2015 Global Communications GAAP Summit · 2016-06-27 · CONVERGENCE … shapes new networks and...
Transcript of 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
Global Communications GAAP Summit
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
Νο 2 in Mobile2.0m customers
GREECE
Νο 1 in Fixed: 2.7m Lines / 1.4m BB / 0.4m TV
Νο 1 in Mobile7.3m customers
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
Global Communications GAAP Summit
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
Global Communications GAAP Summit
23June 2015
PwC
What’s new in 2015 and beyond?
Global Communications GAAP Summit
24June 2015
PwC
What’s new in 2015?
Not much!
Global Communications GAAP Summit
25June 2015
PwC
Amendments effective this year
Standard Nature of amendment
IAS 19, ‘Employee benefits’ Employee contributions
Annual improvements Various
Global Communications GAAP Summit
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
Global Communications GAAP Summit
27June 2015
PwC
A useful publication
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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.”
Global Communications GAAP Summit
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.”
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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.
Global Communications GAAP Summit
38June 2015
PwC
and
Regulator focus
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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.
Global Communications GAAP Summit
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
Global Communications GAAP Summit
42June 2015
PwC
Investor views on non-GAAP measures
Source: PwC survey, reporting adjusted performance measures July 2014
Global Communications GAAP Summit
43June 2015
PwC
Investor views on non-GAAP measures
Source: PwC survey, reporting adjusted performance measures July 2014
Global Communications GAAP Summit
44June 2015
PwC
Investor views on non-GAAP measures
Source: PwC survey, reporting adjusted performance measures July 2014
Global Communications GAAP Summit
45June 2015
PwC
Lunch – 12:00 – 13:30KG Ballroom at the King George Hotel(next door)
Please be back at 13:30 for theWorkshops
Global Communications GAAP Summit
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
Global Communications GAAP Summit
47June 2015
PwC
Closing remarksFi Dolan
Global Communications GAAP Summit
48June 2015
PwC
Industry discussion
How relevant was this session?
1. Very relevant
2. Relevant
3. Somewhat relevant
4. Not at all relevant
Global Communications GAAP Summit
49June 2015
PwC
Workshop 1 – Revenue recognition
How relevant was this session?
1. Very relevant
2. Relevant
3. Somewhat relevant
4. Not at all relevant
Global Communications GAAP Summit
50June 2015
PwC
OTE Market Update
How relevant was this session?
1. Very relevant
2. Relevant
3. Somewhat relevant
4. Not at all relevant
Global Communications GAAP Summit
51June 2015
PwC
What’s new in accounting?
How relevant was this session?
1. Very relevant
2. Relevant
3. Somewhat relevant
4. Not at all relevant
Global Communications GAAP Summit
52June 2015
PwC
Workshop 2 – Changing business models and regulations
How relevant was this session?
1. Very relevant
2. Relevant
3. Somewhat relevant
4. Not at all relevant
Global Communications GAAP Summit
53June 2015
PwC
Overall, how do you rate the 2015 Global Communications GAAP Summit?
1. Very useful
2. Useful
3. Okay
4. Poor
Global Communications GAAP Summit
54June 2015
PwC
If we hold a similar event next year are you or someone from your company likelyto attend?
1. Yes
2. No
Global Communications GAAP Summit
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
Global Communications GAAP Summit
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.