a 2018 view. The key to becoming

more positive would, in our view, be improved commercial resilience delivering upside to

revenue forecasts (and perhaps bringing even higher margins within reach). As Nov’s

spectrum auction draws closer, we expect post-auction pricing risks to capture more

attention. We have argued that consolidation of BYG Telecom becomes much more

feasible from early-2016. However, we see more value upside in both BYG and ORA in this

scenario.

Telecommunications


22 July 2015



Table 21: Numericable-SFR P&L Forecasts 1Q14R 2Q14R 3Q14R 4Q14R FY14 1Q15E 2Q15E 3Q15E 4Q15E FY15E FY16E FY17E FY18E

Revenue 327.6 336.1 331.7 1,174.6 2,170.0 2,740.0 2,763.6 2,774.8 2,740.6 11,019.0 10,919.9 10,941.8 11,089.0

Growth 1.0% 3.2% 4.0% 240.1% 65.1% 736.4% 722.3% 736.5% 133.3% 407.8% (0.9%) 0.2% 1.3%

Operating expenses (174.1) (179.4) (175.8) (934.6) (1,464.0) (1,810.0) (1,795.6) (1,747.9) (1,921.6) (7,275.1) (6,789.9) (6,485.3) (6,558.7)

% of revenue 53.1% 53.4% 53.0% 79.6% 67.5% 66.1% 65.0% 63.0% 70.1% 66.0% 62.2% 59.3% 59.1%

Growth 0.3% 4.5% 3.4% 410.7% 109.6% 939.6% 900.7% 894.1% 105.6% 396.9% (6.7%) (4.5%) 1.1%

Adjusted EBITDA 153.5 156.7 155.9 239.9 706.0 930.0 968.0 1,026.9 871.9 3,743.9 4,130.0 4,456.5 4,530.3

Margin 46.9% 46.6% 47.0% 20.4% 32.5% 33.9% 35.0% 37.0% 31.8% 34.0% 37.8% 40.7% 40.9%

Margin expansion / (contraction) 0.4pp (0.6pp) 0.3pp (26.6pp) (14.3pp) (12.9pp) (11.6pp) (10.0pp) 11.4pp 1.4pp 3.8pp 2.9pp 0.1pp

Growth 1.8% 1.8% 4.7% 47.8% 14.6% 505.9% 517.9% 558.8% 263.4% 4.4% 10.3% 7.9% 1.7%

Inorganic items (4.2) (12.2) (6.5) (114.1) (137.0) (58.0) (56.0) (83.5) (104.0) (248.5) (229.3) (219.7) (81.2)

Reported EBITDA 149.3 144.4 149.4 125.9 569.0 872.0 912.0 943.4 767.9 3,495.4 3,900.7 4,236.8 4,449.0

Margin 45.6% 43.0% 45.0% 10.7% 26.2% 31.8% 33.0% 34.0% 28.0% 31.7% 35.7% 38.7% 40.1%

Margin expansion / (contraction) 0.0pp (2.4pp) 0.9pp (25.1pp) (16.4pp) (13.7pp) (10.0pp) (11.0pp) 17.3pp 5.5pp 4.0pp 3.0pp 1.4pp

Growth 1.0% (2.3%) 6.2% 1.7% 1.6% 484.1% 531.4% 531.6% 510.0% 21.0% 11.6% 8.6% 5.0%

D&A (74.8) (76.7) (78.7) (230.8) (461.0) (508.2) (435.6) (435.6) (435.6) (1,815.0) (1,806.3) (1,788.1) (1,771.0)

% of capex (99.7%) (87.2%) (90.5%) (74.7%) (82.5%) (127.0%) (105.1%) (98.1%) (77.8%) (99.8%) (103.4%) (103.4%) (103.0%)

Operating income 74.5 67.7 70.6 (104.9) 108.0 363.8 476.4 507.9 332.3 1,680.4 2,094.4 2,448.7 2,678.1

Margin 22.7% 20.2% 21.3% (8.9%) 5.0% 13.3% 17.2% 18.3% 12.1% 15.3% 19.2% 22.4% 24.2%

Growth (1.2%) (8.9%) 4.6% (370.3%) (57.8%) 388.3% 603.3% 619.1% (416.9%) 1455.9% 24.6% 16.9% 9.4%

Total Financial Income (Expense) (39.5) (240.3) (147.5) (172.8) (600.0) (186.9) (165.3) (194.1) (172.5) (718.9) (696.9) (638.8) (586.0)

Growth (19.5%) 400.8% 185.0% (1.2%) 85.4% 372.6% (31.2%) 31.6% (0.1%) 19.8% (3.1%) (8.3%) (8.3%)

Profit before tax 35.0 (172.5) (76.8) (277.6) (492.0) 176.9 311.1 313.8 159.8 961.6 1,397.5 1,809.9 2,092.1

Margin 10.7% (51.3%) (23.2%) (23.6%) (22.7%) 6.5% 11.3% 11.3% 5.8% 8.7% 12.8% 16.5% 18.9%

Growth 32.8% (754.0%) (587.1%) 104.1% 628.2% 406.0% (280.3%) (508.4%) (157.6%) (295.4%) 45.3% 29.5% 15.6%

Income tax expense 0.0 54.1 (17.7) 276.5 313.0 (22.3) (19.7) (23.2) (20.6) (85.9) (288.6) (591.1) (671.8)

Effective tax rate 0.0% 31.4% (23.0%) 99.6% 63.6% 12.6% 6.3% 7.4% 12.9% 8.9% 20.7% 32.7% 32.1%

Net income of associates 0.0 0.0 (0.1) 4.1 4.0 1.0 0.9 1.1 1.0 4.0 4.0 4.0 4.0

Growth na na (39.4%) (1294.7%) (926.4%) na na (1355.8%) (76.5%) 0% 0% 0% 0%

Minority interests (0.0) (0.0) (0.0) (1.0) (1.0) (0.3) (0.2) (0.3) (0.2) (1.0) (1.0) (1.0) (1.0)

Net income attributable 35.0 (118.4) (94.6) 2.0 (176.0) 155.4 292.0 291.4 139.9 878.7 1,111.9 1,221.8 1,423.3


Table 22: Numericable-SFR Pro Forma Forecasts FY14 FY15E FY16E FY17E FY18E

Revenue

B2C 7,888 7,493 7,416 7,458 7,625

B2B 2,223 2,178 2,156 2,156 2,156

Wholesale 1,325 1,348 1,348 1,328 1,308

Total revenue 11,436 11,019 10,920 10,942 11,089

Revenue Growth (%)

B2C (4.5%) (5.0%) (1.0%) 0.6% 2.2%

B2B (6.0%) (2.0%) (1.0%) 0.0% 0.0%

Wholesale (6.6%) 1.7% 0.0% (1.5%) (1.5%)

Total revenue (5.0%) (3.6%) (0.9%) 0.2% 1.3%

Adjusted EBITDA 3,100 3,744 4,130 4,456 4,530

% of total revenue 27.1% 34.0% 37.8% 40.7% 40.9%

Capex 1,781 1,818 1,747 1,729 1,719

% of total revenue 15.6% 16.5% 16.0% 15.8% 15.5%

OpFCF 1,319 1,926 2,383 2,728 2,811


Telecommunications


22 July 2015



Table 23: Numericable-SFR Cash Flow Statement Forecasts FY14 FY15E FY16E FY17E FY18E

Net income from continuing operations (175.0) 879.7 1,112.9 1,222.8 1,424.3

Share in net income / (losses) of associates (4.0) (4.0) (4.0) (4.0) (4.0)

P&L tax (313.0) 85.9 288.6 591.1 671.8

D&A 466.0 1,815.0 1,806.3 1,788.1 1,771.0

Gains and losses on disposals (16.0) 0.0 0.0 0.0 0.0

Other non-cash operating gains and losses 54.0 0.0 0.0 0.0 0.0

P&L interest 439.0 721.3 699.4 641.3 588.5

Cash tax (57.0) (85.9) (288.6) (591.1) (671.8)

Changes in working capital 725.0 600.0 250.0 0.0 0.0

Net operating cash flow 1,119.0 4,012.0 3,864.6 3,648.2 3,779.8

Capital Expenditure (559.0) (1,818.1) (1,747.2) (1,728.8) (1,718.8)

Proceeds from disposal of tangible assets 8.0 0.0 0.0 0.0 0.0

Decrease / (increase) in loans (3.0) 0.0 0.0 0.0 0.0

Dividends from associates 0.0 0.0 0.0 0.0 0.0

Change in restricted Cash 0.0 0.0 0.0 0.0 0.0

Acquisition of investments in companies (13,206.0) 116.0 0.0 0.0 0.0

Investment subsidies and grants received 2.0 0.0 0.0 0.0 0.0

Net investing cash flow (13,758.0) (1,702.1) (1,747.2) (1,728.8) (1,718.8)

Equity issue / (reduction) 4,721.0 (1,948.0) 0.0 0.0 0.0

Dividends paid 0.0 0.0 (181.8) (306.7) (438.2)

Net issue / (repayment) of debt 8,784.0 357.0 (1,238.7) (973.9) (1,036.8)

Net cash interest (436.0) (718.9) (696.9) (638.8) (586.0)

Net financing cash flow 13,069.0 (2,309.8) (2,117.4) (1,919.4) (2,061.0)

Net cash flow from discontinued operations 0.0 0.0 0.0 0.0 0.0

Cash and cash equivalents b/f 101.4 546.0 546.0 546.0 546.0

Cash and cash equivalents c/f 546.0 546.0 546.0 546.0 546.0

Net increase / (decrease) in cash 430.0 0.0 0.0 0.0 0.0


Table 24: Numericable-SFR Free Cash Flow and Net Debt Forecasts FY14 FY15E FY16E FY17E FY18E

Free cash flow

Adjusted EBITDA 706.0 3,743.9 4,130.0 4,456.5 4,530.3

Capex (559.0) (1,818.1) (1,747.2) (1,728.8) (1,718.8)

Operating cash flow 147.0 1,925.7 2,382.8 2,727.7 2,811.5

Growth (50.4%) 1210.0% 23.7% 14.5% 3.1%

Reported EBITDA 569.0 3,495.4 3,900.7 4,236.8 4,449.0

Capex (559.0) (1,818.1) (1,747.2) (1,728.8) (1,718.8)

Change in working capital 725.0 600.0 250.0 0.0 0.0

Net interest paid (436.0) (718.9) (696.9) (638.8) (586.0)

Income taxes paid (57.0) (85.9) (288.6) (591.1) (671.8)

Equity free cash flow 242.0 1,472.5 1,418.0 1,278.1 1,472.5

Net debt

Gross debt 13,632.0 13,989.0 12,750.3 11,776.4 10,739.6

Less: cash (546.0) (546.0) (546.0) (546.0) (546.0)

Net debt 13,086.0 13,443.0 12,204.3 11,230.4 10,193.6

Gross debt 13,632.0 13,989.0 12,750.3 11,776.4 10,739.6

Less: perpetual subordinated loan (40.0) (35.2) (35.2) (35.2) (35.2)

Less: customer deposits (86.0) (44.5) (44.5) (44.5) (44.5)

Less: shareholder loans 0.0 0.0 0.0 0.0 0.0

Gross financial debt 13,506.0 13,909.3 12,670.6 11,696.7 10,659.9

Less: cash (546.0) (546.0) (546.0) (546.0) (546.0)

Net financial debt 12,960.0 13,363.3 12,124.6 11,150.7 10,113.9

Adjusted EBITDA 706.0 3,743.9 4,130.0 4,456.5 4,530.3

ProForma Adjusted EBITDA 3,100.0 3,743.9 4,130.0 4,456.5 4,530.3

Net debt / adjusted EBITDA 18.36x 3.57x 2.94x 2.50x 2.23x

ProForma Net debt / adjusted EBITDA 4.18x 3.57x 2.94x 2.50x 2.23x


Telecommunications


22 July 2015



Table 25: Numericable-SFR Balance Sheet Forecasts FY14 FY15E FY16E FY17E FY18E

Non-current assets

Goodwill 12,935.0 12,935.0 12,935.0 12,935.0 12,935.0

Other intangible assets 4,196.0 4,196.0 4,196.0 4,196.0 4,196.0

Property, plant and equipment 5,897.0 5,900.2 5,841.0 5,781.7 5,729.5

Investments in associates 130.0 130.0 130.0 130.0 130.0

Other non-current financial assets 1,683.0 1,683.0 1,683.0 1,683.0 1,683.0

24,841.0 24,844.2 24,785.0 24,725.7 24,673.5

Current assets

Inventories 256.0 256.0 256.0 256.0 256.0

Trade receivables and other receivables, net 2,812.0 2,212.0 1,962.0 1,962.0 1,962.0

Other current financial assets 8.0 8.0 8.0 8.0 8.0

Income tax receivable 252.0 252.0 252.0 252.0 252.0

Restricted Cash 0.0 0.0 0.0 0.0 0.0

Cash and cash equivalents 546.0 546.0 546.0 546.0 546.0

3,874.0 3,274.0 3,024.0 3,024.0 3,024.0

Total Assets 28,715.0 28,118.2 27,809.0 27,749.7 27,697.5

Shareholders equity

Net invested equity attributable to owners 7,965.0 7,010.3 7,939.0 8,852.8 9,836.5

Non-controlling interests 10.0 10.9 11.7 12.6 13.4

7,975.0 7,021.2 7,950.7 8,865.3 9,849.9

Non Current Liabilities

Non-current portion of financial liabilities 13,349.0 13,839.0 12,600.3 11,626.4 10,589.6

Non-current provisions 327.0 327.0 327.0 327.0 327.0

Deferred tax liabilities 43.0 43.0 43.0 43.0 43.0

Other non-current liabilities 583.0 583.0 583.0 583.0 583.0

14,302.0 14,792.0 13,553.3 12,579.4 11,542.6

Current Liabilities

Current portion of financial liabilities 283.0 150.0 150.0 150.0 150.0

Current provisions 317.0 317.0 317.0 317.0 317.0

Trade payables and other current liabilities 5,621.0 5,621.0 5,621.0 5,621.0 5,621.0

Current income tax liabilities 217.0 217.0 217.0 217.0 217.0

6,438.0 6,305.0 6,305.0 6,305.0 6,305.0

Total Liabilities and Shareholder Equity 28,715.0 28,118.2 27,809.0 27,749.7 27,697.5


Table 26: Numericable-SFR SOTP Valuation

EV FY15 EBITDA FY16 EBITDA EV / EBITDA EV / EBITDA Stake Value to NUM % of EV

EUR'm EUR'm EUR'm 2015 2016 % EUR'm %

Core cable business 35,556.1 3,743.9 4,130.0 9.5x 8.6x 100.0% 35,556.1 98.8%

Tax assets 428.1 n/a n/a n/a n/a 100.0% 428.1 1.2%

Enterprise value 35,984.3 3,743.9 4,130.0 9.6x 8.7x 35,984.3 100.0%

Less: net debt (FY15 y/e) (13,443.0)

Equity value 22,541.2

Shares in issue (forecast FY15 y/e) 438.2

Value per ordinary share (EUR) 51


Telecommunications


22 July 2015



Orange (22nd July) 2Q15 estimates

We forecast 2Q group revenues -1.8% y/y at €9,732m (1Q15 -0.9%), adj. EBITDA -0.1%

at €3,299m (vs. -2.3%) and capex +15% at €1,550m (vs. +3.0%). Our adj. EBITDA forecast

is 1.1% ahead of company-collated consensus. We are comfortable being at this slightly

higher level. The positive theme from ORA’s 2Q reporting is likely to be the arrival of an

EBITDA result that really is very close to y/y stabilisation. And this before the incorporation

of Jazztel into pro forma numbers (from 3Q15), which should improve the group’s y/y

trends a bit more. Net cost reduction will be below last year’s run-rates now that largely

regulated price reductions are no longer pulling down interconnect costs. However, we

do expect net cost reduction to rebound in 2Q from the very low levels seen in 1Q15.

