Report by Stephen Baines on UPC Holding BV Credit Default Swaps

Executive Summary• Cable television service provider UPC Holding operates in a relatively non-cyclical industry and has business

interests that are geographically diversified across Europe. This combination of diversity and low-cyclicality should continue to provide a stable stream of revenues, earnings and cash flows.

• The markets in which UPC Holding operates are undergoing structural growth as consumers upgrade their TV packages and sign-up for broadband internet, allowing the company to increase revenues and EBITDA over time. With declining capital intensity of the business, the company should also experience growing free cash flow in the coming years.

• UPC Holding has a consistent capital structure policy of maintaining net leverage between 4-5x EBITDA. The clear communication of this strategy to debt and equity holders and the presence of maintenance and incurrence financial covenants provides reinforcement of this policy.

• UPC Holding is part of a wider-group and parent company Liberty Global Inc currently has a $2.6bn liquidity buffer which could potentially be invested in UPC Holding if necessary.

• The company has no near-term debt maturities and has recently proven its ability to refinance debt principal by terming-out its debt in early 2009 when the credit markets were closed to most high-yield borrowers.

• With a current price of 464bps, the 5yr CDS trades at a premium to the iTraxx Crossover index (currently 387bps) and has exhibited significantly lower historical volatility.

• The main downside of investing in UPC Holding CDS is that no deleveraging is expected – all excess cash flow is likely to be utilised for either acquisitions or dividends. In addition, in the event of a default recoveries to unsecured creditors may be negatively impacted by the presence of senior-secured debt in the capital structure.

Given these factors, this paper recommends to SELL 5yr CDS protection on UPC Holding at the current price of 464bps.

Business DescriptionUPC Holding BV is the holding entity for a number of cable television and telecommunications networks, mainly located in Europe but also in Chile. The company offers: multichannel television in analogue and digital formats - the latter also including high-definition, video-on-demand, and personal-video-recorder services for premium subscribers; high-speed broadband – up to 128Mbit/s across most of the network; and fixed-line telephony services. The company owns a network which passes, in aggregate, 16.8m homes of which 9.9m are UPC subscribers. In FY10 UPC Holding generated EBITDA of €1.8bn (+9.8% yoy) on revenue of €3.7bn (+8.3% yoy) at a margin of 47.5%. Figure 1.1, below, shows how The Netherlands and Switzerland together contribute nearly half of group revenues, with Chile (80%-owned) generating 16% and the remainder from a number of different European markets (including Ireland, Austria, Poland, Hungary, Czech Republic and Slovakia). Although UPC Holding offers broadband and telephony services, the company is primarily a cable television operator, with 92% of all subscribers purchasing either an analogue or digital TV package. UPC Holding does not produce any proprietary television content, preferring instead to distribute the channels produced by third parties.

Figure 1.2, above, shows how the majority of customers purchase only one service – this is usually analogue television –

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Fig 1.1: Revenue by Geography

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Fig 1.2: Subscribers by Type

Single-play Double-play Triple-play

from UPC Holding BV. Management believe that by upgrading these customers to more expensive digital television and selling them additional services (broadband and telephony), UPC Holding BV should be able to increase its revenues and earnings. Figure 1.3, below, shows that this trend of selling additional services is already in progress, with UPC customers purchasing – on average – 1.66 services each, compared to 1.37 services each in 2Q07. Figure 1.3 also suggests this trend may have much further to run because Virgin Media currently sells 2.58 services to each subscriber1. This trend to purchase additional services has also positively impacted monthly ARPU, having increased to €32.6 at present from €25.9 in 2Q07. Again, Virgin Media's current ARPU of €53.9 per month provides evidence that this trend could continue for much longer.

