telenet group holding nv 2005 q1 report v2.3 final_tcm126-603… · telenet group holding nv (the...

Telenet Group Holding NV and Subsidiaries

Report for the

Three months ended March 31, 2005

$558,000,000 11.5% Senior Discount Notes due 2014

€500,000,000 9% Senior Notes due 2013 (issued by Telenet Communications NV)

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Telenet Group Holding NV (the “Company”) is a company organized under the laws of Belgium. References to the “Senior Discount Notes” are to the $558,000,000 11.5% Senior Discount Notes due 2014 issued by Telenet Group Holding NV and references to the “Senior Notes” are to the €500,000,000 9.0% Senior Notes due 2013 issued by Telenet Communications NV. Both the Senior Discount Notes and Senior Notes were issued on December 22, 2003. Unless otherwise stated herein: • "United States" or the "U.S." refers to the United States of America; • "Belgian GAAP" refers to generally accepted accounting principles in Belgium; • "U.S. GAAP" refers to generally accepted accounting principles in the United States; • "$," "U.S.$" or "U.S. dollars" refers to the lawful currency of the United States; • "€" or "Euro" refers to the single currency of the participating Member States in the Third Stage of

European Economic and Monetary Union of the Treaty Establishing the European Community, as amended from time to time; and

• "we," "us," "our" and "Telenet" refer to Telenet Group Holding NV, together with its consolidated subsidiaries, except where the context otherwise requires.

In addition "Telenet Communications" refers to Telenet Communications NV, "Telenet Bidco" refers to Telenet Bidco NV, "Telenet Holding" refers to Telenet Holding NV, "Telenet NV" refers to Telenet NV, "Telenet Vlaanderen" refers to Telenet Vlaanderen NV, "MixtICS" refers to MixtICS NV, “Codenet” or “Telenet Solutions” refers to “Telenet Solutions NV” and its subsidiaries and "PayTVCo" refers to PayTVCo NV. Telenet Operaties NV changed its name to Telenet NV on January 1, 2005. Financial Information The unaudited condensed consolidated interim financial statements of Telenet Group Holding as of and for the quarters ended March 31, 2004 and March 31, 2005 and the audited consolidated financial statements as of and for the year ended December 31, 2004 have been prepared in accordance with U.S. GAAP. The financial information included in this report is not intended to comply with SEC reporting requirements. Compliance with such requirements would require the modification or exclusion of certain financial measures, including EBITDA, EBITDA margin, average revenue per subscriber and our annualized and pro forma data. Except for the impact of presenting as equity certain detachable warrants issued by Telenet Group Holding, the financial position and results of operations of Telenet Group Holding are substantially similar to the financial position and operations of Telenet Communications for the relevant periods. EBITDA, EBITDA margin, average revenue per subscriber, cash interest expense, net cash pay debt and certain other items included herein are non-GAAP measures and you should not consider such items as an alternative to the applicable GAAP measures. Subscriber Data Each subscriber is counted as a revenue generating unit, or "RGU," for each service subscribed, regardless of the number of services that customer receives from us. Thus, a customer who receives from us basic cable television, broadband internet and telephony services (regardless of their number of telephony access lines) would be counted as three RGUs. The subscriber data included herein, including penetration rates, average revenue per subscriber, market shares and churn rates, are derived from management estimates, are not part of our financial statements and have not been audited or otherwise reviewed by an outside auditor, consultant or expert. Other Data Certain numerical figures included in this report have been subject to rounding adjustments; accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

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Information Regarding Forward-Looking Statements

This document includes forward-looking statements. These forward-looking statements include all matters that are not historical facts, statements regarding Telenet’s intentions, beliefs or current expectations concerning, among other things, Telenet’s results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which Telenet operates. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Specific factors that might cause these uncertainties include, but are not limited to: Telenet’s business plan, which may undergo changes in the future; Telenet’s history of losses; Telenet’s substantial leverage and restrictions contained in the agreements governing its debt; the potential fluctuations in Telenet’s operating results; Telenet’s competition; Telenet’s potential inability to attract and retain subscribers; rapid technological change and evolving industry standards in the markets for Telenet’s services and Telenet’s ability to introduce new technologies or services; Telenet’s ability to maintain and upgrade its network and obtain adequate equipment; Telenet’s integration of its recent acquisitions; adverse regulatory, legislative, tax or other judicial developments; and factors that are not known at this time. Telenet cautions you that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which Telenet operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if Telenet’s results of operations, financial condition and liquidity and the development of the industry in which Telenet operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in future periods. Telenet does not undertake any obligation to review or confirm expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this document.

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INDEX PART I – FINANCIAL INFORMATION ITEM 1 UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF

TELENET GROUP HOLDING NV Condensed consolidated balance sheets................................................................................................. 5 Condensed consolidated statement of operations .................................................................................. 6 Condensed consolidated statement of shareholders’ equity................................................................... 7 Condensed consolidated statement of cashflows ................................................................................... 8 Notes to the condensed consolidated interim financial statements ........................................................ 9 ITEM 2 MANAGEMENT’S DISCUSSION AND FINANCIAL ANALYSIS ................................................25 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................... 34 PART II – OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS.....................................................................................................................38 ITEM 5 CAPITALIZATION .............................................................................................................................39 ANNEX SUMMARY GUARANTOR FINANCIAL INFORMATION .......................................................... 40

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PART I – FINANCIAL INFORMATION ITEM 1 UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF

TELENET GROUP HOLDING NV


CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands of Euro)

March 31,

2005 December 31,

2004 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents ............................................................................ 46,725 145,188

Accounts receivable, net of allowance for doubtful accounts of 16,219 and 15,544 at March 31, 2005 and December 31, 2004, respectively ........ 93,104 84,787

Other current assets (Note 3)........................................................................ 21,828 23,635 Total current assets .................................................................................. 161,657 253,610 PROPERTY AND EQUIPMENT, Net (Note 4)............................................ 953,095 960,776 GOODWILL, Net (Note 5) ............................................................................. 1,025,511 1,028,145 INTANGIBLE ASSETS, Net (Note 5)........................................................... 267,460 274,209 DEFERRED FINANCE COSTS.................................................................... 55,462 63,845 OTHER ASSETS ............................................................................................ 957 1,009 TOTAL ASSETS............................................................................................. 2,464,142 2,581,594 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 6).................................................. 7,186 6,929 Accounts payable.......................................................................................... 120,660 145,696 Accrued expenses and other current liabilities (Note 7).............................. 155,180 149,290 Unearned revenue (Note 11) ........................................................................ 114,671 113,835 Total current liabilities............................................................................. 397,697 415,750 LONG-TERM DEBT, LESS CURRENT PORTION (Note 6)..................... 1,536,784 1,624,600 OTHER LIABILITIES (Note 13) ................................................................... 51,077 51,018 COMMITMENTS AND CONTINGENCIES (Note 13)............................... - - SHAREHOLDERS’ EQUITY Contributed Capital 28,842,419 ordinary shares issued and outstanding

as at March 31, 2005 and December 31, 2004............................................. 2,309,899 2,309,899 Deferred stock based compensation (Note 10) ............................................ (800) (982) Accumulated other comprehensive income ................................................. (15,573) (26,627) Accumulated deficit...................................................................................... (1,814,942) (1,792,064) Total shareholders’ equity ....................................................................... 478,584 490,226 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY....................... 2,464,142 2,581,594 See notes to the condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands of Euro)

For the three months ended

March 31, 2005 March 31, 2004

(Unaudited) REVENUES (Note 11).................................................................................... 177,274 165,924 COSTS AND EXPENSES Operating (excluding depreciation and amortization) ................................. (63,659) (60,234) Selling, general and administrative(1) ........................................................... (31,090) (34,927) Depreciation ................................................................................................. (36,423) (38,514) Amortization ................................................................................................. (9,677) (8,716) Total costs and expenses.......................................................................... (140,849) (142,391)

OPERATING INCOME ................................................................................. 36,425 23,533 OTHER INCOME (EXPENSE) Interest expense (net).................................................................................... (44,335) (56,626) Net foreign exchange gain (loss).................................................................. (12,292) (1,231) Total other income (expense) .................................................................. (56,627) (57,857) NET LOSS BEFORE INCOME TAXES....................................................... (20,202) (34,324) INCOME TAX EXPENSE (Note 9) .............................................................. (2,676) (40) NET LOSS....................................................................................................... (22,878) (34,364)

(1) Including €182 and €0 of amortization for deferred stock based compensation for the three months ended

March 31, 2005 and 2004, respectively. See notes to the condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (in thousands of Euro, except share data)

Contributed Capital

Accumulated

Deferred Stock

Based

Accumulated

Other

Comprehensive

Total

Comprehensive

Shares Amount Deficit Compensation Loss Total Loss

(in thousands of Euro, except share data) January 1, 2004.............................. 28,842,419 2,307,399 (1,731,546) - (1,765) 574,088 - Deferred stock based

compensation upon grant of certificates .................................. - 2,500 - (2,500) - - -

Deferred stock based compensation amortization ....... - - - 1,518 - 1,518 -

Unrealized net loss on derivative contracts.................... - - - - (24,862) (24,862) (24,862)

Net loss........................................... - - (60,518) - - (60,518) (60,518) Total comprehensive loss.............. - - - - - - (85,380) December 31, 2004 ....................... 28,842,419 2,309,899 (1,792,064) (982) (26,627) 490,226 - Deferred stock based

compensation upon grant of certificates .................................. - - - - - - -

Deferred stock based compensation amortization ....... - - - 182 - 182 -

Unrealized net gain on derivative contracts.................... - - - - 11,054 11,054 11,054

Net loss........................................... - - (22,878) - - (22,878) (22,878) Total comprehensive loss.............. - - - - - - (11,824) March 31, 2005.............................. 28,842,419 2,309,899 (1,814,942) (800) (15,573) 478,584 -

See notes to the condensed consolidated financial statements.