Results will be presented with a new interpretation of IFRIC 21. IFRIC 21 provides

guidance on when to recognise a liability for government-imposed levies by identifying

the obligating event. For ORA, this is relevant for IFER (a French tax imposed on networks)

and property tax. In 2015, ORA’s annual IFER charge was €495m and property tax €38m.

In 2014 and 1Q15, ORA accounted for these charges on a straight line basis over a year.

However, to align itself against the emerging standard practice (IFRIC 21 was applied by

most European companies for the first time in 1Q15) ORA will from 2Q15 adopt the

policy of recognising the full annual liability during 1Q of each year. ORA will re-state

2014 and 1Q15 results accordingly. The change in policy will reduce headline profits at

1Q but increase them for 2Q-4Q. However, there is no net impact over a full-year.

Domestic: stable commercial trends

A feature of ORA France’s 2014 results was how the run-rate of cost reduction stepped

down between 1H and 2H. We think ORA’s policy of reinvesting some cost savings back

into commercial activity continued during 1H15. On rather stable (still declining)

revenues, we expect domestic EBITDA to fall -1.3% y/y in 1H15 (vs. -0.2% 2H14).

However, with strong commercial momentum, we think ORA has a solid platform to

return to EBITDA growth in 2H13 as cost comps get easier.

Costs fell by a net -€347m y/y in 1H14 but this dropped back to -€231m in 2H14.

ORA had achieved direct cost savings (mostly commercial costs) of -€123m in 1H14.

However, direct costs increased by a net €9m in 2H14. At the time, ORA argued this

was a deliberate tactic to improve retail competitiveness. With indirect cost savings

still running at -€240m y/y in 2H14 (vs. -€224m 1H14), ORA was able to report that

97% of its 2H14 revenue loss had been offset by cost savings (vs. 75% in 1H14).

For 1H15, our forecasts allow for a further slowdown in net cost reduction (-€152m

y/y). With revenues expected to decline at a similar run-rate (1H15 -2.0%, 2H14 -

2.4%), we model EBITDA falling a bit faster (1H15 -1.3%, 2H14 -0.2%).

Following the increase in commercial investment in 2H14, ORA has reported an

uptick in FBB net adds (including FTTH), lower contract mobile churn and better

adoption of 4G/premium offers. We expect robust commercial performance to have

continued into 2Q15, aiding by NUM-SFR still seeing high levels of disconnections.

We note that ORA subsidied its FTTH offers aggressively through the quarter

although NUM-SFR has also cited better month-by-month FTTH adoption since

March and BYG/Free offerings were both enhanced with new set top boxes. We

forecast 90k ORA FTTH net adds in 2Q (from 75k 1Q, 82k 4Q14). ORA is targeting

1m FTTH subs by y/e. Our forecast implies 728k at the 30 June stage.

It will be interesting to verify whether ORA still expects revenue declines to ease in

2H15. We forecast -1.4%/-0.4% in 3Q/4Q15 and +0.1% by 2016. For the time being

it seems that ORA is rather reliant on market share gains to bolster revenue trends.

Discounting FTTH and a gradual softening in mobile price-points (both discussed in

detail at the front of this report) are prolonging price deflation. Clearly a strategy

based on market share gains could store up competitive tension.

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22 July 2015



Table 27: Orange Quarterly Divisional Revenue Forecasts 1Q14 2Q14 1H14 3Q14 4Q14 2H14 1Q15 2Q15E

Total Revenue 9,804 9,788 19,592 9,805 10,049 19,853 9,672 9,732

France 4,810 4,803 9,613 4,826 4,865 9,691 4,722 4,698

Mobile services 1,948 1,930 3,878 1,924 1,873 3,797 1,854 1,811

Fixed services 2,620 2,647 5,267 2,638 2,631 5,269 2,578 2,624

Other 242 226 468 264 361 625 290 262

Europe 2,523 2,398 4,921 2,426 2,452 4,878 2,324 2,337

Mobile services 1,674 1,565 3,239 1,582 1,542 3,124 1,471 1,500

Fixed services 608 599 1,207 603 614 1,217 593 590

Other 241 234 475 241 296 537 260 247

o/w Spain 977 943 1,920 977 979 1,956 927 913

Mobile services 630 617 1,246 636 611 1,246 569 574

Fixed services 220 215 435 222 230 453 230 225

Other 127 112 238 119 138 257 128 113

o/w Poland 716 740 1,456 730 733 1,463 699 706

Mobile services 344 349 693 341 331 672 326 329

Fixed services 340 333 673 329 318 647 312 310

Other 32 58 90 60 84 144 61 67

o/w Belgium and Luxembourg 317 312 629 304 315 620 302 311

Mobile services 252 257 509 255 255 510 247 254

Fixed services 21 21 43 20 30 50 21 20

Other 44 34 77 29 30 60 34 36

o/w Other 513 403 916 415 425 839 396 407

Mobile services 448 342 791 350 345 696 329 342

Fixed services 27 30 56 32 36 67 30 34

Other 38 30 70 33 44 76 37 31

Africa and Middle East 1,014 1,060 2,075 1,069 1,142 2,211 1,124 1,152

Mobile services 786 822 1,608 836 892 1,728 899

Fixed services 190 200 390 196 203 399 185

Other 38 38 77 37 47 84 40

Enterprise 1,565 1,574 3,139 1,525 1,635 3,160 1,546 1,574

IC&SS 426 478 904 494 496 990 462 480

Eliminations (534) (525) (1,060) (535) (541) (1,077) (506) (509)


Spain: revenue pressure easing; strong fixed broadband momentum

We forecast ORA revenue trends improving to -3.3% y/y (vs. 1Q15 -5.0%). The company

attributed the weaker 1Q trend to heavier discounting of second lines on convergent

plans. This effect should have receded during 2Q, with TEF raising prices mid-quarter and

VOD following suit from early June (although we believe that some VOD promotions

lasted until the end of the month). Re-pricing of Mobile customers onto front book plans

should have been completed this quarter. ORA is likely to emphasise its strong

momentum in fixed broadband (where it has captured 33-39% of market net additions in

the last four quarters) and high-speed broadband (where legacy ORA has been scaling up

its activities in the last six months, securing 15% of market net adds during 1Q15, and a

28% share including Jazztel).

Cost reduction

Slower cost reduction was one of the most discussed themes of ORA’s 1Q15 results.

Unlike in 2014, ORA elected not to issue specifc cost-cutting guidance this year. Chart 41

illustrates the recent progression. In 1Q15, ORA incurred higher costs to support AMEA

growth, notably site rental and power costs on a ~10% increase in cell sites. And without

regulated price cuts, the previous benefit from falling interconnect costs unwound. These

issues should persist into 2Q15 and beyond. However, the company appears confident

that 1Q15 is not the new base for its cost ambitions. Our forecasts equate to net cost

reduction of -€177m y/y in 2Q15 (1Q15 -€34m, 2Q14 -€244m).

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22 July 2015



Chart 41: Net Reduction in Operating Costs (y/y, €m)


Table 28: ORA Guidance and JEF Forecasts Compared Year to 31 Dec (€m) 2014 2015E 2016E 2017E 2018E

Group

Revenue growth from 2017 -1.2% 0.3% 0.8% 1.2%

2018 revenue above 2014 39,542 39,063 39,187 39,502 39,966

Adj. EBITDA growth from 2016 -1.0% 1.5% 1.5% 1.9%

2018 adj. EBITDA above 2014 12,220 12,100 12,286 12,475 12,708

France

Revenue stabilised from 2017 -1.5% -0.1% 0.0% 0.5%

Adj. EBITDA margin above 2014 30.9% 31.0% 31.4% 31.6% 31.8%

Europe

Revenue growth from 2016 -3.4% 0.9% 1.9% 1.6%

Adj. EBITDA growth from 2016 -6.5% 3.6% 4.7% 4.2%

2018 adj. EBITDA above 2014 2,737 2,559 2,652 2,777 2,892

AMEA

Revenue growth >20% over period 4.9% 3.5% 3.6% 3.9%

Adj. EBITDA growth above revenue growth 2.1% 3.5% 4.4% 4.7%

Enterprise

Revenue stabilised from 2016 -3.4% -1.5% -0.5% 0.5%

Adj. EBITDA stabilised from 2017 -5.8% -1.5% -0.5% 0.5%


(114) (99) (119)(170)

(71)

(152)(146)

(30)

123

37

(300)

(250)

(200)

(150)

(100)

(50)

0

50

100

150

1Q14 2Q14 3Q14 4Q14 1Q15

Direct

Indirect

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22 July 2015



Table 29: Orange Valuation EV 100% Stake EV stake EUR/share Method

EUR m EUR m

France 42,950 100.0% 42,950 16.2 DCF

Spain 6,627 100.0% 6,627 2.5 DCF

Poland 6,487 49.8% 3,230 1.2 DCF

Belgium and Luxembourg 1,285 52.9% 680 0.3 DCF

Other Europe 4,020 100.0% 4,020 1.5 5.9x 15e EV/EBITDA

Africa and Middle East 10,807 80.0% 8,646 3.3 5.9x 15e EV/EBITDA

Enterprise/ICSS 6,270 100.0% 6,270 2.4 DCF

UK JV 18,000 50.0% 9,000 3.4 BT offer valuation

Korek 20.0% 177 0.1 Invested cap

Meditel (Morocco) 1,487 40.0% 595 0.2 5.0x 15e EV/EBITDA

Tunisia 500 49.0% 245 0.1 Invested cap

Enterprise value 82,439 31.1

Statutory net debt, Dec 2015e (31,226) (11.8)

50% of EE net debt (1,610) (0.6)

Minority share of debt 604 0.2

Employee benefit obligations (2,213) (0.8) Discounted liability

Tax assets 900 0.3

Equity value 48,895 18.5

Shares outstanding 2,650

Value/share (EUR) 18.5

Source: Jefferies estimates

Table 30: Orange P&L Forecasts 2014 2015E 2016E 2017E 2018E 2019E 2020E

Revenues 39,445 39,703 40,574 41,034 41,641 42,372 43,177

EBITDA 11,111 11,996 12,396 12,728 13,054 13,362 13,701

margin 28.2% 30.2% 30.6% 31.0% 31.3% 31.5% 31.7%

Add back:

Litigation from Tax Professionelle - - - - - - -

Other litigation 432 23 - - - - -

Restructuring expense 438 100 100 50 - - -

DPTG provision (Poland) - - - - - - -

Part Time for Seniors Plan provision (France) 493 75 70 10 - - -

New Calculation of Holiday pay - 34 - - - - -

ESOP cost 72 - - - - - -

Orange Sport/Cinema provision - - - - - - -

Income from TPSA sales of TP Emitel - - - - - - -

Income from ORA Switzerland disposal - - - - - - -

Provision for compensation payable to OTMT - - - - - - -

EC fine on TPSA - - - - - - -

Bonus Share Plan - - - - - - -

Orange Austria disposal - - - - - - -

Disposal of Wirtualna Polska in Poland (71) - - - - - -

Disposal of Bull Shares (6) - - - - - -

Disposal of Orange Dominicana (280) - - - - - -

Adjusted EBITDA 12,190 12,229 12,567 12,789 13,055 13,363 13,702

margin 30.9% 30.8% 31.0% 31.2% 31.4% 31.5% 31.7%

D&A (6,038) (6,097) (6,258) (6,349) (6,458) (6,585) (6,725)

Remeasurement from combinations - - - - - - -

Impairment of goodwill and fixed assets (288) - - - - - -

Share of profit/(loss) of associates (215) (10) 20 50 75 75 75

Operating income 4,570 5,889 6,158 6,429 6,672 6,852 7,052

Net financing costs (1,638) (1,590) (1,609) (1,550) (1,468) (1,376) (1,269)

Income tax (1,573) (1,590) (1,645) (1,712) (1,795) (1,891) (1,998)

Net income (cont. operations) 1,359 2,710 2,904 3,168 3,408 3,585 3,785

Net income (discont. operations) (135) - - - - - -

Group net income 1,224 2,710 2,904 3,168 3,408 3,585 3,785

Equity holders of FT 924 2,468 2,638 2,886 3,113 3,278 3,465

Minority interests 300 241 266 282 295 307 320

Basic EPS (EUR) 0.35 0.93 1.00 1.09 1.17 1.24 1.31

Diluted EPS (EUR) 0.35 0.93 1.00 1.09 1.17 1.24 1.31


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22 July 2015



Table 31: Orange Divisional Forecasts 2014 2015E 2016E 2017E 2018E 2019E 2020E

Revenues

Total Revenue 39,445 39,703 40,574 41,034 41,641 42,372 43,177

France 19,304 19,022 19,009 19,007 19,099 19,313 19,579

Mobile services 7,675 7,310 7,288 7,302 7,406 7,594 7,787

Fixed services 10,536 10,469 10,484 10,473 10,462 10,488 10,561

Other 1,093 1,242 1,237 1,231 1,231 1,231 1,231

Europe 9,798 9,983 10,811 11,133 11,434 11,711 11,979

Mobile services 6,363 6,101 6,416 6,571 6,702 6,806 6,905

Fixed services 2,424 2,793 3,256 3,400 3,553 3,710 3,861

Other 1,011 1,088 1,138 1,162 1,178 1,195 1,213

o/w Spain 3,876 4,363 5,091 5,313 5,528 5,718 5,896

Mobile services 2,492 2,498 2,735 2,840 2,938 3,010 3,078

Fixed services 888 1,339 1,805 1,910 2,022 2,135 2,239

Other 496 526 551 562 568 573 579

o/w Poland 2,919 2,793 2,812 2,855 2,917 2,980 3,045

Mobile services 1,365 1,286 1,308 1,312 1,327 1,341 1,353

Fixed services 1,319 1,228 1,216 1,246 1,284 1,324 1,366

Other 235 278 288 297 306 316 326

o/w Belgium and Luxembourg 1,249 1,244 1,245 1,253 1,260 1,267 1,274

Mobile services 1,019 1,009 1,000 1,005 1,009 1,013 1,017

Fixed services 92 89 92 95 98 101 104

Other 138 146 153 153 153 153 153

o/w Other 1,754 1,584 1,663 1,713 1,730 1,747 1,765

Mobile services 1,487 1,308 1,374 1,415 1,429 1,443 1,458

Fixed services 125 137 144 148 149 151 152

Other 142 139 146 150 151 153 155

Africa and Middle East 4,286 4,609 4,771 4,942 5,136 5,355 5,602

Mobile services 3,336

Fixed services 789

Other 161

Enterprise 6,299 6,236 6,142 6,112 6,142 6,179 6,222

IC&SS 1,893 1,931 1,964 1,987 2,009 2,031 2,053

Eliminations (2,135) (2,077) (2,123) (2,147) (2,179) (2,217) (2,259)

