2015 global communications gaap summit · 2016-06-27 · convergence … shapes new networks and...

Hotel Grande Bretagne, Athens, 8-9 June

2015 Global Communications GAAP Summit

Tuesday, 9 June

08:00 – 09:45 Workshop 1 See attendee list

09:45 – 10:30 OTE Market Update Grand Ballroom

10:30 – 11:00 Coffee break Athenian Hall

11:00 – 12:00 What’s new in accounting? Grand Ballroom

12:00 – 13:30 Lunch

13:30 – 15:15 Workshop 2 See attendee list

15:15 – 16:00 Closing remarks Grand Ballroom

Global Communications GAAP Summit

2June 2015

PwC

Market updateBabis Mazarakis, Chief Financial Officer,OTE


3June 2015

PwC

OTE GROUPPAST, PRESENT, FUTURE

PWCs GLOBAL COMMUNICATIONS GAAP SUMMIT – JUNE 2015

5

Content

• Telecom Sector in Greece

• OTE Group Performance and Key Success Factors

• Future Plans

• Focus Topic: IFRS 15

6

Greek Telecom market: OTE the clear leader in both Fixed and Mobile…

Data as of 31/12/2014Source: Published data and internal estimations

Pay TV

0,9 0,4(40%)0,5

Mobile

16,6

7,3(44%)

9,3

Fixed BB

3,1

1,4(43%)

1,8

Fixed Access

4,8

2,7(57%)

2,0

Demographics

Technologies: No Cable / No FTTH in the market – OTE the sole infrastructure provider in Fixed

Customers (mil)

ΟΤΕ

Competitors

91%

0

10

20

30

40

50

0%

20%

40%

60%

80%

100%

VDSL / FTTC

up to 50Mbps

30%

ADSL

up to 24Mbps

Max SpeedCoverage

70%

98%

0

50

100

150

0%

20%

40%

60%

80%

100%

4G

up to 150Mbps

3G

up to 42Mbps

Max SpeedOutdoor Coverage

Pay TV (mil subs)

0,9

0,8(90%)

0,1(10%)

SatelliteIP TV

ICT/SystemsSolutions

410 m€

52 m€(13%)

358 m€(87%)

OTECompetitors

Households

4.100.000

Population

11.000.000

Also limited 4G+ 300Mps available

4232,500

MediumVerySmall

LargeSmall

21.000

630.000

Businesses

7

… in a market seriously hit by crisis, regulation and aggressivecompetition

500(18%)

-55%In 6y

-12%

-12,0% -17,0%-10,4%-16,6%

2014

1.008(52%)

-6%

323(17%)

2013

2.052

1.075(52%)

628(31%)

349(17%)

2012

590(31%)

2.473

1.283(52%)

766(31%)

423(17%)

2011

2.760

1.383(50%)

876(32%)

3.137

1.501(48%)

1.017(32%)

619(20%)

2009

3.759

1.684(45%)

2010

855(23%)

2008

4.248

1.762(41%)

1.433(34%)

1.054(25%)

1.9211.220(32%)

Fixed Market Revenues (m€)

902(37%)

2012

2.650

1.704(64%)

2.393

2011

2.829

1.912(68%)

917(32%)

2010

3.009

2.170(72%)

839(28%)

-20%in 4y

-3%-6%

-6,3% -7,2%

2014

946(36%)

1.512(63%)

882(37%)

2013

2.459

1.557(63%)

OTE

Competition

Mobile Market Service Revenues (m€)

COSMOTE

Vodafone

WIND

Pay TV Market Revenues (m€)