Market & CompetitorsIn each market where UPC Holding is present, it typically competes against the incumbent fixed line telecommunications operator for broadband and telephone services and against alternative television distribution platforms with respect to analogue and digital TV services. In Switzerland and The Netherlands – key markets for UPC Holding – cable television is the dominant medium for the delivery of television services, with market shares of 87% and 85%, respectively.2 In turn, UPC is an effective monopolist within its own network footprint, serving 53% of the Swiss market and 35% of the Dutch market. With respect to broadband and telephony, UPC Holding has much lower market shares (for example, in the Netherlands it has 17% of broadband customers and 16% of telephony customers), a legacy of the incumbent operators having first-mover advantage in these areas. However, UPC Holding has a major competitive advantage in broadband in that it can offer speeds of up to 128Mbit/s, compared to a maximum of 30-40Mbit/s for most fixed-line telecommunications operators. In addition, fibre-optic broadband usually provides the headline speed (unlike DSL services) and users living further from the exchange do not suffer from slower speeds. Also, fibre-optic broadband can also be used to deliver premium television services such as video-on-demand. UPC Holding is able to offer higher speeds at lower prices than the incumbent telecommunications operators because the modernity of its network (hybrid-fibre-coaxial) versus those of the telecommunications operators (typically copper-wire for the “last -mile”) means that upgrade capital expenditures and ongoing maintenances costs are lower. For example, in The Netherlands KPN NV offers 40Mbit/s broadband for €50/month, which compares to a 60Mbit/s service from UPC for €35/month. Similarly, Swisscom offers 20Mbit/s broadband for CHF69/month, while UPC offers the same service for CHF50/month. If fixed line telecommunications operators wish to compete with cable broadband on speed, they typically need to build a new and expensive fibre-optic network. KPN states that is its fibre-to-the-home roll-out costs €1,000 per home in capital expenditure3, which compares to $15-20 per home that UPC Holding spent to increase speeds from 8Mbit/s to 100Mbit/s.4

Evidence suggests that telecommunications services are relatively non-cyclical, with consumers viewing these as essentials. Research from OFCOM, the UK telecommunications regulator, found that consumers across a number of countries are

1 Adjusted for the effect of mobile phone subscribers.2 Data as of 2008. Source: http://www.solonstrategy.com/uploads/tx_soloncm003/2009_09_29_Cable_in_Europe_02.pdf 3 KPN 4Q10 Results Presentation: http://www.kpn.com/web/file?uuid=ae5075ff-a163-4740-b2e7-89ce33d30737&owner=63ac5999-3d5d-45de-b31f-

27ef0dbf1ae6 4 Mike Fries (CEO of UPC Holding parent company Liberty Global Inc), speech to Cable Congress 2010: http://www.v-net.tv/NewsDisplay.aspx?

id=302&title=mike-fries-eurodocsis-30-payback-phenomenal

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unwilling to reduce spending on communications services such of broadband, pay-TV subscriptions and mobile and fixed-line phones. They found that 2-12% had in the last twelve months cut back on pay-TV expenditure, 6-7% on broadband and 6-13% on fixed-line telephone calls. This compares to 13-30% who had cut back on food and groceries, 8-25% on personal care products and 22-43% on clothing and footwear.5 This evidence implies that pay-TV and telecommunications services should continue to be relatively recession-resistant, providing UPC Holding BV with a stable revenue base.

Shareholder and StrategyUPC Holding BV is a 100%-owned subsidiary of Liberty Global Inc, a NASDAQ-listed corporation that owns a number of other cable television assets, including Unitymedia GmbH in Germany, 50.2% of Telenet BV in Belgium and 54.2% of Austar Ltd in Australia. The company is attempting to execute a strategy based-upon consolidating the markets in which it operates through acquisitions and also maximising shareholder returns via regular share buy-backs. What this means for UPC Holding BV is that the company is not expected to deleverage, as management are likely to use excess cash flow to make shareholder distributions or bolt-on acquisitions. Liberty Global Inc has a publicly-stated leverage target of 4-5x EBITDA on a gross basis. Although Liberty Global has publicly stated its interest in purchasing Kabel-BW, a German cable operator valued at €2-2.5bn, such a purchase is likely to occur via the Unitymedia group rather than UPC Holding BV.

StructureAs at FY10 UPC Holding BV had total gross leverage of 4.5x EBITDA, down from 4.8x a year earlier. Net leverage is similar at 4.4x due to the low cash balance. However, the company does have access to additional liquidity in the form of €820m of undrawn bank facilities. In-line with the parent company leverage target of 4-5x, UPC Holding BV has historically maintained total net leverage in the range of 4.25-4.75x and this should be expected to continue in the future. The company's capital structure is made up of a mix of unsecured bonds and senior-secured bank debt, with net leverage through the senior debt currently at 3.5x (vs 3.8x at FY09). These leverage metrics compare to an enterprise value of parent company Liberty Global Inc which is currently 6.6x EBITDA.