% of Total -5.1% -5.0% -5.0% -5.0% -5.0% -5.0% -5.0%

Restated EBITDA

Total Restated EBITDA 12,190 12,229 12,567 12,789 13,055 13,363 13,702

France 6,991 7,076 7,128 7,127 7,162 7,262 7,381

Europe 2,790 2,688 2,933 3,090 3,239 3,354 3,469

o/w Spain 958 1,003 1,181 1,275 1,382 1,458 1,533

o/w Poland 921 838 872 914 948 979 1,011

o/w Belgium and Luxembourg 275 273 277 281 282 284 285

o/w Other 636 574 603 621 627 634 640

Africa and Middle East 1,402 1,544 1,598 1,668 1,746 1,834 1,933

Enterprise 990 904 891 886 891 896 902

IC&SS 16 16 17 17 17 17 17

Eliminations 1 - - - - - -

Restated EBITDA Margin (%) 31% 31% 31% 31% 31% 32% 32%

France 36% 37% 38% 38% 38% 38% 38%

Europe 28% 27% 27% 28% 28% 29% 29%

o/w Spain 25% 23% 23% 24% 25% 26% 26%

o/w Poland 32% 30% 31% 32% 33% 33% 33%

o/w Belgium and Luxembourg 22% 22% 22% 22% 22% 22% 22%

o/w Other 36% 36% 36% 36% 36% 36% 36%

Africa and Middle East 33% 34% 34% 34% 34% 34% 35%

Enterprise 16% 15% 15% 15% 15% 15% 15%

IC&SS 1% 1% 1% 1% 1% 1% 1%

Capex

Total Capex 5,636 6,098 6,265 6,322 6,396 6,518 6,555

France 2,799 3,139 3,232 3,231 3,247 3,283 3,230

Europe 1,498 1,631 1,676 1,701 1,720 1,761 1,802

o/w Spain 585 698 815 823 829 858 884

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22 July 2015



Table 31: Orange Divisional Forecasts 2014 2015E 2016E 2017E 2018E 2019E 2020E

o/w Poland 418 419 422 428 437 447 457

o/w Belgium and Luxembourg 215 261 175 176 177 178 179

o/w Other 280 253 265 273 276 279 282

Africa and Middle East 779 838 867 898 933 973 1,018

Enterprise 325 249 246 244 246 247 249

IC&SS 236 241 245 248 250 253 256

Eliminations (1) - - - - - -

Capex as % of Revs 14% 15% 15% 15% 15% 15% 15%

France 14% 17% 17% 17% 17% 17% 17%

Europe 15% 16% 16% 15% 15% 15% 15%

o/w Spain 15% 16% 16% 16% 15% 15% 15%

o/w Poland 14% 15% 15% 15% 15% 15% 15%

o/w Belgium and Luxembourg 17% 21% 14% 14% 14% 14% 14%

o/w Other 16% 16% 16% 16% 16% 16% 16%

Africa and Middle East 18% 18% 18% 18% 18% 18% 18%

Enterprise 5% 4% 4% 4% 4% 4% 4%

IC&SS 12% 12% 12% 12% 12% 12% 12%


Table 32: Orange Balance Sheet Forecasts 2014 2015E 2016E 2017E 2018E 2019E 2020E

ASSETS

Goodwill 24,784 24,784 24,784 24,784 24,784 24,784 24,784

Other intangible assets 11,811 11,874 11,993 12,132 12,296 12,501 12,719

PP&E 23,314 23,252 23,140 22,975 22,749 22,477 22,090

Interests in associates 603 603 603 603 603 603 603

Assets available for sale 91 91 91 91 91 91 91

Other non-current assets 4,796 4,827 4,933 4,989 5,063 5,152 5,250

Deferred tax assets 2,817 2,817 2,817 2,817 2,817 2,817 2,817

Non-current assets 68,216 68,248 68,362 68,392 68,404 68,425 68,354

Inventories 709 598 611 618 627 638 651

Trade receivables 4,612 4,569 4,669 4,722 4,792 4,876 4,968

Current tax assets 132 100 100 100 100 100 100

Other current assets 2,252 2,252 2,252 2,252 2,252 2,252 2,252

Cash and cash equivalents 6,758 6,000 6,000 6,000 6,000 6,000 6,000

Current assets 14,463 13,519 13,632 13,692 13,771 13,866 13,971

Assets held for sale 5,725 - - - - - -

Total assets 88,404 81,767 81,994 82,084 82,175 82,292 82,324

EQUITY AND LIABILITIES

Share capital 10,596 10,596 10,596 10,596 10,596 10,596 10,596

Additional paid-in capital 16,790 16,790 16,790 16,790 16,790 16,790 16,790

Retained earnings (deficit) 2,173 (8,600) (8,302) (7,375) (6,217) (4,816) (3,242)

Net income for the year - 2,468 2,638 2,886 3,113 3,278 3,465

Cumulative translation adjustment - - - - - - -

Equity attributable to FT shareholders 29,559 21,255 21,722 22,897 24,282 25,848 27,609

Minority interests 2,142 2,099 2,052 2,003 1,951 1,896 1,840

Total equity 31,701 23,354 23,774 24,899 26,233 27,745 29,449

Non-current trade payables 564 910 910 910 910 910 910

Non-current financial liabilities 30,403 29,674 28,713 26,932 24,921 22,626 19,935

Non-current employee benefits 3,239 3,239 3,239 3,239 3,239 3,239 3,239

Non-current provisions 1,048 1,048 1,048 1,048 1,048 1,048 1,048

Other non-current liabilities 477 477 477 477 477 477 477

Deferred tax liabilities 957 1,547 2,192 2,904 3,599 4,389 5,288

Non-current liabilities 36,688 36,894 36,579 35,510 34,194 32,689 30,896

Current trade payables 7,566 7,211 7,334 7,367 7,440 7,551 7,672

Current financial liabs at BV, excl trade payables 4,891 6,639 6,639 6,639 6,639 6,639 6,639

Current financial liabilities 169 279 279 279 279 279 279

Current employee benefits 1,984 1,984 1,984 1,984 1,984 1,984 1,984

Current provisions 183 183 183 183 183 183 183

Other current liabilities 1,288 1,288 1,288 1,288 1,288 1,288 1,288

Current tax payables 684 684 684 684 684 684 684

Deferred tax payables 3,250 3,250 3,250 3,250 3,250 3,250 3,250

Current liabilities 20,015 21,519 21,641 21,674 21,748 21,858 21,979

Total equity and liabilities 88,404 81,767 81,994 82,084 82,175 82,292 82,324


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22 July 2015



Table 33: Orange Cash Flow Statement Forecasts yr to 31 Dec (EUR m) 2014 2015E 2016E 2017E 2018E 2019E 2020E

OPERATING ACTIVITIES

NI attributable to equity holders of FT SA 1,224 2,710 2,904 3,168 3,408 3,585 3,785

Adj to reconcile NI to FCF from operations

Operating taxes and levies (net) 58 - - - - - -

D&A 6,038 6,097 6,258 6,349 6,458 6,585 6,725

Remeasurement from combinations - - - - - - -

Impairment of non-current assets 59 - - - - - -

Impairment of goodwill 229 - - - - - -

Gain on disposal of assets (430) - - - - - -

Change in other provisions 340 (171) (176) (236) (246) (246) (246)

Share of profits/(losses) of associates 215 10 (20) (50) (75) (75) (75)

Net Income after tax for discontinued ops (EE) 135

Income tax 1,573 1,590 1,645 1,712 1,795 1,891 1,998

Interest income/(expense) 1,638 1,590 1,609 1,550 1,468 1,376 1,269

Minority interests

FX gains and other 79 - - - - - -

Decrease/(increase) in inventories (73) 111 (13) (7) (9) (11) (12)

Decrease/(increase) in trade receivables (196) 43 (100) (53) (70) (84) (93)

Increase/(decrease) in trade payables 140 (9) 123 33 73 110 121

Other changes in working capital requirements

Decrease/(increase) in other receivables (107) - - - - - -

Increase/(decrease) in other payables - - - - - - -

ECFI's ruling of 30th Nov 2009/DPTG fine - - - - - - -

Dividend income received 361 310 310 310 310 310 310

Interest income received 60 64 60 60 60 60 60

Interest paid and int. rates effects on derivatives (1,784) (1,653) (1,669) (1,610) (1,528) (1,436) (1,329)

Income tax paid (758) (1,000) (1,000) (1,000) (1,100) (1,100) (1,100)

Net cash flow from operating activities 8,801 9,690 9,930 10,225 10,543 10,965 11,413

INVESTING ACTIVITIES

Purchases/sales of PP&E and intangible assets

Purchases/sales of PP&E and intangible assets (5,817) (6,098) (6,265) (6,322) (6,396) (6,518) (6,555)

Spectrum/licences (294) (800) (800) (200) (200) (200) (200)

Increase/(dec) in amounts due to fix. asset suppliers 98 - - - - - -

Proceeds from sales of PP&E, intangibles and businesses 1,150 - - - - - -

Cash paid for investment securities, net of cash acq (1,455) (3,361) - - - - -

Decrease/(inc) in mktable securities/l-term assets (34) - - - - - -

Net cash used in investing activities (6,352) (10,259) (7,065) (6,522) (6,596) (6,718) (6,755)

FINANCING ACTIVITIES

Debt issuance 1,460 - - - - - -

Debt repayment (5,101) 1,678 (961) (1,780) (2,011) (2,296) (2,691)

Increase (Decrease) in share capital - - - - - - -

Dividends paid to minorities (294) (284) (313) (332) (347) (361) (376)

Dividends paid (net of 3% divi tax from 2012) (1,846) (1,583) (1,590) (1,590) (1,590) (1,590) (1,590)

Other 5,627 - - - - - -

Net cash used in financing activities (154) (189) (2,864) (3,702) (3,947) (4,247) (4,657)

Effect of FX changes on cash and cash equivalents 29 - - - - - -

Change in cash and cash equivalents 842 (758) - - - - -

Cash and cash equivalents b/f 5,916 6,758 6,000 6,000 6,000 6,000 6,000

Cash and cash equivalents c/f 6,758 6,000 6,000 6,000 6,000 6,000 6,000


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22 July 2015



Table 34: Orange JEFe vs Company Collated Consensus 2015 2015 2015 2016 2016 2016 2017 2017 2017 2018 2018 2018

Cons JEFe Var. % Cons JEFe Var. % Cons JEFe Var. % Cons JEFe Var. %

Revenues (ex. Jazztel) 38,992 39,063 -0.2% 38,923 39,187 -0.7% 39,077 39,502 -1.1% 39,309 39,966 -1.6%

Total France 18,920 19,022 -0.5% 18,731 19,009 -1.5% 18,637 19,007 -1.9% 18,623 19,099 -2.5%

o/w mobile services 7,463 7,310 2.1% 7,268 7,288 -0.3% 7,159 7,302 -2.0% 7,129 7,406 -3.7%

o/w fixed services 10,460 10,469 -0.1% 10,467 10,484 -0.2% 10,479 10,473 0.1% 10,525 10,462 0.6%

Total Europe 9,437 9,343 1.0% 9,399 9,423 -0.3% 9,456 9,602 -1.5% 9,504 9,758 -2.6%

Spain (ex. Jazztel) 3,763 3,723 1.1% 3,786 3,704 2.2% 3,848 3,781 1.8% 3,912 3,852 1.5%

o/w mobile services 2,414 2,298 5.0% 2,399 2,240 7.1% 2,414 2,222 8.7% 2,440 2,202 10.8%

o/w fixed services 939 965 -2.7% 982 1,032 -4.9% 1,025 1,112 -7.7% 1,069 1,197 -10.7%

Total Poland 2,809 2,793 0.6% 2,753 2,812 -2.1% 2,714 2,855 -4.9% 2,706 2,917 -7.2%

o/w mobile services 1,359 1,286 5.7% 1,334 1,308 2.0% 1,324 1,312 0.9% 1,323 1,327 -0.3%

o/w fixed services 1,262 1,228 2.7% 1,218 1,216 0.1% 1,195 1,246 -4.1% 1,182 1,284 -8.0%

Total Belgium + Luxembourg 1,217 1,244 -2.2% 1,218 1,245 -2.2% 1,242 1,253 -0.9% 1,240 1,260 -1.6%

o/w mobile services 998 1,009 -1.0% 995 1,000 -0.5% 998 1,005 -0.6% 979 1,009 -2.9%

o/w fixed services 108 89 21.4% 100 92 8.5% 113 95 18.3% 123 98 24.6%

Total Others Europeans 1,647 1,584 4.0% 1,651 1,663 -0.7% 1,676 1,713 -2.2% 1,684 1,730 -2.6%

eliminations intra-european (6) - (7) - (8) - (4) -

Total Africa & Middle East 4,586 4,609 -0.5% 4,781 4,771 0.2% 4,959 4,942 0.3% 5,128 5,136 -0.1%

Total Enterprise 6,199 6,236 -0.6% 6,128 6,142 -0.2% 6,102 6,112 -0.2% 6,112 6,142 -0.5%

IC&SS 1,929 1,931 -0.1% 1,964 1,964 0.0% 2,000 1,987 0.6% 2,037 2,009 1.4%

eliminations (2,076) (2,077) 0.0% (2,083) (2,123) -1.9% (2,085) (2,147) -2.9% (2,115) (2,179) -2.9%

EBITDA restated (ex. Jazztel) 12,044 12,100 -0.5% 12,158 12,286 -1.0% 12,332 12,475 -1.1% 12,570 12,708 -1.1%

France 6,926 7,076 -2.1% 6,937 7,128 -2.7% 7,009 7,127 -1.7% 7,132 7,162 -0.4%

Europe 2,673 2,559 4.4% 2,721 2,652 2.6% 2,774 2,777 -0.1% 2,808 2,892 -2.9%

Spain (ex. Jazztel) 924 874 5.7% 969 900 7.7% 1,004 961 4.5% 1,033 1,035 -0.1%

Poland 882 838 5.3% 875 872 0.4% 870 914 -4.7% 869 948 -8.3%

Belgium + Luxembourg 273 273 0.1% 278 277 0.2% 291 281 3.5% 286 282 1.2%

Others Europeans 591 574 2.8% 592 603 -1.9% 600 621 -3.4% 608 627 -3.0%

AMEA 1,494 1,544 -3.3% 1,567 1,598 -2.0% 1,632 1,668 -2.1% 1,704 1,746 -2.4%

Entreprise 954 904 5.5% 946 891 6.2% 941 886 6.1% 950 891 6.6%

international carrier and shared services 1 16 -94.9% (4) 17 -121.6% (4) 17 -123.1% (4) 17 -123.1%

EBITDA restated margin (ex. Jazztel) 30.9% 31.0% +0.1pt 31.2% 31.4% +0.1pt 31.6% 31.6% +0.0pt 32.0% 31.8% -0.2pt