224

188178

189191

20122011

-1%

2013

+6%-6%

20142010

+19%

TV Market

Indirect Taxation in Mobile - Greece @38%, 2nd higher in EU

1215

181919202020212121212121222222222323232424252525

3

3

De

nm

ark

Sw

ee

de

n

Lu

xem

bu

rg

Au

stria

Fra

nce

Be

lgiu

m

Ch

ech

Bu

lga

ria

Esth

on

ia

UK

Gre

ece

38

24

11

Hu

ng

ury

Sp

ain

Cro

atia

Ro

ma

nia

Le

tton

ia

Lith

un

ia

Ne

the

rlan

ds

42

27

12

Irela

nd

Po

lan

d

Po

rtug

al

Slo

vakia

Italy

Slo

ven

ia

Ma

lta

Cyp

rus

Ge

rma

ny

Fila

nd

GR

Data as of 31/12/2014Source: Published data and internal estimations

ROMANIA

Νο 1 in Fixed: 2.2m Lines / 1.2m BB / 1.4m TV

Νο 3 in Mobile5.9m customers

ALBANIA


GREECE

Νο 1 in Fixed: 2.7m Lines / 1.4m BB / 0.4m TV


Listed in Athens Stock Exchange Share Price: 9.10€ (31/12/2014) Outstanding Shares: 490,150,389 Capitalization: 4.5 bn€ (31/12/2014)

Data as of 31/12/2014

OTE Group: Leader in SE Europe and strong member of the DT Group …

Shareholder Structure (31/12/2014)

0,2%7,0%

42,8%

10,0%

40,0%

Own Shares

Private Investors

Institutional Investors

Greek State

Deutche Telecom

Contribution to DT GroupOTE Operations

5.2%

8.2%

6.3%

CashCAPEX

EBITDARevenues

30.5%32.3%31.1%

EBITDA CashCAPEX

Revenues

In “DT EUROPE” (excl. Germany)

In entire DT Group

9

Revenues (m€)

… delivering excellent results with improving profitability …

Figures for all years adjusted for Globul & Hellas Sat disposals taken place in 2013

3,9184,0424,303

4,650

5,074 -7%

-8%

-3%

2011

2010 20132012 2014

-6%

1,4341,4721,4941,589

1,749

2010

-6%-2%

2014

-3%

2012

-9%

20132011

+2,1pp

34,2%

2010

34,5%

2011

34,7%

2014

36,4%

2012

36,6%

2013

EBITDA (m€) EBITDA Margin

10

… generating healthy cash and drastically improving its debt position

506

444453

550

681

-19%

-18%

-2%

201320122011

2010 2014

+14%1,029

1,1161,0761,054

1,100

-4% +4%+2%

201320122011

2010 2014

-8%

1,5

-3,2bn€(-74%)

20132012

2,9

2011

3,9

2010

4,3

1,1

2014

Figures for all years adjusted for Globul & Hellas Sat disposals taken place in 2013

CAPEX(1) (m€) Operational FCF (m€) Net Debt (bn€)

(1): Excl. capitalized TV content

@ 0.8EBITD

A

11

Success is based on Technology Leadership …

40%

30%

23%

20142013 2015

Fixed: High Speed BB Leadership

COSMOTE

50%

70%

Vodafone

4G pop. Coverage 2014

Mobile Broadband Leadership

COSMOTE

25Mbps

Vodafone

17Mbps

Wind

9Mbps

OOKLA Download Speed 4/2015High Speed VDSL coverage(% Households)

12

… on continuous focus in Customer Experience …

+40%

TARGET

80%

2014

42%

2013

30%

+21%

TARGET

80%

2014

64%

2013

53%

Fault to Repair

(% in 24 hrs)

Order to Bill

(% in 8 days)

Fixed: Emphasis on improvement of keyCustomer Processes

Mobile: Continuous leadership inCustomer Experience Index (TRI*M)

2011 2012 2013 2014

66

62

65

64

63

61

60

59

58

57

0

Competition

COSMOTE

13

… and on efficiencies enabling significant HR cost reduction …

6,9246,878

8,750

10,56910,925

11,369

2009

-39%

2014201320122011

2010

315

445541

658

714764

34.4%

32.9%

2012

31,8%

20,8%

28,5%

2010 2013 20142011

2009

31,7%

-59%

OTE S.A Headcount OTE S.A Personnel Cost (m€)

Personnel Expenses over Revenue

Personnel Expenses

14

… which support the turnaround of competitive position in Fixed and the revenue mixtransformation towards growth areas

-71%

2014

-126 K

2011

-440 K

106 K

-14 K

20142011

Fixed Revenues

Access Line Losses New BB connections

+2,3%

2014 Q4

480 m€

2013 Q4

469 m€

+1.450%

2014

93 K

2012

6 K

Pay TV Customers ICT/System Solutions

+26%

2014

51 m€

2012

41 m€

+197%

2014

353 K

2012

119 K

VDSL Customers

Fixed Revenuespositive YoY

growth after 7years in 2014 Q4!