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TELENET GROUP HOLDING NV CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands of Euro) For the three months ended

March 31, 2005 March 31, 2004 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ......................................................................................................... (22,878) (34,364) Adjustments to reconcile net loss to net cash provided by operating

activities: Depreciation and amortization ............................................................... 46,100 47,230 Provision for liabilities and charges........................................................ (671) (718) Increase in allowance for bad debt.......................................................... 675 511 Amortization of financing cost ............................................................... 1,584 3,125 Write off of financing cost ..................................................................... 6,799 - Accrued interest expense......................................................................... 8,160 7,589 (Gain)/Loss on derivative instruments, net............................................. (795) 273 Unrealized foreign exchange loss, net .................................................... 13,013 5,856 Deferred taxes.......................................................................................... 2,634 - Deferred stock compensation.................................................................. 182 - Changes in operating assets and liabilities net of effects from

acquisitions: Accounts receivable ................................................................................ (8,992) (11,173) Other current assets ................................................................................. 1,859 1,035 Unearned revenue.................................................................................... 1,566 4,921 Accounts payable .................................................................................... (25,036) 12,695 Accrued expenses and other current liabilities ....................................... 17,739 19,535 Net cash provided by operating activities ........................................... 41,939 56,515 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.......................................................... (28,742) (21,648) Purchases of intangibles............................................................................... (1,617) (4,682) Net cash used in investing activities ....................................................... (30,359) (26,330) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term borrowings ......................................................... (214,769) (103,689) Proceeds from long-term borrowings .......................................................... 105,000 - Repayments of capital leases ....................................................................... (274) (570) Net cash used in financing activities......................................................... (110,043) (104,259) NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS.......................................................................................... (98,463) (74,074) CASH AND CASH EQUIVALENTS: Beginning of period .................................................................................... 145,188 171,026 End of period ............................................................................................... 46,725 96,952 SUPPLEMENTAL DISCLOSURE OF CASH TRANSACTIONS: Interest Paid.................................................................................................. 18,096 5,492 NON CASH INVESTING AND FINANCING ACTIVITIES: Acquisition of network user rights in exchange for debt ............................... 1,311 3,270 See notes to the condensed consolidated financial statements.

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TELENET GROUP HOLDING NV NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)

(in thousands of Euro, except per share amounts, unless otherwise stated) 1. BASIS OF PRESENTATION The accompanying condensed consolidated interim financial statements present the operations of Telenet Group Holding NV ("Telenet Group Holding") and its subsidiaries (hereafter collectively referred to as the "Company"). Through its broadband network, the Company offers cable television, including premium television services, broadband Internet and telephony services to residential subscribers in Flanders as well as broadband internet, data and voice services in the business market throughout Belgium. Telenet Group Holding and its principal subsidiaries are limited liability companies organized under Belgian law. The Company is managed and operates in one operating segment, broadband communications. The accompanying condensed consolidated interim financial statements are unaudited (the “Interim Financial Statements”). In the opinion of management, these Interim Financial Statements include all adjustments which are necessary to present fairly the financial position and the results of operations for the interim periods. The Interim Financial Statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2004 and 2003. Results for the three months ended March 31, 2005 are not necessarily indicative of future results. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Interim Financial Statements have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America ("U.S. GAAP"). The Company's functional and reporting currency is Euros ("€"), which is also the functional currency of each of the Company's subsidiaries. Management's Use of Estimates The presentation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the financial statements for the year ended December 31, 2004 to be consistent with presentation of the financial statements for the three months ended March 31, 2005. Recent Accounting Pronouncements

In March 2005, the Financial Accounting Standards Board (“FASB”) Staff issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations" (“FIN 47”). FIN 47 clarifies the term conditional asset retirement obligation as used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations” as well as other issues related to asset retirement obligations. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is in the process of determining if this interpretation will have any impact on its financial statements.

In December 2004, the FASB issued a revised Statement of Financial Accounting Standard (“SFAS”) No.

123(R), “Share-Based Payment - an Amendment of FASB Statements No. 123 and 95” (“SFAS No. 123(R)”). SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services or incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions) and recognize the cost over the period during which an employee is required to provide service in exchange for the award. The Company is required to adopt SFAS No. 123(R) effective January 1, 2006 and is currently in the process of evaluating the impact of SFAS No. 123(R).


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued) (in thousands of Euro, except per share amounts, unless otherwise stated)

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3. OTHER CURRENT ASSETS Other currents assets consisted of the following:

March 31,

2005 December 31,

2004 (Unaudited)

Inventory of broadcast licenses ........................................................................ 2,743 4,910 Prepaid taxes and VAT..................................................................................... 1,644 4,168 Electrabel........................................................................................................... 8,039 8,039 Canal + receivable............................................................................................. 3,737 3,582 Prepayments ...................................................................................................... 5,616 2,889 Other ................................................................................................................. 49 47 21,828 23,635 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:

March 31, 2005

December 31, 2004

(Unaudited)

Land .................................................................................................................. 2,157 2,157 Buildings and leasehold improvements............................................................ 36,311 36,085 Network: operational ........................................................................................ 1,350,718 1,325,072 Network: construction in progress ................................................................... 31,408 32,238 Furniture, equipment and vehicles ................................................................... 29,817 26,117 1,450,411 1,421,669 Less: accumulated depreciation........................................................................ (497,316) (460,893) 953,095 960,776 Included in the balances of buildings and leasehold improvements and network are assets under capital lease as follows:

March 31, 2005

December 31, 2004

Buildings and leasehold improvements........................................................... 20,907 20,907 Vehicles............................................................................................................ 741 741 Head-ends ........................................................................................................ 7,470 7,470 29,118 29,118 Less: accumulated depreciation....................................................................... (3,643) (3,341) 25,475 25,777



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5. GOODWILL AND INTANGIBLE ASSETS A reconciliation of the changes in goodwill is depicted below:

March 31,

2005 December 31,

2004 Beginning balance.................................................................................................. 1,028,145 1,031,904 Change in deferred tax valuation allowance (Note 9)........................................... (2,634) (3,759) 1,025,511 1,028,145 Summarized below are the carrying value and accumulated amortization of intangible assets that will continue to be amortized under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”).

March 31, 2005

(Unaudited) December 31, 2004

Gross Carrying

Value

Accumulated Amortization

Net Carrying

Value

Gross Carrying

Value

Accumulated Amortization

Net Carrying

Value

Finite-lived intangible assets:

Network user rights....................... 138,167 (31,315) 106,852 136,856 (28,685) 108,171

Software ................. 72,338 (51,881) 20,457 70,720 (48,589) 22,131 Customer list .......... 67,991 (18,131) 49,861 67,991 (16,498) 51,493 Supply contracts..... 2,125 (567) 1,557 2,125 (461) 1,664 Trade name............. 121,000 (32,267) 88,733 121,000 (30,250) 90,750 401,621 (134,161) 267,460 398,692 (124,483) 274,209



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6. DEBT AND OTHER FINANCING Debt and other financing consisted of the following:

March 31,

2005 December 31,

2004 (Unaudited) Senior Credit Facility:

Tranche A ................................................................................................... 218,880 314,045 Tranche B.................................................................................................... 11,120 15,955 Tranches C1 and C2 ................................................................................... - 110,000 Tranche E.................................................................................................... 405,000 300,000

Senior Notes .................................................................................................... 500,000 500,000 Senior Discount Notes (1) ................................................................................ 284,324 263,150 Clientele Fee.................................................................................................... 43,747 43,748 Annuity Fee..................................................................................................... 53,822 57,281 Capital lease obligations ................................................................................. 27,076 27,350

1,543,970 1,631,529 Less: current portion ....................................................................................... (7,186) (6,929) Total long-term debt........................................................................................ 1,536,784 1,624,600 _______________ (1) Accreted balance of the Senior Discount Notes, converted to Euros on March 31, 2005 and December 31, 2004 at the

accounting rate of U.S.$ 1.2964 per €1.00 and U.S.$ 1.3621 per €1.00 respectively. Senior Credit Facility On March 31, 2005, as part of a series of amendments to its Senior Credit Facility, the Company paid €210,000 to partially reduce the outstanding principal of Tranches A and B and to fully repay the outstanding principal of Tranche C2 of the Senior Credit Facility, while at the same time drawing €105,000 under Tranche E, resulting in a net prepayment of €105,000. The Company cancelled tranche C2 including its undrawn balance and increased the available committed revolving credit facility under tranche D from €100,000 to €200,000, resulting in an increase in undrawn committed facilities from €140,000 to €200,000. In addition, the Company obtained an uncommitted acquisition and liquidity facility of €150,000, tranche C, from the senior lenders and reduced the margins applicable for tranches A, B, D and E. As of March 31, 2005, the undrawn availability of Tranche D was €200,000. As a result of these amendments, the Company wrote off €6,799 of debt issuance cost related to the Senior Credit Facility.



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7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following:

March 31,

2005 December 31,

2004 (Unaudited)

Financial instruments ...................................................................................... 69,293 81,133 Customer deposits ........................................................................................... 28,990 29,261 Compensation and employee benefits ............................................................ 22,673 20,591 VAT and withholding taxes............................................................................ 9,242 2,104 Interest and other accrued expenses................................................................ 21,942 13,080 Other current liabilities.................................................................................... 3,040 3,121 155,180 149,290 8. FINANCIAL INSTRUMENTS The Company seeks to reduce its foreign currency exposure through a policy of matching, to the extent possible, assets and liabilities denominated in foreign currencies. In addition, the Company uses certain derivative financial instruments in order to manage its exposure to exchange rate and interest rate fluctuations arising from its operations. The Company has identified certain foreign exchange forward contracts as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). The Company is also exposed to credit risks. Foreign Currency Cash Flow Hedges In order to hedge the foreign exchange exposure resulting from the issuance of U.S. dollar-denominated Senior Discount Notes, the Company purchased a series of foreign exchange forward contracts for a total nominal amount of $558,000, which is the fully accreted value of the Senior Discount Notes as of December 15, 2008 (the “Full Accretion Date”). The strategy is to hedge the maximum accreted amount, as it is assumed that there will be no redemption before the Full Accretion Date, because of important redemption penalties that would be incurred upon early redemption (i.e. prior to the Full Accretion Date). The hedging instrument in this hedging relationship is the spot value of the foreign exchange forward contracts, as defined by the difference between the spot rate at inception and the closing spot rate. The risk being hedged is the variability of the Euro-equivalent cash flows related to the fully accreted amount of the Senior Discount Notes as of the Full Accretion Date. The hedge effectiveness test will be performed periodically, based on the U.S. dollar spot rate, comparing the change in spot value of the foreign exchange forward contracts with the change in anticipated Euro-equivalent cash flows upon the future repayment of the fully accreted value of the Senior Discount Notes. This implies that the impact of ineffectiveness, together with changes in the fair value of the forward points on the foreign exchange forward contracts, will be recorded directly through earnings. As of March 31, 2005 and December 31, 2004 outstanding foreign exchange forward contracts that qualified as cash flow hedges were as follows:



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March 31,

2005 December 31,

2004

(Unaudited) Forward purchase contract Notional amount in U.S. dollars .........................................................