France 36.6% 37.2% +0.6pt 37.0% 37.5% +0.5pt 37.6% 37.5% -0.1pt 38.3% 37.5% -0.8pt

Europe 28.3% 27.4% -0.9pt 28.9% 28.1% -0.8pt 29.3% 28.9% -0.4pt 29.5% 29.6% +0.1pt

Spain (ex. Jazztel) 24.5% 23.5% -1.1pt 25.6% 24.3% -1.3pt 26.1% 25.4% -0.7pt 26.4% 26.9% +0.4pt

Poland 31.4% 30.0% -1.4pt 31.8% 31.0% -0.8pt 32.1% 32.0% -0.1pt 32.1% 32.5% +0.4pt

Belgium + Luxembourg 22.5% 21.9% -0.5pt 22.8% 22.3% -0.5pt 23.4% 22.4% -1.0pt 23.0% 22.4% -0.6pt

Others Europeans 35.9% 36.3% +0.4pt 35.8% 36.3% +0.4pt 35.8% 36.3% +0.5pt 36.1% 36.3% +0.1pt

AMEA 32.6% 33.5% +0.9pt 32.8% 33.5% +0.7pt 32.9% 33.8% +0.8pt 33.2% 34.0% +0.8pt

Entreprise 15.4% 14.5% -0.9pt 15.4% 14.5% -0.9pt 15.4% 14.5% -0.9pt 15.5% 14.5% -1.0pt

IC&SS 0.0% 0.8% +0.8pt -0.2% 0.8% +1.0pt -0.2% 0.8% +1.0pt -0.2% 0.8% +1.0pt

EBITDA reported 11,959 11,996 -0.3% 12,139 12,396 -2.1% 12,355 12,728 -2.9% 12,653 13,054 -3.1%

Depreciation & amortisation (6,032) (6,097) -1.1% (6,128) (6,258) -2.1% (6,181) (6,349) -2.6% (6,251) (6,458) -3.2%

Impairment of goodwill & fixed assets (188) - (300) - (300) - (300) -

Group share of Net Profit / Loss from associates (110) (10) 996.6% (93) 20 -566.5% (71) 50 -242.9% (64) 75 -184.9%

EBIT (Operating income) 5,792 5,889 -1.7% 6,305 6,158 2.4% 6,514 6,429 1.3% 6,329 6,672 -5.1%

Net Income Group Share 2,414 2,710 -10.9% 2,588 2,904 -10.9% 2,776 3,168 -12.4% 2,949 3,408 -13.5%

CAPEX (ex. Jazztel) 5,933 5,906 0.5% 6,173 6,057 1.9% 6,232 6,093 2.3% 6,147 6,145 0.0%

France 3,043 3,139 -3.0% 3,245 3,232 0.4% 3,301 3,231 2.2% 3,218 3,247 -0.9%

Europe 1,503 1,439 4.4% 1,505 1,468 2.5% 1,483 1,471 0.8% 1,459 1,468 -0.7%

Spain (ex. Jazztel) 576 506 13.9% 575 606 -5.2% 582 594 -2.1% 576 578 -0.3%

Poland 433 419 3.4% 424 422 0.6% 413 428 -3.5% 408 437 -6.7%

Belgium + Luxembourg 207 261 -20.9% 188 175 7.8% 181 176 3.2% 175 177 -1.2%

Others Europeans 267 253 5.8% 268 265 0.9% 267 273 -2.3% 267 276 -3.3%

Africa & Middle East 815 838 -2.7% 867 867 0.0% 889 898 -1.0% 898 933 -3.8%

Entreprise 321 249 28.7% 321 246 30.5% 320 244 30.7% 318 246 29.6%

international carrier and shared services 269 241 11.6% 279 245 13.9% 286 248 15.3% 287 250 14.5%

Capex in % of revenues 15.2% 15.1% -0.1pt 15.9% 15.5% -0.4pt 15.9% 15.4% -0.5pt 15.6% 15.4% -0.3pt

EBITDA restated - Capex 6,104 6,194 -1.5% 5,983 6,229 -3.9% 6,125 6,382 -4.0% 6,483 6,563 -1.2%

Source: Jefferies estimates, company data, Note Revenue for Spain is for Orange only (i.e. Excludes Jazztel Acquisition)

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22 July 2015



Vivendi (2nd September) 2Q15 estimates

We forecast 2Q revenues +3.6% y/y at €2,476m. Reflecting the same favourable FX

tailwind we saw at 1Q, (1Q15 revs +7.6% or +3.2% const. FX). This reflects the

strengthening USD, up 19% y/y against the Euro in 2Q15 (vs. +18%/+8% 1Q15/4Q14),

highly relevant for UMG given c.40% of recorded music revenues come from the US.

Given the FX tailwind is less supportive for profitability due to the large proportion of USD

denominated costs within UMG, we model 2Q EBITDA -12.6% at €358m (1Q +10.3%)

and EBITA -3.5% at €262m (1Q +18.5%).

UMG

After a tough 2014, UMG produced an impressive 1Q with revenues +11.5% (+2.3%

const. fx/perimeter) vs -1.9% (-4.6%) for 4Q. However, we understand that this was a

particularly strong quarter for UMG given that some key releases from late in 4Q such as

Sam Smith and Taylor Swift impacted 1Q. Looking at the charts this quarter, we believe

that the releases may have been slightly weaker. In addition a smaller but pertinent factor

that may also have weighed on sales this quarter was the launch of Apple Music. Given

the much anticipated launch came at the beginning of 3Q, some Apple ITunes consumers

may have delayed music consumption in the last few weeks of 2Q. As a result of both of

these factors we model a step down in 2Q revenue, pitching it somewhere between 4Q

and 1Q at +5.6% y/y (€1,076m) and EBITDA -0.6% y/y at €96m (1Q15 +46.4%). We

believe this is in line with commentary from CFO Hervé Philippe at 1Q who said “for the

whole year, we still are cautious on the development of this industry. Q1 doesn’t mean

that we are at the inflection point of the curve of music”.

As we have discussed in previous research the global music industry is in a state of flux.

Legacy physical music and download revenue are in structural decline, while streaming

continues to grow, albeit from a small base. Throughout much of this transition between

legacy revenue and streaming the power has sat with the record labels (demonstrated by

Spotify paying out c.70% of revenues to record labels). However with the launch of Apple

Music (and news reports suggesting that Facebook may also be considering launching its

own streaming service) the landscape has changed again. We think that with Apple Music

embedded within the latest iOS operating system (Apple IPhones account for 50% of

smartphones in the US although not all will be compatible with IOs 8.4 or later) will drive

premium streaming take up (beyond the 25% of streaming subscribers that Spotify has

managed to achieve) as once signed up for the free 3 month trial, many will be won over

by the service or just forget to unsubscribe. However with this move Apple will control an

even larger portion of the digital sales channel (both through the ITunes store and Apple

Music) and in the medium term this may put pressure on the share of revenue received by

labels.

Canal+

We are expecting a similar trend in 2Q to that of 1Q with revenue +2.1% y/y (1Q +4.0%).

The 1Q performance was attributed mainly to activities outside France with a particularly

strong performance in International Pay-TV driven by y/y increase in subscribers. A

function of the World Cup 2014 which we lap in 2Q. As a result we model International

Pay TV growth of +4.5% (1Q +13.8%). Another feature of 1Q was strong Studiocanal

growth driven by the success of both the Imitation Game and Paddington. 2Q however

looks softer with Universal Studios/Buena Vista (Walt Disney) topping the box office charts

this quarter with their Jurassic World and Avengers titles respectively and seemingly few

top releases from Studiocanal. We model Studiocanal revenue +5% (1Q +13.8%).

Earlier this month Vivendi announced that former Canal+ CEO Rodolphe Belmer had been

‘relieved of his responsibilities by the Board‘ and replaced by head of Pay-TV Maxime

Saada. We wonder if this reflects internal disagreements about how aggressive cost

cutting should be at Canal+.

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22 July 2015



Cash to burn

The debate regarding the rationale for holding minority stakes in telecom operators has

come back to the fore following Vivendi’s acquisition of an extra 6.6% of TI (in addition to

the 8.2% received through the GVT transaction). We have written several times about our

concerns regarding this strategy. Vivendi historically said that such an approach could

enable it to push its Canal+ content through new channels. However we see little reason

why TI management would be willing to offer Vivendi particularly favourable terms, and

with only one board seat it is unclear how much influence Vivendi will actually wield over

TI. In April, CEO Arnaud de Puyfontaine said in the Financial Times that they were looking

for “transformational transactions” and that they were “on a journey to become a fully

dedicated player in media and content”. However, it is not clear to us how spending

c.€1bn on additional TI shares advances their aims of becoming a dedicated

media/content business and we look forward to hearing management discuss this on the

call.

Changes to Estimates

We have made two major changes to our estimates since we last published our numbers

on 7th April, but our view on the underlying businesses remains largely unchanged.

Updated assumption for FY16-20 FX rates, We have updated our

assumptions around EUR:USD to 1.107 (from 1.075) and EUR:JPY (the proxy

currency we use to model Asian Recorded Music revenues) to 135.0 (from

130.0).

Factored in recently announced Cash Outflows, namely the announced

SECP buy-in and the c.€1bn of cash paid to acquire the additional stake in

Telecom Italia.

Table 35: Vivendi P&L Changes to Estimates Changes to Est (P&L) 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E

NEW NEW NEW OLD OLD OLD % Var % Var % Var

Revenue

Canal+ Group 5,590 5,738 5,893 5,580 5,728 5,882 0.2% 0.2% 0.2%

UMG 4,754 4,664 4,730 4,636 4,534 4,598 2.5% 2.9% 2.9%

Other operations 106 116 128 106 116 128 0.0% 0.0% 0.0%

Group revenue 10,427 10,494 10,724 10,300 10,354 10,582 1.2% 1.3% 1.3%

y/y growth (%) 3.4% 0.6% 2.2% 2.1% 0.5% 2.2% 1.3pp 0.1pp (0.0pp)

EBITDA

Canal+ Group 699 775 854 837 859 882 -16.5% -9.8% -3.2%

UMG 713 723 780 695 703 759 2.5% 2.9% 2.9%

Group EBITDA 1,317 1,412 1,560 1,437 1,477 1,566 -8.4% -4.4% -0.4%

margin (%) 12.6% 13.5% 14.5% 14.0% 14.3% 14.8% (1.3pp) (0.8pp) (0.3pp)

y/y growth (%) -8.7% 7.3% 10.4% -0.4% 2.7% 6.0%

EBITA

Canal+ Group 454 525 599 587 604 622 -22.7% -13.2% -3.7%

UMG 593 643 720 575 623 699 3.1% 3.2% 3.1%

Group EBITA 937 1,067 1,230 1,062 1,137 1,241 -11.8% -6.1% -0.9%

margin (%) 9.0% 10.2% 11.5% 10.3% 11.0% 11.7% (1.3pp) (0.8pp) (0.3pp)

y/y growth (%) -6.2% 14.0% 15.2% 6.4% 7.0% 9.2%

Income from equity affiliates (10) (10) (10) (10) (10) (10) 0.0% 0.0% 0.0%

Interest (69) (76) (77) (66) (72) (72) 3.7% 6.9% 7.0%

Income from investments 61 28 5 5 5 5 1120.0% 460.0% 0.0%

Adj. Profit Before Tax 919 1,009 1,148 991 1,060 1,164 -7.3% -4.9% -1.4%

Provision for income tax (251) (285) (336) (270) (300) (340) -7.2% -4.8% -1.4%

% tax rate 27% 28% 29% 27% 28% 29% 0.0pp 0.0pp 0.0pp

Adj. Profit After Tax 668 724 812 721 761 824 -7.3% -4.9% -1.4%

Minority interests 37 18 18 36 38 41 2.0% -52.4% -56.6%

Adj. Net Income 631 706 794 685 723 782 -7.8% -2.4% 1.5%

Adj. Basic EPS (EUR) 0.47 0.52 0.58 0.50 0.53 0.57 -7.8% -2.4% 1.5%

Adj. Diluted EPS (EUR) 0.46 0.51 0.57 0.50 0.53 0.57 -7.8% -2.4% 1.5%


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22 July 2015



Valuation

Our updated price target is €18.5 (prev. €18). Fair value is derived from the sum-of-the-

parts valuation set out in Table 36 below.

We value Canal+ on 10.0x/9.0x 2015e/16e EV/EBITDA. This equates to 14.3x/12.7x

EV/OpFCF. In our view, growth prospects for the Canal+ Group as a whole are

rather uncertain. In recent times, growing International operations have offset

shrinking domestic revenues and with subscribers falling in the international base in

the last quarter we remain cautious on this business.

UMG is a business with almost negligible capital intensity. Accordingly we give it a

higher EV/EBITDA, 14.0x/13.8x in 2015e/16e, respectively. This equates to

15.1/14.9x EV/OpFCF. We are reluctant to value UMG higher than this bearing in

mind the uncertainties that surround the revenue trend inflection embedded in our

forecasts and the potential structural risks presented by new entrants into the

streaming arena.

Non-controlled activities constitute 30% of our Vivendi EV. We value the rump 6%

stake in Activision Blizzard at market value. We value Vivendi’s prospective stakes in

TEF Brasil and TI at current market value. We value Vivendi’s stake in Spotify based

on the implied valuation provided by the recent equity raise (and assume some

dilution to the previously published 4.8% stake). We also include Vivendi’s 48%

stake in Vevo at €434m (implying a generous valuation of $1bn). Net cash includes

the Class Action litigation exposure against which Vivendi provided in its 3Q14

accounts.

We apply 10% conglomerate discount, which reflects limited operating overlap

between Canal+ and UMG.