UPC Holding is subject to a number of covenants with respect to both the senior-secured bank debt and the unsecured high yield bonds. With respect to the senior bank debt, UPC Holding is subject to financial covenants that require the ratio of net senior debt to last half annualised EBITDA to be maintained below 4x at each quarter end and the ratio of EBITDA to cash interest to be maintained above 3x. Any breaches of such covenants may be cured via the injection of additional shareholder loans or equity. Although such covenants are not applicable to the unsecured debt, unsecured lenders benefit from them indirectly to the extent that so long as the bank loans are outstanding UPC Holding is prevented from deteriorating its credit metrics beyond the levels allowed by the covenants. With respect to the unsecured bonds, UPC Holding is subject to covenants that limit debt incurrence to a maximum of 5x EBITDA, and prevent any shareholder distributions should leverage rise above 5x.

UPC Holding hedges foreign exchange and interest rate risk using a combination of cross-currency interest rate swaps, currency forwards, interest rate swaps and interest rate caps/collars. The company stated that as at Dec-10, all the debt was directly or synthetically matched to the functional currencies of the underlying operations, effectively eliminating the risk of leverage metrics being impacted due to changes in FX rates. The company also stated that its debt was hedged such that 83% of interest expenses are currently in fixed rate format, with maturities on the swaps, caps and collars generally corresponding to the maturity dates on the underlying floating rate debt. Consequently, the exposure of UPC Holding's income statement and balance sheet to changes in FX and interest rates is likely to be relatively limited.

UPC Holding is a holding company within the group and therefore structurally subordinated from the operating assets. In addition, the senior-secured bank debt is an obligation of operating entities and also benefits from contractual priority in the event of default. Consequently, should UPC Holding default, the CDS recovery rate may be negatively impacted by the priority afforded to senior-secured bank lenders. This risk is mitigated by the low probability of default given the structural growth in the broadband and digital-TV markets and the significant geographic diversity of the business. In addition, there is lack of near-term debt maturities – as shown in figure 1.6 - with no significant repayments falling due until FY16. UPC Holding has also proved it has the ability to refinance its debt during challenging credit market conditions, having in May 2009 extended the maturity on €1.2bn of bank debt from 2014 to 2017, a time when the high yield markets were closed to many other borrowers. Finally, shareholder Liberty Global Inc has $2.6bn of unencumbered cash held at the parent company level, which could be used to support UPC Holding BV (or its other

5 Fig 1.12, page 30, OFCOM International Communications Market Report 2010: http://stakeholders.ofcom.org.uk/binaries/research/cmr/753567/icmr/ICMR_2010.pdf

subsidiaries) if necessary.

FinancialsIn FY10 UPC Holding recorded revenue of €3.74bn, an increase of 8.3% from FY09. However, this number benefited from FX translation effects, mainly due to the strength of the Swiss Franc and Chilean Peso. Adjusting for this impact, revenue increased at a rate of 3.1% over the prior year. The major driver of this performance was The Netherlands unit, where the company has seen significant traction in the market for its high-speed broadband and premium television offerings, signing-up 140k and 102k new subscribers for each of these services. This consequently led to revenue growth of 6.6% vs FY09. The weakest performer was the Central & Eastern Europe unit, which saw currency-adjusted revenue growth of only 0.5% from FY09. This was due to competition as operators increased discounts on bundled products and some down-trading as consumers selected lower-priced tiers of service. This revenue growth translated into EBITDA growth of 9.8% to reach €1.77bn. After adjusting for FX effects, EBITDA increased by 2.3% vs FY09. Although – with the exception of programming and interconnection expenses – costs for UPC Holding are relatively fixed, the company failed to see any benefit of operating leverage when the results are viewed from a currency adjusted perspective. The key reasons for this were: a new revenue tax in Hungary, the refurbishment of some customer premise equipment, and an increase in marketing staff to support subscriber growth.

The company has not yet reported full financial statements for FY10; however, it is expected that UPC will report capital expenditure of €881m, cash tax of €6m and a working capital inflow of €67m. Together with a number of other cash-flow statement items reported in the first nine months, operating cash flow less capex is expected to equal €1041m. This compares to forecast cash interest payments of €396m, giving an estimated debt service cover ratio of 2.6x. Note that debt principal repayments have been excluded from this calculation as UPC Holding typically voluntarily refinances debt well in advance of its maturity date, rather than waiting for the principal to fall due. This trend is expected to continue.

For the financial forecasts revenue growth is modelled at 3.2% per annum. This is based upon the assumptions that the company can: (1) limit the loss of analogue TV subscribers to 150k per annum; (2) add 450k new digital TV/broadband/telephone subscribers each year; and (3) increase average revenue per user at a rate of 4.25% per annum. Although UPC Holding is expected to have a lower number of customers, revenue is expected to be greater as the remaining customers purchase more services (RGUs) each, and also more expensive services.