558,000

558,000

Weighted average strike price (US dollars per Euro) ........................ 1.1968 1.1968 Maturity............................................................................................... December 15, 2008 December 15, 2008 The split of the mark-to-market value of the foreign exchange forward contracts to the underlying spot value evolved as follows between December 31, 2004 and March 31, 2005:

Mark to Market

FX Value

Fair Value of Forward Points on Foreign Exchange Forward Contracts

December 31, 2004 ................................................. (62,479) (56,601) (5,879) March 31, 2005 (unaudited).................................... (53,793) (35,840) (17,953)

The impact of the foreign exchange forward contracts has been allocated between Other Comprehensive Income (“OCI”) and earnings as follows:

Mark to Market

Other Comprehensive

Income

Earnings

December 31, 2004 .................................................... (62,479) (14,674) (47,806) Change in fair value of forward points on foreign

exchange forward contracts (unaudited) ................(12,074) - (12,074)

Change in spot value through March 31, 2005

(unaudited)..............................................................20,761 20,761 -

Reclassified into earnings to offset foreign

exchange impact on accreted value of the U.S. dollar-denominated Senior Discount Notes as of March 31, 2005 (unaudited) ...................................

- (12,967) 12,967

March 31, 2005 (unaudited)....................................... (53,793) (6,880) (46,913)



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Foreign Exchange Risk Related to Operations The Company has used forward and option contracts in order to limit its exposure to the US dollar fluctuations against the Euro for transactions that are part of daily operations. Derivative financial instruments covering operational foreign exchange risk exposure as of March 31, 2005 and December 31, 2004 were as follows:

March 31,

2005 December 31,

2004

(Unaudited) Option contracts Notional amount (in thousands of Euro)................................ 8,000 8,000 Average Strike price (US dollars per Euro)........................... 1.29 1.27

Maturity ....................................................................................From January to

July 2005 From January to

July 2005 Interest Rate Risk The Company has incurred various floating rate debts. In order to manage its floating interest rate exposure, the Company entered into interest rate swap agreements, cap options and combinations of such instruments. In July 2004, the Company concluded a restructuring of its portfolio of interest rate swap agreements and cap and collar contracts in order to hedge the interest rate risk exposure resulting from its floating rate debt. The strategy is to hedge up to 2012 the expected outstanding amount of the Senior Credit Facility. On 31 March 2005, the Company amended its Senior Credit Facility. The tranches and pricing of tranches in the Senior Credit Facility were amended to to be aligned with the Company’s future requirements and to reflect current market pricing. As a result of these amendments, several derivative instruments have been excluded from hedge accounting as of March 31, 2005. The amounts accumulated in OCI that are attributable to these derivative instruments have been transferred to earnings. The hedging instruments in the remaining relationships are the mark to market value of the interest rate swaps and the intrinsic value of the cap and collar contracts. The intrinsic value of the caps and collars is internally determined based on the swap curves flat. The risk being hedged is the variability of the cash flows of interests to be paid. The hedge effectiveness is determined at inception using the mark-to-market method and has been assessed to be 100%.



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As of March 31, 2005 and December 31, 2004, the outstanding contracts were as follows:

March 31,

2005 December 31,

2004

(Unaudited) Interest rate swaps Notional amount........................................................................ 467,233 472,312 Average pay interest rate........................................................... 4.3% 4.3% Average receive interest rate..................................................... 2.1% 2.1% Maturity..................................................................................... From 2005 to 2011 From 2005 to 2011 Caps Notional amount........................................................................ 727,058 738,138 Average cap interest rate........................................................... 4.0% 4.0% Maturity..................................................................................... From 2005 to 2017 From 2005 to 2017 Collars Notional amount........................................................................ 450,000 450,000 Average floor interest rate ........................................................ 2.5% 2.5% Average cap interest rate........................................................... 5.4% 5.4% Maturity..................................................................................... From 2009 to 2012 From 2009 to 2012 The change in mark to market value of the interest rate swap agreements has been accounted for through OCI as from hedge inception:

Mark to Market

Other Comprehensive

Income

Earnings

December 31, 2004 ..................................................... (14,194) (11,860) (2,334) Change in mark to market value ................................. 3,036 3,036 -

Transfer of amounts accumulated in OCI to earnings....................................................................

- 219 (219)

March 31, 2005 ........................................................... (11,158) (8,605) (2,553)



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The change in mark to market value of the cap and collar contracts has been allocated between OCI and earnings as from hedge inception.

Mark to Market

Other Comprehensive

Income

Earnings

December 31, 2004 ..................................................... (4,236) (93) (4,143) Change in time value and change in marked to

market value for non hedging instruments..............27 - 27

Change in intrinsic value............................................. (124) (124) - Transfer of amounts accumulated in OCI to

earnings - 129 (129)

March 31, 2005 ........................................................... (4,333) (88) (4,245) Credit Risk Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies with regard to its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty's financial condition, credit rating, and other credit criteria and risk mitigation tools as deemed appropriate. The largest share of the gross assets subject to credit risk is accounts receivable from residential and small commercial customers. The risk of material loss from non-performance from these customers is not considered likely. Reserves for uncollectible accounts receivable are provided for the potential loss from non-payment by these customers based on historical experience. With regards to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with highly rated European and U.S. financial institutions.



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Fair market value The carrying amounts and related estimated fair values of the Company’s significant financial instruments were as follows: March 31, 2005 December 31, 2004

Carrying Amount

Fair Value

Carrying Amount

Fair Value

(Unaudited) Long-term debt (including short-term

maturities)...............................................

(1,543,970)

(1,641,403) (1,631,529) (1,741,770) Interest rate swaps .................................... (11,158) (11,158) (14,194) (14,194)Interest rate caps ....................................... (682) (682) (623) (623)Interest rate collars ................................... (3,651) (3,651) (3,613) (3,613)Best of swap and cap................................ - - - -Foreign exchange forward ....................... (53,793) (53,793) (62,479) (62,479)Foreign exchange options ........................ (9) (9) (224) (224)Total.......................................................... (1,613,263) (1,710,696) (1,712,662) (1,822,904)

The fair value of our derivative financial instruments has been determined by commercial banks and validated by our management. As regards to foreign exchange forward contracts qualifying for hedge accounting, their value will be based on swap curves flat, without extra credit spreads. In practice, these values will be close to the fair values provided by our counterparties in financial derivative instruments, which are commercial banks. The fair values of our long-term debt instruments are derived as the lesser of either the call price of the relevant instrument or the market value as determined by quoted market prices at each measurement date, where available, or, where not available, at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risk to the appropriate measurement date. The carrying amounts for financial assets classified as current assets and the carrying amounts for financial liabilities classified as current liabilities approximate fair value due to the short maturity of such instruments. The fair values of other financial instruments for which carrying amounts and fair values have not been presented are not materially different than their related carrying amounts. Management has applied its judgment in using market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company would realize in a current market exchange. 9. INCOME TAXES Telenet Group Holding and its consolidated subsidiaries each file separate tax returns in accordance with Belgian tax laws. For financial reporting purposes, Telenet Group Holding and its subsidiaries calculate their respective tax assets and liabilities on a separate-return basis. In order to simplify the internal corporate structure of the group, and to align the corporate structure with the operational functioning of the group, the Company plans on completing the merger of MixtICS and PayTVCo with Telenet NV during the second quarter of 2005 with effect from January 1, 2005. As a result of this planned merger, deferred taxes have been accounted for on a combined basis for Telenet NV, MixtICS and PayTVCo as of January 1, 2005. It is anticipated that approximately €37,000 of the carried forward tax losses that have been accumulated will not be able to be utilized by Telenet NV as a result of the merger. Two subsidiaries acquired in a previous business combination made taxable profits of €7,750 and €11,060 during the three months ended March 31, 2005 and the year ended December 31, 2004 and utilized tax loss



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carryforwards resulting in a deferred tax expense of €2,634 and €3,759, respectively, which were accounted for as a credit to goodwill under SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”). 10. EMPLOYEE STOCK BASED COMPENSATION Employee Stock Based Compensation The Company uses the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB Opinion No. 25”), to account for its stock option plans. Accordingly, the excess of the grant date fair value of the Company's ordinary shares over the exercise price of the stock options is recognized as compensation expense over the vesting period of the options. Class A and Class B Options In August 2004, the Company granted 500,000 Class A Options with an exercise price of €20 per option to certain members of management to subscribe to 500,000 Class A Profit Certificates (“Class A Options”). Except for 168,904 Class A Options that vested immediately upon grant, the vesting period of the Class A Options ranges from four to 42 months and can be exercised through June 2009. The intrinsic value of each Class A Options was determined to be €5, resulting in a total compensation expense of €2,500 that will be recognized over the vesting period. In December 2004, the Company offered 417,000 of the 450,000 authorized Class B Options with an exercise price of €25 per option to certain members of management to subscribe to 417,000 Class B Profit Certificates (“Class B Options”). Of the 417,000 Class B Options offered by the Company, 361,000 were accepted in February 2005. The intrinsic value of each Class B Options was determined to be €0, resulting in a total compensation expense of nil. The Class A and Class B Profit Certificates are exchangeable into shares of the Company on a one for one basis, subsequent to exercise subject to certain conditions being met. Upon exercise, these profit certificates give the holders the right to receive dividends equal to dividends distributed, if any, to the holders of the Company’s shares. The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). The fair value of each Class A Option and Class B Option at grant date was estimated at €8.46 and €5.12, respectively.