Table 36: Vivendi Valuation Division Ownership Method EBITDA EBITDA EV/EBITDA EV/EBITDA Value, 100% Value, VIV stake

2015E 2016E 2015E 2016E (EUR m) (EUR m)

Canal + 100% Multiple 699 775 10.0 9.0 6,987 6,987

UMG 100% Multiple 713 723 14.0 13.8 9,983 9,983

Non-core/other 100% Multiple (10) (5) 12.0 24.0 (120) (120)

Corporate 100% Multiple (85) (80) 12.0 12.8 (1,020) (1,020)

Group 15,830 15,830

TEF Brasil shareholding 7.4% Market value 1,559

Telecom Italia shareholding 14.9% Market value 2,288

Activision Blizzard shareholding 5.7% Market value 936

Spotify Investment 4.5% 347

Vevo Investment 48.0% 434

Deferred tax assets 778

SFR/VTI tax liability (50% probability) (356)

EV 21,816

Net cash/(debt), Dec 2015e 6,250

Equity Value pre HoldCo discount 28,067

HoldCo Discount -10%

Equity Value post HoldCo discount 25,260

Share count, Dec 2015e (m) 1,367

Value per share (EUR) 18.5


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22 July 2015



Table 37: Vivendi P&L Forecasts year to 31st Dec, EUR m 1Q14 2Q14 3Q14 4Q14 FY14 1Q15 2Q15E 3Q15E 4Q15E FY15E FY16E FY17E FY18E FY19E FY20E

Revenue

Canal+ Group 1,317 1,350 1,300 1,489 5,456 1,370 1,379 1,327 1,514 5,590 5,738 5,893 6,055 6,224 6,401

y/y growth (%) 2.4% 2.7% 3.4% 2.4% 2.7% 4.0% 2.1% 2.1% 1.7% 2.5% 2.7% 2.7% 2.7% 2.8% 2.8%

UMG 984 1,019 1,094 1,460 4,557 1,097 1,076 1,117 1,464 4,754 4,664 4,730 4,882 5,038 5,201

y/y growth (%) -9.8% -11.0% -5.9% -1.9% -6.7% 11.5% 5.6% 2.1% 0.3% 4.3% -1.9% 1.4% 3.2% 3.2% 3.2%

Other operations 21 25 23 27 96 25 28 25 28 106 116 128 141 155 170

y/y growth (%) 31.3% 47.1% 27.8% 28.6% 33.3% 19.0% 10.0% 10.0% 3.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

Corporate - - - - - - - - - - - - - -

y/y growth (%)

Eliminations (5) (5) (5) (5) (20) - (6) (6) (10) (22) (24) (27) (29) (32) (35)

y/y growth (%) 0.0% 66.7% 0.0% 66.7% 25.0% -100.0% 25.0% 25.0% 90.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

Group revenue 2,317 2,389 2,412 2,971 10,089 2,492 2,476 2,463 2,996 10,427 10,494 10,724 11,047 11,385 11,737

y/y growth (%) -3.0% -3.4% -0.8% 0.4% -1.6% 7.6% 3.6% 2.1% 0.8% 3.4% 0.6% 2.2% 3.0% 3.1% 3.1%

EBITDA

Canal+ Group 236 306 265 34 841 223 255 228 -8 699 775 854 908 934 960

y/y growth (%) -4.8% -4.1% -5.4% -41.4% -7.1% -5.5% -16.6% -13.8% -122.5% -16.9% 10.9% 10.3% 6.3% 2.8% 2.8%

UMG 80 124 145 339 688 103 126 140 344 713 723 780 869 957 1,040

y/y growth (%) -20.8% -8.8% -2.7% 3.4% -3.6% 28.8% 2.0% -3.7% 1.5% 3.6% 1.4% 8.0% 11.3% 10.2% 8.7%

Other operations (19) (16) 1 5 (29) 4 (3) (2) (9) (10) (5) - - - -

y/y growth (%) 58.3% -27.3% -105.3% -122.7% -61.3% -121.1% -81.3% -300.0% -280.0% -65.5% -50.0% -100.0% na na na

Corporate (26) (5) (12) (14) (57) (31) (21) (21) (12) (85) (80) (75) (70) (70) (70)

y/y growth (%) 18.2% -80.8% -7.7% -51.7% -36.7% 19.2% 320.0% 75.0% -14.3% 49.1% -5.9% -6.3% -6.7% 0.0% 0.0%

Group EBITDA 271 409 399 364 1,443 299 358 345 315 1,317 1,412 1,560 1,707 1,821 1,930

margin (%) 11.7% 17.1% 16.5% 12.3% 14.3% 12.0% 14.4% 14.0% 10.5% 12.6% 13.5% 14.5% 15.5% 16.0% 16.4%

y/y growth (%) -14.2% 0.7% 0.5% 8.3% -0.8% 10.3% -12.6% -13.6% -13.4% -8.7% 7.3% 10.4% 9.4% 6.7% 6.0%

EBITA

Canal+ Group 175 245 206 (43) 583 165 197 164 (73) 454 525 599 648 669 695

y/y growth (%) -4.4% -0.8% -5.1% 19.4% -4.6% -5.7% -19.6% -20.2% 69.0% -22.2% 15.6% 14.3% 8.1% 3.1% 4.0%

UMG 56 97 121 291 565 82 96 110 305 593 643 720 809 897 980

y/y growth (%) 1.8% 10.2% 8.0% 13.7% 10.6% 46.4% -0.6% -9.4% 4.8% 5.0% 8.4% 12.1% 12.3% 10.9% 9.2%

Other operations (21) (66) - 8 (79) 4 (3) (2) (9) (10) (5) - - - -

y/y growth (%) 50.0% 187.0% -100.0% -134.8% -1.3% -119.0% -95.5% na -212.5% -87.3% -50.0% -100.0% na na na

Corporate (26) (5) (17) (22) (70) (33) (29) (19) (19) (100) (95) (90) (85) (85) (85)

y/y growth (%) 18.2% -80.0% 21.4% -15.4% -19.5% 26.9% 480.0% 11.8% -13.6% 42.9% -5.0% -5.3% -5.6% 0.0% 0.0%

Group EBITA 184 271 310 234 999 218 262 253 204 937 1,067 1,230 1,372 1,481 1,590

margin (%) 7.9% 11.3% 12.9% 7.9% 9.9% 8.7% 10.6% 10.3% 6.8% 9.0% 10.2% 11.5% 12.4% 13.0% 13.6%

y/y growth (%) -8.9% -5.6% 5.1% 36.8% 4.6% 18.5% -3.5% -18.4% -12.7% -6.2% 14.0% 15.2% 11.6% 7.9% 7.4%

Income from equity

affiliates

(6) 4 (10) (6) (18) (6) (2) (2) 0 (10) (10) (10) (10) (10) (10)

Interest (11) (22) (32) (31) (96) (5) (17) (16) (31) (69) (76) (77) (77) (74) (72)

Income from

investments

- 3 - - 3 9 14 19 19 61 28 5 5 5 5

Adj. Profit Before

Tax

167 256 268 197 888 216 257 254 193 919 1,009 1,148 1,290 1,401 1,514

Provision for income

tax

(40) (89) (67) (4) (200) (61) (70) (69) (51) (251) (285) (336) (377) (409) (442)

% tax rate 23.1% 35.3% 24.1% -2.0% 22.1% 27.5% 27.0% 27.0% 26.4% 27.0% 28.0% 29.0% 29.0% 29.0% 29.0%

Adj. Profit After Tax 127 167 201 193 688 155 187 185 142 668 724 812 913 992 1,072

Minority interests 18 23 12 9 62 19 9 4 5 37 18 18 18 20 21

% minority interests 14.2% 13.8% 6.0% 4.7% 9.0% 12.3% 5.0% 2.0% 3.3% 5.5% 2.5% 2.2% 2.0% 2.0% 2.0%

Adj. Net Income 108 145 189 184 626 135 177 181 137 631 706 794 895 972 1,050

Adj. Basic EPS

(EUR)

0.081 0.108 0.140 0.137 0.465 0.100 0.131 0.133 0.101 0.465 0.517 0.578 0.646 0.697 0.748

y/y growth (%) 66.4% -9.6% 137.0% 19.4% 36.3% 23.8% 21.4% -5.1% -26.0% 0.1% 11.1% 11.7% 11.9% 7.9% 7.3%

Adj. Diluted EPS

(EUR)

0.080 0.107 0.140 0.136 0.463 0.099 0.130 0.132 0.100 0.463 0.514 0.574 0.642 0.692 0.742

y/y growth (%) 66.0% -9.8% 136.7% 19.7% 36.3% 24.1% 21.4% -5.3% -26.3% 0.0% 11.0% 11.7% 11.8% 7.9% 7.3%

Weighted average

share count - basic (m)

1,340.8 1,344.5 1,348.3 1,347.2 1,345.8 1,353.9 1,355.0 1,362.0 1,355.5 1,356.6 1,365.0 1,375.0 1,385.0 1,395.0 1,405.0


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Table 38: Vivendi Balance Sheet Forecasts year to 31st Dec, EUR m FY14 FY15E FY16E FY17E FY18E FY19E FY20E

Assets 35,738 32,030 32,085 31,622 32,421 33,303 34,265

Goodwill 9,329 9,329 9,329 9,329 9,329 9,329 9,329

Non-Current content assets 2,550 2,576 2,576 2,576 2,576 2,576 2,576

Other Intangible Assets 229 229 229 229 229 229 229

PP&E 717 717 717 717 717 717 717

Investments in equity affiliates 306 300 300 300 300 300 300

Non-current financial assets 6,144 6,000 6,000 6,000 6,000 6,000 6,000

Deferred Tax Assets 710 800 800 800 800 800 800

Non-Current Assets 19,985 19,951 19,951 19,951 19,951 19,951 19,951

Inventory 114 130 130 130 130 130 130

Current Tax Receivables 234 250 250 250 250 250 250

Current Content Assets 1,135 1,200 1,200 1,200 1,200 1,200 1,200

Trade accounts receivable and other 1,983 1,714 1,725 1,763 1,816 1,871 1,929

Current financial assets 49 60 60 60 60 60 60

Cash and Cash equivalents 6,845 8,725 8,769 8,268 9,014 9,841 10,745

Assets held for sale - - - - - - -

Assets of Discontinued businesses 5,393 - - - - - -

Current Assets 15,753 12,079 12,134 11,671 12,470 13,352 14,314

Equity and Liabilities 35,738 32,030 32,085 31,622 32,421 33,303 34,265

Share Capital 7,434 7,434 7,434 7,434 7,434 7,434 7,434

Additional Paid in capital 5,160 5,160 5,160 5,160 5,160 5,160 5,160

Treasury Shares (1) (1) (1) (1) (1) (1) (1)

Retained earnings and other 10,013 7,243 7,445 7,063 7,894 8,785 9,748

Vivendi Shareholders' Equity 22,606 19,836 20,038 19,656 20,487 21,378 22,341

Non controlling interests 382 382 382 382 382 382 382

Total Equity 22,988 20,218 20,420 20,038 20,869 21,760 22,723

Non-Current provisions 2,888 2,888 2,888 2,888 2,888 2,888 2,888

Long term borrowing and other

financial liabilities

2,074 2,075 2,075 2,075 2,075 2,075 2,075

Deferred tax liabilities 657 650 650 650 650 650 650

Other Non-Current liabilities 121 121 121 121 121 121 121

Non-Current Liabilities 5,740 5,734 5,734 5,734 5,734 5,734 5,734

Current Provisions 290 290 290 290 290 290 290

Short term borrowing and other

financial liabilities

273 500 500 500 500 500 500

Trade accounts payable and other 5,306 5,242 5,094 5,012 4,981 4,973 4,971

Current Tax payables 47 47 47 47 47 47 47

Liabilities associated with Assets held

for sale

- - - - - - -

Liabilities associated with

discontinued businesses

1,094 - - - - - -

Current Liabilities 7,010 6,079 5,931 5,849 5,818 5,810 5,808

Total Liabilities 12,750 11,813 11,665 11,583 11,552 11,544 11,542


Table 39: Vivendi Capex and Net Debt Forecasts year to 31st Dec, EUR m FY14 FY15E FY16E FY17E FY18E FY19E FY20E

CAPITAL EXPENDITURE

Canal+ Group 190 210 225 240 250 255 260

UMG 46 50 51 52 53 54 55

Other operations 7 8 8 8 8 8 8

Corporate - - - - - - -

Net cash capital expenditure 243 268 284 300 311 317 323

NET DEBT

Long term borrowing and other financial liabilities 2,074 2,075 2,075 2,075 2,075 2,075 2,075

Short term borrowing and other financial liabilities 273 500 500 500 500 500 500

Cash and Cash equivalents (6,845) (8,725) (8,769) (8,268) (9,014) (9,841) (10,745)

Derivative financial instruments in assets (139) (100) (100) (100) (100) (100) (100)

Cash deposits backing borrowings - - - - - - -

Group net debt/(cash) (4,637) (6,250) (6,294) (5,793) (6,539) (7,366) (8,270)

Net debt/(cash)-to-EBITDA (3.2) (4.7) (4.5) (3.7) (3.8) (4.0) (4.3)


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22 July 2015



Table 40: Vivendi Cash Flow Statement Forecasts year to 31st Dec, EUR m FY14 FY15E FY16E FY17E FY18E FY19E FY20E

OPERATING ACTIVITIES

EBIT 736 812 1,042 1,205 1,347 1,456 1,565

Adjustments 447 380 345 330 335 340 340

Contents investments, net 19 (120) (120) (120) (120) (120) (120)

Gross cash from operating activities before tax 1,202 1,072 1,267 1,415 1,562 1,676 1,785

Other changes in net working capital (123) (400) (100) (50) - - -

Net cash from operating activities before tax 1,079 672 1,167 1,365 1,562 1,676 1,785

Income tax paid, net 280 (251) (285) (336) (377) (409) (442)

Net cash from operating activities of cont. ops 1,359 421 882 1,029 1,185 1,267 1,344

Net cash from operating activities of discount. operations 2,234 - - - - - -

Net cash from operating activities 3,593 421 882 1,029 1,185 1,267 1,344

INVESTING ACTIVITIES

Capital expenditures (249) (268) (284) (300) (311) (317) (323)

Purchase of consolidated companies (100) (520) - - - - -

Investment in equity affiliates (87) (1,000) - - - - -

Increase in financial assets (1,057) - - - - - -

Investments (1,493) (1,788) (284) (300) (311) (317) (323)

Proceeds from sales of PPE and intangibles 6 - - - - - -

Proceeds from sales of consolidated companies 16,929 5,582 2,022 - - - -

Disposal of equity affiliates - - - - - - -

Decrease in financial assets 878 - - - - - -

Divestitures 17,813 5,582 2,021.8 - - - -

Dividends received from equity affiliates 4 3 3 3 3 3 3

Dividends received from unconsolidated companies 2 5 5 5 5 5 5

Net cash from investing activities of cont. ops 16,326 3,802 1,746 (292) (303) (309) (315)

Net cash from investing activities of discont. operations (2,034) - - - - - -

Net cash from investing activities 14,292 3,802 1,746 (292) (303) (309) (315)

FINANCING ACTIVITIES

Net proceeds from issuance of shares re comp plan 197 202 207 212 217 223 228

Sales/(purchase) of VIV treasury shares (32) - - - - - -

Dividends paid by VIV to its shareholders (1,348) (2,704) (2,715) (1,373) (277) (279) (281)

Other transactions with shareowners (2) - - - - - -

Dividends paid by consolidated co's to N-C interests (34) - - - - - -

Transactions with shareowners (1,219) (2,502) (2,508) (1,161) (59) (56) (52)

Setting up of/increase in long-term borrowings 3 - - - - - -

Principal payment on/decrease in long-term borrowings (1,670) 1 - - - - -

Principal payment on short-term borrowings (7,680) 227 - - - - -

Other changes in short-term borrowings 140 - - - - - -

Interest paid, net (96) (69) (76) (77) (77) (74) (72)

Other cash items related to financial activities (606) - - - - - -

Transactions on borrowings (9,909) 159 (76) (77) (77) (74) (72)

Net cash from financing activities of cont. ops (11,128) (2,342) (2,584) (1,238) (136) (130) (124)

Net cash from financing activities of discont. ops (756) - - - - - -

Net cash provided by financing activities (11,884) (2,342) (2,584) (1,238) (136) (130) (124)

FX translation adj to continuing ops 10 - - - - - -

FX translation adj to discont ops (4) - - - - - -

Change in cash and cash equivalents 6,007 1,880 44 (501) 746 827 904

Reclassification of discont ops cash and cash equivalents (203) - - - - - -

CASH AND CASH EQUIVALENTS

B/fwd 1,041 6,845 8,725 8,769 8,268 9,014 9,841

C/fwd 6,845 8,725 8,769 8,268 9,014 9,841 10,745


Table 41: Vivendi - JEFe vs BBG Consensus 2015 2016 2017 2018

JEFe Cons Var JEFe Cons Var JEFe Cons Var JEFe Cons Var

Sales 10,427 10,531 -1.0% 10,494 10,704 -2.0% 10,724 10,917 -1.8% 11,047 11,395 -3.0%

EBITDA 1,317 1,470 -10.4% 1,412 1,513 -6.6% 1,560 1,554 0.4% 1,707 1,634 4.5%

EBIT 631 713 -11.4% 706 761 -7.2% 794 795 -0.1% 895 857 4.4%

EPS 0.47 0.53 -11.8% 0.52 0.56 -7.2% 0.58 0.59 -1.9% 0.65 0.61 5.9%

Source: Jefferies estimates, Bloomberg

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22 July 2015



Appendix

Telecommunications


22 July 2015



French Fixed Broadband – Key Charts

Chart 42: Broadband Market Shares by Type

Source: ARCEP, company data. Note: satellite/other 0.1-0.2%

Chart 43: Retail Broadband Market Shares


Chart 44: Retail Broadband Net Adds (000)


Chart 45: Cumulative Mkt Share Chg since mid-2013 (pp)


Chart 46: Broadband Net Adds (000): xDSL vs FTTH vs Cable


Chart 47: ‘High Speed’ Broadband Retail Market Shares

Source: ARCEP, company data. Note: ‘high speed’ defines here to include FTTH and Cable, but not VDSL for which disclosure n/a.