As shown in the figure 1.8, even in FY15 the subscriber metrics would still be substantially lower than that recorded in

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Fig 1.7: Debt Service Coverage Ratio FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY13E FY14ECash from Operations (€m) 932.2 867.2 990.7 973.7 1520.3 1415.3 1457.8 1500.2 1552.1Purchases of Property, Plant and Equipment (€m) -778.0 -891.1 -979.5 -853.9 -881.3 -890.1 -899.0 -908.0 -917.1Cash Interest Paid (€m) 309.0 403.0 538.8 376.4 396.4 436.2 465.4 493.2 509.1Cash Interest Received (€m) 10.1 46.3 23.2 16.0 6.0 0.4 1.5 2.8 4.0Pre-debt Service Cash Flow (€m) 473.3 425.4 573.2 512.2 1041.4 961.7 1025.6 1088.1 1148.1Cash Interest Paid (€m) -309.0 -403.0 -538.8 -376.4 -396.4 -436.2 -465.4 -493.2 -509.1Debt Service Coverage Ratio 1.53x 1.06x 1.06x 1.36x 2.63x 2.20x 2.20x 2.21x 2.26x

Fig 1.8 FY08 FY09 FY10E FY11E FY12E FY13E FY14E FY15EUnique Customers 10.50 10.16 9.93 9.78 9.63 9.49 9.35 9.21

15.92 16.05 16.43 16.88 17.33 17.78 18.23 18.681.52 1.58 1.66 1.73 1.80 1.87 1.95 2.03

Monthly ARPU 27.93 28.12 31.23 32.88 34.44 36.08 37.79 39.59Monthly Price/RGU 18.18 17.94 18.96 19.04 19.14 19.25 19.37 19.5

RGUsRGUs/User

FY10 by Virgin Media. With some of the cost increases seen in FY10 due to one-off step-changes, it is expected that UPC Holding will again begin to experience the benefit of operating leverage, with EBITDA growth slightly outpacing that of revenue over the coming years, at a rate of 3.6% per annum.

Given that in FY09 the company completed a major upgrade of its network to deliver high-speed broadband services it is expected that the capex intensity of the business gradually declines over time, having already fallen from 28% of revenue in FY08 to an expected 23% in FY10. This, along with rising EBITDA, should contribute to a stable debt service coverage ratio during the coming years. However, this will partially be offset by increasing interest expense as the company takes on additional indebtedness in order to maintain balance sheet leverage within the target range of 4-5x EBITDA. The proceeds of such additional indebtedness are most likely to be used to finance shareholder distributions, though the company may also make acquisitions.

Cash taxes paid are expected to remain relatively low due to the benefits of the interest shield and significant net operating loss carry-forwards, while working capital ratios are expected to remain constant.

Historical and forecast financial statements and credit ratios are included as an appendix.

Credit Default Swap PricingThe 5yr CDS of UPC Broadband currently trades at a level of 464bps, which compares to a historical low level of 270bps that was recorded in May 2007 and a historical high of 793bps which was recorded in October 2008. Although the current CDS spread of 464bps is towards the tighter end of this trading range, it can be seen from figure 1.9, below, that UPC Holding currently trades at a 77bps premium to the iTraxx Crossover Index (currently 387bps) and also that it has exhibited significantly lower historical volatility, holding its value much more effectively during the credit crisis.

Figure 1.10: Comparable Pricing

Company Net Leverage Rating 5yr CDS

KDG 3.9x NR/WR 264bps

ONO 5.0x CCC+/WR 4.9pts

Telenet 2.8x NR/Ba3 316bps

Unity Media 5.1x B-/B3 449bps

UPC Holding 4.4x B-./B2 464bps

Virgin Media 3.5x BB-/Ba2 275bps

Ziggo 4.5x B/B2 404bps

Figure 1.10 shows how UPC Holding has the second-highest CDS premium of the European cable television sector, despite leverage metrics that are comparable to a number of other operators. In addition, only Unity Media, Telenet and UPC Holding benefit from the $2.6bn liquidity buffer held at their parent company, Liberty Global Inc. Over time, given that Telenet, Unity Media and UPC Holding are all part of the same group and therefore subject the same overall leverage policy, it should be the case that in the long-term leverage ratios and credit spreads converge to similar levels. Therefore, it appears advantageous to prefer UPC Holding over Telenet and Unity, as the former should be expected to suffer from this convergence, while the latter has a lower CDS price despite higher leverage and less geographical diversity.