Three months ended March 31, 2005 2004

Net loss, as reported....................................................................................... (22,878) (34,364) Add: Stock-based compensation, as reported, net of tax.............................. 182 - Deduct: Total stock-based compensation determined under fair value

based method for all awards, net of tax...................................................... (593) - Pro-forma net loss.......................................................................................... (23,289) (34,364)



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11. REVENUES The Company's revenues comprise:

Three months ended March 31,

2005 2004 (Unaudited) Cable television: - Basic Subscribers ......................................................................................... 49,972 48,934 - Premium Subscribers ................................................................................... 14,027 15,203 - Distributors................................................................................................... 1,761 2,394 Residential: - Internet ......................................................................................................... 53,577 44,311 - Telephony(1).................................................................................................. 41,163 38,095 Business............................................................................................................. 16,774 16,987 Total................................................................................................................... 177,274 165,924 The Company also has unearned revenues as follows:

March 31,

2005 December 31,

2004 (Unaudited) Cable television: - Basic Subscribers....................................................................................... 105,339 104,852 - Premium Subscribers................................................................................. 6,883 7,293 Internet............................................................................................................. 7,614 6,163 Telephony(2)..................................................................................................... 1,602 1,440 Business(1)........................................................................................................ 1,928 2,052 Total................................................................................................................. 123,365 121,800 Current portion................................................................................................ 114,671 113,835 Long-term portion........................................................................................... 8,695 7,965 The long-term portion of unearned revenue is included in Other Liabilities in the Condensed Consolidated Balance Sheets. (1) Residential telephony revenue also includes interconnection fees generated by business customers.



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12. EMPLOYEE BENEFIT PLANS Components of the net periodic benefit cost for the three months ended March 31, 2005 and March 31, 2004 are as follows: Defined Benefit Plans Postretirement Plans March 31,

2005 March 31,

2004 March 31,

2005 March 31,

2004 (Unaudited) (Unaudited) Service cost ................................................ 517 41 174 - Interest cost .............................................. 24 4 22 - Expected return on plan assets.................. (16) (4) - - Net periodic benefit cost ........................... 525 41 196 -

13. OTHER LIABILITIES, COMMITMENTS AND CONTINGENCIES Copyright Litigation In 2004, the Company, together with other Belgian cable operators, concluded negotiations with certain of the broadcasters and copyright collection agencies in Belgium that determined the copyright fees due by cable operators that represented the significant majority of the claims previously outstanding. The Company remains in litigation with smaller copyright collection agencies and broadcasters and has reached an agreement in principle on some of the outstanding terms. As of March 31, 2005, the Company retained an accrual of €30,035 in other liabilities for the amounts that the Company expects to pay as a result of the above settlements. Interconnection Litigation The Company has been involved in legal proceedings with Belgacom related to the increased interconnection fees that have been charged since August 2002 to telephone operators to terminate calls made to end users on the Company's network. Telenet obtained approval from the Belgian Institute for Postal Services and Telecommunications (BIPT) to increase its interconnection rates for inbound domestic calls in August 2002. Belgacom increased the tariffs charged to its telephony customers calling Telenet numbers to reflect our increased termination rates. Belgacom challenged the Company's increased interconnection termination rates before the Commercial Court of Mechelen (Rechtbank van Koophandel) alleging abusive pricing. Belgacom has further challenged the BIPT's approval of Telenet's increased domestic interconnection termination rates before the Council of State (Raad van State), the highest administrative court in Belgium. The council may affirm the BIPT's decision or return the case to the BIPT for reconsideration. The Council of State rejected an emergency request from Belgacom to suspend the implementation of the increased interconnection termination rate. On January 20, 2004, the President of the Commercial Court in Mechelen rendered a judgement in the case where Belgacom contested the validity of Telenet's interconnection tariffs which was heard on September 23, 2003. The judgement stated that there is no indication that Telenet's interconnection tariffs constitute a breach of the unfair trade practices law, competition law or pricing regulations as invoked by Belgacom. As a result, the judge determined that Belgacom's potential claim is limited to a contractual matter upon which the judge who heard the case was not competent to rule, considering the nature of the procedure initiated by Belgacom. The judge therefore dismissed the claim. Telenet is currently not required to change the interconnection rates it currently charges to



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Belgacom and which were approved in 2002 by the BIPT. Belgacom appealed this judgement in April 2004. On March 17, 2005, the Court of Appeals of Antwerp dismissed Belgacom’s claims. Although Belgacom retains the right to further appeals on technical grounds, we do not expect that the outcome of such further appeals would arise before 2007. 14. RELATED PARTIES Related Party Identification

The related parties of the Company mainly comprise its shareholders that own more than 10% of the voting rights of the Company, namely GIMV, the MICs and PICs, Belgian Cable Investors LLC (“BCI”), Investco Belgian Cable 1 S.à.R.L and Investco Belgian Cable 2 S.à.R.L (formerly known as Callahan InvestCo Belgium 1 S.à.R.L. and Callahan Investco Belgium 2 S.à.R.L. respectively (collectively, “CIB”) ) and Electrabel as a result of its direct and indirect ownership of the Company. Suez is deemed to be a related party as a result of its direct ownership of the Company and its indirect ownership of Electrabel. Cable Partners Europe LLC (“CPE”) ceased to be a related party on December 16, 2004. Related Party Transactions

The transactions with Interkabel and the PICs mainly relate to the clientele fee and the annuity fee charged by the PICs.

Transactions with CPE included payments from Telenet NV under the Strategic Services Agreement dated March 31, 2001 (the "Management Agreement"). Under the Management Agreement, CPE provided strategic advice and assisted with the expansion, development and growth of the Company.



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The following table summarizes material related party balances: Balance sheet

March 31,

2005 December 31,

2004 (Unaudited) Intangible assets Network user rights - PICs........................................................................... 96,094 97,117 Accounts receivable PICs .............................................................................................................. 30 18 Electrabel...................................................................................................... 111 111 Suez .............................................................................................................. 355 326 Other receivables Electrabel...................................................................................................... 8,039 8,039 Accounts payable PICs .............................................................................................................. 1,778 1,929 Electrabel...................................................................................................... 1,725 2,640 Suez .............................................................................................................. 933 1,379 CPE............................................................................................................... 2,570 2,753 Accrued expenses PICs .............................................................................................................. 1,479 409 Electrabel...................................................................................................... 2,512 2,250 Others ........................................................................................................... 1,242 660 Current portion of long-term debt Annuity fee - PICs........................................................................................ 4,947 4,617 Clientele fee - PICs ...................................................................................... 1,369 1,368 Long-term debt Annuity fee - PICs........................................................................................ 48,875 52,664 Clientele fee - PICs ...................................................................................... 42,379 42,379 Head end leases - PICs................................................................................. 6,048 6,048



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The following table summarizes material related party transactions for the period: Statement of Operations

For the three months ended (Unaudited) March 31, 2005 March 31, 2004

Operating Leases and other operating expenses – PICs............................................... 1,911 1,915 Leases and other operating expenses – Electrabel ...................................... 1,347 938 Management fee – CPE................................................................................ - 602 Advisory fees – CPE.................................................................................... - 139 Other operating expense – Others ............................................................... - 20 Other operating expense – Suez................................................................... 337 910 Other operating income – Suez.................................................................... 373 473 Service agreement Electrabel.......................................................................... - 18,083 Interest expense PICs .............................................................................................................. 2,113 2,155 Interest income Electrabel...................................................................................................... - 2,484 15. SUBSEQUENT EVENTS Auction for Belgian Football League Rights We have participated in an auction held by Profliga, the organization representing the Belgian football league, for the rights to broadcast matches for the three annual seasons commencing with the 2005/2006 football season. To date, we have broadcast Belgian football league matches through our subsidiary PayTVCo, which held the rights for the three annual seasons ending in the current 2004/2005 season. Based on the current status of the auction, we will not retain the rights for the Belgian football league matches. This would result in a reduction in the amounts we currently pay for this content but may result in a loss of subscribers in our premium pay television subscriber base. This may in turn lead to a potential future loss of analog television, telephony and internet subscribers. However, we believe that Profliga did not correctly observe the terms set out for the auction process, nor respect the existing rights we have as the current holder of the rights for these matches, and have entered into legal proceedings against Profliga as a result. Separately, the Belgian competition council is also investigating the process run by Profliga from a competition law perspective and the results of their investigations may also influence the outcome to Telenet.