42.1% 41.7% 41.0% 40.3% 39.8% 39.2% 38.3% 37.6%

42.9% 43.7% 44.8% 45.4% 46.1% 46.6% 47.2% 47.4%

7.8% 6.9% 6.4% 6.0% 5.7% 5.3% 5.0% 4.6%

6.4% 6.7% 6.6% 6.9% 6.6% 6.6% 6.5% 6.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

DSL/VDSL - ORA retail ULL Wholesale FTTH Cable Other

42.5% 42.2% 41.6% 41.1% 40.9% 40.6% 40.2% 40.0%

22.6% 22.2% 21.4% 20.9% 21.0% 20.9% 20.7%

5.7% 5.8% 5.6% 5.6% 5.2% 5.2% 5.0%

25.4%

21.4% 21.3% 22.0% 22.3% 22.6% 22.7% 22.6% 22.7%

4.6% 5.5% 6.0% 7.7% 7.8% 8.1% 8.7% 9.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

ORA SFR NUM NUM-SFR Free BYG Other

(100)

(50)

-

50

100

150

200

250

300

350

400

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Other

BYG

Free

NUM-SFR

NUM

SFR

ORA

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

BYG

Free

NUM

ORA

SFR

(100)

(50)

-

50

100

150

200

250

300

350

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

xDSL FTTH Cable

10.5% 11.9% 13.1% 14.6% 15.9% 17.6% 19.8% 21.3% 23.0%8.1% 8.7% 9.3% 10.1% 12.0% 13.0% 13.1% 14.0% 14.5%

65.5% 63.6% 61.6% 58.7% 55.6% 53.9% 52.2% 49.9% 48.3%

15.9%15.9% 16.0% 16.6% 16.5% 15.5% 14.9% 14.8% 14.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

FTTH - ORA FTTH - other Cable - NUM Cable - BYG white label

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22 July 2015



French Fixed Broadband – Key Tables

Table 42: Broadband Market Shares by Type 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

xDSL - ORA retail 42.4% 42.1% 41.9% 41.7% 41.2% 41.0% 40.7% 40.3% 39.9% 39.8% 39.5% 39.2% 38.7% 38.3% 38.1% 37.6% 37.3%

ULL 42.4% 42.9% 43.2% 43.7% 44.5% 44.8% 45.0% 45.4% 45.9% 46.1% 46.4% 46.6% 47.0% 47.2% 47.5% 47.4% 47.4%

Wholesale 8.1% 7.8% 7.4% 6.9% 6.5% 6.4% 6.3% 6.0% 5.9% 5.7% 5.5% 5.3% 5.1% 5.0% 4.8% 4.6% 4.4%

FTTH 0.6% 0.7% 0.8% 0.9% 0.9% 1.1% 1.1% 1.3% 1.5% 1.7% 1.9% 2.2% 2.5% 2.8% 3.1% 3.6% 4.0%

Cable 6.4% 6.4% 6.6% 6.7% 6.8% 6.6% 6.7% 6.9% 6.6% 6.6% 6.6% 6.6% 6.6% 6.5% 6.4% 6.6% 6.7%

Other 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.2% 0.1% 0.2% 0.2% 0.2% 0.2% 0.2%

Market TOTAL 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%


Table 43: Retail Broadband Market Shares 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

ORA 42.8% 42.5% 42.4% 42.2% 41.8% 41.6% 41.4% 41.1% 40.9% 40.9% 40.8% 40.6% 40.3% 40.2% 40.2% 40.0% 40.0%

SFR 22.8% 22.6% 22.4% 22.2% 21.6% 21.4% 21.2% 20.9% 21.0% 21.0% 21.0% 20.9% 20.9% 20.7% 20.4%

NUM 5.8% 5.7% 5.8% 5.8% 5.8% 5.6% 5.6% 5.6% 5.3% 5.2% 5.2% 5.2% 5.1% 5.0% 5.0%

NUM-SFR 25.4% 25.0%

Free 21.4% 21.4% 21.4% 21.3% 21.8% 22.0% 22.2% 22.3% 22.5% 22.6% 22.7% 22.7% 22.7% 22.6% 22.7% 22.7% 22.8%

BYG 4.3% 4.6% 5.0% 5.5% 5.7% 6.0% 7.4% 7.7% 7.8% 7.8% 7.9% 8.1% 8.4% 8.7% 9.1% 9.4% 9.7%

Other 3.0% 3.1% 3.0% 3.0% 3.3% 3.4% 2.2% 2.3% 2.6% 2.4% 2.5% 2.6% 2.7% 2.7% 2.7% 2.6% 2.5%

Market TOTAL 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%


Table 44: Retail Broadband Net Adds (000) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

ORA 100 64 105 121 73 78 78 67 39 42 71 55 37 35 86 95 67

SFR 65 31 29 30 (48) 22 24 (1) 53 30 41 46 43 (4) (31)

NUM 52 7 39 18 14 (36) 37 21 (71) (6) 3 (1) (10) (1) (0)

NUM-SFR 89 (58)

Free 157 56 73 59 191 107 110 107 92 62 62 60 71 24 70 63 77

BYG 132 83 96 122 88 70 359 88 45 10 40 72 100 102 104 109 96

Other (8) 45 (22) 16 74 48 (290) 38 73 (32) 21 32 33 9 (10) (17) (10)

Market TOTAL 498 286 320 366 393 288 318 320 230 106 239 264 275 165 219 339 173


Table 45: Broadband Net Adds (000): xDSL vs FTTH vs Cable 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

xDSL 404 237 237 292 340 258 251 220 234 55 166 169 159 95 141 124 46

FTTH 20 16 19 24 19 44 11 44 51 48 53 73 100 81 80 134 105

Cable 74 32 64 49 34 (16) 55 54 (56) 1 18 27 5 (12) (4) 80 21

Other - 1 - 1 - 2 1 2 1 2 2 (5) 11 1 2 1 1

Market TOTAL 498 286 320 366 393 288 318 320 230 106 239 264 275 165 219 339 173


Table 46: ‘High Speed’ Broadband Retail Market Shares 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

FTTH - ORA retail 4.3% 4.7% 5.0% 5.5% 6.1% 6.8% 7.7% 8.9% 10.5% 11.9% 13.1% 14.6% 15.9% 17.6% 19.8% 21.3% 23.0%

FTTH - other 4.8% 5.2% 5.5% 5.9% 6.1% 7.6% 6.8% 7.1% 8.1% 8.7% 9.3% 10.1% 12.0% 13.0% 13.1% 14.0% 14.5%

Cable - NUM 82.7% 80.6% 78.9% 76.6% 75.1% 72.0% 71.4% 68.9% 65.5% 63.6% 61.6% 58.7% 55.6% 53.9% 52.2% 49.9% 48.3%

Cable - BYG white

label

8.2% 9.6% 10.6% 11.9% 12.7% 13.6% 14.1% 15.1% 15.9% 15.9% 16.0% 16.6% 16.5% 15.5% 14.9% 14.8% 14.2%


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22 July 2015



French Mobile – Key Charts

Chart 48: Postpay Market Share since Free Mobile Launch

Source: Jefferies estimates, company data. Note: For detailed notes - see Chart 13

Chart 49: Postpay Net Adds ex M2M (000)

Source: Jefferies estimates, company data. Note: For detailed notes - see Chart 14

Chart 50: 4G Cell Sites in Service (000)

Source: ANFR, 1 July 2015.

Chart 51: 4G Coverage – Area and Population

Source: ARCEP, Dec 2014.

Chart 52: Mobile Market Share vs Share of Complaints

Source: AFUTT

Chart 53: AFUTT Mobile Complaint Index

Source: AFUTT, Note: Index is calculated such that if all the subscribers were with one operator this is how many complaints there would be versus the entire industry in aggregate

39.7%

37.6% 36.4% 35.2% 34.2% 33.8% 33.5% 33.8%

33.8%

32.2% 30.8% 29.9% 29.7% 29.0% 28.5% 27.3%

5.2% 8.2% 10.8% 12.5% 13.9% 14.9% 15.9%

18.6%17.6% 17.1% 17.1% 16.4% 16.0% 15.6% 15.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other

BYG

Free

SFR

ORA

(300)

(150)

-

150

300

450

600

750

900

1,050

1,200

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Other

BYG

ORA

Free

NUM-SFR

4.4

5.4

9.8

3.2

0.9

4.2

1.7

6.1

1.1

8.8

3.7 3.7

800MHz 4G Sites

in Service

1800MHz 4G Sites

in Service

2600MHz 4G Sites

in Service

Total 4G Sites in

Service

Orange NUM-SFR Bouygues Free

72%

71%

53%

33%

22%

23%

14%

3%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Orange

Bouygues

SFR

Free

Area Coverage (%) Population Coverage (%)

34%

25%

14%13%

11%

24%

30%

19%

9%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Orange SFR Bouygues Free MVNO

Mobile Market Share (%) Share of Complaints

7283

168

95

145

72

121

135

76

126

0

20

40

60

80

100

120

140

160

180

Orange SFR Bouygues Free MVNO

2013 2014

Telecommunications


22 July 2015



French Mobile – Key Tables

Table 47: French Mobile Market Subscribers 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

National subs ex M2M 62,680 63,000 63,868 65,219 65,916 66,520 67,537 68,451 68,530 68,683 69,052 69,909 70,251 70,669 71,357 71,672 71,311

Postpay 43,981 44,333 44,950 45,665 47,125 48,167 49,085 50,277 51,066 52,079 53,154 54,244 54,951 55,594 56,310 57,158 57,572

Prepay 18,699 18,667 18,918 19,554 18,791 18,353 18,452 18,174 17,464 16,604 15,898 15,665 15,300 15,075 15,047 14,514 13,739

M2M 2,836 3,012 3,147 3,354 3,528 3,907 4,372 4,664 5,136 6,091 6,494 6,891 7,265 7,609 7,922 8,257 8,736

National subs inc M2M 65,516 66,012 67,015 68,573 69,444 70,427 71,909 73,115 73,666 74,774 75,546 76,800 77,516 78,278 79,279 79,929 80,047

Penetration rate ex M2M 96.5% 97.1% 98.4% 100.4% 101.1% 102.0% 103.6% 105.0% 104.3% 104.8% 105.4% 106.7% 106.8% 107.4% 108.5% 108.9% 107.9%

Penetration rate inc M2M 100.9% 101.7% 103.2% 105.6% 106.5% 108.0% 110.3% 112.2% 112.4% 114.1% 115.3% 117.2% 117.8% 119.0% 120.5% 121.5% 121.2%

Active subs ex M2M n/a n/a n/a n/a 63,419 63,781 64,596 65,683 65,559 65,847 66,213 67,016 66,982 67,544 68,228 68,585 68,501

Active subs inc M2M 63,455 63,976 65,059 66,336 66,947 67,688 68,968 70,346 70,875 71,939 72,706 73,907 74,248 75,153 76,150 76,842 77,236

Active % subs ex M2M n/a n/a n/a n/a 96.2% 95.9% 95.6% 96.0% 95.7% 95.9% 95.9% 95.9% 95.3% 95.6% 95.6% 95.7% 96.1%

Active % subs inc M2M 96.9% 96.9% 97.1% 96.7% 96.4% 96.1% 95.9% 96.2% 96.2% 96.2% 96.2% 96.2% 95.8% 96.0% 96.1% 96.1% 96.5%

Source: Jefferies estimates, company data, Note: National Inc. Overseas Territories

Table 48: French Mobile Customer share inc MVNO & M2M 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Orange 45.4% 45.4% 44.5% 44.4% 42.5% 41.5% 40.6% 40.3% 38.9% 37.9% 37.5% 37.1% 36.6% 36.1% 35.7% 35.2% 35.3%

SFR 32.1% 31.9% 31.6% 31.3% 30.0% 29.5% 29.0% 28.3% 28.1% 28.2% 28.1% 27.8% 27.5% 27.3% 27.0% N/a N/a

NUM-SFR (From 4Q14) N/a N/a N/a N/a N/a N/a N/a N/a 30.5% 30.5% 30.5% 30.2% 29.8% 29.5% 29.1% 28.7% 28.1%

Free 0.0% 0.0% 0.0% 0.0% 3.8% 5.1% 6.1% 7.1% 8.2% 9.1% 9.8% 10.5% 11.1% 11.6% 12.1% 12.6% 13.1%

Bouygues 17.1% 16.9% 16.7% 16.5% 15.7% 15.4% 15.3% 15.4% 15.3% 15.1% 14.7% 14.5% 14.3% 14.1% 13.9% 13.9% 14.1%

Other 5.4% 5.8% 7.2% 7.8% 8.0% 8.5% 8.9% 8.9% 7.0% 7.4% 7.5% 7.7% 8.3% 8.7% 9.2% 9.5% 9.4%

Market TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Jefferies estimates, ARCEP, company data

Table 49: French Mobile Postpay net adds ex M2M inc MVNO 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Orange - 50 171 150 (462) (34) 152 133 (83) 166 298 240 85 59 219 256 164

NUM-SFR - n/a n/a n/a n/a n/a n/a n/a n/a 82 120 168 (132) (13) (84) (124) (298)

Free - - - - 2,610 990 805 800 870 720 640 605 595 460 480 530 420

Bouygues - n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 33 30 19 25 51

Other - 302 446 565 (688) 86 (39) 259 2 45 17 77 125 107 82 161 77

TOTAL - 352 617 715 1,460 1,042 918 1,192 789 1,013 1,075 1,090 707 643 716 848 414

Source: Jefferies estimates,ARCEP, company data, Note: Other includes ORA MVNOs, o/s territories