ConclusionIn summary, UPC Holding is a well-diversified business which is operating in a non-cyclical but growing sector. The competitive position of the firm should lead, over time, to growing revenues, earnings and cash flows, enabling the company to service its debt load and deleverage (if made necessary by external circumstances). The key risk of investing in UPC Holding is the subordinated nature of the unsecured debt, which would likely impact upon recovery rates in the event of default. As a risk this is mitigated by the stable leverage policy, the lack of near-term debt maturities, and the proven ability of the company to refinance in challenging credit market conditions, each of which make default a relatively low probability event. In conclusion therefore, this paper recommends to SELL 5yr CDS protection on UPC Holding BV at the current price of 464bps.

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Fig 1.9: UPC Holding BV 5yr CDS vs iTraxx Crossover

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Income Statement FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY13E FY14E FY15ERevenue (€m) 3,087.1 3,297.2 3,472.9 3,453.9 3,739.9 3,858.5 3,981.1 4,107.7 4,238.2 4,373.0% growth 6.8% 5.3% -0.5% 8.3% 3.2% 3.2% 3.2% 3.2% 3.2%Operating Expenses (€m) -1,238.9 -1,298.4 -1,267.2 -1,251.0 -1,347.0 -1,383.5 -1,421.1 -1,459.7 -1,499.3 -1,539.8Gross Profit (€m) 1,848.2 1,998.8 2,205.7 2,202.9 2,392.9 2,475.0 2,560.0 2,648.0 2,739.0 2,833.1% growth 8.1% 10.4% -0.1% 8.6% 3.4% 3.4% 3.4% 3.4% 3.4%Gross Margin (%) 59.9% 60.6% 63.5% 63.8% 64.0% 64.1% 64.3% 64.5% 64.6% 64.8%

Selling Expenses (€m) -668.7 -599.2 -587.2 -555.2 -605.2 -622.8 -641.0 -659.7 -679.0 -698.8Admin Expenses (€m) 0.0 0.0 0.0 0.0 0.0Other Expense (€m) 22.1 -49.2 -31.5 -30.6 -12.2 -9.6 -10.0 -10.3 -10.6 -10.9EBITDA (€m) 1,201.6 1,350.4 1,587.0 1,617.1 1,775.5 1,842.5 1,909.0 1,978.0 2,049.4 2,123.3% growth 12.4% 17.5% 1.9% 9.8% 3.8% 3.6% 3.6% 3.6% 3.6%EBITDA Margin (%) 38.9% 41.0% 45.7% 46.8% 47.5% 47.8% 48.0% 48.2% 48.4% 48.6%

Depreciation & Amortisation (€m) -1,021.8 -1,062.8 -1,079.9 -1,048.5 -995.8 -1,005.8 -1,015.8 -1,026.0 -1,036.2 -1,046.6Impairment, Restructuring & Other Charges (€m) -17.7 -20.8 -119.8 -89.2 -13.5 -52.2 -52.2 -52.2 -52.2 -52.2Operating Profit (€m) 162.1 266.8 387.3 479.4 766.2 784.5 841.0 899.8 961.0 1,024.6% growth 64.6% 45.2% 23.8% 59.8% 2.4% 7.2% 7.0% 6.8% 6.6%Operating Margin (%) 5.3% 8.1% 11.2% 13.9% 20.5% 20.3% 21.1% 21.9% 22.7% 23.4%

Finance Income (€m) 10.1 46.3 23.2 16.0 6.0 0.4 1.5 2.8 4.0 3.4Finance Costs (€m) -886.8 -967.4 -1,079.8 -951.1 -860.1 -863.5 -869.6 -873.2 -863.5 -845.9Finance Costs - net (€m) -876.7 -921.1 -1,056.6 -935.1 -854.1 -863.1 -868.1 -870.5 -859.5 -842.5Other (Losses)/Gains (€m) 874.7 22.5 -369.3 -557.9 -662.2 0.0 0.0 0.0 0.0 0.0Profit Before Income Tax (€m) 160.1 -631.8 -1,038.6 -1,013.6 -750.1 -78.6 -27.1 29.4 101.5 182.1% growth -494.6% 64.4% -2.4% -26.0% -89.5% -65.5% -208.2% 245.7% 79.4%