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS Introduction The following discussion and analysis is based on the unaudited condensed consolidated interim financial statements of Telenet Group Holding as of and for the three months ended March 31, 2005 and 2004 and the audited consolidated financial statements of Telenet Group Holding as of the period ended December 31, 2004 prepared in accordance with U.S. GAAP. We have included selected financial information on Telenet Group Holding as of and for the relevant periods. You should read the unaudited condensed consolidated financial statements attached hereto, including the notes thereto, together with the following discussion and analysis. Telenet Group Holding is a holding company that does not conduct any business operations of its own. Substantially all the assets of Telenet Group Holding consist of shares of its subsidiary Telenet Communications and intercompany loans made to Telenet Communications in connection with the acquisition of our network from the mixed intercommunales (“MICs”) in August 2002 (the “MixtICS Acquisition”) and with the refinancing that took place on December 22, 2003 (the “Refinancing”). These intercompany loans bear interest at a rate that is substantially similar to the rate at which debt incurred by Telenet Group Holding bears interest. Except for the impact of presenting as equity detachable warrants issued by Telenet Group Holding, the financial position and results of operations of Telenet Group Holding is substantially the same as the financial position and results of operations of Telenet Communications for the relevant periods. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements. Our actual results could differ materially from those that we discuss in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report, particularly under "Information Regarding Forward-Looking Statements." The annualized information in the table below is provided for informational purposes only and is not necessarily indicative of the actual results that may be achieved for the entire 2005 fiscal year. Actual results for the 2005 fiscal year may be affected by a number of factors, many of which are beyond our control. Annualized Information Based on First Quarter 2005 Results Euro millions

Net cash pay debt(1) ................................................................................................................ 1,212.9Annualized EBITDA(2)........................................................................................................... 330.1Pro forma annualized cash interest expense(1)....................................................................... 82.7Ratio of net cash pay debt to Annualized EBITDA .............................................................. 3.7xRatio of net debt to Annualized EBITDA ............................................................................ 4.5xRatio of Annualized EBITDA to pro forma annualized cash interest expense.................... 4.0x _________________ (1) Cash interest expense excludes non-cash items such as amortization of debt discounts and debt issuance costs and excludes

expenses such as currency hedging costs and other borrowing expenses, such as withholding tax and commitment fees. Cash pay debt includes third party debt on which cash interest is payable from the date of issuance, and excludes the Senior Discount Notes on which interest is accruing on a discounted basis and for which cash interest is not payable until June 15, 2009. Pro forma cash interest expense is calculated assuming that actual cash pay debt balances were outstanding for an annual period at rates in effect or assumed to be in effect at March 31, 2005 and excludes the impact of notional €467.2 million of interest rate swaps, whereby EURIBOR is received and a blended 4.3% fixed interest rate (as at March 31, 2005) is paid. (See Item 3 – “Quantitative and Qualitative disclosures about market risk”)

(2) Annualized EBITDA is calculated by multiplying our EBITDA of €82.5 million for the three months ended March 31,

2005 by four. This is a measure commonly used by other companies in our industry.

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Balance Sheet Information

(Euro in millions)

As of December 31,

2004

As of March 31,

2005

(Audited) (Unaudited) Cash and cash equivalents .............................................................................. 145.2 46.7 Current assets, excluding cash and cash equivalents ..................................... 108.4 114.9 Property and equipment, net ........................................................................... 960.8 953.1 Total assets ...................................................................................................... 2,581.6 2,464.1 Trade payables ................................................................................................ 145.7 120.7 Total cash pay debt ......................................................................................... 1,368.4 1,259.6 Shareholders' equity ........................................................................................ 490.2 478.6 Recent Developments Planned Sale of Premium Content Rights In January 2005, we announced our intent to sell the movie studio and other programming contracts acquired as part of the Canal+ Acquisition to VMMa. The premium content which is the subject of the sale currently serves the premium programming services offered by PayTVCo and it was intended that this would form part of the programming for our iDTV service. Simultaneously, we had reached an initial understanding with VMMa pursuant to which, following the closing of the sale of the premium content business to VMMa, we would retain access to premium film and sport programming, in exchange for fees which we would pay to VMMa for such access. Following the outcome of the auction for the Belgian football league rights, we and VMMa are in the process of revising our original intentions regarding these proposed arrangements. Amendments to our Senior Credit Facility On March 31, 2005, we modified the terms of our senior credit facility. We prepaid €100 million of the outstanding balance of tranches A and B and will be required to make quarterly payments representing an aggregate principal amount of €230 million according to the timetable previously applicable to tranches A and B. We increased the size of tranche E by €105 million and drew this increased amount in full. The repayment date of tranche E is unchanged. The Tranche C-2 facility was cancelled following the prepayment of its outstanding balance of €110 million on the date we modified the terms of our senior credit facility. We increased the size of our revolving credit facility, tranche D, to €200 million. We agreed a new facility, tranche C, which is an uncommitted €150 million facility which is available for use, subject to certain terms and conditions, for acquisitions or other liquidity requirements. Subsequent Events Auction for Belgian Football League Rights We have participated in an auction held by Profliga, the organization representing the Belgian football league, for the rights to broadcast matches for the three annual seasons commencing with the 2005/2006 football season. To date, we have broadcast Belgian football league matches through our subsidiary PayTVCo, which held the rights for the three annual seasons ending in the current 2004/2005 season. Based on the current status of the auction, we will not retain the rights for the Belgian football league matches. This would result in a reduction in the amounts we currently pay for this content but may result in a loss of subscribers in our premium pay television subscriber base. This may in turn lead to a potential future loss of analog television, telephony and internet subscribers. However, we believe that Profliga did not correctly observe the terms set out for the auction process, nor respect the existing rights we have as the current holder of the rights for these matches, and have entered into legal proceedings against Profliga as a result. Separately, the Belgian competition council is also investigating the process run by Profliga from a competition law perspective and the results of their investigations may also influence the outcome to Telenet.

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Results of Operation The following table sets forth certain summary operating information as of and for the periods indicated: For the three months ended March 31, 2004 March 31, 2005 % Change (Unaudited) RGUs(1) (in thousands) Residential basic cable television ............................................. 1,588 1,585 -Premium cable television ......................................................... 144 137 (5%)Residential broadband internet(2) .............................................. 430 537 25%Residential telephony(2)(3) .......................................................... 267 313 17%Business services(4).................................................................... 24 27 13% Total........................................................................................... 2,453 2,599 6% For the three months ended March 31, 2004 March 31, 2005

(Unaudited) Average monthly revenue per subscriber (in Euro)(5) Basic cable television(6)............................................................. 10.3 10.5 Premium cable television ........................................................ 33.3 33.8 Residential broadband internet ................................................. 34.8 32.3 Residential telephony(7)............................................................. 36.5 34.4 Penetration(8) Basic cable television................................................................ 94.4% 94.2% Premium cable television ......................................................... 5.8% 5.5% Residential broadband internet(9) .............................................. 18.1% 22.5% Residential telephony(9)............................................................. 10.9% 12.9% ___________ (1) Each subscriber is counted as a revenue generating unit, or "RGU," for each service subscribed. Thus, a subscriber or

customer who receives from us basic cable television, premium cable television, broadband internet and residential telephony services (regardless of its number of telephony access lines) would be counted as four RGUs. RGUs are presented as of the relevant period end date.

(2) Includes households and small businesses with up to four employees (“SoHos”) that receive our broadband internet and telephony services through a coaxial connection.

(3) These statistics also include approximately 16,000 and 11,000 residential and SoHo RGUs who used our carrier preselection services at March 31, 2004 and March 31, 2005, respectively. Subscribers of Phone Plus, the residential business acquired with the Telenet Solutions Acquisition, are not included in these statistics.

(4) Consists of small and medium enterprise (“SME”) RGUs that receive our broadband internet and telephony services through a coaxial connection or, in the case of telephony, via an indirect access contract. We had approximately 19,000 and 21,000 SME broadband internet customers at March 31, 2004 and March 31, 2005, respectively, and 5,000 and 6,000 SME telephony customers at March 31, 2004 and March 31, 2005 respectively. We also provide business services to SME and corporate RGUs that receive our services using a fiber connection and to business customers we acquired with the Telenet Solutions Acquisition, which RGUs are not included in the above RGU calculations.

(5) Revenue earned for the period divided by three and divided by the average number of RGUs for the period (which average number of RGUs may vary from the number of RGUs presented above at the period end date). Average monthly revenue per subscriber excludes installation fees.

(6) Average monthly revenue per subscriber includes copyright fees.

(7) Average monthly revenue per subscriber excludes interconnection revenue but includes revenue generated by RGUs who use our carrier preselection services. See footnote 4. Average monthly revenue per subscriber excluding RGUs who use our carrier preselection services was €37.7 and €35.0 for the three months ended March 31, 2004 and March 31, 2005, respectively.

(8) Number of RGUs at the end of the relevant period as a percentage of the number of homes and businesses, as applicable, passed by our network at the end of the relevant period (in the case of basic cable television) or by our network and the

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PICs network as of March 31, 2005 (in the case of residential broadband internet, telephony and premium cable television).

(9) Includes SMEs that receive our broadband internet and telephony services through a coaxial connection. The following table sets forth certain summary financial information for the periods indicated:

Euro millions As a percentage of total revenues (Unaudited) For the three months ended March 31, 2004 March 31, 2005 March 31, 2004 March 31, 2005 Revenues Residential Services Basic cable television (1) ....................... 51.3 51.7 31% 29% Premium cable television ..................... 15.2 14.0 9% 8% Broadband internet................................ 44.3 53.6 27% 30% Telephony (2).......................................... 38.1 41.2 23% 23% Business Services ................................... 17.0 16.8 10% 9% Total......................................................... 165.9 177.3 100% 100% Expenses Operating expenses (excluding

depreciation and amortization) ........... (60.2) (63.7) (36%) (36%) Selling general and administrative

expenses .............................................. (34.9) (31.1) (21%) (18%) Depreciation ........................................... (38.5) (36.4) (23%) (21%) Amortization and impairment................. (8.7) (9.7) (5%) (5%) Operating profit (loss)............................. 23.5 36.4 14% 21% Interest expense, net................................ (56.6) (44.3) (34%) (25%) Foreign exchange gain (loss), net ........... (1.2) (12.3) (1%) (7%) Income tax expense................................. - (2.7) - (2%) Net loss.................................................... (34.4) (22.9) (21%) (13%) EBITDA, EBITDA margin .................. 70.8 82.5 43% 47% ___________ (1) Basic cable television substantially comprises residential customers, but also includes a small proportion of business

customers. (2) Residential telephony revenues include the contribution from the carrier pre-select residential service Phone Plus, which

was acquired together with Telenet Solutions, pursuant to the latter’s acquisition.

