REGISTRATION DOCUMENT AND FINANCIAL REPORT - Iliad

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4. RISK FACTORS 4.2 RISKS RELATING TO THE GROUP’S ACTIVITIES Television – audiovisual content In the ADSL broadband television and video sector, competition was fierce during 2007, and is likely to intensify. Although the Group considers that it has a competitive edge in this market, particularly through the use of its H.D. Freebox, which protects the transmission of audiovisual content, it cannot guarantee that it will be able to develop its audiovisual business as planned. Any such development will depend on the audiovisual content being broadcast and on being able to expand unbundling into new areas. Other Services The ANNU service is based essentially on the lists of subscribers provided by telephone service operators and on revenues from connections to the service via Minitel. Iliad can provide no assurance that its revenues from the Minitel market, which are already in decline, will not fall more rapidly than anticipated. 4.2.5 Risks relating to security and confidentiality of information on the Internet The need to secure communications and transactions on the Internet has been a major obstacle in the development of the Internet in general. Internet use may decrease if the level of protection of communications and transactions achieved proves to be inadequate or diminishes. The Group has taken and continues to take significant measures to guarantee the reliability of its security system and to limit problems that may be caused by security failures or a breach of the security system. Unauthorized persons may attempt to penetrate the Group’s network security system and, if successful, may appropriate privileged information about the users of the Group’s services or cause the service to be suspended. Some leading sites and suppliers of Internet services have suffered from “denial of service” attacks – in which very large numbers of requests for information are sent to the site with the aim of overloading its servers – or have been the victims of Internet viruses. Although the Group is taking the necessary steps to protect itself against such attacks, there can be no assurance that future attacks would not result in loss or damage for the Group, even if only in terms of image. Consequently, the Group might be required to increase its expenditures and its efforts to protect itself against these risks or to alleviate their consequences, which could have a material adverse effect on its business, financial position and results of operations and on its ability to meet its objectives. 4.2.6 Risks relating to the roll-out of the optical fiber network The roll-out of the optical fiber network is conditional upon (i) obtaining the necessary authorizations (occupancy of public property, right of entry into buildings, etc.) and (ii) the completion of the work entrusted to third party service providers. Delays in obtaining such authorizations and in the completion of such work could hold up the roll-out schedule. In the light of regulatory and operational uncertainties, the Group can provide no assurance that it will be able to meet its objectives. 4.3 FINANCIAL RISKS 4.3.1 Foreign exchange risk The Iliad Group’s functional currency is the euro. However, it purchases certain goods and services outside France and is therefore exposed to foreign exchange risks arising from various currency exposures, mainly with respect to the US dollar. In 2007 the Group decided to set up a hedging strategy in relation to highly probable commercial transactions denominated in US dollars expected to take place over the coming 18 months. The instruments used for this purpose are zero-premium collars. Detailed forecasts of the Group’s future purchases denominated in US dollars are drawn up as part of the budget process. These transactions are hedged over a maximum period of one and a half years. Consequently, the Group’s residual exposure after hedging foreign exchange risk on US dollar-denominated transactions was not material in 2007. 6 - Iliad – Registration Document 2007
4. RISK FACTORS 4.3 FINANCIAL RISKS At December 31, 2007 all of these currency hedges qualified as cash flow hedges under IAS 39. Confidential and strategic information concerning US dollar hedges contracted by the Group is not disclosed. Foreign exchange risk (in € thousands) USD Assets ................................................................................................ 11,158 Liabilities ............................................................................................. 28,054 Net position before hedging ........................................................................... 16,896 Off-balance sheet position ............................................................................ 0 Net position after hedging ............................................................................. 16,896 Closing rate ........................................................................................... 1.47185 Foreign exchange risk sensitivity USD Net position after hedging ............................................................................. 16,896 Net position after hedging based on the assumption that exchange rates change unfavorably for the Group by €0.01 ..................................................................................... 17,011 Sensitivity ............................................................................................ 