Income Tax Expense (€m) -8.3 -12.6 -62.0 124.8 -60.7 -5.5 -1.9 -2.1 -7.1 -12.8Tax Rate (%) 5.2% -2.0% -6.0% 12.3% -8.1% -7.0% -7.0% 7.0% 7.0% 7.0%Profit from Continuing Operations (€m) 151.8 -644.4 -1,100.6 -888.8 -810.8 -84.1 -29.0 27.3 94.3 169.3% growth -524.5% 70.8% -19.2% -8.8% -89.6% -65.5% -194.0% 245.7% 79.4%Profit from Discontinued Operations (€m) 5.4 9.8 11.3 17.9 0.0Net Profit (€m) 157.2 -634.6 -1,089.3 -870.9 -810.8 -84.1 -29.0 27.3 94.3 169.3

Minority Interest (€m) -0.3 9.2 20.1 16.8 -21.6 -2.5 -0.9 0.8 2.8 5.1Profit Attributable to Owners of the Parent (€m) 157.5 -643.8 -1,109.4 -887.7 -789.2 -81.6 -28.2 26.5 91.5 164.2

Balance Sheet FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY13E FY14E FY15EAssets Non-current AssetsProperty, Plant & Equipment (€m) 3,812.4 3,863.2 3,974.4 3,864.3 3,969.5 3,853.9 3,737.1 3,619.1 3,500.0 3,379.7Intangible Assets (€m) 6,041.3 5,608.1 5,411.8 5,207.0 5,391.1 5,365.0 5,338.9 5,312.8 5,286.7 5,260.6Investments in Associates (€m) 31.1 30.7 32.1 32.1 32.1 32.1 32.1 32.1Available-for-sale Financial Assets (€m) 340.4 0.0 0.0 0.0 0.0 0.0Other Assets (€m) 336.4 303.5 302.9 315.2 298.0 298.0 298.0 298.0 298.0 298.0Restricted Cash (€m) 319.2 330.2 318.2 0.0 0.0 0.0 0.0 0.0 0.0

10,531 10,094 10,050 9,735 9,691 9,549 9,406 9,262 9,117 8,970Current AssetsTrade & Other Receivables (€m) 572.4 461.1 435.1 393.1 255.8 263.9 272.3 281.0 289.9 299.1Deferred Income Tax Assets (€m) 41.4 49.0 36.3 36.3 36.3 36.3 36.3 36.3Derivative Financial Instruments (€m) 3.6 155.3 134.1 107.6 57.2 57.2 57.2 57.2 57.2 57.2Other Current Assets (€m) 388.8 92.2 78.9 66.8 95.5 95.5 95.5 95.5 95.5 95.5Cash & Cash Equivalents (€m) 616.1 153.6 108.6 159.7 71.3 296.6 556.7 803.5 688.7 787.8

1,580.9 862.2 798.1 776.2 516.1 749.5 1,018.0 1,273.4 1,167.6 1,275.9Assets of Disposal Group classified as held-for-sale (€m) 0.0 0.0 0.0 0.0 0.0

1,580.9 862.2 798.1 776.2 516.1 749.5 1,018.0 1,273.4 1,167.6 1,275.9Total Assets (€m) 12,111 10,956 10,849 10,512 10,207 10,299 10,424 10,535 10,284 10,246

Equity & LiabilitiesEquity Attributable to Owners of the ParentOther Comprehensive Earnings (€m) -121.9 -198.8 -49.6 30.7 297.2 317.9 339.5 362.2 385.8 410.5Shareholder Loan (€m) 6,599.9 9,038.2 8,418.7 8,331.4 8,271.6 7,848.9 7,403.2 6,933.2 6,437.6 5,915.0Retained Earnings (€m) -2,023.8 -6,692.7 -7,699.2 -8,600.2 -9,389.4 -9,471.0 -9,499.2 -9,472.7 -9,381.2 -9,217.0

4,454.2 2,146.7 669.9 -238.1 -820.6 -1,304.2 -1,756.4 -2,177.3 -2,557.8 -2,891.5Minority Interest 153.5 155.0 138.4 160.7 160.7 158.2 157.3 158.1 161.0 166.0Total Equity 4,607.7 2,301.7 808.3 -77.4 -659.9 -1,146.0 -1,599.1 -2,019.2 -2,396.8 -2,725.4

LiabilitiesNon-current LiabilitiesBorrowings (€m) 5,345.5 6,637.2 7,775.1 8,202.7 7,951.7 8,501.5 9,051.3 9,553.2 9,649.4 9,908.7Deferred Income Tax Liabilities (€m) 95.1 75.3 87.1 10.9 0.0 0.0 0.0 0.0 0.0 0.0Provisions for Other Liabilities & Charges (€m) 326.6 531.4 671.5 841.5 1,513.4 1,513.4 1,513.4 1,513.4 1,513.4 1,513.4