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Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 and December 31, 2004 The financial information for the three months ended March 31, 2004 and March 31, 2005 included in the discussion set forth below is derived from a combination of Telenet Group Holding's unaudited condensed consolidated financial statements for the three months ended March 31, 2005 and 2004 and from the audited consolidated financial statements for the period ended December 31, 2004. Revenues Revenues increased by €11.3 million, or 7%, from €165.9 million for the three months ended March 31, 2004 to €177.3 million for the three months ended March 31, 2005. Our basic and premium cable television business generated €65.8 million, or 37%, of our consolidated revenues for the three months ended March 31, 2005, while our residential broadband internet and telephony businesses generated €53.6 million and €41.2 million, or 30% and 23%, of our consolidated revenues respectively for the three months ended March 31, 2005. Sales of business services were €16.8 million, or 9% of our consolidated revenues, for the three months ended March 31, 2005. The key factors contributing to this revenue growth were continued growth in our residential broadband internet and telephony subscriber base. Cable Television We generated €65.8 million of cable television revenues for the three months ended March 31, 2005, compared with €66.5 million for the three months ended March 31, 2004. The decrease was due primarily to a decrease of €1.2 million in premium cable revenues in the three months ended March 31, 2005, as compared to the three months ended March 31, 2004. This was partly mitigated by a small increase in basic cable ARPUs. The decrease in premium cable revenues is due to a decrease in premium cable subscribers of 5% between March 31, 2004 and March 31, 2005, which is a consequence of our reduced marketing efforts for this service ahead of the launch of our interactive digital television (iDTV) service. Residential Broadband Internet Revenues generated by our residential broadband internet business grew by 21%, from €44.3 million for the three months ended March 31, 2004 to €53.6 million for the three months ended March 31, 2005. Increased residential broadband internet revenues were primarily the result of net growth, at 25% (equivalent to 107,000 new RGUs), of residential broadband internet subscribers for the three months ended March 31, 2005. ARPU for the three months ended March 31, 2005 decreased by €2.5 per month compared to the three months ended March 31, 2004 and by €0.5 compared to the quarter ended December 31, 2004. The reduction in ARPU was the result of revenue driven promotions which became increasingly popular towards the end of 2004 and by the growing portion of our subscriber base represented by the lower priced, lower specification ComfortNet product. Churn in our residential broadband internet business was 9.5% for the three months ended March 31, 2005, which was steady compared to the churn rate of 9.5% for the three months ended March 31, 2004 and slightly better than the churn rate of 9.6% for the three months ended December 31, 2004. We expect that recent announcements from leading mobile and carrier pre-select operators in Belgium regarding their planned launch of DSL-based broadband internet services, will maintain competitive pressure on our pricing and subscriber growth. Residential Telephony Residential telephony revenue increased for the three months ended March 31, 2005, by 8%, from €38.1 million for the three months ended March 31, 2004 to €41.2 million for the three months ended March 31, 2005. This compares to net subscriber growth of 17% (equivalent to 46,000 net additions) between March 31, 2004 and March 31, 2005. In the first quarter of 2005, we achieved 20,000 net additions following the introduction of our flat rate, off peak tariff which is marketed under the “Freephone” brand name. Our ARPU decreased by €2.2 per month for the three months ended March 31, 2005 compared to the three months ended March 31, 2004, and by €1.2 compared to the three months ended December 31, 2004. The decrease in

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our ARPU can be attributed to continuing fixed to mobile substitution which has reduced the number of minutes of usage recorded by our subscribers, the strong take up of our Freephone tariff and steadily decreasing interconnect rates, the benefits of which are passed on to our customers. Churn in our residential telephony business amounted to 14.1% for the three months ended March 31, 2005, which was steady compared to a churn rate of 14.1% for the three months ended March 31, 2004, and to the churn rate of 13.5% for the three months ended December 31, 2004. Business Services Business services revenues decreased by 1%, from €17.0 million for the three months ended March 31, 2004 to €16.8 million for the three months ended March 31, 2005. While the three months ended March 31, 2005 have recorded positive sales growth and reduced customer churn, the benefit of these factors has been offset by continuing price erosion across a number of products and delays in rolling out DSL-based products. We expect that the transfer of voice customer contracts from Telenet Solutions to Telenet NV may result in additional churn towards the latter part of 2005. Expenses Operating Expenses Operating expenses increased by €3.4 million, or 6%, from €60.2 million for the three months ended March 31, 2004 to €63.7 million for the three months ended March 31, 2005. Operating expenses increased primarily as a result of the growth of our business. In addition, we experienced higher costs in the three months ended March 31, 2005 related to personnel expenses associated with the employees that transferred from Electrabel to Telenet on April 1, 2004, higher facility costs related to our locations in Mechelen and in the Brussels area as the Company has grown and costs related to the preparations for our iDTV launch. These increased costs were partially mitigated by improved bad debt provisions and by reductions in interconnection terminating costs that we pay to terminate calls on other networks. We anticipate that the imminent launch of our iDTV service will increase operating expenses related to content costs. As a percentage of revenues, operating expenses were 36% for the three months ended March 31, 2004 and March 31, 2005. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by €3.8 million, or 11%, from €34.9 million for the three months ended March 31, 2004 to €31.1 million for the three months ended March 31, 2005. The decrease was primarily a reflection of the temporarily higher costs we incurred in the three months ended March 31, 2004 relating to the integrations of MixtICS and PayTVCo, and to refinancing activities. In addition, we delayed certain increases in our headcount. We anticipate that the imminent launch of our iDTV service will result in higher selling, general and administrative expenses in future quarters. Our EBITDA for the three months ended March 31, 2005 was €82.5 million compared to €70.8 million in the three months ended March 31, 2004, for the reasons described above. Our EBITDA margin increased from 43% for the three months ended March 31, 2004 to 47% for the three months ended March 31, 2005 as a result of the factors described above. Depreciation and Amortization Expense Depreciation expense decreased by €2.1 million, from €38.5 million for the three months ended March 31, 2004 to €36.4 million for the three months ended March 31, 2005. As a percentage of revenues, depreciation expense was 23% for the three months ended March 31, 2004 and 21% for the three months ended March 31, 2005. Amortization expense, as a percentage of revenues, remained constant at 5% for both the three months ended March 31, 2004 and the three months ended March 31, 2005. The actual amortization expense increased by €1.0 million to €9.7 million the three months ended March 31, 2005.

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Operating Profit Our operating profit of €23.5 million for the three months ended March 31, 2004 increased by €12.9 million to an operating profit of €36.4 million for the three months ended March 31, 2005, as a result of the factors described above. Other Income (Expense) Interest Income (Expense) Net interest expense decreased by €12.3 million, from €56.6 million for the three months ended March 31, 2004 to €44.3 million for the three months ended March 31, 2005, primarily as a result of a lower debt balance, lower margins on our debt and lower underlying Euribor interest rates compared to the first quarter of 2004. As a percentage of revenues, net interest expense was 34% for the three months ended March 31, 2004 and 25% for the three months ended March 31, 2005. Net Foreign Exchange Gain (Loss) Our net foreign exchange loss of €1.2 million for the three months ended March 31, 2004 increased to €12.3 million in the three months ended March 31, 2005, as a result of the increased interest rate differential between the US dollar and Euro, which resulted in a loss in the time value of our foreign exchange rate contracts. Income tax expense

As a result of the planned merger of MixtICS and PayTVCo with Telenet NV during the second quarter of 2005 with effect from January 1, 2005, the Company incurred an income tax expense of €2.7 million for the three months ended March 31, 2005. Income taxes are discussed in greater detail in note 9 to our Condensed Consolidated Interim Financial Statements

Following the completion of a periodic update of its internal long range plan, the Company is in the process of updating its internal forecast of its taxes. Upon completion of its tax forecast, the Company will review the valuation of its deferred tax asset and to the extent appropriate, apply any necessary revaluations. Net Loss Net loss decreased by €11.5 million, from €34.4 million for the three months ended March 31, 2004 to €22.9 million for the three months ended March 31, 2005, as a result of the factors described above.

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Liquidity and Capital Resources Historical Cash Flows The following table sets forth the components of our historical cash flows for the periods indicated:

For the three months ended March 31

(Euro in millions) 2004 2005

Cash flows from (used in) operating activities................................... 56.5 41.9 Cash flows from (used in) investing activities ................................... (26.3) (30.4) Cash flows from (used in) by financing activities ............................. (104.3) (110.0) Net (increase) decrease in cash and cash equivalents ........................ (74.1) (98.5) Cash Flows From (Used in) Operating Activities Net cash from operating activities decreased from €56.5 million for the three months ended March 31, 2004 to €41.9 million for the three months ended March 31, 2005. This decrease primarily reflects the settlement of trade payables resulting from capital expenditures incurred in the fourth quarter of 2004. Cash Flows From (Used in) Investing Activities Net cash used in investing activities increased from €26.3 million for the three months ended March 31, 2004 to €30.4 million for the three months ended March 31, 2005. This increase primarily reflects the increase in gross subscriber additions and expenditure on our Expressnet upstream upgrade project. Cash Flows From (Used in) Financing Activities Net cash from financing activities was €104.3 million for the three months ended March 31, 2004 while net cash used in financing activities was €110.0 million for the three months ended March 31, 2005. This movement primarily reflects the further €100.0 million prepayment of Tranches A and B of our senior debt in March 2005 and a capital repayment under the Annuity Fee Agreement with the Pure Intercommunales in February 2005. Capital Expenditure Our business is highly capital intensive. Capital expenditure on fixed assets was €26.3 million for the three months ended March 31, 2004 and €30.4 million for the three months ended March 31, 2005. During each of these periods, a significant portion of our purchases of fixed assets was related to capital expenditures for customer premise equipment and related installation costs for new subscribers and to capital expenditures on network capacity, which was also related to subscriber growth. Available Liquidity We maintain cash and cash equivalents to fund the day-to-day cash requirements of our business. We hold cash primarily in Euros. We held €46.7 million of cash and cash equivalents as of March 31, 2005, as compared to €145.2 million as of December 31, 2004. On March 22, 2004, we applied €100.0 million of our cash towards a partial prepayment of Tranches A and B of our senior credit facility. Tranche D of the senior credit facility, which is a €200.0 million undrawn revolving credit facility, is available to us subject to our compliance with certain financial covenants and other conditions. In addition, giving effect to the Refinancing and the €40 million drawing under tranche C2 of the senior credit facility on November 3, 2003, an additional €40 million remains available under tranche C2 of the senior credit facility for general corporate purposes, subject to certain covenants and conditions. The senior credit facility is discussed in greater detail in note 6 to our Condensed Consolidated Interim Financial Statements. The principal risks to our sources of liquidity are operational risks, including risks associated with decreased