15

Refinancing strengthened company’s financial position

674 734 700

56

0

500

1,000

1,500

CashPosition

Q12015

m€

202020192018201720162015

34

1.045

OTE Net Debt OTE Group Debt Maturity plan as of 31/3/2015

5

4

1

3

2

0

bn€

1,1bn€

-3,2bn€(-74%)

2015 Q12010

4,3bn€

May2016

Feb2018

July2020

2.5xEBITD

A

0.8xEBITD

A

16

Operating under tough conditions, market is undergoing structural changes in light ofthe new investment cycle

MACRO CONDITIONS

… with ongoing uncertainty

STRICT REGULATION

… not supporting investments

STATE INITIATIVES

… stalled or unclear

EXTERNALENVIRONMENT

INDUSTRYTRENDS

TECHNOLOGYCONVERGENCE

… shapes new networks andcloud services

DIGITAL AGENDA 2020

… requires intenseinvestments

OVER THE TOP PLAYERS

… cannibalize Telco revenues

LOCAL MARKET

MARKETCONSOLIDATION

… towards few stongconverged players

“BATTLE” FOR PAY TV

… as a tool for differentiation

FMC FOCUS

… to maximize customer value

17

OTE is heading to the future building Next Generation Networks (NGN/NGA) to meetDigital Agenda 2020 targets

VDSL: up to 50Mbps

VDSL/Vectoring: up to 100MbpsUpgrade to 4G+ (300Mbps)

Network simplification &modernization

Operating cost reduction

Energy savings

New IP based services

Fixed

VDSL/Vectoring

Mobile

LTEIP Transformation

YE2018

TDM100,0%

IP100,0%

YE201498%

70%

20192014

LTE Population Coverageoutdoor

VDSL Population Coverage

20%

30%

50%

20192014

70%VDSL/Vectoring

VDSL

Technology Leadership -> Superior Customer Experience -> Sustainable Profitability

18

Focus Topic: IFRS 15

19

IFRS 15 – Revenue from Contracts with CustomersMain implications for the future

Billing ≠ Accounting

Amount billed to differ from revenue recognized

Existing IT landscape not able to depict correct revenues

Shift from service to hardware revenues

Significant shift from service to hardware revenues

Impact on Average Revenue Per User (ARPU) expected

Potential conflict with Regulatory framework (re-allocation and reporting ofrevenues)

Accounts increase on the asset side

Recognition of contract assets due to subsidized business models (DSO)

Accounting treatment of costs to obtain and fulfill a contract

Capitalization vs. Operating Expenses as incurred (EBITDA effect)

Decision for OPEX vs CAPEX model on group level

Meeting requirements of IFRS 15

Challenges in IT implementation

IFRS 15

20

Thank you for your attention

Coffee BreakAthenian Hall10:30 – 11:00


21June 2015

PwC

What’s new in accounting?

2015 Global Communications GAAP Summit

Agenda

- What’s new in 2015 and beyond?

- Regulator focus:

• Judgements and estimates

• Non-GAAP measures


23June 2015

PwC

What’s new in 2015 and beyond?


24June 2015

PwC

What’s new in 2015?

Not much!


25June 2015

PwC

Amendments effective this year

Standard Nature of amendment

IAS 19, ‘Employee benefits’ Employee contributions

Annual improvements Various


26June 2015

PwC

More change next year

Standard Nature of amendment

IFRS 14, ‘Regulatory deferral accounts’ Rate-regulated activities

Amendments to IFRSs 10, 11 and IAS28

Acquisition of interests

IASs 16 and 38 Methods of depreciation

IAS 1 ‘Disclosure initiative’

IFRS 10 and IAS 28 Investment entities

Annual improvements Various


27June 2015

PwC

A useful publication


28June 2015

PwC

What’s going on with IFRS 11?