5,767.2 7,243.9 8,533.7 9,055.1 9,465.1 10,015 10,565 11,067 11,163 11,422Current LiabilitiesTrade & Other Payables (€m) 1,379.0 1,331.1 1,219.0 1,103.8 1,033.4 1,061.4 1,090.3 1,119.9 1,150.2 1,181.4Borrowings (€m) 332.7 5.7 12.7 14.4 1.9 1.9 1.9 1.9 1.9 1.9Derivative Financial Instruments (€m) 24.8 73.8 274.8 415.7 366.3 366.3 366.3 366.3 366.3 366.3

1,736.5 1,410.6 1,506.5 1,533.9 1,401.6 1,429.6 1,458.5 1,488.1 1,518.4 1,549.6Total Liabilities (€m) 7,504 8,655 10,040 10,589 10,867 11,445 12,023 12,555 12,681 12,972Total Equity & Liabilities (€m) 12,111 10,956 10,849 10,512 10,207 10,299 10,424 10,535 10,284 10,246

Cash Flow Statement FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY13E FY14E FY15ECash Generated from OperationsNet Loss (€m) 157.2 -634.6 -1,089.3 -870.9 -750.1 -78.6 -27.1 29.4 101.5 182.1Depreciation & Amortisation (€m) 1,021.8 1,062.8 1,079.9 1,048.5 995.8 1,005.8 1,015.8 1,026.0 1,036.2 1,046.6Non-Cash Impairment & Restructuring Charges (€m) 17.7 20.3 118.9 90.5 13.5 26.1 26.1 26.1 26.1 26.1(Profit)/Loss on Disposal of Property, Plant & Equipment (€m) -892.6 0.0 0.0 0.0 0.0 0.0Tax Charge (€m) 8.3 12.6 62.0 -124.8 60.7 0.0 0.0 0.0 0.0 0.0Share-based Payment (€m) 19.6 20.0 27.6 15.1 19.5 20.7 21.7 22.6 23.6 24.7Operating Cash from Discontinued Operations (€m) 65.5 0.0 0.0 0.0 0.0 0.0Finance Costs - net (€m) 876.7 921.1 1,056.6 935.1 854.1 863.1 868.1 870.5 859.5 842.5Share of loss/(profit) from associates (€m) -9.9 9.2 0.0 0.0 0.0 0.0 0.0Losses/(gains) on Derivative Instruments (€m) 42.7 -39.3 369.3 540.2 662.2 0.0 0.0 0.0 0.0 0.0Changes in Working Capital:Trade & Other Recievables (€m) -87.9 111.1 92.9 275.2 137.3 -8.1 -8.4 -8.7 -8.9 -9.2Trade & Other Payables (€m) 33.8 -203.3 -176.4 -552.3 -70.4 28.0 28.8 29.6 30.4 31.1

1,252.9 1,279.9 1,541.5 1,356.6 1,922.5 1,857.0 1,925.1 1,995.4 2,068.4 2,143.9Cash Interest Paid (€m) -309.0 -403.0 -538.8 -376.4 -396.4 -436.2 -465.4 -493.2 -509.1 -518.5Cash Tax Paid (€m) -11.7 -9.7 -12.0 -6.5 -5.8 -5.5 -1.9 -2.1 -7.1 -12.8Net Cash Generated From Operating Activities (€m) 932.2 867.2 990.7 973.7 1,520.3 1,415.3 1,457.8 1,500.2 1,552.1 1,612.6

Cash flows from Investing Activities(Acquisition)/Disposal of subsidiaries (€m) 1,884.5 -107.1 -49.0 115.1 -2.7 0.0 0.0 0.0 0.0 0.0Purchases of Property, Plant & Equipment (€m) -778.0 -891.1 -979.5 -853.9 -881.3 -890.1 -899.0 -908.0 -917.1 -926.3Proceeds from sales of PPE (€m) 190.3 3.5 5.0 4.9 0.7 0.0 0.0 0.0 0.0 0.0Interest received (€m) 10.1 46.3 23.2 16.0 6.0 0.4 1.5 2.8 4.0 3.4Net cash used in investing activities (€m) 1,306.9 -948.4 -1,000.3 -717.9 -877.3 -889.8 -897.6 -905.2 -913.1 -922.8