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pricing, reduced subscriber growth, increased marketing costs and other consequences of increasing competition, our iDTV implementation and roll-out. Our ability to service our debt (including payments on the Notes) and to fund our ongoing operations will depend on our ability to generate cash. We have not made a profit since the Telenet group was formed in 1996 and have a history of negative net cash flows after deducting interest and taxes. Although we expect to continue to report losses in the foreseeable future, we anticipate generating positive cash flow after deducting interest and taxes, but cannot assure you that this will be the case. Telenet Group Holding is a holding company with no source of operating income. It is therefore dependent on capital raising abilities and dividend payments from subsidiaries to generate funds. The terms of the senior credit facility, our other outstanding debt and the indenture governing the Senior Discount Notes and the Senior Notes issued by Telenet Communications contain a number of significant covenants that restrict our ability, and the ability of our subsidiaries to, among other things, pay dividends or make other distributions, make capital expenditure and incur additional debt and grant guarantees. Furthermore, the ability of our subsidiaries to pay dividends and make other payments to us may be restricted by, among other things, other agreements and legal prohibitions on such payments. Although the cash portion of our interest expense has increased substantially following the Refinancing, we believe that our cash flow from operations and our existing cash resources, and the amended and extended amortization schedule of our senior credit facility, together with available borrowings under the senior credit facility, will be sufficient to fund our currently anticipated working capital needs, capital expenditures and debt service requirements, although we cannot assure you that this will be the case. Contingent Liabilities and Commitments For a discussion of our contingent liabilities and commitments, some of which are significant, see note 10 to our Condensed Consolidated Interim Financial Statements. Following the litigation concerning our copyright fees and the subsequent settlement, as of March 31, 2005 we had accrued a liability of approximately €30.0 million. Off-Balance Sheet Arrangements Historically, we have not used special-purposes vehicles or similar financing arrangements. In addition, we do not have any off-balance sheet financing arrangements with any of our affiliates or with any unconsolidated entities. Lack of Tax Consolidation To the extent mismatches between taxable income and deductible expenses occur within the Telenet group, our ability to generate cash flow could be adversely affected (because Belgian tax law does not provide for group-wide consolidation).

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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks relating to fluctuations in interest rates and foreign exchange rates, primarily as between the U.S. dollar and Euro, and use financial instruments to manage our exposure to interest rate and foreign exchange rate fluctuations. Interest Rate and Related Risk We are exposed to market risks relating to fluctuations in interest rates and foreign exchange rates, primarily as between the U.S. dollar and Euro, and use financial instruments to manage our exposure to interest rate and foreign exchange rate fluctuations. Interest Rate and Related Risk Historically, and following the Refinancing, only borrowings under the senior credit facility and the lease of our headquarters building bear interest at variable rates. We are therefore exposed to changes in interest rates because the senior credit facility represents a large portion of our total borrowings and our debt service obligations under such indebtedness fluctuate as interest rates change. In order to mitigate this exposure, we have entered into interest rate swap agreements, caps and best of cap/swap combination agreements. Pursuant to interest rate swap agreements, at specified intervals, we pay a fixed interest rate and receive a variable interest rate calculated by reference to an agreed-upon notional principal amount. Our hedging strategy was based on a close to 100% coverage of the anticipated outstanding senior bank debt in the period 2002-2005. As a result of lower than anticipated cash flow needs, the restructuring of the senior credit facility in April 2003 and finally a net reduction of the senior debt in December 2003, in March 2004 and in March 2005, the total notional amount of interest derivative instruments effective March 31, 2005 exceeded the amount of debt carrying variable interest by €448 million (€352 million on December 31, 2004). We are currently restructuring our interest rate hedging portfolio to reflect our new debt structure. As of March 31, 2005, we had entered into interest rate swap agreements for a notional principal amount of €467.2 million, and we paid interest on the senior credit facility at a blended rate of 3.26% (plus the appropriate margin for each tranche), resulting in additional cash interest expense because such rate was in excess of the variable rate applicable to the respective borrowings. Caps are used to limit our exposure to interest rates rising above a capped rate. As of March 31, 2005, these cap agreements did not impact our cash interest expense. As of March 31, 2005 we had entered into cap agreements for a notional principal amount of €727.0 million and an average cap interest rate of 4.0%. As of March 31, 2005 we had entered into interest rate collar agreements for a notional principal amount of €450 million and will pay interest rates ranging from 2.5% to 5.4%, of which the majority replace the previously outstanding best of swap and cap combination. We have revised our hedging policy and have qualified for hedge accounting for the purpose of SFAS No. 133 as from the beginning of July 2004.

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Interest Rate Sensitivity Testing The following table summarises our outstanding indebtedness which carries a floating rate of interest, as well as the aggregate installments due under such indebtedness as of March 31, 2005: Expected Maturity Date (Amounts expressed in thousands of Euro) Debt Reimbursements 2005 2006 2007 2008 2009 Thereafter Total Senior Credit Facility ............................... -

Tranche A/B (Euribor +2.00%).......... - 5,865 44,827 44,827 44,827 89,654 230,000 Tranche D (Euribor +2.00%).............. - - - - - - - Tranche E (Euribor +2.75%) .............. - - - - - 405,000 405,000

Capital Lease on Buildings (Euribor + 0.25%) ....................................

551

808 1,092

1,463

1,965

14,499

20,378

Total Debt Service on Floating Rate Debt....................................................... 551 6,673 45,919 46,290 46,792 509,153 655,378

Interest payments (1) (2) Expected Maturity Date (Amounts expressed in thousands of Euro) Senior Credit Facility ............................... 31,014 35,102 33,837 31,383 30,615 49,188 211,139 Capital Lease Buildings ........................... 687 661 629 588 528 1,594 4,688 Interest Payment Sensitivity Interest rate increase of 0.25%................. 31,320 35,247 33,984 31,621 30,847 50,721 213,740 Interest rate increase of 1.00%................. 33,184 38,622 37,282 34,791 33,993 56,419 234,291 ______________________ (1) Interest payments on the Senior Credit Facility are based on outstanding balances as of March 31, 2005 and do not take

into account any possible effects of the margin ratchet provisions that are included in the Tranche A and Tranche B Margin. They do include, however, reductions of the margins in accordance with the terms of the amendments of March 31, 2005 to the Senior Credit Facility.

(2) Pro forma interest calculations are based on a 2.144% three month Euribor as of March 31, 2005, and include net

payments due under the outstanding interest rate derivative instruments as of that date. Taking into the account the effects of our interest rate hedges, we have calculated the impact of interest rate increases of 0.25% and 1.00%. The equivalent total net cashflow impact is €2.6 million in the 0.25% interest rate increase example and €23.2 million in the 1.00% interest rate increase example, in both cases over the remaining lifetime of the senior credit facility. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. We do not currently have any obligation to prepay fixed rate debt prior to maturity and, accordingly, interest rate risk and changes in fair market value should not have a significant effect on the fixed rate debt until we would be required to refinance such debt. At March 31, 2005, we had outstanding fixed rate debt and other obligations of €784.3 million. Withholding Tax Under the terms of our senior credit facility, we are required, among other things, to make gross up payments to certain nonresident lenders for interest payments made under the facility that are subject to Belgian withholding tax. Withholding taxation rates vary between 0 and 15% (the highest withholding rate currently applicable under Belgian law) depending upon the tax country of residence of the relevant lender and whether that country is party to a double taxation treaty with Belgium. For the three months ended March 31, 2005, we paid approximately €0.8 million in such gross up payments. The percentage of the aggregate interest payable under the terms of our senior credit facility held by nonresident lenders for which we are required to make gross up payments has decreased from 51% at the end of the period ending December 31, 2003 to 50% at the end of the period ending December 31, 2004 and to 22% as of March

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31, 2005 (including the impact of amendments made to our senior credit facility on March 31, 2005). If we had been required to make gross up payments on interest paid to all of the lenders under our senior credit facility (which does not restrict transfers of interests in the facility to nonresidents of Belgium) at the 15% withholding taxation rate, we would have had to make payments of approximately €1.6 million for the three months ended March 31, 2005 and before taking into account the impact of amendments made to our senior credit facility on March 31, 2005 and the partial repayment of our senior credit facility on March 31, 2005. Foreign Currency Risk Our functional currency is the Euro. However, we conduct, and will continue to conduct, transactions in currencies other than the euro, particularly the U.S. dollar. Approximately 4% of our costs of operations (primarily the costs of network hardware equipment and software, premium cable television rights, management expenses under our strategic services agreement with Cable Partners) for the three months ended March 31, 2005 were denominated in U.S. dollars, while all of our revenues were generated in Euros. Following the Canal+ acquisition, we also have significant US dollar obligations with respect to the contracts we are party of for the supply of premium content. Decreases in the value of the Euro relative to the US dollar would increase the cost in Euro of our US dollar denominated costs and expenses, while increases in the value of the Euro relative to the US dollar would have the reverse effect. As at March 31, 2005, the Euro had appreciated by approximately 5.5% against the US dollar since March 31, 2004. We have historically covered a portion of our U.S. dollar cash outflows arising on anticipated and committed purchases through the use of foreign exchange derivative instruments. Although we take steps to protect ourselves against the volatility of currency exchange rates, there is a residual risk that currency risks due to volatility in exchange rates could have a material adverse effect on our financial condition and results of operations. In order to hedge the foreign exchange exposure resulting from the issuance of the $558 million Senior Discount Notes by Telenet Group Holding, we entered into a series of foreign exchange forward contracts (FECs) (for the purchase of US dollars in exchange for Euros) for a total nominal amount of $558 million with a maturity on December 15, 2008, the end of accretion period of the Senior Discount Notes (the "Full Accretion Date"). These FECs were entered into with an effective date close to the issuance date of the Senior Discount Notes. The underlying rationale of this hedging strategy is to hedge the maximum accreted nominal amount of the Senior Discount Notes given that our functional currency is the Euro. This also assumes that there will be no optional redemption before the Full Accretion Date. Beginning in 2009, Telenet Group Holding will be required to make cash interest payments in U.S. dollars on the Senior Discount Notes. We have hedged our initial exposure in respect of the accreted principal amount of the Senior Discount Notes up to and as at the fifth anniversary of their issuance and intend to review at a later stage our hedging strategy with respect to cash interest and principal payments payable under the Senior Discount Notes after such date. During the first quarter of 2004, we entered into foreign exchange contracts which cover a significant portion of our U.S. dollar obligations in respect of our agreements for the supply of content for our premium cable television service. Our policy is to enter into such foreign exchange hedging arrangements for periods of up to 18 months at any one time, and as we approach the expiration of each foreign exchange contract, we will review our hedging strategy with respect to future U.S. dollar obligations relating to our premium content agreements. As a consequence of the 100% cash flow hedge on the $558 million Senior Discount Notes, we do not have exposure to changes in the US dollar/Euro exchange rate relating to these notes until December 15, 2008. We are considering the further use of derivate instruments to hedge the US dollar cash outflow related to the cash interest payments under the Senior Discount Notes which are payable from June 15, 2009 until the maturity of the Senior Discount Notes. Credit Risk Credit risk relates to the risk of loss that we would incur as a result of non-performance by counterparties. We maintain credit risk policies with regard to our counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty's financial condition, credit rating, and other credit criteria and risk mitigation tools as deemed appropriate.