- Amendment on acquisition of interests in joint operation

- IFRIC attention:

• Classification: ‘other facts and circumstances’

• Classification: impact of legal form

• Accounting by joint operator

- Point of focus for some regulators


29June 2015

PwC

IASB’s current workplan

• Insurance?

• Principles of disclosure

• Common-control transactions

• Discount rates

• Equity method

• Debt/equity

• Reporting performance

2016+

• Leases - IFRS

• Conceptual framework – ED

• Uncertain tax positions - IFRIC

• Various amendments, eg:

− Revenue

− Classification of liabilities

− Share-based payment

− ‘Debt reconciliation’

• Agenda consultation

2015


30June 2015

PwC

Who cares about the conceptual framework?The prudence debate

“The inclusion of a degree of cautionin the exercise of the judgementsneeded in making the estimatesrequired under conditions ofuncertainty, such that assets orincome are not overstated andliabilities or expenses are notunderstated.”

But …

“Prudence does not allow, forexample, the creation of hiddenreserves or excessive provisions.”


31June 2015

PwC

Prudence vs neutrality

Restore prudence as overridingprinciple (FT 15 February 2015)

“Something has gone wrong withcompany accounts.

We believe the problem lies withthe move in the EU toan accounting system thatprioritises neutrality overprudence.”

When earnings managementbecomes cooking the books (FT 27May 2005)

“Deliberately overstating one-time‘big bath’ restructuring charges toprovide a cushion to satisfy futureWall Street earnings estimates …is a grey area where theaccounting is being perverted.”


32June 2015

PwC

• Published May 2014

• Effective 2017 (2018?)

• EFRAG predicted EU endorsement in next few months

• IASB and FASB debating amendments already

The ‘big three’

1 2 3

• Published July 2014

• Effective 2018

• EFRAG predict EU endorsement before end of 2015

• May be published before end of 2015

• (Almost) all leases on-balance sheet

• IASB to treat all leases like finance leases; FASB toclassify leases for P&L purposes

IFRS 15 Revenue

IFRS 9 Financial instruments

Leases


33June 2015

PwC

Lessee accounting

IASB model Balance Sheet Income Statement

Finance(Type A)

Right of use (ROU) asset

Lease liability

Amortisation expense

Interest expense

Classification to be consistent with existing IAS 17

FASB model Balance Sheet Income Statement

Finance(Type A) Right of use (ROU) asset

Lease liability

Amortisation expense

Interest expense

Operating(Type B)

Lease expense


34June 2015

PwC

Lessor accounting

Classification to be consistent with existing IAS 17

Balance Sheet Income Statement

Net investment in the lease(Type A)

Derecognise the underlying assetand record:

Net investment in the lease

Interest income on the netinvestment

Any selling profit or loss on theunderlying asset

Straight line (Type B) Underlying asset remains onbalance sheet

Lease income – straight lineover term of lease


35June 2015

PwC

Leases: which model is better?

Support IASB approach 32% 69%

Support FASB approach 27% 19%

Neither / No answer 41% 12%

Preparers Users

Source: EFRAG consultation on lessee accounting Jun-Aug 2014


36June 2015

PwC

Making the leases standard workable

- Application at portfolio level:

• Support from IASB

• FASB will consider reference in Basis for Conclusions

- Exemption for ‘small assets’:

• Support from IASB – threshold to be determined

• FASB reluctant but asked staff to research impact


37June 2015

PwC

Identifying a lease

A lease exists when a contract conveys the right to use an asset.

Fulfilment depends on use of anidentified asset

It is not the case when the supplier has asubstantive right of substitution:

i. has the practical ability tosubstitute; and

ii. can benefit from substituting.

Customer controls the use of the asset

Customer controls use when it:

i. directs the use of the asset (ie howand for what purpose used); and

ii. obtains substantially all of theeconomic benefits from use.