Table 50: Postpay share inc MVNO & M2M 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Orange 40.4% 40.2% 40.0% 39.7% 37.6% 36.7% 36.4% 35.8% 35.2% 34.4% 34.2% 33.9% 33.8% 33.6% 33.5% 33.6% 33.8%

M2M 1.5% 1.6% 1.7% 1.8% 1.8% 2.0% 2.3% 2.4% 2.6% 2.7% 2.8% 2.9% 3.1% 3.3% 3.4% 3.6% 4.0%

Ex M2M 38.9% 38.6% 38.3% 37.9% 35.8% 34.7% 34.1% 33.4% 32.5% 31.7% 31.4% 31.1% 30.7% 30.3% 30.1% 30.0% 29.8%

SFR 34.0% 33.9% 33.7% 33.8% 32.2% 31.5% 30.8% 30.1% 29.9% 29.9% 29.7% 29.5% 29.0% 28.8% 28.5% n/a n/a

NUM-SFR n/a n/a n/a n/a n/a n/a n/a n/a 32.5% 32.3% 32.1% 31.8% 31.2% 31.0% 30.7% 30.1% 29.5%

M2M n/a n/a n/a n/a n/a n/a n/a n/a 4.9% 5.6% 5.8% 5.9% 6.0% 6.2% 6.4% 6.5% 6.6%

Ex M2M n/a n/a n/a n/a n/a n/a n/a n/a 27.5% 26.7% 26.3% 25.9% 25.2% 24.8% 24.3% 23.7% 22.9%

Free 0.0% 0.0% 0.0% 0.0% 5.2% 6.9% 8.2% 9.5% 10.8% 11.7% 12.5% 13.2% 13.9% 14.4% 14.9% 15.4% 15.9%

Bouygues 18.9% 18.9% 18.8% 18.6% 17.6% 17.2% 17.1% 17.2% 17.1% 16.9% 16.4% 16.2% 16.0% 15.8% 15.6% 15.5% 15.6%

M2M n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2.1% 2.1% 2.1% 2.1% 2.1% 2.3%

Ex M2M n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 14.1% 13.9% 13.7% 13.5% 13.3% 13.2%

Other 6.7% 7.0% 7.5% 7.9% 7.5% 7.6% 7.5% 7.4% 4.5% 4.8% 4.8% 4.9% 5.1% 5.2% 5.3% 5.4% 5.3%

Postpay TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Postpay ex M2M 93.9% 93.6% 93.5% 93.2% 93.0% 92.5% 91.8% 91.5% 90.9% 89.5% 89.1% 88.7% 88.3% 88.0% 87.7% 87.4% 86.8%

M2M 6.1% 6.4% 6.5% 6.8% 7.0% 7.5% 8.2% 8.5% 9.1% 10.5% 10.9% 11.3% 11.7% 12.0% 12.3% 12.6% 13.2%

Postpay TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Jefferies estimates, company data Note: Orange reported ex MVNO, Other includes ORA MVNOs, o/s territories

Telecommunications


22 July 2015



French – Current Front Book Tariffs

Table 51: France Mobile - Selected ‘No Commitment’ Tariffs Operator/Tariffs Current Offer

Price (€pm)

Data

(GB)

Bundled

Minutes

Bundled

SMS

Bundled

International Usage

No. of unlimited Fixed

destinations from France

Bouygues Telecom

Forfait B&You 2h 3.99 N/a 120 Unlimited N/a N/a

Forfait B&You 24/24 10.99 0.02 Unlimited Unlimited N/a N/a

Forfait B&You 2h 1Gb 14.99 1 120 Unlimited N/a N/a

Forfait B&You 2h 3Gb 19.99 3 Unlimited Unlimited N/a 120

Forfait B&You 2h 5Gb 29.99 5 Unlimited Unlimited Data in Europe 120

Forfait B&You 2h 10Gb 39.99 10 Unlimited Unlimited Data/Calls in Europe 120

Forfait B&You 2h 20Gb 69.99 20 Unlimited Unlimited Data/Calls in Europe 120

Numericable-SFR

Red 2H + SMS 5.99 0.1 120 Unlimited N/a N/a

Red 24H/24 12.99 0.2 Unlimited Unlimited N/a 52

Red 6Go 19.99 6 Unlimited Unlimited N/a 52

Red 10Go 25.99 10 Unlimited Unlimited N/a 52

Free

N/a 2 0.05 120 Unlimited N/a N/a

N/a 19.99 20 Unlimited Unlimited Unlimited SMS from Europe and Overseas 100

Orange

SOSH 4.99 N/a 120 Unlimited N/a N/a

SOSH 9.99 N/a Unlimited Unlimited N/a N/a

SOSH 19.99 3 Unlimited Unlimited N/a International calls via app

SOSH 24.99 5 Unlimited Unlimited Unlimited Calls/SMS from Europe and 5GB of data a year International calls via app


Table 52: France Mobile - Selected ‘With Handset’ Tariffs Requiring Contractual Commitment Operator/Tariffs Current Offer

Price (€pm)

IPhone 6

16Gb

Handset Fee

Clean Fee (ex.

Handset)

(€pm)

Contract

Length

Data (GB) Included

Minutes

Included SMS International Usage Bundled Features

Bouygues Telecom

Forfait Sensation 2h 10.99 631.9 4.0 24 0 120 Unlimited N/a N/a

Forfait Sensation 24/24 17.99 631.9 11.0 24 0.02 Unlimited Unlimited N/a N/a

Forfait Sensation 2h 1Gb 19.99 591.9 11.4 24 1 120 Unlimited N/a N/a

Forfait Sensation 24/24 3Gb 32.99 541.9 22.3 24 3 Unlimited Unlimited N/a Choice of Content*

Forfait Sensation 24/24 5Gb 39.99 491.9 27.2 24 5 Unlimited Unlimited Data in Europe Choice of Content*

Forfait Sensation 24/24

10Gb

49.99 411.9 33.9 24 10 Unlimited Unlimited Data/Calls in Europe Choice of Content*

Forfait Sensation 24/24

20Gb

89.99 281.9 68.4 24 20 Unlimited Unlimited Data/Calls in Europe Choice of Content* +

a second 20Gb data SIM

Numericable-SFR

Starter 2h + 100Mb 9.99 591.99 1.4 24 0.1 120 Unlimited N/a

Starter 2h + 1Gb 14.99 571.99 5.5 24 1 120 Unlimited SFR 10Gb Cloud

Unlimited and 1Gb 24.99 521.99 8.4 24 1 Unlimited Unlimited SFR 10Gb Cloud

Power 38.99 391.99 17.0 24 5 Unlimited Unlimited 15 days a year of data SFR 10Gb Cloud

Power 48.99 291.99 27.9 24 10 Unlimited Unlimited 35 days a year of data Choice of Content (**), SFR Cloud

100Gb, 130 Channels on App

Premium 84.99 201.99 60.1 24 15 Unlimited Unlimited 365 days of data Choice of Content (**), SFR Cloud

100Gb, 130 Channels on App

Orange

Origami Zen 24.99 669.9 19.6 24 1 Unlimited Unlimited Orange Cloud 10Gb included

Origami Play 48.99 469.9 21.6 12 4 Unlimited Unlimited International Usage^^ ***See below




Source: Jefferies estimates, company data, Source: Jefferies estimates, company data, * Choice of Spotify, Gameloft, CanalPlay Start or B.TV, ** Choice of Canal Play, L'Equipe, Napster, iCoyote, LeKiosk, SFR Games **30 TV channels + multi-SIM-on-demand + Orange Cloud 10Gb included, ^^3 Hours of calls, Unlimited SMS and 3GB of data per year

Telecommunications


22 July 2015



Table 53: French Triple-Play - Selected Packages Operator/Tariff Current

Offer Price

(€pm)

List Price

(€pm)

Contract BB Type Download

Speed

Fixed Calls Fixed Call

Destinations

French

Mobile Calls

Intl. Mobile

Calls

Total No. of

Channels

o/w HD VOD Cloud

Bouygues Telecom

Bbox Miami* 25.99 N/a No contract Fibre 1Gbit/s Unlimited 120 Unlimited Unlimited 163 26 Yes 20Gb

Bbox 19.99 N/a No contract ADSL/VDSL DSL Unlimited 120 Unlimited Unlimited 160 26 Yes 20Gb

Numericable-SFR

Red Fibre* 19.99 29.99 No contract Fibre 100Mbit/s Unlimited >100 - - 25 10 N/a 10Gb

Fibre Box Starter 25.99 39.99 12 Fibre 100Mbit/s Unlimited >100 Unlimited Unlimited 200 27 Yes 10Gb

Box Fibre Power 39.99 48.99 12 Fibre 200Mbit/s Unlimited >100 Unlimited Unlimited 240 27 Yes 100Gb

Box Fibre Family 41.99 57.99 12 Fibre 400Mbit/s Unlimited >100 Unlimited Unlimited 280 55 Yes 100Gb

Box Fibre Power + 43.99 59.99 12 Fibre 800Mbit/s Unlimited >100 Unlimited Unlimited 280 55 Yes 100Gb

Free

Freebox Revolution* 37.97 N/a No contract Fibre 1Gbit/s Unlimited 108 Unlimited - >200 49 N/a N/a

Freebox Mini 4K* 29.99 N/a No contract Fibre 1Gbit/s Unlimited 108 - - >200 49 Yes N/a

Orange

Livebox Zen* 22.99 33.99 12 Fibre 100Mbit/s Unlimited >100 Unlimited Unlimited 160 33 Yes 10Gb

Livebox Play* 26.99 37.99 12 Fibre 200Mbit/s Unlimited >100 Unlimited Unlimited 160 33 Yes 100Gb

Livebox Jet* 31.99 42.99 12 Fibre 500Mbit/s Unlimited >100 Unlimited Unlimited 160 33 Yes 100Gb

Source: Jefferies estimates, company data, Note *DSL/VDSL Tariff available at the same price point, Note: Bouygues VOD includes 5000 videos, Numericable-SFR - 200 Channels and 30,000 Videos and Orange 16 Channels and 7,000 Videos on demand, Iliad – Android TV, Orange Fees include €3 Livebox rental fee and a €5 discount for new customers

Table 54: Selected French Commitment Quad Play Tariffs Product Current

Offer Price

(€pm

Contract BB Type Download

Speed

Mobile

Data

Mobile

Calls

Mobile SMS Unlimited

Fixed Calls

Unlimited

Fixed Call

Dests

Unlimited

Calls to

French

Mobile

Intl Mobile Total No. of

Channels

o/w HD

Orange

Open Mini 31.99 12 ADSL/VDSL/Fibre 100Mbit/s 0.05 60 Unlimited Yes >100 No No 160 33

Open Zen 49.99 12 ADSL/VDSL/Fibre 100Mbit/s 1 Unlimited Unlimited Yes >100 No No 160 33

Open Play 57.99 12 ADSL/VDSL/Fibre 200Mbit/s 4 Unlimited Unlimited Yes >100 Yes No 160 33

Open Play 64.99 12 ADSL/VDSL/Fibre 200Mbit/s 8 Unlimited Unlimited Yes >100 Yes No 160 33

Open Jet 74.99 12 ADSL/VDSL/Fibre 500Mbit/s 12 Unlimited Unlimited Yes >100 Yes Yes 163 33

Open Jet 94.99 12 ADSL/VDSL/Fibre 500Mbit/s 20 Unlimited Unlimited Yes >100 Yes Yes 163 33

Numericable-SFR

box Fibre Starter &

Starter 2H+1Gb

30.98 12 Fibre 100Mbit/s 1 120 Unlimited Yes >100 Yes Yes 200 27

box Fibre Power &

Starter 2H+1Gb


box Fibre Power &

Starter 2H+1Gb


box Fibre Starter &

Starter 1Gb

35.98 12 Fibre 100Mbit/s 1 Unlimited Unlimited Yes >100 Yes Yes 200 27

box Fibre Power &

Starter 1Gb


box Fibre Power &

Starter 1Gb


box Fibre Starter &

Power 5Gb


box Fibre Power &

Power 5Gb


box Fibre Power &

Power 5Gb


box Fibre Starter &

Power 10Gb


box Fibre Power &

Power 10Gb


box Fibre Power &

Power 10Gb


box Fibre Starter &

Premium 15Gb


box Fibre Power &

Premium 15Gb


box Fibre Power &

Premium 15Gb


Source: Jefferies estimates, company data, Note: Numericable-SFR VOD includes 200 Channels and 30,000 Videos and Orange 16 Channels and 7,000 Videos on demand. Bouygues does not market a specific quad play tariff instead it offers a 10% discount on the second package taken.

Telecommunications


22 July 2015



Summary Changes to Estimates

Table 55: Bouygues Summary Changes to Estimates Forecasts (€m) FY15E New FY15E Old % Chg FY16E New FY16E Old % Chg

Sales 32,429 31,348 3.4% 32,710 31,792 2.9%

EBITDA 2,427 2,211 9.7% 2,665 2,277 17.1%

EBIT 631 536 17.8% 1,042 825 26.3%

EPS 0.7 0.7 -1.2% 1.7 1.5 9.7%

Drivers of Change: Model updated pre Q2 results


Table 56: Numericable-SFR Summary Changes to Estimates Forecasts (€m) FY15e New FY15e Old % Chg FY16e New FY16e Old % Chg

Sales 11,019 10,921 0.9% 10,920 10,863 0.5%

EBITDA (Adj) 3,744 3,252 15.1% 4,130 3,457 19.5%

EBIT 1,680 1,255 33.9% 2,094 1,489 40.7%

EPS 1.9 1.0 85.8% 2.5 1.6 62.4%



Table 57: Orange Summary Changes to Estimates Forecasts (€m) FY15E New FY15E Old % Chg FY16E New FY16E Old % Chg

Sales 39,703 38,775 2.4% 40,574 38,500 5.4%

EBITDA Adj) 12,229 12,018 1.8% 12,567 12,109 3.8%

EBIT 5,889 5,743 2.6% 6,158 5,809 6.0%

EPS 0.9 0.9 -0.2% 1.0 1.0 4.3%

Drivers of Change Model updated pre Q2 results


Table 58: Vivendi Summary Changes to Estimates Forecasts (€m) FY15e New FY 15E Old % Chg FY16E New FY16E Old % Chg

Sales 10,427 10,300 1.2% 10,494 10,354 1.3%

EBITDA 1,317 1,437 -8.4% 1,412 1,477 -4.4%

EBITA 937 1,062 -11.8% 1,067 1,137 -6.1%

EPS 0.47 0.50 -7.8% 0.52 0.53 -2.4%



Telecommunications


22 July 2015



Long Term Drivers

FY14-18 PF Revenue CAGR -0.8%

FY14-18 PF EBITDA CAGR 9.9%

FY14-18 PF Capex CAGR -0.9%

Other Considerations

French consolidation

700MHz Auction

1 Year Forward EV/EBITDA

Source: FactSet, Jefferies estimates

Numericable-SFR engages in the provision of Internet, television, and telephone services.

Its operations are carried out through the following business segments: Business-to-

consumer, Business-to-business, and Wholesale. In 2014 it acquired French telecoms

company SFR from Vivendi.