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The largest share of the gross assets subject to credit risk is accounts receivable from residential and small commercial customers. We do not anticipate that the risk of material loss from nonperformance by these customers would be significant. Reserves for uncollectible accounts receivable as a result of nonpayment by these customers is based on historical experience. In regards to credit risk on financial instruments, we maintain a policy of entering into such transactions only with highly rated European and U.S. financial institutions.

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PART II – OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS Copyright Litigation In 2004, the Company, together with other Belgian cable operators, concluded negotiations with certain of the broadcasters and copyright collection agencies in Belgium that determined the copyright fees due by cable operators that represented the significant majority of the claims previously outstanding. The Company remains in litigation with smaller copyright collection agencies and broadcasters and has reached an agreement in principle on some of the outstanding terms. As of March 31, 2005, the Company retained an accrual of €30.0 million in other liabilities for the amounts that the Company expects to pay as a result of the above settlements. Interconnection Litigation The Company has been involved in legal proceedings with Belgacom related to the increased interconnection fees that have been charged since August 2002 to telephone operators to terminate calls made to end users on the Company's network. On January 20, 2004, the President of the Commercial Court in Mechelen rendered a judgement in the case where Belgacom contested the validity of Telenet's interconnection tariffs which was heard on September 23, 2003. The judgement stated that there is no indication that Telenet's interconnection tariffs constitute a breach of the unfair trade practices law, competition law or pricing regulations as invoked by Belgacom. As a result, the judge determined that Belgacom's potential claim is limited to a contractual matter upon which the judge who heard the case was not competent to rule, considering the nature of the procedure initiated by Belgacom. The judge therefore dismissed the claim. Telenet is currently not required to change the interconnection rates it currently charges to Belgacom and which were approved in 2002 by the BIPT. Belgacom appealed this judgement in April 2004. On March 17, 2005, the Court of Appeals of Antwerp dismissed Belgacom’s claims. Although Belgacom retains the right to further appeals on technical grounds, we do not expect that the outcome of such further appeals would arise before 2007.

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ITEM 5 CAPITALIZATION The following table sets forth our historical cash and cash equivalents, and our capitalization, as of March 31, 2005. This table should be read in conjunction with our financial statements included elsewhere in this report.

As at

March 31, 2005 (Euro in millions) Cash and cash equivalents........................................................................................................................ 46.7 Debt:

Senior credit facility(1) .............................................................................................................................. 635.0 Senior Notes ............................................................................................................................................. 500.0 Other long-term obligations(2) .................................................................................................................. 124.6 Total cash pay debt................................................................................................................................ 1,259.6 Senior Discount Notes (3)..........................................................................................................................

284.3

Total debt............................................................................................................................................... 1,544.0 Equity: Contributed capital ................................................................................................................................... 2,309.9 Deferred stock based compensation ........................................................................................................ (0.8) Accumulated deficit and other comprehensive income........................................................................... (1,830.5) Total shareholders' equity ..................................................................................................................... 478.6 Total capitalization ................................................................................................................................ 2,022.6

___________ (1) Excludes €200 million of unused capacity under the revolving tranche of our senior credit facility. (2) Includes €27.1 million capital lease obligations, and €43.7 million and €53.8 million due under the Clientele

Agreements and the Annuity Agreement, respectively. (3) Accreted balance of the Senior Discount Notes, converted to Euros at the accounting rate for March 31, 2005 of

U.S.$1.2964 per €1.00. There has been no material change in our capitalization since March 31, 2005.

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ANNEX SUMMARY GUARANTOR FINANCIAL INFORMATION

The following unaudited condensed consolidated financial information presents the financial information of Telenet Group Holding, Telenet Communications, the Subsidiary Guarantors (consisting of Telenet Bidco, Telenet Holding, Telenet NV and Telenet Vlaanderen) and the non-guarantor subsidiaries in the Telenet group (consisting of MixtICS, PayTvCo, Codenet NV and its subsidiaries and Merrion Communications) on a non-consolidated basis, accounting for the investments in subsidiaries under the equity method. The financial information may not necessarily be indicative of the financial position or the results of operations had Telenet Group Holding, Telenet Communications, the Subsidiary Guarantors or non-guarantor subsidiaries operated as independent entities as of and for the quarter ended March 31, 2005. The obligations of Telenet NV under the senior credit facility included within the "Unconsolidated Subsidiary Guarantors" column have been guaranteed by MixtICS and certain Subsidiary Guarantors.

For the quarter ended March 31, 2005

(Euro in millions)

Telenet Group

Holding

Telenet

Communi-cations

Unconsoli-dated

Subsidiary Guarantors

Unconsoli-dated Non- Guarantor

Subsidiaries

Eliminations

Consolidated

Statement of Operations

Information

Revenues Total revenues......................... - - 102.5 76.0 (1.2) 177.3Expenses Operating costs and expenses

(excluding depreciation and amortization)........................... -

- (28.6) (37.1) 2.1

(63.7)Selling, general and

administrative ......................... (0.4)

- (20.1) (9.7) (0.9)

(31.1)Depreciation ............................... - - (24.8) (11.6) - (36.4)Amortization .............................. - - (8.4) (1.3) - (9.7) Total cost and expenses .......... (0.4) - (81.9) (59.7) 1.2 (140.8) Operating profit (loss)............. (0.4) - 20.6 16.3 - 36.5Interest expense, net................... (8.4) (11.4) (24.4) (0.1) - (44.3)Interest, net - intercompany ....... 8.9 9.3 0.7 (18.9) - -Foreign exchange gain (loss),

net............................................ (12.1)

- (0.2) - -

(12.3)Equity in subsidiaries................. (10.8) (8.7) (2.7) - 22.2 - Total other income

(expense)................................. (22.4)

(10.8) (26.6) (19.0) 22.2

(56.6)Net income (loss) before

income taxes ........................... (22.8)

(10.8) (6.0) (2.7) 22.2

(20.2)Income tax expense ................... - - (2.7) - - (2.7) Net loss.................................... (22.8) (10.8) (8.7) (2.7) 22.2 (22.9)

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As of March 31, 2005

(Euro in millions)

Telenet Group

Holding

Telenet

Communi-cations

Unconsoli- dated

Subsidiary Guarantors

Unconsoli- Dated Non- Guarantor

Subsidiaries

Eliminations

Consolidated

Balance Sheet Information

Assets Cash and cash equivalents - 0.1 45.1 1.5 - 46.7Accounts receivable ................... - - 59.9 33.2 - 93.1Other current assets .................... 0.4 - 9.4 12.0 - 21.8Intercompany receivables and

short term loans....................... -

124.8 33.9 173.5 (332.2)

- Total current assets ................. 0.4 124.9 148.3 220.2 (332.2) 161.6Property and equipment, net ...... - - 563.6 389.5 - 953.1Goodwill, net.............................. - - 602.1 423.4 - 1,025.5Intangible assets, net .................. - - 251.8 15.7 - 267.5Deferred cost .............................. 8.5 12.0 34.3 0.6 - 55.4Other assets ................................ - - 0.8 0.2 - 1.0Investments in subsidiaries ........ 525.8 537.3 577.5 - (1,640.6) - Total assets.............................. 534.7 674.2 2,178.4 1,049.6 (1,972.8) 2,464.1 Liabilities and Shareholders'

Equity

Current portion of long term debt.......................................... -

- (7.1) (0.1) -

(7.2)

Accounts payable ....................... (0.1) - (94.1) (26.6) - (120.8)Accrued expenses and other

current liabilities ..................... (53.8)

(13.0) (72.7) (15.7) -

(155.2)Intercompany payables and

short term debt ........................ (19.0)

(23.0) (283.3) (6.7) 332.2

0.2Unearned revenue ...................... - - (9.2) (105.5) - (114.7) Total current liabilities.... (72.9) (36.0) (466.4) (154.6) 332.2 (397.7)Long-term debt, less current

portion ..................................... (284.3)

(500.0) (751.9) (0.5) -

(1,536.7)Other non-current liabilities ....... - - (10.9) (40.2) - (51.1)Intercompany loans, net ............ 301.1 387.6 (411.9) (276.8) - 0.0Shareholders' equity ................... (478.6) (525.8) (537.3) (577.5) 1,640.6 (478.6) Total liabilities and

shareholders' equity ................ (534.7)

(674.2) (2,178.4) (1,049.6) 1,972.8

(2,464.1)

telenet group holding nv 2005 q1 report v2.3 final_tcm126-603… · telenet group holding nv (the...

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