38June 2015

PwC

and

Regulator focus


39June 2015

PwC

Areas of focus

- Application of IFRS 10 control principle

- Disclosures concerning non-controlling interests and structured entities

- Classification and disclosure of joint arrangements

- Deferred tax assets

- Judgements and estimates (eg uncertain tax positions, impairment, fair valuemeasurement)

- Clear and concise disclosure

- Non-GAAP measures

- Revenue

- Segments


40June 2015

PwC

Judgements and estimates

IAS 1 para 125. An entity shall disclose information aboutthe assumptions it makes about the future, and othermajor sources of estimation uncertainty at the end ofthe reporting period, that have a significant risk ofresulting in a material adjustment to the carryingamounts of assets and liabilities within the next financial year.In respect of those assets and liabilities, the notes shall includedetails of:

a) their nature, and

b) their carrying amount as at the end of the reportingperiod.

IAS 1 para 129. An entity presents the disclosures in paragraph125 in a manner that helps users of financial statements tounderstand the judgements that management makes aboutthe future and about other sources of estimation uncertainty.The nature and extent of

the information provided vary according to the nature of theassumption and other circumstances. Examples of the types ofdisclosures an entity makes are:

a) the nature of the assumption or other estimationuncertainty;

b) the sensitivity of carrying amounts to the methods,assumptions and estimates underlying their calculation,including the reasons for the sensitivity;

c) the expected resolution of an uncertainty and therange of reasonably possible outcomes within thenext financial year in respect of the carrying amounts ofthe assets and liabilities affected; and

d) an explanation of changes made to pastassumptions concerning those assets and liabilities, ifthe uncertainty remains unresolved.


41June 2015

PwC

Non-GAAP measures

2005CESR recommendation onalternative performance measures

February 2014ESMA consultation

Key principles• Define• Say whether used internally• Identify as non-GAAP• Reconcile to GAAP• Present consistently, with

comparatives• No greater prominence


42June 2015

PwC

Investor views on non-GAAP measures

Source: PwC survey, reporting adjusted performance measures July 2014


43June 2015

PwC




44June 2015

PwC




45June 2015

PwC

Lunch – 12:00 – 13:30KG Ballroom at the King George Hotel(next door)

Please be back at 13:30 for theWorkshops


46June 2015

PwC

Workshops

• The groups will be in the following rooms:

› Group 1 – Grand Ballroom

› Group 2 – Royal

› Group 3 – Golden AB

› Group 4 – Golden CD

• Your group number is on the workshop lists on your table.

• Lunch will be served at 12:00 in the KG Ballroom at the King GeorgeHotel, next door to Hotel Grande Bretagne – there will be signs todirect you


47June 2015

PwC

Closing remarksFi Dolan


48June 2015

PwC

Industry discussion

How relevant was this session?

1. Very relevant

2. Relevant

3. Somewhat relevant

4. Not at all relevant


49June 2015

PwC

Workshop 1 – Revenue recognition


1. Very relevant

2. Relevant




50June 2015

PwC

OTE Market Update


1. Very relevant

2. Relevant




51June 2015

PwC

What’s new in accounting?


1. Very relevant

2. Relevant




52June 2015

PwC

Workshop 2 – Changing business models and regulations


1. Very relevant

2. Relevant




53June 2015

PwC

Overall, how do you rate the 2015 Global Communications GAAP Summit?

1. Very useful

2. Useful

3. Okay

4. Poor


54June 2015

PwC

If we hold a similar event next year are you or someone from your company likelyto attend?

1. Yes

2. No


55June 2015

PwC

Where would you like the next Global Communications GAAP Summit to be held?

1. Amsterdam2. Brussels3. London4. Munich5. Paris

6. Prague7. Stockholm8. Toronto9. Warsaw


56June 2015

PwC

Thank you

This publication has been prepared for general guidance on matters of interest only, and doesnot constitute professional advice. You should not act upon the information contained in thispublication without obtaining specific professional advice. No representation or warranty(express or implied) is given as to the accuracy or completeness of the information containedin this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, itsmembers, employees and agents do not accept or assume any liability, responsibility or duty ofcare for any consequences of you or anyone else acting, or refraining to act, in reliance on theinformation contained in this publication or for any decision based on it.

© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers toPricewaterhouseCoopers LLP which is a member firm of PricewaterhouseCoopersInternational Limited, each member firm of which is a separate legal entity.

2015 global communications gaap summit · 2016-06-27 · convergence … shapes new networks and...

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