2Q Results (29th July)

Catalysts

Target Investment Thesis

Company is managing a difficult

environment in B2C – with rational

pricing likely to have triggered churn

in SFRs low value base

However we expect that the value

focus has had effect with falling ARPU

declines and growing fibre adds

We value NUM on a SOTP basis, PT of

€51 (9.5x 15e EV/EBITDA)

Upside Scenario

Favourable consolidation scenario

Synergies achieved ahead of guidance

Value strategy results in accelerating

fibre adds and improving ARPU trend

as the French market moves towards a

more rational competitive and

inflationary pricing environment

In this scenario we could see

Numericable-SFR re-rate to 10.1x 15e

EV/EBITDA resulting in a PT of €57

Downside Scenario

French consolidation no longer on

the agenda

Aggressive pricing from BYG in fixed

and ILD in mobile slows 2016

revenue inflection

Synergies from transaction lower

than guided by management

In this scenario we could see

Numericable-SFR de-rate to 8.7x 15e

EV/EBITDA resulting in a PT of €38

Long Term Analysis

Scenarios

2015e EV/EBITDA

Source: Jefferies Estimates

2014-16 rev CAGR vs. EV/EBITDA

Source: Jefferies

Recommendation / Price Target

Ticker Rec. PT

NUM FP Hold €51.00

EN FP Buy €45.00

LBTYA US Buy $69.00

ORA FP Buy €18.50

Company Description

THE LO

NG

VIE

W

Peer Group

Numericable-SFR: NUM FP

Hold: €51 Price Target

Telecommunications


22 July 2015



Long Term Financial Model Drivers

Adj. EPS CAGR FY14-18e 8.6%

Revenue CAGR FY14-18e 2.3%

EBITDA CAGR, FY14-18e 4.3%

Forward EV/EBITDA (+1)

Source: Jefferies, Factset.

Vivendi has two operating companies: Canal+, the leading pay-TV operator in France and

UMG, the leading music company. It holds (or will hold upon the closing of the GVT deal)

stakes in TEF Brazil, Telecom Italia and Activision Blizzard.

Vivendi 2Q Results (2nd September)

Catalysts


No sense of near term catalysts, with

uncertain growth prospects in both assets,

disappointing cash returns and increasing

risk of value destructive M&A.

Canal+ has trend of declining subs base

and a mix shift to lower-ARPU Canalplay.

Whilst declining physical/digital revs and

increasing streaming revs make timing of

revenue inflection uncertain.

Our TP of €18.5 is based on SOTP

valuation, placing UMG on 14.0x 2015e

EV/EBITDA and Canal+ on 10.0x.

Upside Scenario

Stabilisation of operating trends in

Canal+, sees French subscriber base

return to growth.

Canal+ International expansion

(notably Africa) drives accelerated

revenue growth.

Scenario could warrant Canal+ 2015e

EV/EBITDA re-rating to 12.5x (vs

Sky/ITV on 12.2x/13.2x).

Our SOTP valuation would rise to

€19.6, Group EV/EBITDA re-rates to

11.0x ‘15e (vs 9.8x in the base case).

Downside Scenario.

Conversion of ad-funded to premium

streaming customers slower than

expected. Revenue inflection not

seen until 2019.

Canal+ international expansion fails

to drive accelerated revenue growth.

Scenario could warrant placing UMG

on 11.0x 2015e EV/EBITDA and

Canal+ on 7.0x.

Our SOTP valuation would fall to

€15.7, Group EV/EBITDA de-rates to

6.9x 15e (vs 9.8x in the base case).

Long Term Analysis

Scenarios

Group EV/EBITDA, 2015E

Source: Jefferies estimates.

EPS CAGR, 14-16E vs. 15E EV/EBITDA



Ticker Rec. PT

VIV FP U/Perform €18.5

ORA FP Buy €18.5

SKY LN Hold 975p

Company Description

THE LO

NG

VIE

W

Peer Group

Vivendi (VIV FP)

Underperform: €18.5 Price Target


Potential closer relationships between

Bollore Group/Havas/Vivendi

FX impact of USD based revenue

accounting for c.20% of FY15e group

revenue.

Telecommunications


22 July 2015




Adj. EPS CAGR FY14e-17e 15.0%

Revenue CAGR FY14e-17e 0.3%

EBITDA CAGR, FY14e-17e 6.5%

Capex CAGR, FY14e-17e 0.6%

Forward EV/EBITDA (FY15E)


BYG is a diversified industrial group with operations in more than 80 countries. Its activities

are split into two sectors: Telecoms/Media and Construction. Bouygues Telecom (89.5%-

owned) is France's no.3 mobile operator and launched fixed-line services in 2009. TF1

(42.9%-owned) is controlled by BYG and is France's leading terrestrial TV channel. Within

the Construction activity are 3 divisions: Colas (road-building, 95.6%-owned), Bouygues

Construction (building and civil works, and electrical contracting, 100%-owned) and

Bouygues Immobilier (property development, 100%-owned). BYG also holds a 29.3%

stake in Alstom (transport/energy/infrastructure)..

Q2 Results (27th August)

Catalysts


We believe the outcome of the 700MHz auction

will reinvigorate consolidation talks. With

Martin Bouygues having reached the zenith of

his negotiating power we believe an €11bn

valuation is more than feasible.

We value Construction/Colas Divisions trading

in line with the sector average 10.5x 2016e

EV/EBIT

We value the group at €45

At this level 2015e EV/EBITDA would be 8.5x

(with the sector on 7.3x)

Upside Scenario

A feasible upside scenario involves the

sale of BYG Tel for €12bn (instead of

the €11bn in our base case).

Construction/Colas Divisions valued in

Line with the average of Vinci/Eiffage/

Saint-Gobain and Actividades de

Construccion y Servicios (11.3x)

Putting this in our SoTP would value

the group at €50. (+16% upside from

our target price).

At €50 the group trades on 9.2x

2015e EV/EBITDA

Downside Scenario.

On a going concern basis we value

the group at €31 with Telecom on

7.5x 2016 EV/EBITDA (€6bn) and

construction on 10.5x 2016

EV/EBIT and a conglomerate

discount of 10%.

At €31 (-30% downside from our

target price) the group would

trade on 6.6x 2015 EV/EBITDA.

Long Term Analysis

Scenarios

Group EV/EBITDA, Fiscal Year 2015E

Adj. EPS CAGR, FY14-16E vs EV/EBITDA



Ticker Rec. PT

EN FP Buy €45

ORA FP Buy €18.5

DTE GR Hold €15.4

TEF SM Underperform €9.6

Company Description

THE LO

NG

VIE

W

Peer Group

Bouygues (EN FP)

Buy: €45 Price Target


French 700MHz Auction

Telecommunications


22 July 2015




Adj. EPS CAGR FY14-17e +45.8%

Revenue CAGR FY14-17e -0.6%

Adj. EBITDA CAGR, FY14-17e +0.2%

Capex CAGR, FY14-17e -1.7%

Forward EV/EBITDA (FY15E)


Orange serves over 180 million customers across 32 countries. Originally the monopoly

telecom provider in France, its international interests now include controlled operations in

the UK, Spain, Poland and Egypt. Orange provides mobile, fixed telephony, internet, TV

and enterprise services. The Group is the No.3 provider of both mobile and broadband

internet services in Europe. The French government’s shareholding currently stands at

27.0%.

Q2 Results (22nd July)

Catalysts


Reduced competitive pressure in French

mobile and French consolidation is in

our view on the table.

The completion of the Jazztel acquisition

should inject growth into the Spanish

operation.

We forecast revenue and EBITDA growth

by 2016, with French revenue stabilising

by 2017.

Our TP of €18.5 is based on SOTP DCF

valuation, EV/EBITDA 6.6x.

Upside Scenario

Favourable consolidation in the

French market, reduction in

competitive intensity in France.

Faster improvement in underlying

trends, particularly in France.

Orange share price trades up to sector

multiple of 7.2x EV/EBITDA.

Valuation increases to €21 vs. €18.5

on target scenario (+15% upside to

our target scenario).

Downside Scenario.

French consolidation becomes

distant, pricing environment

worsens.

Slower cost reduction persists into

2016.

Valuation in this scenario of €16 vs.

€18.5 on target scenario. (-14%

downside to our target scenario).

Orange trades on 6.0x EV/EBITDA.

Long Term Analysis

Scenarios

Group EV/EBITDA, Fiscal Year 2015E

Source: Jefferies estimates.

EPS CAGR, FY14-16E vs EV/EBITDA



Ticker Rec. PT

ORA FP Buy €18.5

BT/A LN Buy 515p

DTE GR Hold €15.4

TEF SM Underperform €9.6

Company Description

THE LO

NG

VIE

W

Peer Group

Orange (ORA FP)

Buy: €18.5 Price Target


French consolidation

700Mhz Auction in November

Telecommunications


22 July 2015



Company DescriptionBYG is a diversified industrial group with operations in more than 80 countries. Its activities are split into two sectors: Telecoms/Mediaand Construction. Bouygues Telecom (89.5%-owned) is France's no.3 mobile operator and launched fixed-line services in 2009. TF1(42.9%-owned) is controlled by BYG and is France's leading terrestrial TV channel. With the Construction activity are 3 divisions: Colas(road-building, 95.6%-owned), Bouygues Construction (building and civil works, and electrical contracting, 100%-owned) and BouyguesImmobilier (property development, 100%-owned). BYG also holds a 29.3% stake in Alstom (transport/energy infrastructure).

Orange serves 182 million customers across 32 countries. Originally the monopoly telecom provider in France, its international interestsnow include controlled operations in the UK, Spain, Poland and Egypt. Orange provides mobile, fixed telephony, Internet, TV and enterpriseservices. In the consumer segment, Orange operates under the Orange brand in most countries. The Group is no.3 provider of both mobileand broadband Internet services in Europe. The French Government's shareholding currently stands at 27.0%.

Numericable-SFR is a holding company that engages in the provision of Internet, television and telephone services. Its operations are carriedout through the following business segments: Business To Consumer, Business To Business, and Wholesale. The Business To Consumersegment provides television subscriptions, Internet broadband access, cable, telephone services, and payment installation services. TheBusiness To Business segment offers data transmission, Internet, telecommunications services, and convergence and mobility solutionsthrough fibre digital subscriber line networks to professional clients. The Wholesale segment markets the network infrastructure availabilityservices, indefeasible rights of use agreements, and bandwidth of its network. It offers television broadcasting, Internet, data transmission,and fixed and mobile telephony services. The company was founded on 2 August 2013 and is headquartered in La Defense, France.

Vivendi holds controlling stakes in six market-leading media and telecoms businesses. Its interests within France, which account for about60% of consolidated sales, comprise a 100% stake in number two mobile and fixed-line operator SFR and 80% of the leading French pay-TVoperator Canal+. Vivendi hold 53% of Maroc Telecom, the incumbent operator in Morocco and 100% of GVT in Brazil. It also owns 63% ofActivision Blizzard, the Nasdaq-listed no.1 player in games, and 100% of UMG, the global leader in music.

Analyst Certification:I, Jerry Dellis, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Nicholas Prys-Owen, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, Ulrich Rathe, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Giles Thorne, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.Registration of non-US analysts: Jerry Dellis is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore maynot be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearancesand trading securities held by a research analyst.

Registration of non-US analysts: Nicholas Prys-Owen is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is notregistered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, andtherefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, publicappearances and trading securities held by a research analyst.

Registration of non-US analysts: Ulrich Rathe, CFA is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is notregistered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, andtherefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, publicappearances and trading securities held by a research analyst.

Registration of non-US analysts: Giles Thorne is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore maynot be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearancesand trading securities held by a research analyst.

As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.Jefferies is acting as financial adviser to Hellas Online on the sale of the company to Vodafone

Company Specific Disclosures

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For Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.

Explanation of Jefferies RatingsBuy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10 is 20% or morewithin a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated securities with an averagesecurity price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. ForUnderperform rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is minus20% or less within a 12-month period.NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial projections or opinionson the investment merits of the company are provided.

Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of marketrisk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.

Jefferies Franchise PicksJefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selectionis based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/rewardratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the numbercan vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason forinclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility inthe bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intendedto represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment stylesuch as growth or value.

Risks which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.

Other Companies Mentioned in This Report• Activision Blizzard, Inc. (ATVI: $26.25, BUY)• Apple Inc. (AAPL: $132.07, HOLD)• Facebook, Inc. (FB: $97.91, BUY)• Telefonica (TEF SM: €13.88, UNDERPERFORM)• Vodafone plc (VOD LN: p235.90, HOLD)

Distribution of RatingsIB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY 1106 53.12% 309 27.94%HOLD 821 39.43% 161 19.61%UNDERPERFORM 155 7.44% 13 8.39%

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Other Important DisclosuresJefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group LLC (“Jefferies”) groupcompanies:United States: Jefferies LLC which is an SEC registered firm and a member of FINRA.United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority; registered in England andWales No. 1978621; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0)20 7029 8000; facsimile +44 (0)207029 8010.Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; locatedat Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong.Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2,Singapore 048624, telephone: +65 6551 3950.Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a memberof the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, 1-5-1 Yuraku-cho, Chiyoda-ku, Tokyo 100-0006; telephone +813 52516100; facsimile +813 5251 6101.India: Jefferies India Private Limited (CIN - U74140MH2007PTC200509), which is licensed by the Securities and Exchange Board of India as a MerchantBanker (INM000011443), Research Analyst (INH000000701) and a Stock Broker with Bombay Stock Exchange Limited (INB011491033) and NationalStock Exchange of India Limited (INB231491037) in the Capital Market Segment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-KurlaComplex, Bandra (East) Mumbai 400 051, India; Tel +91 22 4356 6000.This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. 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This report is not an offer or solicitation of an offer to buy or sell any security or derivative instrument, or to make any investment. Any opinion orestimate constitutes the preparer's best judgment as of the date of preparation, and is subject to change without notice. Jefferies assumes no obligationto maintain or update this report based on subsequent information and events. Jefferies, its associates or affiliates, and its respective officers, directors,and employees may have long or short positions in, or may buy or sell any of the securities, derivative instruments or other investments mentioned ordescribed herein, either as agent or as principal for their own account. Upon request Jefferies may provide specialized research products or servicesto certain customers focusing on the prospects for individual covered stocks as compared to other covered stocks over varying time horizons orunder differing market conditions. While the views expressed in these situations may not always be directionally consistent with the long-term viewsexpressed in the analyst's published research, the analyst has a reasonable basis and any inconsistencies can be reasonably explained. This materialdoes not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individualclients. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate,seek professional advice, including tax advice. The price and value of the investments referred to herein and the income from them may fluctuate. Pastperformance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchangerates could have adverse effects on the value or price of, or income derived from, certain investments. This report has been prepared independently ofany issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of securities. Noneof Jefferies, any of its affiliates or its research analysts has any authority whatsoever to make any representations or warranty on behalf of the issuer(s).Jefferies policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer priorto the publication of a research report containing such rating, recommendation or investment thesis. Any comments or statements made herein arethose of the author(s) and may differ from the views of Jefferies.

This report may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproductionand distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party contentproviders do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for

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