115 4.3.2 Interest rate risk The Group has no significant interest rate exposure as its main financial liability is a fixed-rate OCEANE convertible/exchangeable bond. In 2006, Group companies obtained a confirmed syndicated line of credit representing a maximum amount of €220 million, available until June 2011. No drawdowns had been made under this facility at December 31, 2007. Obligations under finance leases and equipment leasing arrangements amounted to €28 million at December 31, 2007 compared with €8.7 million at December 31, 2006. The majority of the financing arrangements entered into by Iliad in 2007 related to the roll-out of the Group’s FTTH network. At December 31, 2007, the Group had €12.6 million in obligations under real estate finance leases entered into with Genefim (a subsidiary of Société Générale) to acquire Optical Nodes (ONs). At the same date, the Group’s obligations under FTTH equipment leasing contracts entered into with Cisco Capital represented approximately €7.1 million. The Group’s surplus cash is held in risk-free investments. At December 31, 2007, the Group did not have any interest rate hedges. In addition, the Group has no significant financial assets (such as bonds, treasury bills, other money market securities, loans or advances) and no off-balance sheet commitments (such as repos, forward rate agreements, etc.) which expose it to interest rate risk. The tables below show the Group’s net interest rate exposure (at December 31, 2007) and an analysis of sensitivity to interest rate fluctuations. (in € thousands) Within 1 year Between 1 and 5 years Beyond 5 years Financial liabilities ........................................... 26,271 315,420 7,985 Financial assets .............................................. 0 0 1,939 Net position before hedging .................................. 26,271 315,420 6,046 Off-balance sheet items ...................................... 0 0 0 Net position after hedging .................................... 26,271 315,420 6,046 Net position to be rolled over within one year (in € thousands) ............................................ 26,271 Change in interest rate ........................................ 1% Average remaining life (in months) ........................... 12 Sensitivity (in € thousands) ................................... 263 4.3.3 Liquidity risks The Group has historically financed its growth principally with internal resources, with limited recourse to borrowing from time to time to finance specific projects. On June 29, 2006, the Company issued €330.6 million Iliad – Registration Document 2007 - 7
Page 1 and 2: Société anonyme. Share capital:
Page 3 and 4: TABLE OF CONTENTS GENERAL COMMENTS
Page 5 and 6: 16.2 SERVICE CONTRACTS ENTERED INTO
Page 7 and 8: 1. PERSONS RESPONSIBLE 1.1 PERSON R
Page 9 and 10: 3. SELECTED FINANCIAL INFORMATION 3
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Page 27 and 28: Considering acquisition opportuniti
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6. OVERVIEW OF THE GROUP’S BUSINE
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6. OVERVIEW OF THE GROUP’S BUSINE
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7.2 ORGANIZATION CHART At March 31,
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9.1 KEY CONSOLIDATED FINANCIAL DATA
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9. OPERATING AND FINANCIAL REVIEW 9
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9.1.2 ADDITIONAL INFORMATION 9.1.2.
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11. RESEARCH AND DEVELOPMENT, PATEN
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13. PROFIT FORECASTS OR ESTIMATES T
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14. ADMINISTRATIVE, MANAGEMENT AND
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15. COMPENSATION AND BENEFITS 15.2
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16. FUNCTIONING OF THE COMPANY’S
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17.1 HUMAN RESOURCES 17. EMPLOYEES
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18.1 IDENTIFICATION OF SHAREHOLDERS
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19. RELATED PARTY TRANSACTIONS 19.
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20. FINANCIAL INFORMATION CONCERNIN
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2.3.4 List of subsidiaries and affi
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21.1 SHARE CAPITAL 21.1.1 Amount of
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21. ADDITIONAL INFORMATION 21.1 SHA
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21.1.8 Authorized unissued share ca
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21.4.2 Changes in the Iliad share p
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Not applicable. 23. THIRD PARTY INF
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25. INFORMATION ON SHAREHOLDINGS 25
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GLOSSARY Broadband ARPU (Average Re
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GLOSSARY IP (Internet Protocol): te
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GLOSSARY Spamming: the bulk mailing
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RR Donnelley : 01 53 45 19 00
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REGISTRATION DOCUMENT AND FINANCIAL REPORT - Iliad

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