Cash flows from Financing ActivitiesProceeds from borrowings (€m) 4,734.7 1,541.7 1,075.6 1,249.3 1,437.0 550.0 550.0 550.0 550.0 550.0Repayment of borrowings (€m) -5,965.9 -333.4 -13.2 -774.6 -1,488.5 -0.2 -0.2 -48.1 -453.8 -290.7Repayments of Shareholder Loan (€m) -1,547.8 -1,175.6 -641.6 -79.6 -850.0 -850.0 -850.0 -850.0 -850.0Other Financing Activities (€m) -474.2 -30.6 -15.7 -78.7 -149.2 0.0 0.0 0.0 0.0 0.0Net cash used in financing activities (€m) -1,705.4 -370.1 -128.9 -245.6 -280.3 -300.2 -300.2 -348.1 -753.8 -590.7Effect of Exchange Rate Changes (€m)Net (decrease)/increase in cash (€m) 533.7 -451.3 -138.5 10.2 362.7 225.3 260.0 246.8 -114.7 99.1

FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY13E FY14E FY15ESolvency RatiosCurrent Ratio 0.9x 0.6x 0.5x 0.5x 0.4x 0.5x 0.7x 0.9x 0.8x 0.8xQuick Ratio 0.9x 0.5x 0.4x 0.4x 0.3x 0.5x 0.6x 0.8x 0.7x 0.8xEBITDA Cash Interest Coverage 3.9x 3.4x 2.9x 4.3x 4.5x 4.2x 4.1x 4.0x 4.0x 4.1xDebt Service Coverage Ratio 1.5x 1.1x 1.1x 1.4x 2.6x 2.2x 2.2x 2.2x 2.3x 2.3x

Working Capital RatiosReceivables Days 68 51 46 42 25 25 25 25 25 25Inventory Days 0 0 0 0 0 0 0 0 0 0Payables Days 406 374 351 322 280 280 280 280 280 280Cash Conversion Cycle -339 -323 -305 -281 -255 -255 -255 -255 -255 -255

Turnover RatiosTotal Asset Turnover 0.3x 0.3x 0.3x 0.3x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4xFixed Asset Turnover 0.8x 0.9x 0.9x 0.9x 0.9x 1.0x 1.1x 1.1x 1.2x 1.3xEquity Turnover 0.7x 1.4x 4.3x -44.6x -5.7x -3.4x -2.5x -2.0x -1.8x -1.6x

Profit MarginsGross Profit Margin 59.9% 60.6% 63.5% 63.8% 64.0% 64.1% 64.3% 64.5% 64.6% 64.8%EBITDA Margin 38.9% 41.0% 45.7% 46.8% 47.5% 47.8% 48.0% 48.2% 48.4% 48.6%Operating Profit Margin 5.3% 8.1% 11.2% 13.9% 20.5% 20.3% 21.1% 21.9% 22.7% 23.4%Net Profit Margin 5.1% (19.2)% (31.4)% (25.2)% (21.7)% (2.2)% (0.7)% 0.7% 2.2% 3.9%

Operating Profit Margin 5.3% 8.1% 11.2% 13.9% 20.5% 20.3% 21.1% 21.9% 22.7% 23.4%Total Asset Turnover 0.3x 0.3x 0.3x 0.3x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4xInterest Expense Rate 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1xFinancial Leverage Multiplier 2.6x 4.8x 13.4x -135.8x -15.5x -9.0x -6.5x -5.2x -4.3x -3.8xTax Retention Rate 94.8% 102.0% 106.0% 87.7% 108.1% 107.0% 107.0% 93.0% 93.0% 93.0%Return on Equity (14.9)% (31.0)% (90.8)% 534.4% 15.4% 7.4% 1.9% (1.2)% (3.8)% (6.1)%

Leverage RatiosGross Debt to EBITDA 4.7x 4.9x 4.9x 5.1x 4.5x 4.6x 4.7x 4.8x 4.7x 4.7xNet Senior Debt to EBITDA 3.7x 4.0x 3.8x 3.5x 3.5x 3.5x 3.5x 3.5x 3.4xNet Debt to EBITDA 4.2x 4.8x 4.8x 5.0x 4.4x 4.5x 4.5x 4.4x 4.4x 4.3x

12.0x 14.1x 12.6x 10.6x 8.8x 8.6x 8.4x 8.2x 7.9x 7.6x

Other Ratios25.2% 27.0% 28.2% 24.7% 23.6% 23.1% 22.6% 22.1% 21.6% 21.2%

DuPont Analysis

Net Debt to EBITDA-Capex

Capex/Revenue